oversight

The City of Rocky Mount, NC, Did Not Properly Administer Its HOME Investment Partnerships Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-05-02.

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

OFFICE OF AUDIT
REGION 4
ATLANTA, GA




                  City of Rocky Mount, NC

         HOME Investment Partnerships Program




2013-AT-1005                                MAY 2, 2013
                                                        Issue Date: May 2, 2013

                                                        Audit Report Number: 2013-AT-1005




TO:            Gary Dimmick, Director, Greensboro Office of Community Planning and
               Development, 4FD

               //signed//
FROM:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:       The City of Rocky Mount, NC, Did Not Properly Administer Its HOME
               Investment Partnerships Program

    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the City of Rocky Mount, NC’s HOME
program.

    HUD Handbook 2000.06, REV-4, sets specific time frames for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
404-331-3369.
                                         May 2, 2013
                                         The City of Rocky Mount, NC, Did Not Properly
                                         Administer Its HOME Investment Partnerships Program




Highlights
Audit Report 2013-AT-1005


 What We Audited and Why                  What We Found

We audited the City of Rocky Mount,      The City did not properly manage its HOME program.
NC’s HOME Investment Partnerships        It failed to properly monitor its subrecipient, properly
program based on a request from the      manage its community housing development
U.S. Department of Housing and Urban     organization contract, retain some program documents,
Development’s (HUD) Greensboro,          and keep the Integrated Disbursement and Information
NC, Office of Community Planning and     System up to date. These conditions occurred due to
Development. The request expressed       internal control weaknesses such as high employee
several concerns regarding the City’s    turnover and extended vacancies in key positions. As
administration of its HOME program.      a result, the City expended $9,309 for ineligible
Our objective was to determine whether   expenses, could not demonstrate that it used $313,286
HUD’s concerns had merit and whether     for eligible expenses, and failed to keep HUD
the City operated its HOME program in    informed regarding the status of its program.
accordance with requirements.

 What We Recommend

We recommend that HUD’s Greensboro
Office of Community Planning and
Development require that the City
provide assurance that it has put into
place an acceptable internal control
structure for providing appropriate
administration and oversight of its
HOME program activities, including
appropriate staffing and the required
retention of program documents. We
further recommend that HUD require
the City to repay $9,309 in ineligible
expenses and support that it spent
$313,286 on eligible activities.
                          TABLE OF CONTENTS

Background and Objective                                              3

Results of Audit
      Finding: The City Did Not Properly Manage Its HOME Investment   4
               Partnerships Program

Scope and Methodology                                                 9

Internal Controls                                                     11

Appendixes
A.    Schedule of Questioned Costs                                    12
B.    Auditee Comments and OIG’s Evaluation                           13
C.    Subrecipient Deficiencies                                       17




                                          2
                       BACKGROUND AND OBJECTIVE

The HOME Investment Partnerships Program was authorized under Title II of the Cranston-
Gonzalez National Affordable Housing Act, as amended. The U.S. Department of Housing and
Urban Development (HUD) allocates HOME funds by formula to eligible State and local
governments for the purpose of increasing the supply of decent, safe, sanitary, and affordable
housing to low- and very low-income families. State and local governments that become
participating jurisdictions may use HOME funds to carry out multiyear housing strategies through
acquisition, rehabilitation, new housing construction, and tenant-based rental assistance.

Participating jurisdictions are required to commit HOME funds within 24 months and expend them
within 5 years after the last day of the month in which HUD notifies the participating jurisdiction of
its execution of the HOME agreement. Participating jurisdictions draw down HOME funds through
HUD’s Integrated Disbursement and Information System. HUD uses this information system to
monitor and track HOME commitments, program income, repayments, and recaptured funds,
among other things.

The City of Rocky Mount is the lead entity in the Down East HOME Consortium, which in addition
to the City of Rocky Mount, includes 13 other local area jurisdictions. The City of Rocky Mount’s
Office of Community Development is responsible for administering HOME funds in accordance
with HUD requirements. The City is governed by a mayor and a seven-member city council.

HUD has approved more than $2 million in HOME funds for the Down East HOME Consortium
during the past 3 fiscal years.

                        HUD fiscal year               Authorized funds
                            2012                         $507,988
                            2011                          736,315
                            2010                          835,997
                           Total                       $2,080,300

The City contracted with one community housing development organization (CHDO) as part of its
HOME program. A CHDO is a type of nonprofit organization that a participating jurisdiction has
certified as a CHDO under HOME regulations. CHDOs may function as developers, owners, or
sponsors for HOME-funded activities. HUD requires that participating jurisdictions reserve at least
15 percent of their HOME allocations for investment in housing to be developed, sponsored, or
owned by CHDOs.

Our objective was to determine whether the HUD’s concerns had merit and whether the City
administered its HOME program in accordance with requirements.




                                                  3
                                       RESULTS OF AUDIT


Finding: The City Did Not Properly Manage Its HOME Investment
Partnerships Program
The City did not properly manage its HOME Investment Partnerships Program. It failed to
properly monitor its subrecipient, properly manage its CHDO contract, and keep the Integrated
Disbursement and Information System up to date. These conditions occurred due to internal
control weaknesses such as high employee turnover and extended vacancies in key positions.
As a result, the City expended $9,309 for ineligible expenses, could not demonstrate that it used
$313,286 for eligible expenses, and failed to keep HUD informed regarding the status of its
program.


    The City Did Not Properly
    Monitor Its Subrecipient

                  We reviewed all four of the subrecipient-administered HOME-funded projects 1
                  completed during our review period for compliance with HUD requirements. The
                  City allowed its subrecipient to complete these projects, valued at $322,595,
                  without appropriate HOME agreements, environmental reviews, verification of
                  primary residence, and documentation of after-rehabilitation values. Also, in one
                  case, the subrecipient did not properly procure a contract. Because of these
                  deficiencies, the City incurred $313,286 2 in inadequately supported expenditures
                  and $9,309 in ineligible expenditures.

                  Participating jurisdictions are responsible for compliance with HUD requirements
                  when subrecipients administer individual projects; 3 therefore, participating
                  jurisdictions must monitor subrecipient activity at least annually. In addition, the
                  City’s monitoring plan required that it monitor all subrecipient-managed projects
                  at least annually. The subrecipient-managed projects began as early as November
                  2010 and were all completed in mid-2011, but the City did not review the
                  subrecipient or its projects until July 2012. Although the City allowed the
                  subrecipient an opportunity to produce the missing agreements, environmental
                  reviews, primary residence verification, and after-rehabilitation values, the
                  subrecipient was unable to produce this information. The City did not attempt
                  corrective action on these four projects but, instead, elected to administer this
                  subrecipient’s future projects. The same deficiencies noted in the City’s July 6,
                  2012, report were found during our review in December 2012.

1
  The subrecipient administered four homeowner replacement housing projects during our review period.
2
  This unsupported amount represents the total cost of these projects of $322,595 less the ineligible moving costs of
$9,309.
3
  24 CFR (Code of Federal Regulations) 92.504(a) defines participating jurisdiction responsibilities.

                                                          4
                  The City’s Community Development Office employs a HOME coordinator who is
                  responsible for monitoring subrecipient activity. The City attributed the untimely
                  monitoring to turnover and extended vacancies in this position. The HOME
                  coordinator position was vacant from June 2011 to September 2012, about 16
                  months. While turnover and extended vacancies presented difficulties, the City
                  was required to follow HOME program requirements and should have assigned
                  these responsibilities to another staff member. If it had monitored the
                  subrecipient and its activities as required, the City would have had the opportunity
                  to identify and correct the deficiencies described below in a timelier manner.
                  Appendix C of this report provides additional detail.

                  The Subrecipient Did Not Execute Required HOME Agreements
                  The City’s subrecipient did not execute the required written agreements for
                  HOME-funded projects. The subrecipient executed contracts for the work to be
                  completed but did not execute an agreement securing the commitment of program
                  funds to the project. HUD requires 4 a written agreement that specifies the amount
                  of HOME assistance, work to be undertaken, date for completion, and required
                  property standards. Without the required agreements, HUD had no assurance that
                  HOME funds were adequately secured.

                  The Subrecipient Did Not Conduct Environmental Reviews
                  The City’s subrecipient failed to complete environmental reviews before
                  beginning work on the four projects. HUD requires 5 that grantees complete
                  environmental reviews before beginning work on projects pursuant to the
                  National Environmental Policy Act of 1969. HUD would normally consider work
                  completed without an environmental review ineligible; however, HUD found this
                  issue during its July 2012 monitoring review and allowed the City to complete the
                  reviews after project completion. At the conclusion of our fieldwork in January
                  2013, the City had completed the reviews, but HUD had not determined whether
                  the projects created adverse environmental impacts.

                  The Subrecipient Did Not Verify Primary Residence
                  The City’s subrecipient could not document that it verified that the housing it
                  replaced was the primary residence of the participants. HUD requires 6 that the
                  housing be the principal residence of an owner at the time HOME funds are
                  committed.

                  The Subrecipient Did Not Document After-Rehabilitation Values
                  The subrecipient did not properly document its justification for funding housing
                  rehabilitations. To justify a housing rehabilitation, the regulations require that
                  participating jurisdictions document that the estimated value of the property after
                  rehabilitation would not exceed 95 percent of the median home purchase price for


4
  24 CFR 92.504(c)(5)(ii), Participating jurisdiction responsibilities; written agreements; on-site inspection
5
  24 CFR 92.352, Environmental Reviews
6
  24 CFR 92.254(b)(2) explains the primary residence requirement.

                                                           5
                    the area. 7 The subrecipient’s files for completed rehabilitation projects contained
                    no information regarding after-rehabilitation values or a comparison to area
                    median home prices.

                    The Subrecipient Did Not Properly Procure a Contract
                    The City’s subrecipient did not support that it followed procurement requirements
                    for one of the projects. The subrecipient used sealed bids as its method of
                    procurement. It solicited and received bids from potential contractors with the
                    objective of selecting a contractor based on price. In one case, the subrecipient
                    selected a contractor other than the lowest bidder without an explanation. HUD
                    requirements state that if the lowest bidder is not selected, the justification must
                    be noted in the procurement records. 8

                    The Subrecipient Paid Ineligible Moving Expenses
                    The City allowed a subrecipient to expend $9,309 on ineligible moving expenses
                    for its housing replacement projects. The City’s annual action plans covering our
                    audit period specified that participants would provide their own moving expenses
                    as a match for the HOME funds. However, the subrecipient paid homeowners
                    both actual moving expenses and a set moving allowance based on the home size.
                    Both homeowner payments for moving expenses were ineligible, and the City
                    must repay the $9,309.

    The City Mismanaged a CHDO
    Contract

                    The City executed one CHDO contract during our review period. The $333,600
                    contract required the CHDO to build two duplexes in Rocky Mount, NC. HUD
                    reviewed this contract during a July 2012 monitoring visit and found that although
                    the CHDO had fully expended the entire $83,600 allocated for contract
                    administration, it had not begun constructing the housing units and its contract
                    had expired the previous month, on June 30, 2012.

                    The City returned the $83,600 to HUD via wire transfer on December 21, 2012,
                    and canceled the activity in HUD’s Integrated Disbursement and Information
                    System on January 17, 2013. The City stated that the construction delay leading
                    to the contract’s expiring occurred because it was waiting for Neighborhood
                    Stabilization Program 3 money from the State of North Carolina so that it could
                    build more than the two duplexes through the CHDO contract.

                    We attempted to review the documentation supporting the City’s selection of this
                    CHDO, but the City had been unable to locate this information as of the
                    conclusion of our fieldwork on January 18, 2013. The City attributed the missing
                    documentation to employee turnover. The community development administrator

7
    24 CFR 92.254(b)(1) explains the after-rehabilitation value requirement.
8
    24 CFR 85.36(b)(9), Procurement

                                                           6
                 position responsible for maintaining the information experienced high turnover
                 during our review period. Three different individuals filled this position from
                 January 2010 to September 2012.

                 Since the City had returned the $83,600 and canceled the contract, there were no
                 questioned costs; however, HUD should require the City to ensure that future
                 contract records are maintained and available for review.

    The City Did Not Update the
    Integrated Disbursement and
    Information System

                 We reviewed 5 9 of the 20 HOME-funded projects that the City completed during
                 our review period for compliance with HUD’s Integrated Disbursement and
                 Information System requirements. The purpose of this system is for participating
                 jurisdictions to set up program activities, draw funds, and record completed
                 activities. HUD also uses the information in the system to monitor the use of
                 HOME funds and the progress of individual activities. We reviewed the five
                 projects to determine whether the reported commitments were supported by an
                 executed written agreement, the commitment dates were accurate, and the
                 commitment amounts were accurate. Although the City had properly executed
                 written agreements and had properly entered commitment amounts into the
                 system, it had reported inaccurate commitment and completion dates for all five
                 projects.

                 HUD requires that participating jurisdictions enter complete project information
                 into the system within 120 days of final drawdown or be subject to corrective
                 actions. 10 For all five projects reviewed, the initial funding and completion dates
                 that the City submitted were more than 120 days late. For example, in one case,
                 the City reported an initial funding date of February 20, 2012, while the actual
                 date was November 10, 2010. For the same project, the City reported a project
                 completion date of February 21, 2012, 288 days after May 9, 2011, the date the
                 project was completed.

                 The City attributed this deficiency to turnover and extended vacancy in its finance
                 director position. It assigned its Community Development Department’s finance
                 director to enter the project information into the Integrated Disbursement and
                 Information System. The finance director was the only employee with access to
                 the system, and the system access information could not be shared among
                 employees. During our audit period, the finance director position was vacant for
                 about 8 months, from January to August of 2011. While outside our audit period,
                 the finance director position was again vacant starting in October 2012 and was

9
  Three of the five projects were administered by the City, and the remaining two were administered by a
subrecipient.
10
   24 CFR 92.502(d), Program disbursement and information system

                                                         7
             still vacant at the completion of our fieldwork in January 2013. The City stated
             that it was difficult to attract qualified candidates to these positions due to Rocky
             Mount’s distance from major cities and the modest salaries that it could offer for
             the positions.

Conclusion

             The City did not properly manage its HOME program. It failed to properly
             monitor its subrecipient, properly manage its CHDO contract, and keep the
             Integrated Disbursement and Information System up to date. These conditions
             occurred due to internal control weaknesses such as high employee turnover and
             extended vacancies in key positions. As a result, the City expended $9,309 for
             ineligible expenses, could not demonstrate that it used $313,286 for eligible
             expenses, and failed to keep HUD informed regarding the status of its program.

Recommendations

             We recommend that the Director of the Greensboro Office of Community Planning
             and Development

             1A.    Require the City to provide assurance that it has put into place an
                    acceptable internal control structure for providing appropriate
                    administration and oversight of its HOME program activities, including
                    appropriate staffing and the required retention of program documents such
                    as contracting documentation.

             1B.    Require the City to support that the $313,286 expended on HOME projects
                    without the necessary written agreements, an environmental review,
                    demonstration of primary residence, or documentation of after-rehabilitation
                    value was spent on eligible and supported expenses or repay the amount
                    from non-Federal funds.

             1C.    Require the City to repay from non-Federal funds the $9,309 that its
                    subrecipient expended on ineligible moving expenses.

             1D.    Require the City to keep the Integrated Disbursement and Information
                    System updated as mandated by HUD’s requirements and determine whether
                    any corrective action is necessary for the prior inaccurate submissions.




                                               8
                        SCOPE AND METHODOLOGY

The HUD Greensboro, NC, Office of Community Planning and Development requested that we
review the City of Rocky Mount, NC’s administration of its HOME Investment Partnerships
Program. The request expressed concerns regarding a specific CHDO contract and the City’s
procurement practices for HOME-funded projects. Our objective was to determine whether the
HUD concerns had merit and whether the City operated its HOME program in accordance with
requirements.

We performed our onsite work from November 6, 2012, through January 18, 2013, at the City’s
administrative offices located at 331 South Franklin Street, Rocky Mount, NC. The review
generally covered the period January 1, 2010, through September 30, 2012, and was expanded as
determined necessary.

To accomplish our objective, we reviewed

   •   HOME regulations at 24 CFR (Code of Federal Regulations) Part 92; financial
       management requirements at 24 CFR 85.20; procurement requirements at 24 CFR 85.36;
       Office of Community Planning and Development (CPD) submission requirements at 24
       CFR Part 91; HUD Handbook 6509.2, REV-4 (CPD Monitoring Handbook); and HUD
       Notices CPD 07-06 (Deadlines), 97-09 (Program Income, Repayments, and CHDO
       Proceeds), and 97-11 (CHDO).

   •   The City’s accounting records, audited financial statements for 2010 and 2011, general
       ledgers, invoices, employee listings, organizational chart, HOME project records, and
       procurements records; HUD management reviews; and Integrated Disbursement and
       Information System reports.

We interviewed the City’s current and former community development administrators, HOME
coordinator, and internal auditor and the Greensboro Office of Community Planning and
Development staff members involved with the oversight of the City’s HOME program. We
selected several nonstatistical samples as described below. The results from these samples apply
only to the sampled items and were not projected to the universe as a whole.

   •   We reviewed a random sample of 5 of the 20 (25 percent) HOME-funded projects during
       our review scope to determine compliance with program objectives, accuracy of
       information submitted to the Integrated Disbursement and Information System, and
       compliance with cost allowability and procurement requirements.

   •   We reviewed all four of the subrecipient-administered projects during our review period
       for compliance with HOME program requirements.

We tested electronic data relied upon during the performance of the various review steps. We
conducted tests and procedures to ensure the integrity of computer-processed data that were
relevant to our audit objective. The tests included but were not limited to comparisons of
                                               9
computer-processed data to invoices and other supporting documentation. We found the data to
be generally reliable.

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. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                              10
                              INTERNAL CONTROLS

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

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

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


 Relevant Internal Controls

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

               •    Compliance with applicable laws and regulations – Policies and procedures to
                    ensure that resource use is consistent with laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiency

               Based on our review, we believe that the following item is a significant deficiency:

               •    The City failed to comply with HUD’s requirements for the administration of
                    its HOME program (see finding).




                                                 11
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                 Recommendation
                         number          Ineligible 1/      Unsupported 2/
                      1B                                         $313,286
                      1C                          $9,309        ________
                     Total                        $9,309         $313,286


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.




                                             12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         13
Comment 2




Comment 2




Comment 2




            14
15
                         OIG Evaluation of Auditee Comments

Comment 1   We thank the City of Rocky Mount, NC, for its professionalism and cooperation
            during the course of our review. We agree that the amount of ineligible costs is
            small on a percentage basis; however, the total questioned costs of $322,595
            represents approximately 16 percent of the HOME funds awarded during our
            audit period. As stated in the report, these costs pertain only to sampled items; we
            did not project them to the universe as a whole.

Comment 2   The City stated that it accepts responsibility for the deficiencies and findings
            noted in our report and has taken, or plans to take, various actions to address
            them. While the HUD Greensboro Field Office will make the final determination
            of required action to address these recommendations, and timelines for these
            actions, we commend the City for accepting responsibility for the findings and its
            willingness to make changes to address these deficiencies and improve the future
            of its HOME program.




                                             16
Appendix C

                     SUBRECIPIENT DEFICIENCIES

     Deficiency                                Project A   Project B   Project C   Project D   Totals
        No HOME agreement                         X           X           X           X
        No environmental review                   X           X           X           X
        No verification of primary residence      X           X           X           X
        No documentation of after-
        rehabilitation value                      X           X           X           X
        Improper procurement                      X
        Ineligible moving expenses                X           X           X           X
     Total expended on project                  $86,154     $78,403     $75,597     $82,441    $322,595
     Ineligible amount                           $2,887      $2,241      $2,241      $1,940      $9,309
     Unsupported amount                         $83,267     $76,162     $73,356     $80,501    $313,286




                                                17