oversight

City of West Palm Beach Did Not Always Properly Administer Its HOME Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-30.

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

OFFICE OF AUDIT
REGION 4
ATLANTA, GA




    City of West Palm Beach, West Palm Beach, FL

         HOME Investment Partnerships Program




2013-AT-1008                           SEPTEMBER 30, 2013
                                                        Issue Date: September 30, 2013

                                                        Audit Report Number: 2013-AT-1008




TO:            Ann D. Chavis, Director of Community Planning and Development, Miami Field
               Office, 6DD

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

SUBJECT:       The City of West Palm Beach Did Not Always Properly Administer Its HOME
               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 West Palm Beach’s
administration of the HOME Investment Partnerships Program authorized under the National
Affordable Housing Act.

    HUD Handbook 2000.06, REV-4, sets specific timeframes 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.
                                         Date of Issuance: September 30, 2013
                                         The City of West Palm Beach Did Not Always Properly
                                         Administer Its HOME Program




Highlights
Audit Report 2013-AT-1008


 What We Audited and Why                  What We Found

We audited the City of West Palm         The City did not always administer its HOME program
Beach’s HOME Investment                  in accordance with applicable HUD requirements.
Partnerships Program. The City was       Specifically, it did not properly commit HOME funds
selected for review because (1) our      or accurately report activity information in HUD’s
audit plan included audits of HOME       Integrated Disbursement and Information System
grantees, (2) the U.S. Department of     (IDIS). These conditions occurred because the City
Housing and Urban Development’s          did not enforce HUD’s 24-month commitment
(HUD) Miami Office of Community          deadline requirement and did not have effective
Planning and Development ranked the      procedures to ensure that it reported current and
City as high risk in its 2012 risk       accurate information in IDIS. This deficiency resulted
assessment, and (3) the most recent      in $559,289 in HOME funds not being properly
HUD monitoring review in 2012            committed because activities were committed after the
identified concerns with the City’s      24-month deadline, and two activities totaling $1
administration of the HOME program.      million were canceled, but the funds were not made
Our objective was to determine whether   available for other eligible HOME activities.
the City administered its HOME
program in accordance with applicable      In addition, the City did not ensure that it charged
HUD requirements.                          adequately supported and eligible expenditures to the
                                           program. These expenditures were related to project
                                           delivery and operating costs. This condition occurred
  What We Recommend
                                           because City staff did not exercise due care in
                                           reviewing and supporting the City’s expenditures. As
We recommend that the Director of the a result, the City charged the HOME program more
Miami Office of Community Planning than $1.2 million in unsupported costs and $229,777 in
and Development require the City to (1) ineligible costs.
recapture $559,289 in HOME funds that
it did not commit by the 24-month
statutory deadline, (2) reprogram
$988,272 in canceled activity funds and
determine whether $11,728 drawn down
was for eligible expenditures, (3) provide
support or reimburse its program more
than $1.2 million for unsupported
expenditures from non-Federal funds,
and (4) reimburse $229,777 in ineligible
costs from non-Federal funds.
                            TABLE OF CONTENTS

Background and Objective                                                          3

Results of Audit
      Finding 1: The City Did Not Properly Commit and Accurately Report           4
                 HOME Funds
      Finding 2: The City Did Not Ensure That It Charged Supported and Eligible
                 Expenditures to the HOME Program                                 7

Scope and Methodology                                                             14

Internal Controls                                                                 16

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use              17
B.    Auditee Comments and OIG’s Evaluation                                       18
C.    Information Improperly Reported in IDIS                                     23




                                            2
                          BACKGROUND AND OBJECTIVE

The City of West Palm Beach has been an entitlement City since 1974, receiving annual allocations
of HOME Investment Partnerships Program funds from the U.S. Department of Housing and Urban
Development (HUD). Authorized under the National Affordable Housing Act, as amended, HUD
allocates funds by formula among eligible State and local governments to strengthen public-private
partnerships and to expand the supply of decent, safe, sanitary, and affordable housing.
Participating jurisdictions may use HOME funds to carry out multiyear housing strategies through
acquisition, rehabilitation, and new construction of housing and tenant-based rental assistance. To
assist in achieving these purposes, participating jurisdictions must designate a minimum of 15
percent of their HOME allocations for investment in housing to be developed, sponsored, or
owned by community housing development organizations (CHDO). A CHDO is a private
nonprofit, community-based service organization, the primary purpose of which is to provide and
develop decent, affordable housing for the community it serves. All certified CHDOs must
receive a certification from a participating jurisdiction indicating that they meet certain HOME
program requirements and are, therefore, eligible for HOME funding.

During fiscal years 2009 through 2012, HUD allocated more than $2.3 million in HOME funds to
the City. The City’s HOME program is administered by its Housing and Community Development
Department. Over the past 3 years, the Department has experienced high staff turnover and decline;
staff went from a total of 19 to 4 employees. Since 1998, the Department has had eight different
directors. The City explained that it had challenges in finding an experienced director. As a result,
on April 16, 2012, it hired the Community Redevelopment Associates of Florida, Inc., to provide
technical oversight to the Department and administer its housing programs.

During the last 2 years, the City has been highly scrutinized due to recent allegations that it lacked
oversight of its Coleman Park housing project, which was administered by one of its CHDOs. This
project involved four phases, for which the City provided more than $2.5 million in HOME funds.
Its objective was to acquire, develop, or acquire and develop properties in the Coleman Park area to
sell to low- and moderate-income persons. Some of these funds were also used to assist first-time
home buyers. In June 2011, the City monitored its Coleman Park housing project and identified
serious deficiencies and concerns with the project. The City requested additional information from
its CHDO to clear its findings and concerns. The City obtained additional documentation from the
CHDO; however, the staff that conducted the review left the City in the middle of the process, and
the documentation may not have been reviewed.

Our objective was to determine whether the City administered its HOME program in accordance
with applicable HUD requirements. Specifically, we wanted to determine whether the City (1)
properly committed HOME funds and accurately reported information in HUD’s Integrated
Disbursement and Information System (IDIS) 1 and (2) ensured that expenditures of HOME
funds were allowable.

1
 IDIS is a nationwide database that provides HUD with current information regarding program activities across the
nation, including funding data. HUD uses this information to report to Congress and to monitor grantees. The
system allows grantees to request their grant funding from HUD and report on what is accomplished with these
funds.

                                                        3
                              RESULTS OF AUDIT


Finding 1: The City Did Not Properly Commit and Accurately Report
HOME Funds
The City did not properly commit HOME funds and did not accurately report activity
information in IDIS. This condition occurred because the City did not enforce HUD’s 24-month
commitment deadline requirement and did not have effective procedures to ensure that it reported
current and accurate information in IDIS. As a result, $559,289 in HOME funds was not properly
committed, and two activities totaling $1 million were canceled, but the funds were not made
available for other eligible HOME activities.


 Funds Improperly Committed

              The City committed more than $2.1 million in HOME funds to 21 activities
              between October 1, 2009, and April 23, 2013. To ensure that the City adequately
              committed HOME funds, we reviewed 14 activities that had commitments of
              more than $1.9 million. According to the Office of Community Planning and
              Development’s (CPD) Notice CPD 07-06, the commitment deadline occurs 24
              months after the last day of the month in which HUD notifies the participating
              jurisdiction of HUD’s execution of the HOME agreement or the congressional
              release date.

              Six of the fourteen activities reviewed were committed after the 24-month
              deadline. The City committed a total of $559,289 for the six activities.

                      Commitment
                                            Actual
           Activity     due date                           Committed    Drawn        Remaining
     No.                               agreement date
             no.       (24-month                            amount      down          balance
                                       (obligation date)
                        deadline)
      1      670       10/31/2009        11/06/2009        $250,000    $146,274      $103,726
      2      704       11/31/2008        04/13/2010        $120,000    $120,000         $-
      3      768       10/31/2009        11/21/2011         $37,527     $37,527         $-
      4      769       10/31/2009        11/21/2011         $39,837     $39,837         $-
      5      770       10/31/2009        11/21/2011         $47,159     $47,159         $-
      6      776       10/31/2009        07/09/2012         $64,766     $11,420       $53,346
              Total amount of commitments past deadline    $559,289    $402,217      $157,072

              This condition occurred because the City lacked due diligence in ensuring that it
              enforced the 24-month HOME deadline. As a result, $402,217 drawn down on
              the improperly committed funds was ineligible. The remaining $157,072 should
              be recaptured.



                                                  4
Canceled Activities Not Reported


            The City canceled two activities but did not adequately report the cancellations in
            IDIS. HOMEfires - Vol. 6 No. 1, dated August 2005, requires participating
            jurisdictions to periodically review the status of all projects in the system and
            identify those that need to be canceled. The City canceled activities 750 and 777
            totaling $1 million but did not report these cancellations in IDIS.

                 No.             Activity no.          Committed amount
                 1.                  750                   $555,445
                 2.                  777                   $444,555
                    Total of canceled activities          $1,000,000

            Based on the agreement between the City and the developer, activities 750 and
            777 involved the development of eight single-family scattered-site units on City-
            owned lots. The City’s consultant explained that although the City terminated its
            agreement with the developer in 2012, it did not cancel the activities because it
            planned to continue undertaking the project. However, little progress had been
            made since the agreement was canceled. The consultant stated that the City had
            drawn down $11,728 for predevelopment costs. It planned to send an invitation to
            bid to general contractors and expected to have a new contractor and obligate
            funds by September 30, 2013. According to 24 CFR (Code of Federal
            Regulations) 92.205(e), a HOME-assisted project that is terminated before
            completion, either voluntarily or otherwise, constitutes an ineligible activity.
            Therefore, since the City did not have a contractor to undertake the project, it did
            not have a valid commitment. As a result, the committed amount was overstated
            in IDIS by $988,272. These funds should be reprogrammed to other eligible
            HOME activities. Consequently, HUD was misled regarding the City’s
            enforcement of its commitment deadline.

Inaccurately Reported Activity
Information

            The City entered inaccurate activity information into IDIS, such as the
            commitment date, activity address, and amount. Of the 14 activities reviewed, the
            committed

            •   Date reported in IDIS did not agree with the executed written agreement date
                for 14 activities;
            •   Activity address reported in IDIS differed from the address in the executed
                written agreement for 6 activities; and
            •   Amount reported in IDIS for 1 activity did not correspond with the amount in
                the executed written agreement (see appendix C for a listing of activities).




                                                   5
Conclusion

             The City did not adequately commit HOME funds and did not accurately report
             activity information in IDIS. Some factors that contributed to these occurrences
             included that the City did not (1) enforce HUD’s 24-month commitment deadline
             requirement and (2) have effective procedures to ensure that it entered accurate
             and current information into IDIS. The City did not provide a reason why these
             deficiencies occurred since the staff members responsible for committing and
             reporting funds were no longer employed by the City. One employee who
             temporarily worked on reporting the funds indicated that a lack of knowledge,
             caring, oversight, and training may have contributed to these issues. As a result,
             $559,289 in HOME funds was not properly committed by the 24-month deadline,
             and two activities totaling $1 million were canceled, and the funds were not made
             available for other eligible HOME activities. In addition, the incorrect
             information reported in IDIS undermined the integrity of HUD’s information
             system and HUD’s efforts to monitor the City’s compliance with HOME program
             requirements.

Recommendations

             We recommend that the Director of the Miami Office of Community Planning and
             Development require the City to

             1A.    Reimburse the U.S. Treasury $402,217 in ineligible costs from non-
                    Federal funds for activities 670, 704, 768, 769, 770, and 776, that the City
                    did not commit by the 24-month statutory deadline.

             1B.    Recapture $157,072 in remaining HOME funds for activities 670 and 776
                    that the City did not commit by the 24-month statutory deadline.

             1C.    Reprogram $988,272 committed for canceled activities and make funds
                    available for other eligible HOME activities.

             1D.    Determine whether $11,728 drawn down for those canceled activities was
                    for supported and eligible expenditures.

             1E.    Establish and implement procedures to ensure that future HOME funds are
                    committed by the required deadline, ensure the accuracy of information
                    entered into IDIS, and take appropriate action to promptly correct detected
                    violations.

             1F.    Train staff regarding HUD’s documentation and entry requirements for
                    commitments entered into IDIS.




                                              6
Finding 2: The City Did Not Ensure That It Charged Supported and
Eligible Expenditures to the HOME Program
The City did not ensure that it charged supported and eligible expenditures to the HOME
program. These unsupported and ineligible costs were related to project delivery and operating
expenditures. In some instances, the support provided was insufficient to determine what
services were paid for, and the ineligible expenditures included unauthorized payments to board
members. This condition occurred because City staff did not exercise due care in reviewing and
supporting the City’s expenditures. As a result, the City charged unsupported and ineligible
costs totaling more than $1.4 million to the HOME program.



 Unsupported and Ineligible
 Project Costs

              The City did not ensure that expenditures of more than $1.4 million were
              adequately supported and eligible. Regulations at 24 CFR 92.508 require that
              each participating jurisdiction maintain sufficient financial records identifying the
              source and application of funds for each fiscal year, including supporting
              documentation.

              We selected 14 transactions involving project-related costs. Our review disclosed
              that the City charged unsupported and ineligible project costs of more than $1.1
              million.

              Activities 429,526, and 637 - Coleman Park Infill Project

              The Coleman Park project consisted of four phases that were administered by the
              City’s CHDO. The CHDO was reimbursed approximately $2.4 million in HOME
              funds for acquiring land, constructing homes, and assisting first-time home
              buyers.

              The City did not have adequate documentation to support expenditures of more
              than $1 million. For example, the documentation provided for activities 429 and
              526 did not identify the properties assisted or the work performed.

              The City also paid $93,862 for ineligible project costs. For instance, activity 637
              included ineligible costs for a 2009 land acquisition that according to county
              records was never sold. The only documentation supporting this payment, as well
              as other similar transactions, was a vacant land contract. This documentation was
              insufficient because it did not confirm that a sale occurred or the final sales price.

              This condition occurred due to the City’s lack of due care when reviewing and
              approving expenditures. The City’s 2011 monitoring report on this project found

                                                7
 similar issues of ineligible and unsupported costs. In response to this report, the
 CHDO provided written comments confirming that there were some ineligible
 and unsupported costs. The City said that it had not reviewed the CHDO’s
 response and supporting documents and did not know whether prior staff had
 reviewed these documents. According to 24 CFR 92.508(6)(iii), participating
 jurisdictions are required to document monitoring reviews and the resolution of
 any findings or concerns.

 Activity 699 - Rental Housing Rehabilitation

 The City reimbursed $53,618 to the owner-contractor of this rehabilitation
 project. The property owner acted as the contractor for his property. HUD stated
 that this arrangement was allowed provided that the City followed regulations at
 24 CFR 85.36, requiring that all procurement transactions be conducted in a
 manner providing full and open competition. The City’s Rental Rehab Program
 requires that the property owner obtain a minimum of three bids from qualified
 contractors. The file did not show that the City procured a contractor; rather, it
 contained a note from the owner-contractor informing the City that he would act
 as the contractor of this project. The City did not ensure that it conducted a
 procurement that provided for full and open competition. Therefore, the
 expenditure of $53,618 was ineligible. In addition, the City paid $1,000 of the
 $53,618 to furnish and install a flagpole, which was not an allowable cost.

 Further, the contract stated that the City did not assume responsibility or liability
 for the performance or the quality of the work performed. HUD stated that the
 City was ultimately responsible for the work product and could not be released
 from its responsibilities. City staff agreed that it was the City’s responsibility to
 ensure the quality of the work product. The table below summarizes the
 questioned project costs.

Activity   Voucher no.               Ineligible costs            Unsupported     Total
  no.      - invoice no.   Double     Incomplete Improperly         costs      questioned
                           billed        sales        procured                   costs
                                      transaction
  429       9/29/04-1         $0           $0            $0       $160,560      $160,560
              1/5/05          $0           $0            $0       $157,800      $157,800
             2/16/05          $0           $0            $0       $157,800      $157,800
           2005-4-8A          $0           $0            $0       $195,495      $195,495
  526      2007/11/4a       $4,363         $0            $0       $340,366      $344,729
  637       5095340           $0        $28,500          $0        $4,500        $33,000
            5095357        $60,999         $0            $0          $0          $60,999
  699       5095356           $0           $0         $30,465        $0          $30,465
            5095329           $0           $0         $23,153        $0          $23,153
              Total        $65,362      $28,500       $53,618    $1,016,521    $1,164,001




                                       8
      Remaining Funds


                        The City did not ensure that $42,950 in HOME funds was spent by the
                        expenditure deadline. According to 24 CFR 92.500(d)(1)(C), HUD will reduce or
                        recapture any funds in the United States Treasury account that are not expended
                        within 5 years after the last day of the month in which HUD notifies the
                        participating jurisdiction of HUD’s execution of the HOME agreement.
                        According to IDIS, activities 523, 526, and 637 had remaining balances of
                        $9,508, $12,441, and $21,001 respectively, that were not spent by the 5-year
                        expenditure deadline. Activity 523 had an expenditure deadline of October 31,
                        2009, activity 526 had an expenditure deadline of October 31, 2010, and activity
                        637 had an expenditure deadline of October 31, 2012. As of July 31, 2013, the
                        remaining balances for both activities had not been spent and must be recaptured.

                        In addition, the City did not reprogram the remaining funds for a completed
                        activity. City staff confirmed that activity 699 was completed and had remaining
                        funds of $28,282. Based on HUD’s open activities report, 2 this activity had not
                        had drawdowns since April 2010, or in 1,164 days. In HUD’s monitoring report,
                        it required the City to update the status of all outstanding activities in IDIS.
                        Therefore, since the project was complete, these funds must be reprogrammed to
                        other eligible HOME activities and put to better use.

                              Activity #            Funded amount                  Drawn amount                Remaining balance
                                523                    $628,713                       $619,205                      $9,508
                                526                    $654,000                       $641,559                     $12,441
                                637                    $200,000                       $178,999                     $21,001
                                699                     $81,900                        $53,618                     $28,282
                               Total                  $1,564,613                     $1,493,381                    $71,232


      Unsupported and Ineligible
      CHDO Administrative and
      Operating Costs

                        The City’s CHDO also received $89,082 in operating and administrative funds to
                        manage the Coleman Park project. For activities 476 and 546, the City paid
                        approximately $29,000 for salaries of the CHDO’s chief executive and operating
                        officers, who were also CHDO board members. The chief executive officer was
                        also a founder of the nonprofit organization. According to 24 CFR 92.2, a CHDO
                        is a private nonprofit organization that has no part of its net earnings benefiting
                        any member, founder, contributor, or individual. Consequently, the CHDO’s
                        status was lost because it no longer met the CHDO requirements once it made
                        salary payments to its board members. As a result, the nonprofit organization was
                        not eligible to receive $29,082 in HOME operating funds.


2
    HUD publishes in its Web site IDIS HOME open activities reports; this report contained information through June 30, 2013.

                                                                        9
         In one case, the City provided $30,000 in CHDO operating funds from the City’s
         administrative funds under activity 672. The City reimbursed the nonprofit
         organization’s salary expenses, which were not adequately supported. The only
         documents provided were copies of checks the CHDO provided to its staff. It
         provided no documentation showing the hours worked or the rate of pay.
         Therefore, these expenditures were unsupported.

         The City had another CHDO administer activity 524. The file included copies of
         checks and pay stubs it provided to its staff. The file also contained a letter from
         the CHDO requesting $31,904 in operating funds, which included $31,008 in staff
         salaries from 2006 to 2008. The staff was composed of a chief operating officer,
         chief financial officer, and vice president of programs, who were also CHDO
         board members. As stated above, the payments to CHDO board members were
         ineligible, resulting in the nonprofit organization’s losing its CHDO status.
         Therefore, it was not eligible to receive $48,673 in CHDO operating funds.

                  Activity no.   Voucher no.       Ineligible    Unsupported
                                  invoice no.
                     476            02/16/05         $7,500          $0
                                    02/09/05         $7,582          $0
                     546            01/11/06        $14,000          $0
                     672            5095341            $0          $30,000
                           Subtotal                 $29,082        $30,000
                   Coleman Park infill project
                     524            Various         $48,673          $0
                                      Total         $77,755        $30,000

         The City was unable to explain why these issues occurred since the staff
         responsible for these activities no longer worked for the City. The City’s
         consultant indicated that it had assessed the City’s current operations to determine
         areas that needed improvement. One of the areas in need of improvement was
         ensuring that costs were allowable and adequately supported. The City’s
         consultant indicated that it was working with the City to strengthen its controls to
         ensure that expenditures were eligible and adequately supported.

Overdrawn HOME Funds

         The City did not ensure that it drew down accurate amounts for reimbursement.
         Based on IDIS, the City drew down more than $1.4 million for activity 429;
         however, the general ledger indicated total expenditures of $4,542 less than that
         reported in IDIS. The City noted in its general ledger that the difference was due
         to overstated permit and water expenditures. According to 24 CFR 85.20(b)(1)
         and (3), effective control and accountability must be maintained. The information
         reported to HUD must be accurate, current, and complete.

         The City’s general ledger also showed that it paid $34,571 for permits, meter
         installs, and water expenditures for activities 429 and 526. However, the general

                                          10
     ledger did not describe the properties the expenditures applied to or how the
     amounts were determined. The City was not able to provide the supporting
     documentation and stated that it would try to obtain it from other City
     departments.

     The City also overdrew HOME funds for activity 524 related to CHDO operating
     expenses. According to IDIS, the City drew down $48,673, while its general
     ledger indicated expenditures of $46,158. The City agreed that it overdrew
     $2,515 in HOME funds. Since the nonprofit paid its board members, the total
     amount of CHDO operating funds drawn down, including the $2,515 in
     overdrawn funds, was ineligible (see Unsupported and Ineligible CHDO
     Administrative and Operating Costs above.)

     According to its consultant, the City was reconciling information in its financial
     management system to HUD’s information system. The consultant’s status report
     indicated that reconciliations between the City’s financial information system and
     HUD’s system had not been completed for years. As a result, the City overdrew
     HOME funds of $7,057. The City should continue to perform reconciliations and
     implement a process for reconciliation.

Other Reporting Concerns

     In response to questions regarding the reporting deficiencies, the City provided a
     status report it used to update HUD. Based on our limited review, the list
     identified areas of concern. Specifically, the list indicated that lead-based testing
     was not conducted or that the activity needed to be transferred out of the HOME
     program.

      No.     IDIS       Drawn                  According to City reports
               no.       amount
                                    Activity needs to be   No evidence of lead-based
                                     transferred out           testing conducted
       1       675      $ 25,000             X                          X
       2       697      $ 40,000             X
       3       701      $ 80,000             X
       4       702      $ 8,950              X                         X
              Total     $153,950

     The City indicated that it did not know whether the activities were moved because
     many of the staff members associated with the report were no longer employed by
     the City. However, the City stated that it would conduct further research. In
     addition, the City explained that in many instances, there was a lack of
     coordination among various sections within the Housing and Community
     Development Department. As a result, $153,950 was unsupported, and the City
     must provide documentation to show whether the costs were eligible.




                                       11
  Conclusion

                     The City did not ensure that it charged supported and eligible expenditures to the
                     HOME program. These unsupported and ineligible costs were related to project
                     delivery and CHDO operating and administrative expenditures. In some
                     instances, the support provided was insufficient to determine what services were
                     paid, and the ineligible expenditures included payments to CHDO board
                     members. This condition occurred because City staff did not exercise due care in
                     reviewing and supporting the City’s expenditures. As a result, the City charged
                     more than $1.4 million in unsupported and ineligible costs to the HOME program.

  Recommendations


                     We recommend that the Director of the Miami Office of Community Planning
                     and Development require the City to

                     2A.        Provide supporting documentation or reimburse its program $1,081,092 in
                                unsupported expenditures related to activities 429, 526, 637, and 672 from
                                non-Federal funds.

                     2B.        Reimburse $225,235 in ineligible costs related to activities 476, 524, 526,
                                546, 637, and 699 from non-Federal funds.

                     2C.        Reprogram $28,282 in remaining funds for completed activity 699 and
                                deobligate $42,950 from activities 523,526 and 637 since it did not expend
                                funds by the 5-year deadline.

                     2D.        Review the status of its open activities and determine whether the projects
                                are completed. The City should also update IDIS and ensure that HOME
                                funds allocated to any activities with remaining funds are reprogrammed
                                or deobligated if the funds were not spent by the 5-year deadline.

                     2E.        Reimburse $4,542 in HOME funds overdrawn from non-Federal funds. 3

                     2F.        Maintain supporting documentation and implement controls over
                                disbursements that are sufficient to ensure compliance with applicable
                                regulations.

                     2G.        Amend all present and future contracts to ensure the City accepts
                                responsibility for the performance and quality of the work performed.



3
  The City overdrew $2,515 in HOME funds under activity 524; however, we did not include this amount since we questioned all funds for this
activity in recommendation 2B.

                                                                     12
2H.   Review and reconcile its information regarding the Coleman Park infill
      project and determine the results of its monitoring review.

2I.   Provide supporting documentation for activities 675, 697, 701, and 702 to
      show whether they were eligible HOME activities or reimburse its program
      $153,950 from non-Federal funds.




                              13
                         SCOPE AND METHODOLOGY

We performed the review from April through July 2013 at the City’s Housing and Community
Development Department office located at 401 Clematis Street, third floor, West Palm Beach,
FL. Our review generally covered the period October 1, 2009, to March 31, 2013, and was
expanded as necessary.

To accomplish our objective, we

   •   Reviewed relevant HUD regulations,

   •   Reviewed relevant City policies and procedures,

   •   Interviewed officials of the Miami HUD Office of Community Planning and
       Development and the City,

   •   Reviewed IDIS reports,

   •   Reviewed City financial records related to program expenditures, and

   •   Reviewed City activity files and records.

During the period October 1, 2009, to April 23, 2013, the City committed more than $2.1 million in
HOME funds for 21 activities. We selected and reviewed 14 activities that had commitments of
more than $1.9 million based on high dollar amounts, current commitments, and activities with
the same property address. Our selection represents 94 percent of total commitments during our
scope period.

In addition, the City had drawdowns totaling more than $1.5 million with a total of 74 completed
transactions during our scope period of October 1, 2009, through March 31, 2013. To make our
selection, we used the IDIS drawdown report by voucher and selected nine transactions with
expenditures of approximately $694,130 for review of cost allowability. These transactions were
selected based on high dollar amount, activities that were slow in progress, and a minimum of
one transaction according to activity type. Since most of the expenditures questioned in the
survey phase were related to the Coleman Park project phases III and IV, which were
administered by the City’s CHDO, we expanded our review of expenditures to phases I and II of
this project during the audit phase. The City drew down more than $2 million in HOME funds
for phases I and II of the Coleman Park project. We attempted to select transactions using IDIS
drawdown reports; however, the City was not able to reconcile the transactions in its general
ledger to an IDIS voucher number. Using the City’s general ledger, we selected nine
transactions based on high dollar amounts, suggestions made by HUD, and all expenditures
associated with the CHDO’s operating funds. We reviewed expenditures of more than $1
million, or 50.4 percent of the total drawdowns for these phases.




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The results of this audit apply only to the items reviewed and cannot be projected to the universe
of activities.

We determined that computer-processed data generated by the City were not used to materially
support our audit findings, conclusions, and recommendations. Thus, we did not assess the
reliability of its computer-processed data.

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.




                                                15
                              INTERNAL CONTROLS

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

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

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


 Relevant Internal Controls

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

               •   Controls over program operations;
               •   Controls over compliance with laws and regulations; and
               •   Controls over the safeguarding of resources against waste, loss, and misuse.

               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 did not comply with HUD requirements by not ensuring that HOME
                 funds were properly committed and accurately reported in IDIS and that
                 expenditures were adequately supported and eligible.




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                                   APPENDIXES

Appendix A

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


      Recommendation                                 Unsupported       Funds to be put
              number              Ineligible 1/               2/       to better use 3/
           1A                        $402,217
           1B                                                                $157,072
           1C                                                                $988,272
           1D                                            $11,728
           2A                                         $1,081,092
           2B                       $225,235
           2C                                                                 $71,232
           2E                          $4,542
           2I                       ________            $153,950           _________
          Total                     $ 631,994         $1,246,770           $1,216,576


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 case, if our recommendations are implemented,
     HUD will recapture (1) $157,072 in funds not committed by the 24-month statutory
     deadline if recommendation 1B is implemented and (2) $42,950 in funds not expended by
     the 5-year statutory deadline if recommendation 2C is implemented. In addition, if the
     City implements recommendations 1C and 2C, funds will be available for other eligible
     activities consistent with HOME requirements.



                                             17
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 2




                         18
Comment 2




Comment 3



Comment 4




Comment 5




Comment 5




            19
Comment 5



Comment 6




            20
                           OIG Evaluation of Auditee Comments

Comment 1     The City indicated that it has corrected its misinterpretation of the 24-month
              commitment deadline. The City explained that it considered the 24-month
              commitment as the date the allocations were approved by its Commission.

              We acknowledge the City’s effort in correcting this misinterpretation. In its
              response, the City did not provide documentation showing how it corrected the
              definition of a valid commitment, or that the procedures were implemented to
              ensure compliance with the commitment deadline. Therefore, the City must
              reimburse the U.S. Treasury $402,217 from non-Federal funds and recapture
              $157,072 in HOME funds that it did not commit by the 24-month statutory
              deadline.

Comment 2 The City disagreed that it should cancel and reprogram activities 750 and 777
          related to the housing construction in the Coleman Park neighborhood because the
          City is moving forward with the project. The City explained that its consultant
          determined that the initial procurement conducted on the project was flawed
          resulting in the cancellation of the contract with its previous developer.
          Subsequently, the City prepared site plans, surveyed the properties, and began the
          process of moving forward with the project. The City provided an e-mail to show
          that it did not mislead HUD of the status of the project and it kept HUD informed
          of its procurement issue. The City said that on August 30, 2013, it issued an
          invitation to bid to the City’s pool of new construction contractors.

              The City informed HUD that the initial procurement conducted was flawed.
              However, the e-mail did not state the City’s plans on moving forward. When the
              City cancelled the contract with the former developer, the funds were no longer
              committed. In order for the funds to be properly committed, in addition to a
              legally binding agreement, construction had to start within 12 months of the set-
              up date in IDIS. According to IDIS, the funding date for this project was on
              October 28, 2011. As of August 31, 2013, construction has not started and the
              City is in the process of selecting a contractor. Therefore, the City should have
              cancelled the activities and reprogrammed the funds.

Comment 3 The City stated that it has put procedures in place to ensure that accurate
          information is entered into IDIS.

              We acknowledge the City’s efforts in correcting this deficiency. The City must
              provide documentation to show it established and implemented procedures to
              ensure the accuracy of information entered into IDIS.

Comment 4 The City said that it is still researching documents to support the expenditures in
          question. In addition, it has established new procedures for reviewing, approving,
          and reimbursing expenditures and is in the process of revising its procedures for



                                               21
              procurement transactions. The City indicated that it will ensure that expenditures
              are allowable under the HOME program.

              We acknowledge the City’s willingness to establish procedures for reviewing,
              approving, and reimbursing expenditures. The City must provide HUD with its
              (1) documentation supporting the expenditures in question and results of its
              monitoring review of its CHDO’s Coleman Park project, and (2) procedures for
              reviewing and approving expenditures and its procurement process.

Comment 5 The City said it has ensured that HOME funds will be spent by the expenditure
          deadline. In addition, the City is in the process of revising its procedures to
          ensure that the status of outstanding activities is updated in IDIS. The remaining
          funds are being reprogrammed to eligible HOME activities. The function of the
          previous Accounting Clerk has been transferred to the Finance Department to
          ensure proper separation of the accounting function from the management of
          IDIS. Therefore, the City is in the process of establishing procedures to ensure
          the City’s ledger reconciles with IDIS.

              We acknowledge the City’s proactive approach to ensure that it will meet its
              expenditure deadline. The audit disclosed that the City had a remaining balance
              in three activities (523, 526, and 637) of which the funds were not spent by the
              five year deadline. Therefore, the remaining funds are subject to recapture by
              HUD according to 24 CFR 92.500 (d)(1)(C). As a result, the City cannot
              reprogram all remaining funds to other activities. As stated in our report, it has to
              determine whether the five year deadline expired for those activities with
              remaining funds. If the five year deadline expired, HUD will recapture those
              funds and reprogram the remaining funds.

              In addition, the City should provide HUD with a status of each open activity, its
              revised procedures on how it plans to ensure that the status of outstanding
              activities is updated in IDIS and its reconciliation process.

Comment 6 The City explained that after further researching its files, it determined that the
          files did not contain the lead-based testing reports. Therefore, the City will be
          exercising due care in reviewing and supporting the City’s expenditures.

              The City must provide documentation to show whether the costs charged to the
              HOME program were eligible expenses, or repay $153,950 from non-Federal
              funds.




                                               22
Appendix C

      INFORMATION IMPROPERLY REPORTED IN IDIS

   No.      IDIS no.       Commitment amount        Commitment date   Activity address
   1.          670                                        X                  X
   2.          698                                        X
   3.          699                                        X                  X
   4.          701                                        X
   5.          704                                        X
   6.          714                                        X
   7.          750                                        X
   8.          768                                        X                  X
   9.          769                                        X                  X
   10.         770                                        X                  X
   11.         776                X                       X
   12.         777                                        X                  X
   13.         797                                        X
   14.         798                                        X
   Total # of activities           1                      14                 6




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