OFFICE OF AUDIT
REGION 5
CHICAGO, IL
HUD’s Office of Housing Assistance and Grant
Administration, Washington, DC
Assisted Living Conversion Program
2013-CH-0001 JANUARY 4, 2013
Issue Date: January 4, 2013
Audit Report Number: 2013-CH-0001
TO: Catherine Brennan, Director, Office of Housing Assistance and Grant Administration, HTH
FROM: Kelly Anderson, Regional Inspector General for Audit, 5AGA
SUBJECT: HUD Did Not Always Provide Adequate Oversight of Its Assisted Living
Conversion Program
Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final report of our audit of HUD’s oversight of the Assisted Living
Conversion Program.
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
(312) 353-7832.
January 4, 2013
HUD Did Not Always Provide Adequate Oversight of Its
Assisted Living Conversion Program
Highlights
Audit Report 2013-CH-0001
What We Audited and Why What We Found
We audited the U.S. Department of HUD did not always ensure that grant applications
Housing and Urban Development’s contained eligible work items or construction
(HUD) oversight of the Assisted Living activities. Specifically, 9 of the 19 grant applications
Conversion Program. We initiated the reviewed contained items or construction activities that
audit as part of the activities in our were not directly related to the conversion of units and
fiscal year 2012 annual audit plan, common space for assisted living. Further, HUD did
which included contributing to the not ensure that the performance period for six grants
improvement of HUD’s execution of did not exceed 18 months. These weaknesses occurred
and accountability for fiscal because HUD lacked procedures and controls for
responsibilities. Our audit objective identifying ineligible activities and ensuring that grants
was to determine whether HUD had were executed within 18 months according to HUD
adequate oversight of its Assisted requirements. Additionally, the field offices lacked
Living Conversion Program. sufficient understanding of the program’s
requirements. As a result, HUD lacked assurance that
What We Recommend grant funds were solely used for eligible activities as
prescribed by the program requirements and guidance.
Further, HUD lacked assurance that projects will be
We recommend that the Director of
completed in a timely manner and without unnecessary
HUD’s Office of Housing Assistance
waste to meet the special needs of the elderly and
and Grant Administration (1) identify
disabled persons.
the ineligible items and seek
reimbursement from grantees from
HUD did not always ensure that grantees submitted
nonfederal funds for completed projects
required biannual progress reports before it released
or adjust grant amounts accordingly for
payments. Further, it did not ensure that it conducted
active projects, and consult with HUD’s
bimonthly onsite inspections of the construction
Office of General Counsel on the
activities as required. These conditions occurred
eligibility of items or activities, where
because the field offices disregarded or lacked
necessary; and (2) implement adequate
knowledge of the program requirements for progress
policies, procedures, and controls to
reporting and inspections. Consequently, HUD lacked
address the deficiencies cited in this
assurance that funds were properly used to meet the
audit report.
program objectives, and did not effectively protect its
interest.
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding 1: HUD Did Not Always Ensure That Grant Applications Contained Eligible
Work Items or Construction Activities 5
Finding 2: HUD Did Not Always Adequately Monitor Its Program Grantees 9
Scope and Methodology 12
Internal Controls 13
Appendixes
A. Auditee Comments and OIG’s Evaluation 15
B. Federal Requirements 23
2
BACKGROUND AND OBJECTIVE
The Assisted Living Conversion Program was authorized under section 202b of the Housing Act
of 1959 and section 522(c) of the Appropriations Act of 2000. The grants funded under this
program were designed to enable our Nation’s elderly to live in familiar surroundings, as they
age and need more specialized features and support services to remain independent, and provide
an affordable option to nursing homes. This is part of the U.S. Department of Housing and
Urban Development’s (HUD) Housing Security Plan for Older Americans, an initiative to
expand the housing options of low-income seniors. The purpose of the program is to provide
private, nonprofit owners of eligible developments with grants to convert some or all of the
dwelling units in the project into an assisted living facility.
Assisted living facilities are designed to accommodate the frail elderly and people with
disabilities who can live independently but need assistance with activities of daily living (for
example, assistance with eating, bathing, grooming, dressing, and home management activities).
Assisted living facilities must provide support services such as personal care, transportation,
meals, housekeeping, and laundry. The program provides funding for the physical costs of
converting some or all of the units of an eligible multifamily development into an assisted living
facility, including the unit configuration, common and services space, and any necessary
remodeling, consistent with HUD’s or the State’s regulations, whichever is more stringent.
Support services are funded by a number of State and local agencies, private grants, and
donations.
The program grants are awarded competitively on the basis of the extent to which the proposed
conversion serves the needs of the frail elderly, quality and effectiveness of the conversion in
planning and managing meals and supportive services, the ability of the project owner to secure
community resources to help achieve the program’s purposes, and the ability of the project
owner to complete the conversion on time. The owners are responsible for ensuring that
converted units comply with all local standards, codes, and regulations governing assisted living
facilities. The projects must also be licensed and regulated by the appropriate governing body.
HUD’s Office of Multifamily Housing, Office of Housing Assistance and Grant Administration,
is responsible for administering the Assisted Living Conversion Program, and the day-to-day
oversight of the program is managed by HUD’s field offices. The Notice of Funding
Availability (NOFA) and Technical Processing Memorandum, issued annually by the Office of
Housing Assistance and Grant Administration, provide guidance to HUD’s field offices for the
oversight of the program. For the program administration and oversight, HUD is responsible for
reviewing the applications; awarding the grants; and ensuring that (1) the grant progress
reporting by the projects is received, (2) bimonthly inspections are conducted in accordance with
HUD Handbook 4460.1, (3) change orders are approved and supported appropriately by HUD,
(4) vouchers submitted for payment through the Line of Credit Control System are reviewed to
ensure that appropriate support for the payments was presented, (5) the work is progressing
within appropriate timeframes, (6) appropriate licensing of the project is approved by the local
authorities, (7) the grant is closed after processing the final voucher, (8) funds not used have
been deobligated, (9) an independent auditor’s report is completed, and (10) the Assisted Living
3
Conversion Program declaration of restrictive covenants and extension of regulatory agreement
is executed.
For fiscal years 2008 through 2010, the total funds available and funded for the Assisted Living
Conversion Program grants were as follows:
Number of
Grant funding Total grants units Total grant
Fiscal year available issued converted funding
2008 $24,750,000 7 195 $27,394,747
2009 20,000,000 5 104 18,773,800
2010 30,000,000 7 183 23,690,096
Totals $74,750,000 19 482 $69,858,643
Note: If funding was not used within a fiscal year, it was rolled over to the next fiscal year.
Our audit objective was to determine whether HUD had adequate oversight of its Assisted Living
Conversion Program to ensure that program funds were properly used to convert units for
eligible multifamily housing projects. Specifically, we wanted to determine whether HUD (1)
appropriately approved grant applications and executed grant agreements, (2) ensured that
progress reports were submitted by grantees in a timely manner, and (3) conducted inspections in
accordance with its requirements.
4
RESULTS OF AUDIT
Finding 1: HUD Did Not Always Ensure That Grant Applications
Contained Eligible Work Items or Construction Activities
HUD did not always ensure that grant applications contained eligible work items. For the 19
grant applications reviewed, 9 contained items or construction activities that were not directly
related to the conversion of units and common space for assisted living. Further, HUD did not
ensure that the period of performance for six grants did not exceed 18 months. These
weaknesses occurred because HUD lacked procedures and controls for identifying ineligible
activities and ensuring that grants were executed within 18 months according to HUD
requirements. In addition, the field offices lacked sufficient understanding of the program’s
requirements. As a result, HUD lacked assurance that grant funds were solely used for eligible
activities as prescribed by the program requirements and guidance. Further, HUD lacked
assurance that projects will be completed in a timely manner and without unnecessary waste to
meet the special needs of the elderly and disabled persons.
Approved Applications
Contained Ineligible
Construction Items or Activities
We reviewed 100 percent of the program grants awarded from 2008 through
2010. Of the 19 approved grants, 9 (47 percent) applications contained ineligible
construction items or work activities, such as parking lot repairs, roofing, siding,
entryway canopies, and building signage. The NOFA specified that the program
funds would be used for converting existing units and common areas within the
multifamily project or the entire project into assisted living units. Any costs that
were not directly related to the conversion of units and common space for assisted
living were not eligible. 1
The items or construction activities identified as not being directly associated with
the conversion were
• Entrance canopies;
• Sidewalks and curbing not directly associated with the conversion;
• Resurfacing of pavement;
• Restriping in parking lots;
• Landscape work to include benches, shrubs, and planters;
• Signage for parking lots;
• A corridor not directly associated with the conversion;
1
NOFA, paragraphs I(A) and IV(E) (see appendix B)
5
• Roof coping and flashing (the building had seven floors, and the
conversion was for the first, second, and third floors);
• Generator replacement for the building;
• Fencing not directly associated with the conversion;
• Correction of poor drainage from a previous program grant;
• Light for the exterior of the building; and
• A video surveillance system for the exterior of the building.
HUD stated that the above-mentioned items or activities were either eligible or to
be determined for seven of the nine grant applications. Further, for one of the
remaining two grant applications, HUD changed the grant to exclude work items
before it was executed. However, it did not specifically indicate that the excluded
items were ineligible. The grant’s funding was reduced for the project; however,
the work items removed were identified as being funded through the low-income
housing tax credit program. For the last grant application, HUD agreed that it
contained an ineligible activity.
The funding amounts for each of the ineligible activities could not be completely
identified since HUD requires the construction costs to be submitted on form
HUD-2328, Contractor’s and/or Mortgagor’s Cost Breakdown, which identifies
budget costs by sections, such as concrete, masonry, and other general areas.
HUD Failed To Execute Six
Grants for a Prescribed
Timeframe
HUD failed to ensure that the performance period for six grants did not exceed 18
months. HUD’s NOFA states that a fully executed program grant agreement
obligates the funds and establishes the legal relationship between HUD and the
award recipient. Additionally, HUD will base the period of performance on the
scope of work, which should not exceed 18 months. 2 However, contrary to its
requirements, HUD executed five grants for 24 months and one grant without a
grant term or effective dates.
HUD Lacked Knowledge and
Understanding of Its Own
Requirements
HUD’s Office of Housing Assistance and Grant Administration lacked adequate
procedures and controls for addressing the identification of ineligible activities
during the application review. Even though HUD identified ineligible activities in
the NOFA, it did not ensure that applications were reviewed for ineligible
activities. The Office of Housing Assistance and Grant Administration assumed
2
NOFA, paragraph II – Award Information (see appendix B)
6
that the field offices would identify ineligible activities and ensure necessary
corrections were made before the execution of the grant agreements. In addition,
it did not ensure that its reviewing officials in the field offices fully understood
the program’s requirements when reviewing and approving grant applications.
For instance, one reviewing official explained that if an activity or item was part
of the multifamily project and used by the residents in the assisted living units,
that activity or item would be eligible.
HUD’s reviewing officials in the field offices generally said that they did not
receive appropriate guidance for the program. Therefore, they developed their
own procedures for oversight and application processing, which varied among the
field offices.
HUD field offices did not ensure that the terms of executed grant agreements did
not exceed 18 months. The reviewing officials in the field offices were not
familiar with the NOFA requirements when executing the grant agreements. One
reviewing official stated that there was not enough guidance for the program,
although this requirement was included in the NOFA. Another reviewing official
stated that a staff in another field office prepared and executed one of the grant
agreements, knowing that the grant could not exceed 18 months.
Conclusion
HUD did not always ensure that grant applications contained eligible work items.
For the 19 grant applications reviewed, 9 contained items or construction
activities that were not directly related to the conversion of units and common
space for assisted living. Further, HUD did not ensure that the period of
performance for six grants did not exceed 18 months. These weaknesses occurred
because HUD lacked procedures and controls for identifying ineligible activities
and ensuring that grants were executed within 18 months according to HUD
requirements. In addition, the field offices lacked sufficient understanding of the
program’s requirements. As a result, HUD lacked assurance that grant funds were
solely used for eligible activities as prescribed by the program requirements and
guidance. Further, HUD lacked assurance that projects will be completed in a
timely manner and without unnecessary waste to meet the special needs of the
elderly and disabled persons.
Recommendations
We recommend that the Director of HUD’s Office of Housing Assistance and
Grant Administration
1A. Identify the ineligible items or activities and seek reimbursement from the
grantees from nonfederal funds for completed projects, or adjust the grant
amounts accordingly for active projects, and where necessary, consult with
7
HUD’s Office of General Counsel on the eligibility of construction items or
activities.
1B. Implement adequate procedures and controls regarding the application
review and grant execution process to ensure that program funds are used
for eligible activities and grants are executed for a period not exceeding 18
months. These procedures and controls should include, but not limited to,
providing clear guidance to field offices regarding the grant application
review and execution process to ensure compliance with requirements.
8
Finding 2: HUD Did Not Always Adequately Monitor Its Program
Grantees
HUD did not always adequately monitor its program grantees. Specifically, it did not ensure that
(1) grantees submitted required biannual progress reports before payments were released and (2)
it conducted bimonthly onsite inspections of construction activities. These conditions occurred
because HUD’s Office of Housing Assistance and Grant Administration was not aware that the
field offices were not following the program requirements and guidance. Further, its field offices
disregarded or lacked knowledge of the program requirements for progress reporting and
inspections. Consequently, HUD lacked assurance that funds were properly used to meet the
program objectives, and did not effectively protect its interest.
HUD Did Not Ensure That
Progress Reports Were
Submitted and Inspections
Were Conducted Within
Required Timeframes
According to HUD requirements, grantees must submit a progress report every 6
months after the effective date of the grant agreement. 3 Progress reports should
include reports on both performance (logic models) and financial progress.
Financial reports should be submitted on Standard Form 269, Financial Status
Report. No grant payments will be approved for projects with overdue progress
reports. Further, HUD requires that inspections be conducted in accordance with
HUD Handbook 4460.1, which requires a minimum of bimonthly inspections. 4
We reviewed 100 percent of the program grants for fiscal years 2008 through
2010 and determined that the biannual progress reporting requirement applied to
14 of the 19 grants reviewed. Of the remaining five grants, two had not received
payments as of July 2012, and three had not reached the 6-month point; therefore,
the progress reports were not available. Based on our review, we have identified
the following:
• Payments were released to the grantee without the timely submission
of the required progress reports for 14 grants,
• The logic model was not submitted biannually for 14 grants,
• A logic model was not submitted as required in the grant application
for 1 grant,
3
Program grant agreement, article VI (see appendix B)
4
Technical Processing Memorandum, paragraph IV, and HUD Handbook 4460.1, paragraph 3-4(c) (see appendix
B)
9
• A financial report was not submitted biannually for 10 of 14 grants,
• Inspections were not conducted bimonthly for 5 grants, and
• Inspections were not conducted for 1 grant.
HUD Lacked Knowledge of Its
Own Requirements
The weaknesses discussed above occurred because HUD’s Office of Housing
Assistance and Grant Administration was not aware that the field offices were not
following the program requirements and guidance. HUD’s program staff lacked
knowledge of the progress reporting and inspection requirements. For instance,
the staff in the field offices stated that they were unaware that grantees had to
submit required financial reports and logic models before they could release the
grant payments. 5 The reviewing officials responsible for monitoring 10 of the 14
grants stated that they were not aware of the progress reporting requirements, and
the officials for 3 of those 10 grants explained that they had not read all the
program guidance and regulations. Further, the reviewing officials for 7 of 14
grants stated that the logic model was difficult to work with.
Regarding the inspections, the reviewing officials for four grants stated that they
were aware of the requirement but due to a lack of resources or other work
obligations, they did not comply with the requirement for bimonthly inspections.
However, these reviewing officials did not notify HUD headquarters’ Office of
Housing Assistance and Grant Administration that the field offices lacked
sufficient resources to conduct the inspections. Further, one field office did not
conduct any inspections for one grant, and did not agree it was required to
conduct bimonthly inspections for projects under the Assisted Living Conversion
Program. Conversely, HUD’s Office of Housing Assistance and Grant
Administration stated the field offices were required to conduct bimonthly
inspections of the grant-funded projects in accordance with the program
requirements and guidance. Another reviewing official did not provide an
explanation for not complying with the inspection requirement.
Conclusion
HUD did not always adequately monitor its program grantees. Specifically, it did
not ensure that (1) grantees submitted required biannual progress reports before
payments were released and (2) it conducted bimonthly onsite inspections of
construction activities. As a result, HUD lacked assurance that funds were
properly used to meet the program objectives, and did not effectively protect its
interest.
5
Program grant agreement, paragraph VI(D) (see appendix B)
10
Recommendations
We recommend that the Director of HUD’s Office of Housing Assistance and
Grant Administration
2A. Implement adequate policies, procedures, and controls to ensure that
program staff complies with requirements concerning progress reporting and
construction inspections. These controls should include, but not limited to,
taking steps to ensure that field staff responsible for monitoring program
grantees are adequately trained and familiar with the program requirements.
HUD should also consider accumulating best practices and the field offices’
input for improvements in the oversight of the program.
11
SCOPE AND METHODOLOGY
To accomplish our objective, we reviewed
• Applicable laws; regulations; NOFAs for fiscal years 2008 through 2010; HUD
Handbook 4460.1; HUD’s Technical Processing Memorandums – Guidance for Fiscal
Years 2008 Through 2010 Application Review; HUD’s program requirements at 24 CFR
(Code of Federal Regulations) Parts 84 and 891; the Housing Act of 1959, section 202(b),
as amended; the Consolidated Appropriations Acts for fiscal years 2008 through 2010;
form HUD-50080 (08/2000); form HUD-2328 (05/1995); and form HUD-92045
(03/2002).
• Applications requesting assistance; application review checklists; grant agreements;
drawdown requisition forms; contractors’ invoices and change orders; architectural
specifications and drawings; and grantee by-laws and articles of incorporation, budgets,
and progress reports.
• Line of Credit Control System (LOCCS) data, HUD inspection reports, and HUD’s
organizational list.
We also interviewed HUD’s staff.
We reviewed 100 percent of the 19 grants funded for fiscal years 2008 through 2010 to ensure
that grant applications and agreements were approved and executed according to HUD
requirements and progress reports were submitted by grantees according to HUD requirements
and to determine whether HUD conducted inspections of the construction process according to
its requirements.
We did not use computer-generated data to support our audit conclusions. We compared the
source documentation maintained by HUD to data reported in LOCCS. 6 All conclusions were
based on source documentation reviewed during the audit.
We performed onsite audit work between February and April 2012 at HUD’s offices located in
Washington, DC, Buffalo, NY, and Columbus, OH. The remaining audit work was completed
between May and September 2012 at HUD OIG’s offices in Chicago, IL, and Columbus, OH.
The audit covered the period July 1, 2008, through July 31, 2012.
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.
6
LOCCS is the HUD system used to disburse and track the payment of grant funds to grant recipients.
12
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:
• Effectiveness and efficiency of operations – Policies and procedures that
management has implemented to reasonably ensure that a program meets
its objectives.
• Reliability of financial 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.
13
Significant Deficiency
Based on our review, we believe that the following item is a significant
deficiency:
• HUD lacked adequate procedures and controls to ensure that (1) grant
applications contained eligible work items, (2) the performance period for
grants met requirements, and (3) progress reports were submitted and
inspections were conducted in accordance with requirements (see findings 1
and 2).
14
APPENDIXES
Appendix A
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments 7
7
This excludes a three-page spreadsheet and 64 pages of other documentation that were not necessary for
understanding HUD’s comments.
15
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 1
Comment 2
16
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 3
17
Ref to OIG Evaluation Auditee Comments
Comment 3
Comment 4
Comment 5
Comment 6
18
Ref to OIG Evaluation Auditee Comments
Comment 7
19
Ref to OIG Evaluation Auditee Comments
Comment 7
20
OIG’s Evaluation of Auditee Comments
Comment 1 OIG originally identified 10 of 19 grant applications reviewed contained
ineligible items. However, HUD’s Office of Housing Assistance and Grant
Administration stated it found that eight grant applications contained ineligible
items, and of those grants, the grantees for five grants spent program funds on
the ineligible activities. Based on the documentation provided by HUD, we
agree that the installation of a sprinkler system for the Peter Sanborn Place
project is an eligible activity. OIG adjusted finding 1 for the project
accordingly, thereby reducing the number of grant applications containing
ineligible items from 10 to 9. However, for the remaining grants, HUD did not
provide sufficient documentation to support its determination of the eligibility
of the construction activities or items that the audit team identified as ineligible.
Comment 2 HUD stated that these applications were approved in accordance with the
NOFA, and did not agree that the program lacked the necessary procedures for
specifically identifying ineligible activities in the application review process.
Although HUD had procedures such as the NOFA and the technical processing
memorandum in place, they were not adequate for ensuring that applications
were properly reviewed for ineligible activities during the application review
and ranking process. The NOFA provides funding restrictions and lists the
ineligible activities. However, for instance, one reviewing official revealed
there was a lack of understanding on how to identify whether an activity or item
would be eligible for a program project. Further, the Office of Housing
Assistance and Grant Administration assumed that the field offices would
identify ineligible activities and ensure necessary corrections were made before
the execution of the grant agreements. However, if the ineligible activities are
not addressed during the application review process, HUD lacks assurance that
those ineligible activities would later be identified before funds are disbursed to
the grantees because HUD did not always ensure that progress reports were
submitted by the grantees as required, which we identified in finding 2.
Therefore, the grants were not approved in accordance with the NOFA since the
applications did not identify ineligible items. Approved applications’ funding
was not reduced nor was ineligible activities identified during the review and
ranking process.
HUD agreed additional procedures and adequate controls are needed to
establish better quality assurance and consistency among application reviewers,
specifically when identifying ineligible conversion activities. We commend
HUD for implementing additional quality assurance procedures and controls
concerning the application review process.
Comment 3 HUD stated that any modification to the grant agreement is at the discretion of
the grant officer. The Technical Processing Memorandum, which serves as
instructions to HUD staff for processing the program grant applications, also
provides that if any parts of the application were to be modified based on the
21
results of the application review, the amended documents as well as any
conditions for approval should be attached. Although the grant officer has the
discretion to adjust the performance period of the grant agreement, no adequate
supporting documentation or explanation was provided for why the grant terms
exceeded the timeframe of 18 months prescribed by the NOFA, other than that
the grants were executed according to prior practices. We noted one exception
for the grant terms for the Peter Sanborn Place project, for which the field office
was aware of the grant term limit but extended the term to complete the
relocation of tenants. We revised finding 1 for the one project accordingly.
For grant performance period, HUD agreed a standardized procedure needs to
be implemented to ensure that the project conversion is completed in a timely
manner. Further, HUD concurred with our recommendation concerning
additional training for the field offices as well as better communication between
Headquarters and the field offices.
Comment 4 HUD takes Recommendation 1A of the audit report under advisement, and
stated that the program office establishes the eligible construction activities.
The NOFA provides funding restrictions and lists the ineligible activities the
program funds are not to be used for. For example, the program funds should
not be used to cover the cost of activities not directly related to the conversion
of the units and common space. Based on the definition of ineligible activities
presented in the NOFA, we disagree with HUD’s explanation for activities it
has identified as eligible. However, we agree that the program office has the
responsibility for establishing the eligible construction activities or items, and
where necessary, HUD should consult with its Office of General Counsel on the
eligibility of the cited construction items or activities. We revised our
recommendations for finding 1 accordingly.
Comment 5 HUD agreed to implement Recommendation 1B of the discussion draft audit
report which is Recommendation 1A of this audit report.
Comment 6 We acknowledge the changes HUD is currently making to its procedures and
controls to address Recommendation 1C of the discussion draft audit report,
which is Recommendation 1B of this audit report.
Comment 7 HUD agreed that grants were not always adequately monitored due to
inadequate oversight and monitoring of the program. Additionally, HUD is in
the process of revising its program guide for the field offices to further address
program requirements and post-award activities. We commend HUD on its
plan to implement additional procedures and controls to ensure its staff
complies with program requirements.
22
Appendix B
FEDERAL REQUIREMENTS
Finding 1
NOFA 2008-2010, Assisted Living Conversion Program For Eligible Multifamily Housing
Projects, I. Funding Opportunity Description, A. Program Description, state that the Assisted
Living Conversion Program provides funding for the physical costs of converting some or all of
the units of an eligible multifamily development into an assisted living facility, including unit
configuration and related common and services space and any necessary remodeling, consistent
with HUD or the state’s statutes/regulations (whichever is more stringent). Typical funding will
cover basic physical conversion of existing project units, as well as related common and services
space.
NOFAs 2008-2010, Assisted Living Conversion Program For Eligible Multifamily Housing
Projects, III. Eligibility Information, Eligibility Requirements, state:
1. Eligible conversion activities are:
a. Retrofitting to meet Section 504 accessibility requirements, minimum property standards for
accessibility and/or building codes and health and safety standards for Assisted Living Facilities
(ALF) in that jurisdiction. Meeting Section 504 regulations require compliance with the
Uniformed Federal Accessibility Standards (UFAS). Examples are items such as:
1. Upgrading to accessible units for the Assisted Living Facility with moveable cabinetry,
accessible appliances, sinks, bathroom and kitchen fixtures, closets, hardware and grab
bars, widening doors, etc.;
2. An elevator or upgrades thereto;
3. Lighting upgrades;
4. Major physical or mechanical systems of projects necessary to meeting local code or
assisted living requirements;
5. Sprinkler systems;
6. Upgrades to safety and emergency alert systems;
7. Addition of hallway railings; and
8. Medication storage and workstations.
b. Retrofitting to add, modify and/or outfit common space, office or related space for Assisted
Living Facility staff including a service coordinator and file security, and/or a central
kitchen/dining facility to support the Assisted Living Facility function (e.g., outfit lounge,
common space/dining furniture, kitchen equipment for cooking/serving and dishware).
c. Retrofitting to upgrade a regular unit to an accessible unit for a person/family with disabilities
who is being displaced from an accessible unit in the portion of the project that is being
converted to the Assisted Living Facility, where another accessible unit is not available;
23
d. Temporary relocation;
e. Consultant, architectural, and legal fees;
f. Vacancy payments limited to 30 days after conversion to an Assisted Living Facility; and
g. Any excess Residual Receipts (over$500/unit) and Reserve for Replacement funds (over
$1,000/unit) in Project Accounts that are not approved for another use at the time of application
to HUD under this Notice of Funding Availability are considered available funds and must be
applied toward the cost of conversion activities. Before making this determination, however,
HUD staff will consider the extent of repair/replacement needs indicated in the most recent Real
Estate Assessment Center (REAC) physical inspection and not yet approved and any ongoing
commitments such as non-grant-based service coordinator or other funding, where existing,
deduct the estimated costs of such items from the reserve for replacement and residual receipts
balances to determine the extent of available residual receipts and reserve for replacement funds
for the Assisted Living Conversion Program.
NOFAs 2008-2010, Assisted Living Conversion Program For Eligible Multifamily Housing
Projects, IV (E) Funding Restrictions, Ineligible Activities, state that funds available through the
NOFAs may not be used for the following:
a. Adding additional dwelling units to the existing project;
b. Paying the costs of any of the necessary direct supportive services needed to operate the
assisted living facility;
c. Purchasing or leasing additional land;
d. Rehabilitating (see definition at 24 CFR 891.105) the project for needs unrelated directly
to the conversion of units and common space for assisted living;
e. Using the ALCP [program] to reduce the number of accessible units in the project that
are not part of the ALF;
f. Permanently displacing any resident out of the project (permanent relocation is prohibited
under this program);
g. Paying management fees;
h. Covering the cost of activities not directly related to the conversion of the units and
common space. (i.e., if an applicant is applying to convert 24 units on 2 floors of a 5-
story elderly housing development and the inspection by the Fire Marshal reveals that
sprinklers must be installed in the entire building, ALCP funds will be used only to install
sprinklers for the 24 units on the 2 floors requested in the application. The cost to install
sprinklers in the remaining units must be paid for out of other resources).
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Regulations at 24 CFR 891.105, Definitions, states: “Rehabilitation means the improvement of
the condition of a property from deterioration or substandard to good condition. Rehabilitation
may vary in degree from gutting and extensive reconstruction to the cure of substantial
accumulation of deferred maintenance. Cosmetic improvements alone do not qualify as
rehabilitation under this definition. Rehabilitation may also include renovation, alteration, or
remodeling for the conversion or adaptation of structurally sound property to the design and
condition required for use under this part, or the repair or replacement of major building systems
or components in danger of failure. Improvement of an existing structure must require 15
percent or more of the estimated development cost to rehabilitate the project to a life of 55
years.”
Technical Processing Memorandums, fiscal years 2008-2010 – Application Review Process,
Rating and Ranking of Applications, state: “HUD may reduce the amount requested in the
application if any proposed components are ineligible or if the cost of any item is deemed
unreasonable.”
NOFAs 2008-2010, Assisted Living Conversion Program For Eligible Multifamily Housing
Projects, II. Award Information, state that the program grant agreement, when fully executed,
obligates the HUD funds. This agreement establishes the legal relationship between HUD and
the program award recipient. HUD will base the period of performance on the scope of work,
but it must not exceed 18 months.
Finding 2
NOFAs 2008-2010 – Assisted Living Conversion Program For Eligible Multifamily Housing
Projects, VI. Award Administration Information, (C), Reporting, state: “Recipients of funding
under this program Notice of Funding Availability must submit a progress report every six
months after the effective date of the grant agreement. Each semi-annual report must identify
any deviations from outputs and outcomes proposed and approved by HUD, by providing the
information in the reporting TAB of the approved Logic Model.”
The Assisted Living Conversion Program grant agreement, article VI, Progress Reports, states:
“(A.) Grantee must submit a progress report every six months after the effective date of the grant
agreement. Progress reports should include reports on both performance and financial progress.
(C.) Financial reports should be submitted on Standard Form (SF) 269. (D.) No grant payments
will be approved for projects with overdue progress reports.”
Technical Processing Memorandum, III. Financial Procedures and Reporting Requirements for
Fiscal Years 2008-2010, Semi-annual Financial Status Report (SF-269) (1), states “Grantees
must complete this form for each six-month period of the program activity. If the SF-269 is not
received when due, the Line of Credit Control System (LOCCS) will not allow grantees to draw
additional funds.”
Technical Processing Memorandum, III. Financial Procedures and Reporting Requirements for
Fiscal Years 2008-2010, Logic Model, states: “Grantees must submit a progress report every six
months after the effective date of the grant agreement. Grantees must report progress in attaining
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the goals and objectives proposed in their Program Logic model that was included in the
application.”
Technical Processing Memorandum, IV. Review/Monitoring the Assisted Living Conversion
Grant for Fiscal Years 2008-2010, states: “During the conversion process, the Hub/Point of
Contact Director is responsible for scheduling reviews in accordance with HUD Handbook
4460.1, Architectural Analysis and Inspections. Reviews and inspections are made to ensure
conformance to HUD regulations.”
HUD Handbook 4460.1, Architectural Analysis and Inspections for Project Mortgage Insurance,
chapter 3, Architectural Inspections, paragraph 3-4(c), states: “The inspector must make at least
two job site visits each month. The major functions during inspections are to: evaluate the
construction supervision of the contractor and contract administration of the architect; report on
occupancy, delays disputes, and changes; report non-compliance with the contract documents
observed by the inspector and/or the supervisory architect; determine that amounts requested by
the contractor and recommended by the architect for payment are reasonable; conduct employee
wage interviews; and report on labor and Equal Employment Opportunity (EEO) compliance.”
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HUD Did Not Always Provide Adequate Oversight of Its Assisted Living Conversion Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-01-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)