oversight

The City of Cleveland, OH, Lacked Adequate Controls Over Its HOME Investment Partnerships Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-02-12.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




                  City of Cleveland, OH

         HOME Investment Partnerships Program




2013-CH-1001                              FEBRUARY 12, 2013
                                                        Issue Date: February 12, 2013

                                                        Audit Report Number: 2013-CH-1001




TO: Jorgelle Lawson, Director of Community Planning and Development, 5ED



FROM: Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA


SUBJECT: The City of Cleveland, OH, Lacked Adequate Controls Over Its HOME Investment
            Partnerships Program


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), results of our review of the City of Cleveland’s HOME Investment
Partnerships 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) 913-8684.
                                             February 12, 2013
                                             The City of Cleveland, OH, Lacked Adequate Controls
                                             Over Its HOME Investment Partnerships Program




Highlights
Audit Report 2013-CH-1001


    What We Audited and Why                   What We Found

We audited the City of Cleveland’s           The City did not comply with Federal requirements or
HOME Investment Partnerships                 its own policies in its contracting processes for housing
Program. We selected the City based          rehabilitation services and its use of Program funds for
upon our analysis of risk factors related    Repair-A-Home program projects. As a result, the
to Program grantees in Region 5’s 1          City (1) used nearly $79,000 in Program funds for
jurisdiction, recent media coverage          projects that did not follow Federal requirements or its
regarding the City’s Program, and a          own policies and (2) was unable to support its use of
request from the U.S. Department of          nearly $254,000 in Program funds for projects.
Housing and Urban Development’s
(HUD) Columbus Office of Community           The City also did not comply with HUD’s
Planning and Development. Our                requirements in (1) its reporting of Program
objective was to determine whether the       accomplishments in HUD’s Integrated Disbursement
City complied with Federal                   and Information System and (2) the reimbursement of
requirements and its own policies in the     its Program from non-Federal funds for homes
administration of its Program. This is       acquired through home-buyer activities that were later
the third of three audit reports on the      sold and ownership of the homes had been transferred.
City’s Program.                              As a result, HUD and the City lacked assurance
                                             regarding the accuracy of the City’s Program
    What We Recommend                        accomplishments reported in HUD’s System, and the
                                             City did not reimburse its Program $140,000 in
                                             Program funds used for eight homes that were sold and
We recommend that the Director of            the ownership of the homes had been transferred.
HUD’s Columbus Office require the            Further, the City is at risk of being required to
City to (1) reimburse its Program or         reimburse its Program additional non-Federal funds if
HUD, for transmission to the U.S.            the ownership of additional homes acquired under its
Department of the Treasury, more than        Housing Trust Fund and Afford-A-Home programs is
$220,000, (2) provide sufficient             transferred through foreclosures.
supporting documentation or reimburse
its Program nearly $249,000, and (3)         In addition, the City did not comply with HUD’s
implement adequate procedures and            requirements in its use and reporting of its Program
controls to address the findings cited in    income. As a result, the U.S. Department of the
this audit report.                           Treasury paid more than $4,000 in unnecessary interest
                                             on the Program funds that the City drew down from its
1
                                             HOME investment trust fund treasury account when
  Region 5 includes the States of Indiana,
Illinois, Ohio, Michigan, Minnesota, and
                                             Program income was available.
Wisconsin.
                              TABLE OF CONTENTS
Background and Objective                                                                   3

Results of Audit
        Finding 1: The City Lacked Adequate Controls Over Its Contracting Processes for
                   Repair-A-Home Program Projects                                          5

        Finding 2: The City Lacked Adequate Controls Over Its Repair-A-Home Program To
                   Ensure That Households Were Eligible for Assistance                 12

        Finding 3: The City Lacked Adequate Controls Over Its Reporting in HUD’s System
                   and Home-Buyer Activities                                            15

        Finding 4: The City Lacked Adequate Controls Over Its Use and Reporting of Program
                   Income                                                                 22

Scope and Methodology                                                                     25

Internal Controls                                                                         27

Appendixes
   A.   Schedule of Questioned Costs                                                      29
   B.   Auditee Comments and OIG’s Evaluation                                             30
   C.   Applicable Requirements                                                           60
   D.   The City’s Contracting Processes for Repair-A-Home Program Projects               67
   E.   Schedule of Program Income That Was Not Reported in a Timely Manner               78




                                              2
                      BACKGROUND AND OBJECTIVE

The Program. Authorized under Title II of the Cranston-Gonzalez National Affordable Housing
Act, as amended, the HOME Investment Partnerships Program is funded for the purpose of
increasing the supply of affordable standard rental housing; improving substandard housing for
existing homeowners; assisting new home buyers through the acquisition, construction, and
rehabilitation of housing; and providing tenant-based rental assistance.

The City. Organized under the laws of the State of Ohio, the City of Cleveland is governed by a
mayor and a 19-member council, elected to 4-year terms. The City’s Department of Community
Development is responsible for planning, administering, and evaluating the City’s U.S.
Department of Housing and Urban Development (HUD) programs. The Department’s Division
of Neighborhood Services administers the City’s Program-funded Repair-A-Home program,
which provides housing rehabilitation services to homeowners using a deferred or term loan and
a grant. The Housing Development Office administers the City’s Program-funded Housing Trust
Fund program, which provides gap funding for development projects, including offering interest-
free second mortgage loans to low-income home buyers to assist in purchasing homes. The
Housing Development Office was part of the Department’s Director’s Office until January 2011,
and then it was moved to the Department’s newly formed Division of Neighborhood
Development. The Division of Neighborhood Services also administered the City’s Program-
funded Afford-A-Home program, which assists low-income home buyers in purchasing homes
by offering interest-free second mortgage loans. However, in January 2011, the Afford-A-Home
program was transferred to the Division of Neighborhood Development. The overall mission of
the Department is to improve the quality of life in Cleveland by strengthening neighborhoods
through successful housing and commercial rehabilitation efforts, new housing construction,
home ownership, and community-focused human services. The City’s Program records are
located at 601 Lakeside Avenue, Cleveland, OH.

The following table shows the amount of Program funds HUD awarded the City for fiscal years
2007 through 2011.

                                     Fiscal     Program
                                      year        funds
                                     2007        $6,268,729
                                     2008         6,081,589
                                     2009         6,763,777
                                     2010         6,743,584
                                     2011         5,943,064
                                     Total      $31,800,743

Our objective was to determine whether the City complied with Federal requirements and its
own policies in its (1) use of Program funds for Repair-A-Home program projects, (2) reporting
of Program accomplishments in HUD’s Integrated Disbursement and Information System, (3)
reimbursing its Program from non-Federal funds for homes acquired through home-buyer
activities that were later sold through a sheriff’s sale and ownership of the homes had been

                                               3
transferred within 5 years of the execution of the mortgages and promissory notes, and (4) use
and reporting of Program income. This is the third of three audit reports on the City’s Program.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The City Lacked Adequate Controls Over Its Contracting
            Processes for Repair-A-Home Program Projects
The City did not comply with Federal requirements and its own policies in its contracting
processes for housing rehabilitation services for its Program-funded Repair-A-Home program
projects. These weaknesses occurred because the City lacked adequate procedures and controls
regarding its contracting processes for projects to ensure that it appropriately followed Federal
requirements and its own policies. As a result, it (1) did not ensure that written agreements
covered more than $21,000 in Program funds used for four projects, (2) used more than $57,000
in Program funds for services for 13 projects that was not reasonable, and (3) lacked sufficient
documentation to support that its use of nearly $87,000 in Program funds for the cost of services
for 15 projects was reasonable.


 The City Did Not Ensure That
 Written Agreements Covered
 Its Use of More Than $21,000 in
 Program Funds

               We reviewed all 15 Program-funded projects the City reported as completed in
               HUD’s Integrated Disbursement and Information System from January 1, 2009,
               through September 30, 2011. The City used $728,267 in Program funds for the
               15 projects. Contrary to HUD’s regulations and its own policies, the City did not
               ensure that written agreements covered $21,093 in Program funds used for 4 of
               the 15 projects.

               HUD’s regulations at 24 CFR (Code of Federal Regulations) 92.504(a) state that a
               participating jurisdiction is responsible for ensuring that Program funds are used
               in accordance with all Program requirements and written agreements. Section
               92.504(b) states that before disbursing any Program funds to any entity, the
               participating jurisdiction must enter into a written agreement with that entity.
               Section 92.504(c)(5)(ii) states that the written agreement between the
               participating jurisdiction and the homeowner must specify the amount and form
               of Program assistance.

               The City’s Department of Community Development’s Division of Neighborhood
               Services’ General Specifications Standards states that the bid specifications that
               are accepted by the homeowner, with the City’s approval, become part of the
               contract between the homeowner and the bidder. All proposed changes and
               additions to the contract must be submitted in writing to the Division’s
               rehabilitation advisor, rehabilitation supervisor, and rehabilitation inspector, who
               will consult with the homeowner and then prepare a change order for the


                                                 5
           deletions, additions, or both as deemed appropriate, which must be signed by the
           homeowner; the contractor; and the Division’s rehabilitation advisor,
           rehabilitation supervisor, or rehabilitation inspector. The contractor is not to
           begin work on items included in a change order until notified to proceed by the
           Division’s rehabilitation advisor, rehabilitation supervisor, or rehabilitation
           inspector in writing (the change order).

           The City designed its Repair-A-Home program to provide housing rehabilitation
           services to a homeowner using a combination of a Program-funded deferred or
           term loan and a grant for the price in the rehabilitation construction contract
           between the homeowner and the contractor plus a contingency of up to 10
           percent. If additional Program funds were needed to complete the housing
           rehabilitation work on the home, the City would execute a change order to be
           signed by the homeowner, contractor, and designated City employee and award
           the additional funds through a grant to the homeowner. However, for 6 of the 15
           projects, the City entered into Program-funded deferred or term loans and grant
           agreements with the homeowners for the original contract price or the original
           contract price plus a contingency of up to 10 percent of the contract amount but
           did not amend the grant agreements or enter into additional grant agreements with
           the homeowners when an additional $10,214 in Program funds was used to
           complete the work on the homes. Further, in August 2012, as a result of our
           audit, the City entered into grant agreements with the homeowners for four of the
           six projects for the additional Program funds used to complete the work on the
           homes. Therefore, the City used an additional $4,873 in Program funds to
           complete the work on the homes for two projects ($758 + $4,115 in Program
           funds for project numbers 10902 and 11401, respectively) without amending the
           grant agreements or entering into additional agreements with the homeowners.

           The City also used $4,660 in Program funds for project number 9738 without a
           rehabilitation construction contract between the homeowner and the contractor
           and an additional $11,560 in Program funds to complete the housing rehabilitation
           work on the home for project number 9104 without a change order signed by the
           homeowner.

The City Did Not Ensure That
the Cost of Housing
Rehabilitation Services Was
Reasonable

           Contrary to Federal requirements, the City awarded 13 contracts for housing
           rehabilitation services for 13 of the 15 projects when the contractors’ bids
           exceeded the City’s cost estimates by more than 10 percent.

           HUD’s regulations at 24 CFR 85.36(b)(9) state that grantees and subgrantees
           must maintain records, such as the basis for the contract price, sufficient to detail
           the significant history of procurement. Section 85.36(c)(1) states that all


                                             6
procurement transactions will be conducted in a manner providing full and open
competition consistent with HUD’s regulations at 24 CFR 85.36. Section
85.36(d)(1) states that when procurement by small purchase is used, price or rate
quotations must be obtained from an adequate number of qualified sources.
Section 85.36(f)(1) states that grantees and subgrantees must perform a cost or
price analysis in connection with every procurement action, including contract
modifications. Grantees must make independent estimates before receiving bids
or proposals.

Appendix A, section C.1, of Office of Management and Budget Circular A-87,
revised May 10, 2004, requires all costs to be necessary, reasonable, and
adequately documented. Section C.2 states that a cost is reasonable if, in its
nature or amount, it does not exceed that which would be incurred by a prudent
person under the circumstances prevailing at the time the decision was made to
incur the cost.

The City used more than $57,000 in Program funds for services in excess of 110
percent of the City’s estimates for the 13 projects. In addition, it used nearly
$87,000 in Program funds through change orders for all 15 projects without
sufficient documentation to support that the cost of the additional services was
reasonable. The following table includes the project number, the amount of
Program funds the City used for services in excess of 110 percent of the City’s
estimates for the 13 projects, and the amount of Program funds used through
change orders for the 15 projects without sufficient documentation to support that
the cost of the additional services was reasonable.

                                       Program funds used
                   Project                         Without sufficient
                   number    For excessive costs    documentation
                    8534                                      $2,629
                    9104                 $2,147               11,560
                    9571                  6,802                 8,170
                    9647                    978                 3,050
                    9738                  3,831                 8,022
                   10274                    193                 1,388
                   10449                  7,868                 5,851
                   10874                    999                 3,700
                   10895                  4,649                 6,244
                   10901                  4,410                 6,200
                   10902                  5,027               10,914
                   10922                  3,506                 4,527
                   10973                 11,200                 6,516
                   11344                                        1,200
                   11401                  5,825                 6,826
                   Totals               $57,435              $86,797




                                  7
           Further, although the City invited three contractors to bid on the housing
           rehabilitation services for project number 9571, only one contractor submitted a
           bid. The City awarded the rehabilitation construction contract to the contractor,
           although it did not receive bids from an adequate number of qualified sources and
           the contractor’s bid was 26.9 percent higher than the City’s estimate for the
           services.

           The City also selected contractors to complete housing rehabilitation services for
           project numbers 9738 and 10901 without procuring the services through full and
           open competition. Specifically, the homeowner assisted through project number
           9738 refused to let the original contractor complete the remaining $4,660 in
           services on the contract. Therefore, the City selected another contractor to
           complete the remaining services without soliciting bids from other contractors.
           For the homeowner assisted through project number 10901, the City awarded a
           $1,420 Community Development Block Grant-funded grant and added $1,000 to
           its Program-funded deferred loan to the homeowner to complete additional
           services. The homeowner requested that a new contractor complete the services.
           Therefore, the City selected another contractor to complete the services without
           soliciting bids from other contractors.

           We included in appendix D of this report the specific details for the 15 projects
           for which the City (1) did not ensure that written agreements covered Program
           funds used, (2) used Program funds for the cost of housing rehabilitation services
           that was not reasonable, or (3) lacked sufficient documentation to support that its
           use of Program funds for the cost of services was reasonable.

The City Did Not Ensure That
Its Written Agreements With
Homeowners Included All of
the Necessary Provisions

           The City entered into deferred (5) or term (10) loans with the homeowners in the
           form of mortgages and promissory notes and grant agreements with the
           homeowners in the form of applications for grant assistance under the City’s
           Community Development Block Grant rehabilitation program. However,
           contrary to HUD’s regulations, the City’s written agreements for the projects did
           not include the housing rehabilitation services to be undertaken, date of
           completion, or property standards to be met.

           HUD’s regulations at 24 CFR 92.254(b) state that for rehabilitation not involving
           acquisition, a project qualifies as affordable housing only if the estimated value of
           the property after rehabilitation does not exceed 95 percent of the median
           purchase price for the area and the housing is the principal residence of an owner
           whose household qualifies as a low-income household at the time Program funds
           are committed to the housing. Section 92.504(c)(5)(ii) states that the written
           agreement between the participating jurisdiction and the homeowner must include


                                             8
           the requirements in 24 CFR 92.254(b) and specify the amount and form of
           Program assistance, rehabilitation work to be undertaken, date of completion, and
           property standards to be met.

           The mortgages and promissory notes (deferred loans) for 5 of the 15 projects did
           not specify the services to be undertaken or the date of completion. The
           mortgages and promissory notes (term loans) for the remaining 10 projects did not
           specify the date of completion or the property standards to be met.

           In addition to the City’s using its application for grant assistance under the City’s
           Community Development Block Grant rehabilitation program for its Program
           grant agreements, the grant agreements did not specify the services to be
           undertaken or the date of completion. Further, although the rehabilitation
           construction contracts between the homeowners and the contractors for all of the
           projects specified the amount and form of Program assistance, services to be
           undertaken, date of completion, and property standards to be met, the City was
           only a third-party beneficiary under the contracts. Neither the mortgages and
           promissory notes, grant agreements, nor contracts addressed the income eligibility
           of the homeowner or the after-rehabilitation value of the property at the time
           Program funds were committed to the housing. In addition, only the mortgages
           and promissory notes (deferred loans) for the five projects included principal
           residency requirements.

The City Lacked Adequate
Procedures and Controls

           The City (1) did not ensure that written agreements covered Program funds used
           for 4 projects, (2) awarded 13 contracts for housing rehabilitation services for 13
           projects when the contractors’ bids exceeded the City’s cost estimates by more
           than 10 percent, (3) selected contractors to complete services for two projects
           without procuring the services through full and open competition, (4) lacked
           sufficient documentation to support that the cost of additional services for 15
           projects was reasonable, and (5) did not ensure that written agreements for
           projects included all of the necessary provisions. These weaknesses occurred
           because the City lacked adequate procedures and controls regarding its
           contracting processes for projects to ensure that it appropriately followed Federal
           requirements and its own policies.

           For two projects, the City entered into loans and grant agreements with the
           homeowners for the original housing rehabilitation contract price or the original
           contract price plus a contingency of up to 10 percent of the contract amount.
           However, it did not amend the grant agreements or enter into additional grant
           agreements with the homeowners when additional Program funds were used to
           complete the housing rehabilitation work on the homes. The commissioner of the
           City’s Department of Community Development’s Division of Neighborhood
           Services stated that she believed the City followed HUD’s regulations since it was


                                             9
a third-party beneficiary under the rehabilitation construction contracts between
the homeowners and the contractors and the City executed change orders that
amended the contracts. However, although the City was a third-party beneficiary
under the contracts between the homeowners and the contractors, the contracts did
not constitute a written agreement between the City and the homeowners.

The homeowner assisted through project number 9738 refused to let the original
contractor complete the remaining $4,660 in housing rehabilitation services on the
contract. The commissioner of the Division of Neighborhood Services stated that
the original contractor agreed to allow another contractor to complete the housing
rehabilitation work under its rehabilitation construction contract. However, there
was no written agreement between the initial and the new contractor or among the
homeowner, the City, and the new contractor for the rehabilitation work
completed by the new contractor. Regarding project number 9104, the
Department of Community Development’s neighborhood stabilization program
manager stated that the homeowner and the contractor verbally agreed to changes
in the services to be provided under the housing rehabilitation contract between
the homeowner and the contractor. The change order form was created to track
changes from the original contract and was not processed as a normal change
order. Upon completion of the housing rehabilitation work, the homeowner
refused to sign the change order.

The commissioner of the City’s Division of Neighborhood Services stated that the
City was not aware of a Federal requirement that a contractor’s bid not exceed a
cost estimate by more than 10 percent. Further, the Department’s neighborhood
stabilization program manager stated that the City believed the bids were
reasonable. However, the City could not provide documentation to support that it
had a reasonable basis for awarding contracts for housing rehabilitation services
for projects when the contractors’ bids exceeded the City’s cost estimates by more
than 10 percent. The commissioner stated that the City used its rehabilitation
estimating and specification writing system software to determine the
reasonableness of the additional services provided through the change orders.
However, it did not develop cost estimates to support that the cost of the services
was reasonable. The neighborhood stabilization program manager also stated that
the City should have rebid the services for project number 9571.

Finally, the commissioner of the City’s Division of Neighborhood Services stated
that she believed the written agreements for the projects included all of the
necessary provisions since the City’s mortgages and promissory notes and grant
agreements with the homeowners or the rehabilitation construction contracts
between the homeowner and the contractor included the necessary provisions.
However, the contracts did not constitute a written agreement between the City
and the homeowners. Further, neither the mortgages and promissory notes, grant
agreements, nor contracts addressed the income eligibility of the homeowner or
the after-rehabilitation value of the property at the time Program funds were
committed to the housing.



                                10
Conclusion

             The City lacked adequate procedures and controls regarding its contracting
             processes for projects to ensure that it appropriately followed Federal
             requirements and its own policies. It (1) did not ensure that written agreements
             covered more than $21,000 in Program funds used for 4 of the 15 projects, (2)
             used more than $57,000 in Program funds for housing rehabilitation services for
             13 projects that was not reasonable, and (3) lacked sufficient documentation to
             support that its use of nearly $87,000 in Program funds for the cost of services for
             15 projects was reasonable.

Recommendations

             We recommend that the Director of HUD’s Columbus Office of Community
             Planning and Development require the City to

             1A. Reimburse its Program $78,528 from non-Federal funds for the (1) more
                 than $21,000 in Program funds used for 4 projects not covered by written
                 agreements and (2) more than $57,000 in Program funds for housing
                 rehabilitation services for 13 projects that was not reasonable.

             1B. Provide sufficient supporting documentation or reimburse its Program from
                 non-Federal funds, as appropriate, for the $86,797 in Program funds used
                 for 15 projects for which the City did not have sufficient documentation to
                 demonstrate that the cost of additional housing rehabilitation services was
                 reasonable.

             1C. Implement adequate procedures and controls, including training for the
                 City’s employees, to ensure that (1) it amends grant agreements or enters
                 into additional grant agreements with homeowners when additional Program
                 funds are needed to complete projects, (2) rehabilitation construction
                 contracts between the homeowners and contractors and change orders are
                 properly executed for housing rehabilitation services, (3) it procures the
                 services through full and open competition, (4) costs of services are
                 reasonable, (5) it maintains documentation to sufficiently support that the
                 costs of services are reasonable, and (6) written agreements include all of
                 the necessary provisions.




                                              11
Finding 2: The City Lacked Adequate Controls Over Its Repair-A-
     Home Program To Ensure That Households Were Eligible for
                            Assistance
The City did not comply with HUD’s requirements in its use of Program funds for Repair-A-
Home program projects. It lacked sufficient income documentation to support that households
were eligible for assistance. These weaknesses occurred because the City lacked adequate
procedures and controls regarding its projects to ensure that it appropriately followed HUD’s
requirements. As a result, the City was unable to support its use of $193,000 in Program funds
for four projects without sufficient documentation to demonstrate that households were income
eligible.


 The City Lacked Sufficient
 Documentation To Support Its
 Use of $193,000 in Program
 Funds

              We reviewed all 15 Program-funded projects that the City reported as completed
              in HUD’s Integrated Disbursement and Information System from January 1, 2009,
              through September 30, 2011. The City used $728,267 in Program funds for the
              15 projects. Contrary to HUD’s requirements, the City lacked sufficient income
              documentation for 4 of the 15 projects reviewed to support that it used $193,000
              in Program funds for eligible households.

              HUD’s regulations at 24 CFR 92.508(a)(3)(v) state that a participating
              jurisdiction must establish and maintain sufficient records to demonstrate that
              each household that receives Program funds is income eligible in accordance with
              24 CFR 92.203.

              The City lacked 3 consecutive months of income documentation for a household
              member. The following table shows the four projects for which the City did not
              have sufficient income documentation to demonstrate that households were
              income eligible.

                                          Project       Amount of
                                          number        assistance
                                            9104             $71,480
                                           10874              41,670
                                           10895              46,424
                                           10922              33,426
                                           Total           $193,000




                                              12
             Further, the City did not ensure that it properly projected households’ annual
             income for 4 of the 15 projects (numbers 10449, 10874, 10895, and 10922)
             reviewed. The City projected the four households’ annual income based entirely
             or in part on one pay statement. The City also used gross year-to-date income in
             its calculation of projected annual income rather than using current circumstances
             to project future income for project numbers 10449, 10895, and 10922.

The City Lacked Adequate
Procedures and Controls

             The weakness regarding the City’s lack of sufficient documentation to support
             that households were income eligible occurred because the City lacked adequate
             procedures and controls regarding its projects to ensure that it appropriately
             followed HUD’s requirements.

             The City’s internal procedures for its Repair-A-Home program required only two
             pay statements to be maintained for all income-producing members of a
             household. The commissioner of the City’s Department of Community
             Development’s Division of Neighborhood Services stated that the City was not
             aware that HUD’s requirements specified that participating jurisdictions were
             required to maintain 3 consecutive months’ worth of income documentation on
             which to base a household’s projected income calculation. However, the
             commissioner believed that the City generally complied with the 3-month
             requirement through a combination of year-to-date pay statement information,
             Internal Revenue Service Form W-2 statements, tax returns, Social Security
             information, and other items that were used to verify and substantiate households’
             income.

Conclusion

             The City lacked adequate procedures and controls regarding its projects to ensure
             that it appropriately followed HUD’s requirements. It was unable to support its
             use of $193,000 in Program funds for four projects without sufficient
             documentation to demonstrate that households were income eligible.

Recommendations

             We recommend that the Director of HUD’s Columbus Office of Community
             Planning and Development require the City to

             2A. Provide sufficient supporting documentation or reimburse its Program from
                 non-Federal funds, as appropriate, for the $193,000 in Program funds used
                 for the four projects for which the City did not have sufficient
                 documentation to demonstrate that households were income eligible.


                                             13
2B. Implement adequate procedures and controls, including training for the
    City’s employees, to ensure that it maintains documentation to sufficiently
    support the eligibility of households in accordance with HUD’s
    requirements.




                                14
Finding 3: The City Lacked Adequate Controls Over Its Reporting in
             HUD’s System and Home-Buyer Activities
The City of Cleveland did not comply with the HUD’s requirements in reporting its Program
accomplishments in HUD’s Integrated Disbursement and Information System. It also did not
ensure it reimbursed its Program for homes acquired through home-buyer activities that were
later sold through a sheriff’s sale. These weaknesses occurred because the City lacked adequate
procedures and controls to ensure that it appropriately followed HUD’s requirements. As a
result, HUD and the City lacked assurance that the City accurately reported Program
accomplishments in HUD’s System. Further, the City (1) was unable to support whether its use
of nearly $23,000 in Urban Development Action Grant miscellaneous revenues for activity
numbers 11379 and 12177 was an eligible initial use of miscellaneous revenues or a reuse of the
revenues, (2) did not ensure that its Program was reimbursed $140,000 for eight homes that were
later sold through a sheriff’s sale, and (3) did not implement appropriate affordability periods for
30 of the 33 Housing Trust Fund program rental new construction projects and 1 of the 13
Housing Trust Fund program rental rehabilitation projects reviewed. In addition, the City is at
risk of being required to reimburse its Program additional non-Federal funds if the ownership of
additional homes acquired under its Housing Trust Fund and Afford-A-Home programs is
transferred through foreclosures.


 The City Did Not Report
 Program Accomplishments in
 HUD’s System in a Timely
 Manner

               The City did not report Program accomplishments in HUD’s System in a timely
               manner. As of February 28, 2011, the City had 89 open Program-funded
               activities in HUD’s System for which at least 120 days had elapsed since the City
               made its final drawdown in HUD’s System. The elapsed time since the City’s
               final drawdown for the activities ranged from 144 to 4,793 days; for 63 activities,
               the elapsed time was more than 5 years. On April 8, 2011, we notified the City of
               this issue. As of September 30, 2011, the City had 17 open activities in HUD’s
               System for which at least 120 days had elapsed since the City made its final
               drawdown in HUD’s System. The elapsed time since the City’s final drawdown
               for the activities ranged from 804 to 5,007 days; for 15 activities, the elapsed time
               was more than 5 years.

               We reviewed all 17 activities for which, as of September 30, 2011, at least 120
               days had elapsed since the City made its final drawdown in HUD’s System and all
               74 activities for which, as of February 28, 2011, at least 120 days had elapsed
               since the City made its final drawdown in HUD’s System and that were reported
               as complete in HUD’s System as of September 30, 2011. The City provided more
               than $4.8 million in Program funds for the 91 activities. The 91 activities
               included 33 Housing Trust Fund program rental new construction projects, 23


                                                15
Afford-A-Home program home-buyer activities, 21 Housing Trust Fund program
home-buyer activities, and 14 Housing Trust Fund program rental rehabilitation
projects. Of the 21 Housing Trust Fund program home-buyer activities, 1
(number 8711) included 5 different properties.

HUD’s regulations at 24 CFR 92.502(d)(1) state that complete project completion
information must be entered into HUD’s System or otherwise provided within
120 days of the final project drawdown.

Paragraph 2-2(C) of HUD Handbook 6511.02, REV-1, states that only the initial
use of Urban Development Action Grant miscellaneous revenues must comply
with the appropriate eligibility requirements under Title I of the Housing and
Community Development Act of 1974 as amended. The reuse of miscellaneous
revenues through other recycling mechanisms is not subject to the provisions of
the Act.

The questions and answers provided in HUD’s former Assistant Secretary for
Community Planning and Development’s December 10, 1990, memorandum to
HUD staff regarding Urban Development Action Grant project management
stated that for projects approved before July and September of 1989 and governed
by the grant agreement rider provisions in effect before the August 1988 revised
regulations, miscellaneous revenues may be spent for any activity eligible under
Title I of the Housing and Community Development Act of 1974 as amended.
For the 85 projects approved in July and September of 1989 and subject to the
revised grant agreement rider provisions, miscellaneous revenues must be made
available by the recipient for economic development activities eligible for funding
under either the Urban Development Action Grant program or Section 105 of the
Act.

As a result of our audit, from March 1, 2011, through May 3, 2012, the City
reported 88 of the 91 activities as complete in HUD’s System. For 67 of the 88
activities, the City entered completion dates into HUD’s System 230 to 5,202
days after it made the final drawdowns. For the remaining 21 activities, the City
could not determine when it entered the completion dates into HUD’s System.
Therefore, we could not determine the number of days, after the City’s final
drawdown, that it took to enter the completion dates into HUD’s System for these
activities. However, based on information in HUD’s System, as of February 28,
2011, at least 174 to 741 days had elapsed before the City entered the completion
dates into HUD’s System.

Further, the City determined that two activities (Housing Trust Fund program
rental rehabilitation project number 3731 and Housing Trust Fund program home-
buyer activity number 10182) were not eligible under the Program. Therefore, the
City decommitted the $22,730 in Program funds and canceled the two activities in
HUD’s System and then used $22,730 in Urban Development Action Grant
miscellaneous revenues for two new activities (numbers 11379 and 12177) under



                                16
           the Program. However, it was unable to provide its Urban Development Action
           Grant agreement with HUD or grant closeout documentation to support how the
           miscellaneous revenues were to be used or that the use of the miscellaneous
           revenues was a reuse of the revenues.

           The City also determined that it had inappropriately created a second project
           number for a Housing Trust Fund program rental rehabilitation project when it
           awarded additional funds for the project. The City transferred the Program funds
           from project number 6018 to project number 5042 and then canceled project
           number 6018.

The City Did Not Reimburse Its
Program $140,000 From Non-
Federal Funds

           As of May 2, 2012, the City had received foreclosure notices for 12 of the 16
           homes associated with 12 of the 44 home-buyer activities (23 Afford-A-Home
           program home-buyer activities plus 21 Housing Trust Fund program home-buyer
           activities). Therefore, we reviewed the 12 activities, as applicable, to determine
           whether (1) the City implemented the recapture provisions after June 2003, the
           date of HUD’s HOMEfires, volume 5, number 2; (2) the recapture provisions
           limited the amount of Program funds the City could recapture to the net proceeds
           from the sale of a home; and (3) the homes were sold and ownership of the homes
           had been transferred within 5 years of the execution of the City’s mortgages and
           promissory notes with the home buyers.

           The City entered into mortgages and promissory notes with the home buyers for
           11 of the 12 activities after June 2003. Further, although the mortgages and
           promissory notes between the City and the home buyers included affordability
           requirements, neither the mortgages nor the promissory notes contained language
           that limited the amount of Program funds the City could recapture to the net
           proceeds from the sale of a home. The mortgages and promissory notes required
           repayment of the full amount of the loan upon sale, lease, refinance, or transfer.
           An additional amount equal to the interest that would have accrued on the second
           mortgage loan if it had been made at the same interest rate as the first mortgage
           loan was also due and payable in the event that the borrower sold, leased,
           refinanced, or transferred the property within the initial 5 years of the execution of
           the mortgage and promissory note.

           As previously stated, the mortgages and promissory notes required repayment of
           the entire amount of the Program investment upon sale. As of May 25, 2012, 8 of
           the 11 homes had been sold through a sheriff’s sale, and ownership of the homes
           had been transferred within 5 years of the execution of the mortgages and
           promissory notes. The City did not receive any net proceeds from the sale of the
           eight homes, nor did it reimburse its Program for $140,000 in Program funds used
           for the eight homes.


                                            17
HUD’s regulations at 24 CFR 92.252(e) state that Program-assisted units must
meet the affordability requirements for not less than the applicable period
beginning after project completion. Rental activities that involve rehabilitation or
acquisition of existing housing and receive more than $40,000 in Program
assistance per unit or involve rehabilitation that includes financing must remain
affordable for at least 15 years. Rental activities that involve new construction or
acquisition of newly constructed housing must remain affordable for at least 20
years. HUD’s regulations at 92.254(a)(4) state that Program-assisted housing
must meet HUD’s affordability requirements. Section 92.254(a)(5) states that to
ensure affordability, a participating jurisdiction must impose either resale or
recapture provisions that comply with the standards of section 92.254(a)(5).

HUD’s HOMEfires, volume 5, number 2, dated June 2003, states that for
Program-assisted home-buyer projects with recapture provisions, the amount of
Program funds required to be repaid if the ownership of the housing is conveyed
pursuant to a foreclosure sale is the amount that would be subject to recapture
under the terms of the written agreement with the home buyer. If the recapture
provisions require the entire amount of the Program investment from the home
buyer or an amount reduced prorata based on the time the home buyer has owned
and occupied the home measured against the affordability period, the amount
required by the recapture provisions is the amount that must be recaptured by the
participating jurisdiction for the Program. If the participating jurisdiction is
unable to recapture the funds from the household, the participating jurisdiction
must reimburse its Program in the amount due pursuant to the recapture
provisions in the written agreement with the home buyer.

The following table includes the activity number, the date of closing, the date the
City entered into the mortgages and promissory notes with the home buyers, the
date Program funds were drawn down for the activity in HUD’s System, the date
the home was sold through a sheriff’s sale, the date ownership was transferred,
and the amount of assistance provided through loans for the eight homes.

                                Date of                                             Date of
   Activity     Date of       mortgage and        Date of          Date of         ownership       Amount of
   number       closing           note           drawdown        sheriff’s sale     transfer       assistance
    6840      Aug. 3, 2004    Aug. 3, 2004      Dec. 10, 2004    Oct. 16, 2006    Mar. 20, 2007        10,000
    6841       Apr. 9, 2004   Apr. 9, 2004      Sept. 1, 2004    Nov. 19, 2007    Jan. 29, 2008        10,000
    6849      Oct. 10, 2002   Mar. 29, 2004     Sept. 15, 2004   July 24, 2006    Nov. 17, 2006        20,000
    7765      June 11, 2003   July 21, 2004     Sept. 23, 2004   July 28, 2008    Sept. 15, 2008       20,000
    7766      July 29, 2004   July 28, 2004     Sept. 23, 2004   Apr. 21, 2008     Oct. 7, 2008        20,000
    8711      July 30, 2004   Nov. 10, 2005     Feb. 10, 2006    Nov. 10, 2008    Jan. 15, 2009        20,000
   11054       Oct. 7, 2009    Oct. 7, 2009      Oct. 9, 2009    Mar. 19, 2012     May 3, 2012         20,000
   11082       Dec. 1, 2009   Dec. 1, 2009      Dec. 21, 2009    Apr. 11, 2011    Aug. 24, 2011        20,000
                                              Total                                                 $140,000


Further, the City’s loan agreements with the owners for 30 of the 33 Housing
Trust Fund program rental new construction projects and 1 of the 13 Housing
Trust Fund program rental rehabilitation projects (14 projects less canceled


                                         18
           project number 6018) included an affordability period shorter than required by
           HUD’s regulations at 24 CFR 92.252. The loan agreements for the 30 Housing
           Trust Fund program rental new construction projects (numbers 6868 through
           6897) included an affordability period of 10 years rather than 20 years. The loan
           agreement for the Housing Trust Fund program rental rehabilitation project
           (number 8214) included an affordability period of 10 years rather than 15 years.

The City Lacked Adequate
Procedures and Controls

           The City (1) did not report Program accomplishments in HUD’s System in a
           timely manner, (2) lacked sufficient documentation to support how the Urban
           Development Action Grant miscellaneous revenues were to be used or that the use
           of the miscellaneous revenues was a reuse of the miscellaneous revenues, (3) did
           not implement appropriate recapture provisions for its home-buyer activities, (4)
           did not ensure that its Program was reimbursed for Program funds used to assist
           home buyers in purchasing homes that were later sold through a sheriff’s sale and
           ownership of the homes had been transferred, and (5) did not implement
           appropriate affordability periods for Housing Trust Fund program rental new
           construction and rehabilitation projects. These weaknesses occurred because the
           City lacked adequate procedures and controls to ensure that it appropriately
           followed HUD’s requirements.

           The Department’s neighborhood stabilization program manager stated that HUD’s
           participating jurisdiction open activities reports for the City were provided to the
           program managers within the Department who oversaw the Housing Trust Fund
           and Afford-A-Home programs. However, the Department did not have sufficient
           staff to report Program accomplishments in HUD’s System in a timely manner.

           The neighborhood stabilization program manager stated that the City was not
           aware that it was required to include language in its mortgages and promissory
           notes that limited recapture to the net proceeds from the sale of the homes until
           HUD conducted an onsite monitoring review in February 2010. Further, the
           director of the Department stated that although the City was not aware that it had
           created an additional financial burden on itself, it complied with HUD’s
           requirements and State law regarding foreclosure sales and did not recapture more
           than the net proceeds from the sale of the homes. As of March 2010, the City was
           using a revised mortgage and promissory note for its Afford-A-Home home-buyer
           activities that included language that would limit the amount of Program funds the
           City could recapture to the net proceeds from the sale of a home.

           The neighborhood stabilization program manager also stated that the program
           managers within the Department who oversaw the Housing Trust Fund program
           were responsible for reviewing the loan agreements to ensure that the correct
           affordability periods were used for the rental new construction and rehabilitation
           projects. The City could not determine why it did not implement appropriate


                                            19
             affordability periods for the projects. However, for the Housing Trust Fund
             program rental new construction projects, it appeared that the City used the
             affordability period applicable to rental activities that involve rehabilitation or
             acquisition of existing housing rather than the affordability period for rental
             activities that involve new construction or acquisition of newly constructed
             housing.

Conclusion

             HUD and the City lacked assurance regarding the accuracy of the City’s Program
             accomplishments reported in HUD’s System. Further, the City (1) was unable to
             support whether its use of nearly $23,000 in Urban Development Action Grant
             miscellaneous revenues for activity numbers 11379 and 12177 was an eligible
             initial use of miscellaneous revenues or a reuse of the revenues, (2) did not ensure
             that its Program was reimbursed for $140,000 in Program funds used for the eight
             homes that were later sold through a sheriff’s sale and ownership of the homes
             had been transferred within 5 years of the execution of the mortgages and
             promissory notes, and (3) did not implement appropriate affordability periods for
             30 of the 33 Housing Trust Fund program rental new construction projects and 1
             of the 13 Housing Trust Fund program rental rehabilitation projects reviewed. In
             addition, the City is at risk of being required to reimburse its Program additional
             non-Federal funds if the ownership of additional homes acquired under its
             Housing Trust Fund and Afford-A-Home programs is transferred through
             foreclosures.

Recommendations

             We recommend that the Director of HUD’s Columbus Office of Community
             Planning and Development require the City to

             3A. Reimburse its Program $140,000 from non-Federal funds for the homes that
                 were sold through a sheriff’s sale and ownership of the homes had been
                 transferred within 5 years of the execution of the mortgages and promissory
                 notes.

             3B. Provide documentation supporting that the use of the $22,730 in Urban
                 Development Action Grant miscellaneous revenues for activity numbers
                 11379 and 12177 was an eligible initial use of miscellaneous revenues or a
                 reuse of the revenues or reimburse its miscellaneous revenues from non-
                 Federal funds for the $22,730 in miscellaneous revenues used.

             3C. Implement adequate procedures and controls to ensure that if the ownership
                 of additional homes acquired through its Housing Trust Fund and Afford-A-
                 Home programs is transferred through foreclosures, the City recaptures the
                 entire amount of the Program funds through the receipt of net proceeds from


                                               20
     the sales of the homes or reimburses its Program from non-Federal funds for
     the Program funds provided to the home buyers as appropriate.

3D. Implement adequate procedures and controls to ensure that it includes
    appropriate affordability periods in its written agreements for Housing Trust
    Fund program rental new construction and rehabilitation projects.




                                21
Finding 4: The City Lacked Adequate Controls Over Its Use and
                    Reporting of Program Income
The City did not always follow HUD’s requirements in its use and reporting of Program income.
It (1) inappropriately drew down more than $11.5 million in Program funds from its HOME
investment trust fund treasury account from January 1, 2009, through September 30, 2011, when
it had available Program income in its HOME investment trust fund local account and (2) did not
report nearly $424,000 in Program income in HUD’s Integrated Disbursement and Information
System in a timely manner. These weaknesses occurred because the City lacked adequate
procedures and controls regarding its administration of Program income to ensure that it
followed HUD’s requirements. As a result, the U.S. Department of the Treasury paid more than
$4,000 in unnecessary interest on the Program funds that the City drew down from its treasury
account when Program income was available. Further, HUD and the City lacked assurance
regarding the amount of Program income available to the City.


 The City Inappropriately Drew
 Down Program Funds When it
 Had Program Income

              Contrary to HUD’s regulations, the City did not always properly use income
              generated from its Program. HUD’s regulations at 24 CFR 92.502(c)(3) state that
              a participating jurisdiction must disburse Program funds, including Program
              income and recaptured Program funds, in its local account before requesting
              Program funds from its treasury account.

              The City inappropriately made 232 drawdowns from its treasury account from
              January 1, 2009, through September 30, 2011, when it had available Program
              income in its local account. The drawdowns totaled more than $11.5 million in
              Program funds. The U.S. Department of the Treasury paid $4,166 in unnecessary
              interest on the more than $11.5 million in Program funds that the City drew down
              from its treasury account when Program income was available. We were
              conservative in our determination of the amount of unnecessary interest that the
              U.S. Department of the Treasury paid. We used the 10-year U.S. Treasury rate
              using simple interest on the City’s daily balance of Program income. Further, we
              did not include in the City’s daily balance of Program income any Program
              income received during a month until the first day of the following month.

 The City’s Reporting of Nearly
 $424,000 in Program Income to
 HUD Was Not Timely

              Contrary to HUD’s requirements, the City did not always report Program income
              in HUD’s System in a timely manner. HUD’s Office of Community Planning and



                                              22
             Development Notice 97-9 requires available Program income to be determined
             and recorded in HUD’s System in periodic intervals not to exceed 30 days.

             The City reported more than $992,000 in Program income in HUD’s System
             through 30 entries from January 1, 2009, through September 30, 2011. However,
             it exceeded HUD’s 30-day reporting requirement by 2 to 67 days 13 times. The
             City’s 13 entries totaled nearly $424,000 in Program income. Further, the City
             did not meet its goal of reporting in HUD’s System Program income earned
             during a month by the 15th of the following month. It exceeded its goal by 1 to
             100 days 27 times. The table in appendix E of this report shows the month in
             which the City earned Program income, the amount of Program income earned,
             the date it reported the Program income in HUD’s System, and the number of
             days it exceeded HUD’s 30-day requirement and its own goal as applicable.

The City Lacked Adequate
Procedures and Controls

             The weaknesses regarding the City’s (1) drawing down of Program funds from its
             treasury account when it had available Program income in its local account and
             (2) not reporting Program income in HUD’s System in a timely manner occurred
             because the City lacked adequate procedures and controls regarding its
             administration of Program income to ensure that it followed HUD’s requirements.

             The City’s Department of Community Development did not report Program
             income in HUD’s System until it had a chance to reconcile Program income
             receipts to Program income data in the City’s financial system, which was not
             available until approximately 1 week after the end of a month. The accounting
             manager of the Department stated that the City had not met its goal of reporting in
             HUD’s System Program income earned during a month by the 15th of the
             following month due to the time it took the Department to review the accuracy of
             Program income receipts and complete its reconciliation. Further, the City
             changed its financial system in January 2010, and the Department did not have
             access to data in the City’s new financial system from January through April
             2010. Therefore, the Department was not able to reconcile its Program income
             receipts to data in the City’s financial system and report in HUD’s System
             Program income earned from January through April 2010 until May 2010. In
             addition, the City drew down Program funds from its treasury account when it had
             available Program income in its local account due to not reporting Program
             income in HUD’s System in a timely manner and not using Program income until
             it was reported in HUD’s System.

Conclusion

             The City lacked adequate procedures and controls regarding its administration of
             its Program income to ensure that it appropriately followed HUD’s requirements.


                                             23
          It (1) inappropriately drew down more than $11.5 million in Program funds from
          its treasury account from January 1, 2009, through September 30, 2011, when it
          had available Program income in its local account, which resulted in the U.S.
          Department of the Treasury’s paying more than $4,000 in unnecessary interest,
          and (2) did not report nearly $424,000 in Program income in HUD’s System in a
          timely manner. Further, HUD and the City lacked assurance regarding the
          amount of Program income available to the City.

Recommendations

          We recommend that the Director of HUD’s Columbus Office of Community
          Planning and Development require the City to

          4A. Reimburse HUD, for transmission to the U.S. Treasury, $4,166 from non-
              Federal funds for the unnecessary interest the U.S. Department of the
              Treasury paid on the Program funds that the City drew down from its
              treasury account when Program income was available.

          4B. Implement adequate procedures and controls to ensure that available
              Program income is used for eligible housing activities before Program funds
              are drawn down from its treasury account.

          4C. Implement adequate procedures and controls to ensure that it reports
              Program income in HUD’s System in a timely manner.




                                         24
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws; Federal regulations at 2 CFR Part 225; HUD’s regulations at 24
                CFR Parts 85, 92, and 570; HUD’s “Building HOME: A Program Primer”;
                HUD’s HOMEfires, volume 5, numbers 2 and 5, and volume 6, number 1; HUD’s
                Technical Guide for Determining Income and Allowances for the Program; HUD
                Handbook 6511.02, REV-1; HUD’s Office of Community Planning and
                Development Notices 97-9, 98-9, and 12-003; and HUD’s former Assistant
                Secretary for Community Planning and Development’s December 10, 1990,
                memorandum to HUD staff regarding Urban Development Action Grant project
                management.

            •   The City’s accounting records; audited financial statements for the years ending
                December 31, 2009, and 2010; data from HUD’s Integrated Disbursement and
                Information System; Program activity files; policies and procedures;
                organizational chart; consolidated plan for 2005 through 2010 and 2011 through
                2016; action plans for program years 2008 to 2009, 2009 to 2010, 2010 to 2011,
                and 2011 to 2012; and consolidated annual performance and evaluation reports
                for program years 2008, 2009, and 2010.

            •   HUD’s files for the City.

In addition, we interviewed the City’s employees and HUD’s staff.

Findings 1 and 2

We selected all 15 Program-funded Repair-A-Home program projects the City reported as
completed in HUD’s System from January 1, 2009, through September 30, 2011. The City used
more than $728,000 in Program funds for the 15 projects.

Finding 3

We selected all 17 activities for which, as of September 30, 2011, at least 120 days had elapsed
since the City made its final drawdown in HUD’s System and all 74 Program-funded activities
for which, as of February 28, 2011, at least 120 days had elapsed since the City made its final
drawdown in HUD’s System and that were reported as complete in HUD’s System as of
September 30, 2011. The City provided more than $4.8 million in Program funds for the 91
activities. The 91 activities included 33 Housing Trust Fund program rental new construction
projects, 23 Afford-A-Home program home-buyer activities, 21 Housing Trust Fund program
home-buyer activities, and 14 Housing Trust Fund program rental rehabilitation projects.




                                                25
We relied in part on data maintained by the City for its Program and data in HUD’s system.
Although we did not perform detailed assessments of the reliability of the data, we performed
minimal levels of testing and found the data to be adequately reliable for our purposes.

We performed our onsite audit work from October 2011 through March 2012 at the City’s offices
located at 601 Lakeside Avenue, Cleveland, OH. The audit covered the period January 2009
through September 2011 and was expanded as determined necessary.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               26
                              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.




                                                 27
Significant Deficiencies

             Based on our review, we believe that the following items are significant deficiencies.
             The City lacked adequate procedures and controls to ensure that

             •   Written agreements covered Program funds used for Repair-A-Home program
                 projects, (2) contracts for housing rehabilitation services were not awarded for
                 projects when the contractors’ bids exceeded the City’s cost estimates by
                 more than 10 percent, (3) it procured contractors to complete services for
                 projects through full and open competition, (4) it maintained sufficient
                 documentation to support that the cost of additional services for projects was
                 reasonable, and (5) written agreements for projects included all of the
                 necessary provisions (see finding 1).

             •   It maintained sufficient documentation to support that households were
                 income eligible (see finding 2).

             •   It reported Program accomplishments in HUD’s Integrated Disbursement and
                 Information System in a timely manner, (2) it maintained sufficient
                 documentation to support whether its use of Urban Development Action Grant
                 miscellaneous revenues for activities was an eligible initial use of
                 miscellaneous revenues or a reuse of the revenues, (3) its Program was
                 reimbursed for Program funds used to assist home buyers in purchasing
                 homes that were later sold through a sheriff’s sale and ownership of the homes
                 had been transferred, and (4) it implemented appropriate affordability periods
                 for Housing Trust Fund program rental new construction and rehabilitation
                 projects (see finding 3).

             •   It complied with HUD’s requirements in its use and reporting of Program
                 income (see finding 4).




                                              28
                                             APPENDIXES

Appendix A

                       SCHEDULE OF QUESTIONED COSTS

                        Recommendation
                                                    Ineligible 1/        Unsupported 2/
                            number
                              1A                              $78,528
                              1B 2                                                 $70,364
                              2A 3                                                 155,668
                              3A                              140,000
                              3B                                                    22,730
                              4A                              4,166
                             Totals                        $222,694              $248,762


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.




2
  We did not include $16,433 in Program funds used for three projects for which the City did not have sufficient
documentation to demonstrate that the costs of additional housing rehabilitation services were reasonable since we
included it in recommendation 1A of this report.
3
  We did not include $37,332 in Program funds used for the four projects for which the City did not have sufficient
documentation to demonstrate that households were income eligible since we included it in recommendation 1A
($11,301), recommendation 1B ($14,471), or recommendations 1A and 1B ($11,560) of this report.


                                                         29
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         30
Ref to OIG Evaluation   Auditee Comments




Comments 1
 and 2


Comment 3



Comment 4




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comments 5
 and 6




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 7
Comments 6, 7,
 and 8
Comment 7




Comment 7



Comment 9




                         33
Ref to OIG Evaluation   Auditee Comments




Comment 10


Comment 11




Comment 12



Comment 13


Comment 14




Comments 10
 and 15




Comments 2
 and 16




                         34
Ref to OIG Evaluation   Auditee Comments




Comments 2
 and 16
Comments 2,
 16, and 17
Comment 18




Comments 2,
 16, and 17
Comments 7
 and 9



Comment 19
Comments 1, 2,
 and 3
Comment 4
Comments 5
 and 6
Comment 3


Comments 7
 and 9




                         35
Ref to OIG Evaluation   Auditee Comments




Comments 10,
 11, 12, 13, 14,
 and 15
Comment 20
Comment 18




Comment 21




Comment 22
Comments 21
 and 22
Comment 18

Comments 21
 and 22



Comments 21,
 22, and 23




                         36
Ref to OIG Evaluation   Auditee Comments




Comments 21,
 22, and 23


Comments 21,
 22, and 23

Comment 24




Comment 25




Comment 25




                         37
Ref to OIG Evaluation   Auditee Comments




Comment 25




Comment 18




Comment 18




                         38
Ref to OIG Evaluation   Auditee Comments




Comment 18




Comments 21,
 22, and 23
Comment 18




Comment 26
Comments 27
 and 28




                         39
Ref to OIG Evaluation   Auditee Comments




Comments 29
 and 30



Comments 18
 and 26




Comments 31
 and 32

Comment 33




                         40
Ref to OIG Evaluation   Auditee Comments




Comment 33

Comment 33




Comments 27
 and 28




Comment 34




                         41
Ref to OIG Evaluation   Auditee Comments




Comments 27,
 28, 34, and 35
Comments 27,
 28, and 35




Comment 18



Comments 27,
 28, and 35




                         42
Ref to OIG Evaluation   Auditee Comments




Comments 27,
 28, and 35




Comment 36




Comment 27




                         43
Ref to OIG Evaluation   Auditee Comments




Comments 34
 and 35




Comments 27,
 28, and 35
Comment 18




Comments 27,
 28, 34, and 35




                         44
Ref to OIG Evaluation   Auditee Comments




Comment 26
Comment 18




Comments 27,
 28, 34, and 35

Comment 33




Comments 27,
 28, and 35



Comment 26

Comment 18




                         45
Ref to OIG Evaluation   Auditee Comments




Comment 37


Comment 37




Comments 37
 and 38




                         46
Ref to OIG Evaluation   Auditee Comments




Comment 39
Comment 37




Comments 37
 and 38




                         47
Ref to OIG Evaluation   Auditee Comments




Comment 40




                         48
Ref to OIG Evaluation   Auditee Comments




Comments 40,
 41, and 42
Comments 37
 and 38




Comments 40,
 41, and 42



Comments 37
 and 41




                         49
Ref to OIG Evaluation   Auditee Comments




Comments 37,
 41, and 42
Comments 37,
 41, and 42

Comments 38,
 40, and 42

Comments 37,
 38, 40, 41,
 and 42




                         50
                        OIG’s Evaluation of Auditee Comments

Comment 1   The City designed its Repair-A-Home program to provide housing rehabilitation
            services to a homeowner using a combination of a Program-funded deferred or
            term loan and grant for the price in the rehabilitation construction contract
            between the homeowner and the contractor. If additional Program funds were
            needed to complete the housing rehabilitation work on the home, the City would
            execute a change order for signature by the homeowner, contractor, and
            designated City employee and award the additional funds through a grant to the
            homeowner. However, for 6 of the 15 projects, the City entered into Program-
            funded deferred or term loans and grant agreements with the homeowners for the
            original contract price or the original contract price plus a contingency of up to 10
            percent of the contract amount but did not amend the grant agreements or enter
            into additional grant agreements with the homeowners when an additional
            $10,214 in Program funds was used to complete the work on the homes.

Comment 2   Although the City was a third-party beneficiary under the rehabilitation
            construction contracts between the homeowners and the contractors, the contracts
            did not constitute a written agreement between the City and the homeowners.

Comment 3   We revised the report to state the following:

            •   Contrary to HUD’s regulations and its own policies, the City did not ensure
                that written agreements covered $21,093 in Program funds used for 4 of the
                15 projects.

            •   For two projects, the City entered into loans and grant agreements with the
                homeowners for the original housing rehabilitation contract price or the
                original contract price plus a contingency of up to 10 percent of the contract
                amount.

            We added the following to the report:

            •   Further, in August 2012, and as a result of our audit, the City entered into
                grant agreements with the homeowners for four of the six projects for the
                additional Program funds used to complete the work on the homes. Therefore,
                the City used an additional $4,873 in Program funds to complete the work on
                the homes for two projects ($758 and $4,115 in Program funds for project
                numbers 10902 and 11401, respectively) without amending the grant
                agreements or entering into additional agreements with the homeowners.

            We removed the following from the report:

            •   The following table shows the six projects for which the City did not amend
                its initial grant agreements or enter into additional grant agreements with the



                                             51
               homeowners when additional Program funds were used to complete the work
               on the homes.

                                                      Amount of
                                          Project     additional
                                          number      assistance
                                            9571             $400
                                           10895            1,924
                                           10902              758
                                           10922              248
                                           10973            2,769
                                           11401            4,115
                                           Total         $10,214

            We also amended recommendation 1A to reflect these revisions.

Comment 4   There was no written agreement between the initial and the new contractor or
            among the homeowner, the City, and the new contractor for the rehabilitation
            work completed by the new contractor for project number 9738.

Comment 5   HUD’s regulations at 24 CFR 85.36(b)(1) state that grantees and subgrantees
            must use their own procurement procedures, which reflect applicable State and
            local laws and regulations, provided that the procurements conform to applicable
            Federal law and the standards identified in 24 CFR 85.36.

            The City’s Department of Community Development’s Division of Neighborhood
            Services’ General Specifications Standards states that all proposed changes and
            additions to the contract must be submitted in writing to the Division’s
            rehabilitation advisor, rehabilitation supervisor, and rehabilitation inspector, who
            will consult with the homeowner and then prepare a change order for the
            deletions, additions, or both as deemed appropriate, which must be signed by the
            homeowner; the contractor; and the Division’s rehabilitation advisor,
            rehabilitation supervisor, or rehabilitation inspector. The contractor is not to
            begin work on items included in a change order until notified to proceed by the
            Division’s rehabilitation advisor, rehabilitation supervisor, or rehabilitation
            inspector in writing (the change order).

Comment 6   Contrary to HUD’s regulations and its own policies, the City used $11,560 in
            Program funds to complete the housing rehabilitation work on the home for
            project number 9104 without a change order signed by the homeowner.

Comment 7   Appendix A, section C.1, of 2 CFR Part 225 requires all costs to be necessary,
            reasonable, and adequately documented. Section C.2 states that a cost is
            reasonable if, in its nature or amount, it does not exceed that which would be
            incurred by a prudent person under the circumstances prevailing at the time the
            decision was made to incur the cost. HUD’s Acting Director of the Office of


                                             52
              Affordable Housing Programs said that it is an industry standard to limit the
              award of contracts for housing rehabilitation services to 10 percent of the
              estimated costs. Further, the City could not provide documentation to support its
              basis that it was reasonable to award contracts for services for projects when the
              contractors’ bids exceeded the City’s cost estimates by more than 10 percent.
              Therefore, contrary to Federal requirements, the City awarded 13 contracts for
              housing rehabilitation services for 13 of the 15 projects when the contractors’ bids
              exceeded the City’s cost estimates by more than 10 percent.

Comment 8     The City’s estimate should be based on market rates.

Comment 9     For three projects (numbers 9738, 10449, and 10973), the City accepted the
              lowest bid, which exceeded the City’s estimate by more than 30 percent.

Comment 10 The City provided cost estimates to support that its use of the nearly $87,000 in
           Program funds for additional housing rehabilitation services through change
           orders for the 15 projects was reasonable. However, the City did not provide
           sufficient documentation to support that the cost estimates were effective at the
           time the change orders were executed.

Comment 11 The City’s cost estimate for project number 9738 included an amount for the
           additional item that the City was able to trace to its initial estimate. We removed
           this amount from the amount of Program funds the City used for the project
           through a change order without sufficient documentation to support that the cost
           of the additional services was reasonable. The estimate also included six items
           that were not on the change order. Further, the estimate did not account for the
           $696 in remaining services completed by the new contactor and applicable to the
           change order that we removed from the amount of Program funds the City used
           for the project through a change order without sufficient documentation to support
           that the cost of the additional services was reasonable.

Comment 12 The City’s cost estimate for project number 10874 included amounts for the three
           items that the City was able to trace to its initial estimate. We removed these
           amounts from the amount of Program funds the City used for the project through
           change orders without sufficient documentation to support that the cost of the
           additional services was reasonable.

Comment 13 The City’s cost estimate for project number 10902 included an amount for an item
           that was included in a change order but then deleted through another change
           order.

Comment 14 The City’s cost estimate for project number 10973 included amounts for the two
           items that the City was able to trace to its initial estimate. We removed these
           amounts from the amount of Program funds the City used for the project through
           change orders without sufficient documentation to support that the cost of the
           additional services was reasonable.



                                               53
Comment 15 The City used nearly $87,000 in Program funds through change orders for all 15
           projects without sufficient documentation to support that the cost of the additional
           services was reasonable.

Comment 16 HUD’s regulations at 24 CFR 92.254(b) state that for rehabilitation not involving
           acquisition, a project qualifies as affordable housing only if the estimated value of
           the property after rehabilitation does not exceed 95 percent of the median
           purchase price for the area and the housing is the principal residence of an owner
           whose household qualifies as a low-income household at the time Program funds
           are committed to the housing. Section 92.504(c)(5)(ii) states that the written
           agreement between the participating jurisdiction and the homeowner must include
           the requirements in 24 CFR 92.254(b) and specify the amount and form of
           Program assistance, rehabilitation work to be undertaken, date of completion, and
           property standards to be met.

Comment 17 Contrary to HUD’s regulations, the City’s written agreements for the projects did
           not include the housing rehabilitation services to be undertaken, date of
           completion, or property standards to be met.

Comment 18 The City’s commitment to new written agreements, procedures, and controls, if
           fully implemented, should improve the City’s management of its Program.

Comment 19 The City did not ensure that written agreements covered more than $21,000 in
           Program funds used for 4 of the 15 projects and used more than $57,000 in
           Program funds for housing rehabilitation services for 13 projects that was not
           reasonable.

Comment 20 The City lacked adequate procedures and controls regarding its contracting
           processes for projects to ensure that it appropriately followed Federal
           requirements and its own policies.

Comment 21 Contrary to HUD’s requirements, the City lacked sufficient income
           documentation for 4 of the 15 projects reviewed to support that it used $193,000
           in Program funds for eligible households. The City lacked 3 consecutive months
           of income documentation for a household member.

Comment 22 The City’s internal procedures for its Repair-A-Home program required only two
           pay statements to be maintained for all income-producing members of a
           household. Further, the commissioner of the City’s Department of Community
           Development’s Division of Neighborhood Services believed that the City
           generally complied with the 3-month requirement through a combination of year-
           to-date pay statement information, Internal Revenue Service Form W-2
           statements, tax returns, Social Security information, and other items that were
           used to verify and substantiate households’ income.




                                              54
              However, HUD’s regulations at 24 CFR 92.203(d)(1) state that a participating
              jurisdiction must calculate a household’s annual income by projecting the
              prevailing rate of the household’s income at the time the participating jurisdiction
              determines the household to be income eligible.

              Further, chapter 2 of HUD’s Technical Guide for Determining Income and
              Allowances for the Program states that a participating jurisdiction must project a
              household’s future income by using the household’s current income
              circumstances. For households with jobs providing steady employment, it can be
              assumed that there will be only slight variations in the amount of income earned.
              Therefore, 3 consecutive months’ worth of income documentation is an
              appropriate amount upon which to base a household’s projected income
              calculation for the following 12-month period. For those households with jobs
              providing employment that is less stable or does not conform to a 12-month
              schedule (for example, seasonal laborers), income documentation that covers the
              entire previous 12-month period should be examined. The year-to-date pay
              statement, Internal Revenue Service Form W-2 wage and tax statement, or tax
              return information may not reflect the household’s current income circumstances.

Comment 23 Contrary to HUD’s requirements, the City did not ensure that it properly projected
           households’ annual income for 4 of the 15 projects (numbers 10449, 10874,
           10895, and 10922) reviewed. The City projected the four households’ annual
           income based entirely or in part on one pay statement. The City also used gross
           year-to-date income in its calculation of projected annual income rather than
           using current circumstances to project future income for project numbers 10449,
           10895, and 10922.

Comment 24 HUD’s Columbus Office of Community Planning and Development’s February
           2010 monitoring review identified that the City lacked sufficient documentation
           to support that households were income eligible and its calculations of
           households’ annual income for activities. In addition, HUD’s Office requested
           that we conduct an audit of the City’s Program due to the issues uncovered during
           its monitoring review.

Comment 25 In September 2010, HUD’s Office of Affordable Housing Programs confirmed
           that a participating jurisdiction is required to maintain 3 consecutive months of
           income documentation for each household member and that using year-to-date
           income from a pay statement was not acceptable since it may not reflect a
           household’s current income circumstances.

Comment 26 We removed from recommendation 3D that the City implement adequate
           procedures and controls to ensure that it enters Program accomplishments into
           HUD’s Integrated Disbursement and Information System in a timely manner.

Comment 27 The City previously provided documentation to support that the homes for 2 of
           the 10 activities (numbers 5997 and 6836) had been sold through a sheriff’s sale



                                               55
              and ownership of the homes had been transferred more than 5 years after the
              execution of the mortgages and promissory notes.

              Therefore, we revised the report to state the following:

              •   As of May 25, 2012, 8 of the 11 homes had been sold through a sheriff’s sale,
                  and ownership of the homes had been transferred within 5 years of the
                  execution of the mortgages and promissory notes. The City did not receive
                  any net proceeds from the sale of the eight homes, nor did it reimburse its
                  Program for $140,000 in Program funds used for the eight homes.

              •   The following table includes the activity number, the date of closing, the date
                  the City entered into the mortgages and promissory notes with the home
                  buyers, the date Program funds were drawn down for the activity in HUD’s
                  System, the date the home was sold through a sheriff’s sale, the date
                  ownership was transferred, and the amount of assistance provided through
                  loans for the eight homes.

              We also removed activity numbers 5997 and 6836 from the table in finding 3 of
              this report.

              Further, we amended recommendation 3A to reflect these revisions.

Comment 28 HUD’s HOMEfires, volume 5, number 2, dated June 2003, states that for
           Program-assisted home-buyer projects with recapture provisions, the amount of
           Program funds required to be repaid if the ownership of the housing is conveyed
           pursuant to foreclosure sale is the amount that would be subject to recapture under
           the terms of the written agreement with the home buyer. If the recapture
           provisions require the entire amount of the Program investment from the home
           buyer, the amount required by the recapture provisions is the amount that must be
           recaptured by the participating jurisdiction for the Program. If the participating
           jurisdiction is unable to recapture the funds from the household, it must reimburse
           its Program in the amount due pursuant to the recapture provisions in the written
           agreement with the home buyer.

              As of May 2, 2012, the City had received foreclosure notices for 12 of the 16
              homes associated with 12 of the 44 home-buyer activities. The City entered into
              mortgages and promissory notes with the home buyers for 11 of the 12 activities
              after June 2003. Further, although the mortgages and promissory notes between
              the City and the home buyers included affordability requirements, neither the
              mortgages nor the promissory notes contained language that limited the amount of
              Program funds the City could recapture to the net proceeds from the sale of a
              home. The mortgages and promissory notes required repayment of the entire
              amount of the Program investment upon sale. As of May 25, 2012, 8 of the 11
              homes had been sold through a sheriff’s sale, and ownership of the homes had
              been transferred within 5 years of the execution of the mortgages and promissory


                                               56
              notes. The City did not receive any net proceeds from the sale of the eight homes,
              nor did it reimburse its Program for $140,000 in Program funds used for the eight
              homes.

Comment 29 We did not state that the first time that the City was aware of the issue of open
           Program-funded activities in HUD’s System for which at least 120 days had
           elapsed since the City made its final drawdown in HUD’s System was when we
           notified the City of this issue on April 8, 2011.

Comment 30 As of August 31, 2008, the City had 122 open Program-funded activities in
           HUD’s System for which at least 120 days had elapsed since the City made its
           final drawdown in HUD’s System. As of February 28, 2011, the City had 89
           open activities in HUD’s System for which at least 120 days had elapsed since the
           City made its final drawdown in HUD’s System. On April 8, 2011, we notified
           the City of this issue. As of May 3, 2012, the City did not have any open
           activities in HUD’s System for which at least 120 days had elapsed since the City
           made its final drawdown in HUD’s System. From August 31, 2008, through
           February 28, 2011, which was 30 months, the City reduced the number of
           activities in HUD’s System for which at least 120 days had elapsed since the City
           made its final drawdown in HUD’s System by 33. From March 1, 2011, through
           May 3, 2012, which was just over 14 months, the City reduced the number of
           activities in HUD’s System for which at least 120 days had elapsed since the City
           made its final drawdown in HUD’s System by 89. Therefore, as a result of our
           audit, from March 1, 2011, through May 3, 2012, the City reported 88 of the 91
           activities as complete in HUD’s System, determined that two activities were not
           eligible under the Program, and determined that it had inappropriately created a
           second project number for a Housing Trust Fund program rental rehabilitation
           project when it awarded additional funds for the project.

Comment 31 Although the Urban Development Action Grant miscellaneous revenues are
           applicable to the two activities (Housing Trust Fund program rental rehabilitation
           project number 3731 and Housing Trust Fund program home-buyer activity
           number 10182) that the City determined were not eligible under the Program, the
           City used the miscellaneous revenues for the two new activities (numbers 11379
           and 12177) under the Program.

Comment 32 We did not state that the City’s use of Urban Development Action Grant
           miscellaneous revenues qualified as program income.

Comment 33 Miscellaneous revenues are not unrestricted. Paragraph 2-2(C) of HUD
           Handbook 6511.02, REV-1, states that only the initial use of Urban Development
           Action Grant miscellaneous revenues must comply with the appropriate eligibility
           requirements under Title I of the Housing and Community Development Act of
           1974 as amended. The reuse of miscellaneous revenues through other recycling
           mechanisms is not subject to the provisions of the Act. The questions and
           answers provided with HUD’s former Assistant Secretary for Community



                                              57
              Planning and Development’s December 10, 1990, memorandum to HUD staff
              regarding Urban Development Action Grant project management stated that for
              projects approved before July and September of 1989 and governed by the grant
              agreement rider provisions in effect before the August 1988 revised regulations,
              miscellaneous revenues may be spent for any activity eligible under Title I of the
              Housing and Community Development Act of 1974 as amended. For the 85
              projects approved in July and September of 1989 and subject to the revised grant
              agreement rider provisions, miscellaneous revenues must be made available by
              the recipient for economic development activities eligible for funding under either
              the Urban Development Action Grant program or Section 105 of the Act. The
              City was unable to provide its Action Grant agreement with HUD or grant
              closeout documentation to support how the miscellaneous revenues were to be
              used or that the use of the miscellaneous revenues was a reuse of the
              miscellaneous revenues.

Comment 34 As previously stated, neither the mortgages nor the promissory notes contained
           language that limited the amount of Program funds the City could recapture to the
           net proceeds from the sale of a home. The mortgages and promissory notes
           required repayment of the entire amount of the Program investment upon sale.
           Therefore, the home-buyer activities did not qualify as affordable housing, and
           requiring the City to reimburse its Program from non-Federal funds for the homes
           that had been sold through a sheriff’s sale and ownership of the homes had been
           transferred within 5 years of the execution of the mortgages and promissory notes
           is not prohibited by Title II of the Cranston-Gonzalez National Affordable
           Housing Act as amended.

Comment 35 Section VII.a. of HUD’s Office of Community Planning and Development’s
           Notice 12-003 states that regardless of whether a participating jurisdiction uses
           resale or recapture, it must execute a Program written agreement that accurately
           reflects the resale or recapture provisions with the home buyer before or at the
           time of sale. The written agreement creates a legal obligation for the participating
           jurisdiction. Consequently, if the participating jurisdiction modifies its resale or
           recapture provisions in its annual action plan submission but does not make
           similar changes to its written agreement, the resale or recapture provisions in the
           written agreement prevail. Secion VII.c. states that failure to comply with the
           resale or recapture requirements means that the home was sold during the period
           of affordability and the applicable resale or recapture provisions were not
           enforced. If this noncompliance occurs, the participating jurisdiction, as the entity
           responsible for the day-to-day operations of its Program, must repay its HOME
           investment trust funds with non-Federal funds. How much of the original
           Program investment must be repaid is dependent on the participating
           jurisdiction’s Program design and use of funds. In cases of noncompliance under
           either resale or recapture provisions, the participating jurisdiction must repay any
           outstanding Program funds invested in the housing to its HOME investment trust
           fund in accordance with 24 CFR 92.503(b). The amount subject to repayment is
           the total amount of the Program funds invested in the housing less any Program



                                              58
              funds already repaid. The participating jurisdiction must repay its HOME
              investment trust fund in accordance with 24 CFR 92.503(b)(3) whether or not it is
              able to recover any portion of the Program investment from the noncompliant
              home buyer.

Comment 36 This provision of 24 CFR 92.254(a)(5)(i)(B) is only applicable when a
           participating jurisdiction imposes resale requirements to ensure the affordability
           of an activity. The City imposed recapture provisions in its mortgages and
           promissory notes with the home buyers.

Comment 37 HUD’s regulations at 24 CFR 92.502(c)(3) state that a participating jurisdiction
           must disburse Program funds, including Program income and recaptured Program
           funds, in its local account before requesting Program funds from its treasury
           account. We were conservative in our determination of the amount of
           unnecessary interest that the U.S. Department of the Treasury paid. We did not
           include in the City’s daily balance of Program income any Program income
           received during a month until the first day of the following month.

Comment 38 HUD’s Office of Community Planning and Development Notice 97-9 requires
           available Program income to be determined and recorded in HUD’s System in
           periodic intervals not to exceed 30 days.

Comment 39 The City inappropriately made 23 drawdowns from its treasury account from
           January 1 through September 30, 2011, when it had available Program income in
           its local account. The drawdowns totaled nearly $1.6 million in Program funds.

Comment 40 The City reported more than $992,000 in Program income in HUD’s System
           through 30 entries from January 1, 2009, through September 30, 2011. However,
           it exceeded HUD’s 30-day reporting requirement by 2 to 67 days 13 times. The
           City’s 13 entries totaled nearly $424,000 in Program income. Further, the City
           did not meet its goal of reporting in HUD’s System Program income earned
           during a month by the 15th of the following month. It exceeded its goal by 1 to
           100 days 27 times.

Comment 41 The City inappropriately made 232 drawdowns from its treasury account from
           January 1, 2009, through September 30, 2011, when it had available Program
           income in its local account. The drawdowns totaled more than $11.5 million in
           Program funds. The U.S. Department of the Treasury paid $4,166 in unnecessary
           interest on the more than $11.5 million in Program funds that the City drew down
           from its treasury account when Program income was available.

Comment 42 The City lacked adequate procedures and controls regarding its administration of
           Program income to ensure that it followed HUD’s requirements.




                                              59
Appendix C

                             APPLICABLE REQUIREMENTS

Finding 1
HUD’s regulations at 24 CFR 85.36(b)(1) state that grantees and subgrantees must use their own
procurement procedures, which reflect applicable State and local laws and regulations, provided
that the procurements conform to applicable Federal law and the standards identified in 24 CFR
85.36. Section 85.36(b)(9) states that grantees and subgrantees must maintain records, such as
the basis for the contract price, sufficient to detail the significant history of procurement. Section
85.36(c)(1) states that all procurement transactions will be conducted in a manner providing full
and open competition consistent with HUD’s regulations at 24 CFR 85.36. Section 85.36(d)(1)
states that when procurement by small purchase is used, price or rate quotations must be obtained
from an adequate number of qualified sources. Section 85.36(f)(1) states that grantees and
subgrantees must perform a cost or price analysis in connection with every procurement action,
including contract modifications. The method and degree of analysis is dependent on the facts
surrounding the particular procurement situation, but as a starting point, grantees must make
independent estimates before receiving bids or proposals.

HUD’s regulations at 24 CFR 92.254(b) state that for rehabilitation not involving acquisition, a
project qualifies as affordable housing only if the estimated value of the property after
rehabilitation does not exceed 95 percent of the median purchase price for the area and the
housing is the principal residence of an owner whose household qualifies as a low-income
household at the time Program funds are committed to the housing.

HUD’s regulations at 24 CFR 92.504(a) state that a participating jurisdiction is responsible for
managing the day-to-day operations of its Program, ensuring that Program funds are used in
accordance with all Program requirements and written agreements, and taking proper action
when performance problems arise. Section 92.504(b) states that before disbursing any Program
funds to any entity, the participating jurisdiction must enter into a written agreement with that
entity. Section 92.504(c)(5)(ii) states that the written agreement between the participating
jurisdiction and the homeowner must include the requirements in 24 CFR 92.254(b) and specify
the amount and form of Program assistance, rehabilitation work to be undertaken, date of
completion, and property standards to be met.

HUD’s regulations at 24 CFR 92.505(a) state that the requirements of Office of Management and
Budget Circular A-87 and 24 CFR 85.36 apply to participating jurisdictions.

Appendix A, section C.1, of 2 CFR Part 225 4 requires all costs to be necessary, reasonable, and
adequately documented. Section C.2 states that a cost is reasonable if, in its nature or amount, it
does not exceed that which would be incurred by a prudent person under the circumstances
prevailing at the time the decision was made to incur the cost. In determining the reasonableness

4
    Office of Management and Budget Circular A-87 was relocated to 2 CFR Part 225.


                                                        60
of a given cost, consideration must be given to (1) the restraints or requirements imposed by such
factors as sound business practices; (2) market prices for comparable goods or services; and (3)
whether the individuals concerned acted with prudence in the circumstances, considering their
responsibilities to the organization, its employees, the public at large, and the Federal
Government.

Section III of HUD’s Office of Community Planning and Development Notice 98-9 states that
when procuring property or services with Program funds, local governments must use their own
procurement procedures, which reflect applicable State and local laws and regulations, provided
that the procurements conform to applicable Federal law and the standards identified in 24 CFR
85.36.

Page 3 of the City’s Department of Community Development’s Division of Neighborhood
Services’ General Specifications Standards states that three contractors will be selected to bid on
each job from the approved bid rotation list. The homeowner may select one contractor to bid on
the job. If the homeowner selects a contractor to bid, only two contractors will be selected from
the approved bid rotation list. Page 6 states that all bids are to be submitted on the bid
specification forms. Page 16 states that the bid specifications that are accepted by the
homeowner, with the City’s approval, become part of the contract between the homeowner and
the bidder. The bidder will be known as the contractor from the time the contract is signed. All
proposed changes and additions to the contract must be submitted in writing to the Division’s
rehabilitation advisor, rehabilitation supervisor, and rehabilitation inspector, who will consult
with the homeowner and then prepare a change order for the deletions, additions, or both as
deemed appropriate, which must be signed by the homeowner; the contractor; and the Division’s
rehabilitation advisor, rehabilitation supervisor, or rehabilitation inspector. Final approval of the
change order is achieved with approval of the commissioner of the Division or a designee. The
contractor is not to begin work on items included in a change order until notified to proceed by
the Division’s rehabilitation advisor, rehabilitation supervisor, or rehabilitation inspector in
writing (the change order).

Section 1 of the rehabilitation construction contracts between the homeowners and the
contractors defines a change order as a written order to the contractor signed by the homeowner
and the commissioner of the City’s Department of Community Development’s Division of
Neighborhood Services or designee, authorizing an addition, a deletion, or a revision to the
project. Section 2.4 states that the contracts may not be changed except by written instrument
executed by the homeowner and contractor under the laws of the State of Ohio and approved by
the City as the third-party beneficiary.

Finding 2
HUD’s regulations at 24 CFR 92.2 define a low-income household as a household with an
annual income that does not exceed 80 percent of the median income for the area as determined
by HUD.

HUD’s regulations at 24 CFR 92.203(a) state that a participating jurisdiction must determine
whether each household is income eligible by determining the household’s annual income.


                                                 61
Section 92.203(a)(2) states that a participating jurisdiction must determine households’ annual
income by examining source documentation evidencing households’ annual income. Section
92.203(d)(1) states that a participating jurisdiction must calculate a household’s annual income
by projecting the prevailing rate of the household’s income at the time the participating
jurisdiction determines the household to be income eligible. Annual income must include
income from all household members.

HUD’s regulations at 24 CFR 92.217 state that a participating jurisdiction must invest Program
funds made available during a fiscal year so that with respect to home ownership assistance, 100
percent of these funds are invested in dwelling units that are occupied by households that qualify
as low-income households.

HUD’s regulations at 24 CFR 92.508(a) state that a participating jurisdiction must establish and
maintain sufficient records to enable HUD to determine whether it has met the requirements of
24 CFR Part 92. The participating jurisdiction must maintain records demonstrating that each
household is income eligible in accordance with 24 CFR 92.203.

Chapter two, part I, of HUD’s “Building HOME: A Program Primer,” dated March 2008, states
that income eligibility is based on anticipated income. Therefore, the previous year’s tax return
does not establish anticipated income and is not adequate source documentation.

Chapter two of HUD’s Technical Guide for Determining Income and Allowances for the
Program, dated January 2005, states that a participating jurisdiction may develop its own income
verification procedures provided that it collects source documentation and that this
documentation is sufficient to enable HUD to monitor Program compliance. A participating
jurisdiction must project a household’s future income by using the household’s current income
circumstances. Exhibit 2.1 states that a participating jurisdiction must include hourly wage
figures, overtime figures, bonuses, anticipated raises, cost-of-living adjustments, or other
anticipated changes in income in an applicant household’s projected income calculation. For
households with jobs providing steady employment, it can be assumed that there will be only
slight variations in the amount of income earned. Therefore, 3 consecutive months’ worth of
income documentation is an appropriate amount upon which to base a household’s projected
income calculation for the following 12-month period. For those households with jobs providing
employment that is less stable or does not conform to a 12-month schedule (such as seasonal
laborers), income documentation that covers the entire previous 12-month period should be
examined. In addition to hourly earnings, participating jurisdictions must account for all earned
income. This income will include annual cost of living adjustments, bonuses, raises, and
overtime pay in addition to base salary. In the case of overtime, it is important to determine
whether overtime is sporadic or predictable. If a participating jurisdiction determines that a
household will continue to earn overtime pay on a regular basis, it should calculate the average
amount of overtime pay earned by the household over the past 3 months. This average should
then be added to the total amount of projected earned income for the following 12-month period.
Appropriate income documentation includes pay statements, third-party verification, bank
statements, or certified copies of tax returns.




                                                62
Finding 3
Section 215(b) of Title II of the Cranston-Gonzalez National Affordable Housing Act, as
amended, states that housing that is for home ownership shall qualify as affordable housing
under Title II of the Act only if the housing is subject to resale restrictions that are established by
the participating jurisdiction and determined by HUD’s Secretary to be appropriate to (1) allow
for the later purchase of the property only by a low-income household at a price that will provide
the owner a fair return on investment and ensure that the housing will remain affordable to a
reasonable range of low-income home buyers or (2) recapture the Program investment to assist
other persons in accordance with the requirements of Title II of the Act, except when there are no
net proceeds or when the net proceeds are insufficient to repay the full amount of the assistance.

HUD’s regulations at 24 CFR 92.252(e) state that Program-assisted units must meet the
affordability requirements for not less than the applicable period beginning after project
completion. The affordability requirements apply without regard to the term of any loan or
mortgage or the transfer of ownership. Rental activities that involve rehabilitation or acquisition
of existing housing and receive less than $15,000 in Program assistance per unit must remain
affordable for at least 5 years. Rental activities that involve rehabilitation or acquisition of
existing housing and receive from $15,000 to $40,000 in Program assistance per unit must
remain affordable for at least 10 years. Rental activities that involve rehabilitation or acquisition
of existing housing and receive more than $40,000 in Program assistance per unit or involve
rehabilitation that includes financing must remain affordable for at least 15 years. Rental
activities that involve new construction or acquisition of newly constructed housing must remain
affordable for at least 20 years.

HUD’s regulations at 24 CFR 92.254(a)(4) state that Program-assisted housing must meet the
affordability requirements for not less than the applicable period beginning after activity
completion. Home-ownership activities that receive less than $15,000 in Program assistance
must remain affordable for at least 5 years. Home-ownership activities that receive from
$15,000 to $40,000 in Program assistance must remain affordable for at least 10 years. Section
92.254(a)(5) states that to ensure affordability, a participating jurisdiction must impose either
resale or recapture provisions that comply with the standards of section 92.254(a)(5) and include
the provisions in its consolidated plan. Section 92.254(a)(5)(ii) states that a participating
jurisdiction’s recapture provisions must ensure that the participating jurisdiction recoups all or a
portion of the Program assistance to the home buyers if the housing does not continue to be the
principal residence of the household for the duration of the period of affordability. The
recaptured funds must be used to carry out Program-eligible activities in accordance with the
requirements of 24 CFR Part 92.

HUD’s regulations at 24 CFR 92.502(c)(3) state that a participating jurisdiction must disburse
Program funds, including Program income and recaptured Program funds, in its local account
before requesting Program funds from its treasury account. Section 92.502(d)(1) states that
complete project completion information must be entered into HUD’s Integrated Disbursement
and Information System or otherwise provided within 120 days of the final project drawdown. If
satisfactory activity completion information is not provided, HUD may suspend further activity
setups or take other corrective actions.


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HUD’s regulations at 24 CFR 92.503(b)(1) state that any Program funds invested in housing that
does not meet the affordability requirements for the period specified in 24 CFR 92.252 or
92.254, as applicable, must be repaid by the participating jurisdiction in accordance with 24 CFR
92.503(b)(3). Section 92.503(b)(3) states that if Program funds were disbursed from the
participating jurisdiction’s treasury account, they must be repaid to the treasury account. If the
Program funds were disbursed from the participating jurisdiction’s local account, they must be
repaid to the local account. Section 92.503(c) states that Program funds recaptured in
accordance with 24 CFR 92.254(a)(5)(ii) must be deposited into the participating jurisdiction’s
local account and used in accordance with the requirements of 24 CFR Part 92.

HUD’s regulations at 24 CFR 92.504(b) state that before disbursing any Program funds to any
entity, a participating jurisdiction must enter into a written agreement with that entity. Section
92.504(c)(5)(i) states that when a participating jurisdiction provides assistance to a home buyer,
the written agreement must conform to the requirements in 24 CFR 92.254(a) regarding resale or
recapture provisions.

Appendix A, section C.3.c., of 2 CFR Part 225 requires that any costs allocable to a particular
Federal award not be charged to other Federal awards to overcome fund deficiencies, to avoid
restrictions imposed by law or terms of the Federal awards, or for other reasons.

Section VII.a. of HUD’s Office of Community Planning and Development’s Notice 12-003
states that regardless of whether a participating jurisdiction uses resale or recapture, it must
execute a Program written agreement that accurately reflects the resale or recapture provisions
with the home buyer before or at the time of sale. The written agreement creates a legal
obligation for the participating jurisdiction. Consequently, if the participating jurisdiction
modifies its resale or recapture provisions in its annual action plan submission but does not make
similar changes to its written agreement, the resale or recapture provisions in the written
agreement prevail. Secion VII.c. states that failure to comply with the resale or recapture
requirements means that the home was sold during the period of affordability and the applicable
resale or recapture provisions were not enforced. If this noncompliance occurs, the participating
jurisdiction, as the entity responsible for the day-to-day operations of its Program, must repay its
HOME investment trust funds with non-Federal funds. How much of the original Program
investment must be repaid is dependent on the participating jurisdiction’s Program design and
use of funds. In cases of noncompliance under either resale or recapture provisions, the
participating jurisdiction must repay any outstanding Program funds invested in the housing to
its HOME investment trust fund in accordance with 24 CFR 92.503(b). The amount subject to
repayment is the total amount of the Program funds invested in the housing less any Program
funds already repaid. The participating jurisdiction must repay its HOME investment trust fund
in accordance with 24 CFR 92.503(b)(3) whether or not it is able to recover any portion of the
Program investment from the noncompliant home buyer.

HUD’s HOMEfires, volume 5, number 2, states that for Program-assisted home-buyer projects
with recapture provisions, the amount of Program funds required to be repaid if the ownership of
the housing is conveyed pursuant to a foreclosure sale is the amount that would be subject to
recapture under the terms of the written agreement with the home buyer. If the recapture
provisions provide for shared net proceeds, the amount subject to recapture is based on the



                                                64
amount of net proceeds, if any, from the foreclosure sale. If the recapture provisions require the
entire amount of the Program investment from the home buyer or an amount reduced prorata
based on the time the home buyer has owned and occupied the home measured against the
affordability period, the amount required by the recapture provisions is the amount that must be
recaptured by the participating jurisdiction for the Program. If the participating jurisdiction is
unable to recapture the funds from the household, the participating jurisdiction must reimburse
its Program in the amount due pursuant to the recapture provisions in the written agreement with
the home buyer.

HUD’s HOMEfires, volume 5, number 5, requires a participating jurisdiction to select either
resale or recapture provisions for its Program-assisted home-buyer projects. The participating
jurisdiction may select resale or recapture provisions for all of its home-buyer projects or resale
or recapture provisions on a case-by-case basis. However, the participating jurisdiction must
select whether resale or recapture will be imposed for each home-buyer project at the time the
assistance is provided. A participating jurisdiction may adopt any one of four options in
designing its recapture provisions. All of the options the participating jurisdiction will employ
must be identified in its consolidated plan and approved by HUD.

HUD’s HOMEfires, volume 6, number 1, requires that a participating jurisdiction report activity
completion and beneficiary data for initial occupants in a timely manner by entering the data into
HUD’s System on a regular basis and periodically review the status of all activities to identify
those that need to be canceled. Failure to maintain timely information in HUD’s System is a
violation of 24 CFR 92.504(a). When a participating jurisdiction fails to enter information into
HUD’s System in a timely manner, Program results are underreported to Congress and the Office
of Management and Budget. The underreporting of Program results may negatively impact
future Program funding.

Paragraph 2-2(C) of HUD Handbook 6511.02, REV-1, states that only the initial use of Urban
Development Action Grant miscellaneous revenues must comply with the appropriate eligibility
requirements under Title I of the Housing and Community Development Act of 1974 as
amended. The reuse of miscellaneous revenues through other recycling mechanisms is not
subject to the provisions of the Act.

The questions and answers provided in HUD’s former Assistant Secretary for Community
Planning and Development’s December 10, 1990, memorandum to HUD staff regarding Urban
Development Action Grant project management stated that for projects approved before July and
September of 1989 and governed by the grant agreement rider provisions in effect before the
August 1988 revised regulations, miscellaneous revenues may be spent for any activity eligible
under Title I of the Housing and Community Development Act of 1974 as amended. For the 85
projects approved in July and September of 1989 and subject to the revised grant agreement rider
provisions, miscellaneous revenues must be made available by the recipient for economic
development activities eligible for funding under either the Urban Development Action Grant
program or Section 105 of the Act.




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Finding 4
HUD’s regulations at 24 CFR 92.2 define Program income as gross income received by a
participating jurisdiction directly generated from the use of Program funds or matching
contributions. Program income also includes interest earned on Program income pending its
disposition.

HUD’s regulations at 24 CFR 92.502(c)(3) state that a participating jurisdiction must disburse
Program funds, including Program income and recaptured Program funds, in its local account
before requesting Program funds from its treasury account.

HUD’s regulations at 24 CFR 92.503(a)(1) state that a participating jurisdiction must deposit
Program income into its local account unless it permits a State recipient or subrecipient to retain
the Program income for additional Program projects pursuant to the written agreement required
by 24 CFR 92.504.

HUD’s Office of Community Planning and Development Notice 97-9, issued September 12,
1997, requires available Program income to be determined and recorded in HUD’s System in
periodic intervals not to exceed 30 days.




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Appendix D

  THE CITY’S CONTRACTING PROCESSES FOR REPAIR-A-
              HOME PROGRAM PROJECTS

Project number 8534
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $17,669. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On April 13, 2009, the
City opened the bids, and the lowest bid was $19,431. The lowest bid exceeded the City’s
estimate by 9.9 percent. The City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $19,431 on April 24, 2009. The
City added 10 items to and deleted 2 items from the scope of work through a change order, dated
June 25, 2009. The additional items totaled $2,629. However, the City did not estimate the cost
for the additional services. The City’s cost estimate and the contractor’s bid for the deleted items
were $452 and $560, respectively. The City used $21,500 in Program funds ($19,431 for the bid
plus $2,629 for the additional items in the change order less $560 for the deleted items in the
change order) to pay the contractor for the rehabilitation work completed on the home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $17,217 and
$18,871, respectively. The contractor’s bid then exceeded the City’s estimate by 9.6 percent.
The City did not use Program funds for services in excess of 110 percent of the City’s estimate
for the project. However, it used $2,629 in Program funds through a change order for the project
without sufficient documentation to support that the cost of the additional services was
reasonable.

Project number 9104
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $61,009. The City requested bids for the services from three
contractors. All three contractors submitted a bid. On August 14, 2006, the City opened the
bids, and the lowest bid was $69,440. Although the lowest bid exceeded the City’s estimate by
13.8 percent, the City accepted the lowest bid, and the homeowner and the contractor entered
into a rehabilitation construction contract for $69,440 on September 22, 2006. The City added
29 items to and deleted 26 items from the scope of work through a change order form signed by
a City rehabilitation inspector on November 20, 2007, and the contractor on December 6, 2007.
The additional items totaled $11,560. However, the City did not estimate the cost for the
additional services. The City’s cost estimate and the contractor’s bid for the deleted items were
$8,488 and $9,520, respectively. The City used $71,480 in Program funds ($69,440 for the bid
plus $11,560 for the additional items in the change order form less $9,520 for the deleted items
in the change order form) to pay the contractor for the rehabilitation work completed on the
home.



                                                67
Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. We were unable to trace one of the
deleted items to the City’s scope of work. To be conservative, we removed only the $300 for the
deleted item from the contractor’s bid. We removed the remaining deleted items from the City’s
estimate and the contractor’s bid. Therefore, the City’s cost estimate and the contractor’s bid for
the services for which the City paid the contractor were $52,521 and $59,920, respectively. The
contractor’s bid then exceeded the City’s estimate by 14 percent. As a result, the City used
$2,147 in Program funds for services in excess of 110 percent of the City’s estimate for the
project. Further, it used $11,560 in Program funds through a change order form for the project
without sufficient documentation to support that the cost of the additional services was
reasonable.

Project number 9571
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $40,577. The City requested bids for the services from three
contractors. However, only one of the three contractors submitted a bid. On May 21, 2007, the
City opened the bid, and the bid was $51,500. Although the bid exceeded the City’s estimate by
26.9 percent, the City accepted the bid, and the homeowner and the contractor entered into a
rehabilitation construction contract for $51,500 on June 22, 2007. The City added 22 items to
and deleted 4 items from the scope of work through 2 change orders from April 2, 2008, through
November 5, 2008. The additional items totaled $8,170. However, the City did not estimate the
cost for the additional services. The City’s cost estimate and the contractor’s bid for the deleted
items were $2,324 and $2,620, respectively. The City used $57,050 in Program funds ($51,500
for the bid plus $8,170 for the additional items in the change orders less $2,620 for the deleted
items in the change orders) to pay the contractor for the rehabilitation work completed on the
home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $38,253 and
$48,880, respectively. The contractor’s bid then exceeded the City’s estimate by 27.7 percent.
As a result, the City used $6,802 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $8,170 in Program funds through two change
orders for the project without sufficient documentation to support that the cost of the additional
services was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $28,325
on June 18, 2007, and a Program-funded grant agreement with the homeowner for $28,325 on
June 19, 2007, for the price in the rehabilitation construction contract between the homeowner
and the contractor plus a 10 percent contingency of the contract amount. However, the City did
not amend the grant agreement or enter into an additional grant agreement with the homeowner
when an additional $400 in Program funds ($57,050 in Program funds used less $56,650 in
written agreements) was used to complete the housing rehabilitation work on the home.




                                                68
Project number 9647
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $23,928. The City requested bids for the services from three
contractors. All three contractors submitted a bid. On May 27, 2007, the City opened the bids,
and the lowest bid was $27,545. Although the lowest bid exceeded the City’s estimate by 15.1
percent, the City accepted the lowest bid, and the homeowner and the contractor entered into a
rehabilitation construction contract for $27,545 on August 2, 2007. The City added eight items
to and deleted two items from the scope of work through three change orders from September 28
through November 1, 2007. The additional items totaled $3,174. However, the City did not
estimate the cost for the additional services. Further, one of the additional items was an increase
of $80 due to a calculation error in the contractor’s bid. The City’s cost estimate and the
contractor’s bid for the deleted items were $45 and $375, respectively. The City used $30,300 in
Program funds ($27,545 for the bid plus $3,130 for the additional items in the change orders less
$375 for the deleted items in the change orders) to pay the contractor for the rehabilitation work
completed on the home. The City did not pay the contractor for $44 in additional services.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the contractor’s bid or from the City’s estimate and the contractor’s bid to determine
the amount of housing rehabilitation services that exceeded the City’s estimate. We were unable
to trace one of the deleted items to the City’s scope of work. To be conservative, we removed
only the $300 for the deleted item from the contractor’s bid. We removed the remaining deleted
item from the City’s estimate and the contractor’s bid. We also added $80 to the contractor’s bid
since an additional item was an increase due to a calculation error in the contractor’s bid.
Therefore, the City’s cost estimate and the contractor’s bid for the services for which the City
paid the contractor were $23,883 and $27,250, respectively. The contractor’s bid then exceeded
the City’s estimate by 14.1 percent. As a result, the City used $978 in Program funds for
services in excess of 110 percent of the City’s estimate for the project. Further, it used $3,050
($3,130 in Program funds used for the additional items less $80 for the increase due to a
calculation error in the contractor’s bid) in Program funds through change orders for the project
without sufficient documentation to support that the cost of the additional services was
reasonable.

Project number 9738
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $42,539. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On August 13, 2007,
the City opened the bids, and the lowest bid was $58,376. Although the lowest bid exceeded the
City’s estimate by 37.2 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $58,376 on September 27, 2007.
The City added 12 items to and deleted 13 items from the scope of work through a change order,
dated December 7, 2007. The additional items totaled $10,512. The City did not estimate the
cost for the additional services. However, it was able to trace 1 of the 12 additional items to its
initial estimate since the services were for additional units of an item in its scope of work and the
cost matched the amount in the contractor’s bid. The additional item was $60. The City’s cost
estimate for the additional item was $15. The City’s cost estimate and the contractor’s bid for
the deleted items were $4,497 and $8,778, respectively. Further, the homeowner refused to let



                                                 69
the contractor complete the remaining $4,660 in services on the contract. Therefore, the City
selected another contractor to complete the remaining services without soliciting bids from other
contractors. The City developed a punch list for the services to be completed by the new
contractor. However, we were not able to match the services on the punch list to the services in
the scope of work or the change order. Further, the City did not ensure that the homeowner and
the new contractor entered into a contract. The City used $58,376 in Program funds ($53,716 to
the initial contractor plus $8,778 for the additional items in the change order and $4,660 to the
new contractor less $8,778 for the deleted items in the change order) to pay the contractors for
the rehabilitation work completed on the home. The City did not pay the initial contractor for
$1,734 in additional services or $4,660 in services completed by the new contractor.

Since the City did not pay the initial contractor for items deleted from the scope of work, we
removed the deleted items from the City’s estimate and the contractor’s bid to determine the
amount of services that exceeded the City’s estimate. We also added to the City’s estimate and
the contractor’s bid the additional item the City was able to trace to its initial estimate. Further,
since we were not able to match the new contractor’s services on the punch list to the initial
contractor’s services in the scope of work or the change order and the City did not ensure that the
homeowner and the new contractor entered into a contract, we applied the $4,660 in remaining
services completed by the new contractor, based on a percentage of the total contract, to the
contractor’s bid (after removing the deleted items in the change order and adding the additional
item in the change order that the City was able to trace to its initial estimate) and the change
order (after removing the additional item in the change order that the City was able to trace to its
initial estimate and the amount the City did not pay the initial contractor for additional services).
The amount of the remaining services completed by the new contractor applicable to the
contractor’s bid and change order was $3,964 ($49,658 for the contractor’s bid after the revisions
divided by $58,376 for the contract times $4,660 in remaining services completed by the new
contractor) and $696 ($8,718 for the change order after the revisions divided by $58,376 for the
contract times $4,660 in remaining services completed by the new contractor), respectively. To
be conservative, we removed only the $3,964 in remaining services completed by the new
contractor and applicable to the contractor’s bid from the contractor’s bid. Therefore, the City’s
cost estimate and the contractor’s bid for the services for which the City paid the initial
contractor were $38,057 and $45,694, respectively. The contractor’s bid then exceeded the
City’s estimate by 20 percent. As a result, the City used $3,831 in Program funds for services in
excess of 110 percent of the City’s estimate for the project. Further, it used $8,022 ($8,778 in
Program funds used for the additional items less $60 in Program funds used for the additional
item the City was able to trace to its initial estimate and $696 in remaining services completed by
the new contractor and applicable to the change order) in Program funds through a change order
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

Project number 10274
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $51,404. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On July 8, 2008, the
City opened the bids, and the lowest bid was $57,436. Although the lowest bid exceeded the
City’s estimate by 11.7 percent, the City accepted the lowest bid, and the homeowner and the



                                                 70
contractor entered into a rehabilitation construction contract for $57,436 on August 1, 2008. The
City added seven items to and deleted one item from the scope of work through two change
orders from August 20, 2008, through January 6, 2009. The additional items totaled $1,388.
However, the City did not estimate the cost for the additional services. The City’s cost estimate
and the contractor’s bid for the deleted item were $165 and $880, respectively. The City used
$57,944 in Program funds ($57,436 for the bid plus $1,388 for the additional items in the change
orders less $880 for the deleted item in the change orders) to pay the contractor for the
rehabilitation work completed on the home.

Since the City did not pay for the item deleted from the scope of work, we removed the deleted
item from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $51,239 and
$56,556, respectively. The contractor’s bid then exceeded the City’s estimate by 10.3 percent.
As a result, the City used $193 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $1,388 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

Project number 10449
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $41,902. The City requested bids for the services from three
contractors. All three contractors submitted a bid. On October 20, 2008, the City opened the
bids, and the lowest bid was $55,730. Although the lowest bid exceeded the City’s estimate by
33 percent, the City accepted the lowest bid, and the homeowner and the contractor entered into
a rehabilitation construction contract for $55,730 on December 4, 2008. The City added seven
items to and deleted five items from the scope of work through two change orders from March 6
through May 11, 2009. The additional items totaled $5,851. However, the City did not estimate
the cost for the additional services. The City’s cost estimate and the contractor’s bid for the
deleted items were $2,300 and $4,300, respectively. The City used $57,281 in Program funds
($55,730 for the bid plus $5,851 for the additional items in the change orders less $4,300 for the
deleted items in the change orders) to pay the contractor for the rehabilitation work completed on
the home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $39,602 and
$51,430, respectively. The contractor’s bid then exceeded the City’s estimate by 29.8 percent.
As a result, the City used $7,868 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $5,851 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.




                                                71
Project number 10874
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $34,420. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On May 18, 2009, the
City opened the bids, and the lowest bid was $38,230. Although the lowest bid exceeded the
City’s estimate by 11 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $38,230 on July 8, 2009. The
City added 17 items to and deleted 4 items from the scope of work through 2 change orders from
December 17, 2009, through January 19, 2010. The additional items totaled $4,840. The City
did not estimate the cost for the additional services. However, it was able to trace 3 of the 17
additional items to its initial estimate since the services were for additional units of items in its
scope of work and the costs matched amounts in the contractor’s bid. The three additional items
totaled $1,140. The City’s cost estimate for the three additional items was $1,010. The City’s
cost estimate and the contractor’s bid for the deleted items were $1,820 and $1,400, respectively.
The City used $41,670 in Program funds ($38,230 for the bid plus $4,840 for the additional
items in the change orders less $1,400 for the deleted items in the change orders) to pay the
contractor for the rehabilitation work completed on the home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. We also added to the City’s estimate
and the contractor’s bid the three additional items the City was able to trace to its initial estimate.
Therefore, the City’s cost estimate and the contractor’s bid for the services for which the City
paid the contractor were $33,610 and $37,970, respectively. The contractor’s bid then exceeded
the City’s estimate by 12.9 percent. As a result, the City used $999 in Program funds for
services in excess of 110 percent of the City’s estimate for the project. Further, it used $3,700
($4,840 in Program funds used for the additional items less $1,140 in Program funds used for the
three additional items the City was able to trace to its initial estimate) in Program funds through
change orders for the project without sufficient documentation to support that the cost of the
additional services was reasonable.

Project number 10895
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $32,551. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 29, 2009, the
City opened the bids, and the lowest bid was $40,480. Although the lowest bid exceeded the
City’s estimate by 24.3 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $40,480 on August 3, 2009. The
City added four items to and deleted one item from the scope of work through two change orders
from October 16 through November 4, 2009. The additional items totaled $6,244. However, the
City did not estimate the cost for the additional services. The City’s cost estimate and the
contractor’s bid for the deleted item were $250 and $300, respectively. The City used $46,424 in
Program funds ($40,480 for the bid plus $6,244 for the additional items in the change orders less
$300 for the deleted item in the change orders) to pay the contractor for the rehabilitation work
completed on the home.




                                                  72
Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $32,301 and
$40,180, respectively. The contractor’s bid still exceeded the City’s estimate by 24.3 percent.
As a result, the City used $4,649 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $6,244 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $22,250
and a Program-funded grant agreement with the homeowner for $22,250 on July 28, 2009, for
the price in the rehabilitation construction contract between the homeowner and the contractor
plus a nearly 10 percent contingency of the contract amount. However, the City did not amend
the grant agreement or enter into an additional grant agreement with the homeowner when an
additional $1,924 in Program funds ($46,424 in Program funds used less $44,500 in written
agreements) was used to complete the housing rehabilitation work on the home.

Project number 10901
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $45,792. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 29, 2009, the
City opened the bids, and the lowest bid was $54,410. Although the lowest bid exceeded the
City’s estimate by 18.8 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $54,410 on August 10, 2009.
The City added 18 items to and deleted 7 items from the scope of work through 2 change orders
from September 3 through October 2, 2009. The additional items totaled $6,200. However, the
City did not estimate the cost for the additional services. The City’s cost estimate and the
contractor’s bid for the deleted items were $3,109 and $3,049, respectively. The City also added
$1,000 to its Program-funded deferred loan to the homeowner to complete additional services.
The homeowner requested that a new contractor complete the services. Therefore, the City
selected another contractor to complete the services without soliciting bids from other
contractors. The City estimated the cost of the Program-funded services to be $1,464. It used
$58,561 in Program funds ($54,410 for the bid plus $6,200 for the additional items in the change
orders and $1,000 for the additional services to the new contractor less $3,049 for the deleted
items in the change orders) to pay the contractors for the rehabilitation work completed on the
home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $42,683 and
$51,361, respectively. The contractor’s bid then exceeded the City’s estimate by 20.3 percent.
As a result, the City used $4,410 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $6,200 in Program funds through change orders




                                                73
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

Project number 10902
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $34,877. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 29, 2009, the
City opened the bids, and the lowest bid was $44,380. Although the lowest bid exceeded the
City’s estimate by 27.2 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $44,380 on August 8, 2009. The
City added 30 items to and deleted 8 items from the initial scope of work through 5 change
orders from August 27 through December 3, 2009. The additional items totaled $11,004.
However, the City did not estimate the cost for the additional services. The City’s cost estimate
and the contractor’s bid for the deleted items were $4,316 and $5,736, respectively. The City
used $49,558 in Program funds ($44,380 for the bid plus $10,914 for the additional items in the
change orders less $5,736 for the deleted items in the change orders) to pay the contractor for the
rehabilitation work completed on the home. The City did not pay the contractor for $90 in
additional services.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $30,561 and
$38,644, respectively. The contractor’s bid then exceeded the City’s estimate by 26.4 percent.
As a result, the City used $5,027 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $10,914 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $24,400
on August 3, 2009, and a Program-funded grant agreement with the homeowner for $24,400 on
August 4, 2009, for the price in the rehabilitation construction contract between the homeowner
and the contractor plus a nearly 10 percent contingency of the contract amount. However, the
City did not amend the grant agreement or enter into an additional grant agreement with the
homeowner when an additional $758 in Program funds ($49,558 in Program funds used less
$48,800 in written agreements) was used to complete the housing rehabilitation work on the
home.

Project number 10922
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $24,606. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 8, 2009, the
City opened the bids, and the lowest bid was $28,914. However, the City accepted the other bid
of $30,162 because the City did not include $1,875 in services that the contractor included in its
bid and listed the bid at $28,287. Further, the contractor with the lowest bid did not include costs
for three of the items in the scope of work. The accepted bid exceeded the City’s estimate by



                                                74
22.5 percent. On August 21, 2009, the homeowner and the contractor entered into a
rehabilitation construction contract for $33,178. The contract included a 10 percent contingency
of the bid amount. The City added 16 items to and deleted 2 items from the scope of work
through 2 change orders from November 5 through December 1, 2009. The additional items
totaled $4,527. However, the City did not estimate the cost for the additional services. The
City’s cost estimate and the contractor’s bid for the deleted items were $1,521 and $1,263,
respectively. The City used $33,426 in Program funds ($30,162 for the bid plus $4,527 for the
additional items in the change orders less $1,263 for the deleted items in the change orders) to
pay the contractor for the rehabilitation work completed on the home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor for were $23,085 and
$28,899, respectively. The contractor’s bid then exceeded the City’s estimate by 25.1 percent.
As a result, the City used $3,506 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $4,527 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $16,589
on August 14, 2009, and a Program-funded grant agreement with the homeowner for $16,589 on
August 27, 2009, for the price in the rehabilitation construction contract between the homeowner
and the contractor. However, the City did not amend the grant agreement or enter into an
additional grant agreement with the homeowner when an additional $248 in Program funds
($33,426 in Program funds used less $33,178 in written agreements) was used to complete the
housing rehabilitation work on the home.

Project number 10973
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $32,149. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 8, 2009, the
City opened the bids, and the lowest bid was $44,985. Although the lowest bid exceeded the
City’s estimate by 39.9 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $44,985 on September 25, 2009.
The City added 22 items to and deleted 3 items from the scope of work through 2 change orders
from November 2 through December 24, 2009. The additional items totaled $8,716. The City
did not estimate the cost for the additional services. However, it was able to trace 2 of the 22
additional items to its initial estimate since the services were for additional units of items in its
scope of work and the costs matched amounts in the contractor’s bid. The two additional items
totaled $2,200. The City’s cost estimate for the traceable two additional items was $1,296. The
City’s cost estimate and the contractor’s bid for the deleted items were $2,050 and $1,450,
respectively. The City used $52,251 in Program funds ($44,985 for the bid plus $8,716 for the
additional items in the change orders less $1,450 for the deleted items in the change orders) to
pay the contractor for the rehabilitation work completed on the home.




                                                 75
Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. We also added to the City’s estimate
and the contractor’s bid the two additional items the City was able to trace to its initial estimate.
Therefore, the City’s cost estimate and the contractor’s bid for the services for which the City
paid the contractor were $31,395 and $45,735, respectively. The contractor’s bid then exceeded
the City’s estimate by 45.6 percent. As a result, the City used $11,200 in Program funds for
services in excess of 110 percent of the City’s estimate for the project. Further, it used $6,516
($8,716 in Program funds used for the additional items less $2,200 in Program funds used for the
two additional items the City was able to trace to its initial estimate) in Program funds through
change orders for the project without sufficient documentation to support that the cost of the
additional services was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $33,180
on September 18, 2009, and a Program-funded grant agreement with the homeowner for $16,302
on May 6, 2010, for the price in the rehabilitation construction contract between the homeowner
and the contractor plus a 10 percent contingency of the contract amount. However, the City did
not amend the grant agreement or enter into an additional grant agreement with the homeowner
when an additional $2,769 in Program funds ($52,251 in Program funds used less $49,482 in
written agreements) was used to complete the housing rehabilitation work on the home.

Project Number 11344
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $25,015. The City requested bids for the services from three
contractors. All three contractors submitted a bid. On March 15, 2010, the City opened the bids,
and the lowest bid was $27,331. The lowest bid exceeded the City’s estimate by 9.2 percent.
The City accepted the lowest bid, and the homeowner and the contractor entered into a
rehabilitation construction contract for $27,331 on April 29, 2010. The City added two items to
and deleted one item from the scope of work through a change order, dated November 17, 2010.
The additional items totaled $1,200. However, the City did not estimate the cost for the
additional services. The City’s cost estimate and the contractor’s bid for the deleted item were
$204 and $200, respectively. The City used $28,331 in Program funds ($27,331 for the bid plus
$1,200 for the additional items in the change order less $200 for the deleted item in the change
order) to pay the contractor for the rehabilitation work completed on the home.

Since the City did not pay for the item deleted from the scope of work, we removed the deleted
item from the City’s estimate and the contractor’s bid to determine the amount of housing
rehabilitation services that exceeded the City’s estimate. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor for were $24,811 and
$27,131, respectively. The contractor’s bid then exceeded the City’s estimate by 9.3 percent.
The City did not use Program funds for services in excess of 110 percent of the City’s estimate
for the project. However, it used $1,200 in Program funds through a change order for the project
without sufficient documentation to support that the cost of the additional services was
reasonable.




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Project number 11401
The City developed a scope of work for housing rehabilitation services for the home and
estimated the services to cost $47,450. The City requested bids for the services from three
contractors. However, only two of the three contractors submitted a bid. On June 1, 2010, the
City opened the bids, and the lowest bid was $58,425. Although the lowest bid exceeded the
City’s estimate by 23.1 percent, the City accepted the lowest bid, and the homeowner and the
contractor entered into a rehabilitation construction contract for $58,425 on July 12, 2010. The
City added 20 items to and deleted 2 items from the scope of work through 3 change orders from
September 13 through December 7, 2010. The additional items totaled $6,826. However, the
City did not estimate the cost for the additional services. The City’s cost estimate and the
contractor’s bid for the deleted items were $665 and $1,136, respectively. The City used
$64,115 in Program funds ($58,425 for the bid plus $6,826 for the additional items in the change
orders less $1,136 for the deleted items in the change orders) to pay the contractor for the
rehabilitation work completed on the home.

Since the City did not pay for items deleted from the scope of work, we removed the deleted
items from the contractor’s bid or from the City’s estimate and the contractor’s bid to determine
the amount of housing rehabilitation services that exceeded the City’s estimate. We were unable
to trace one of the deleted items to the City’s scope of work. To be conservative, we removed
only the $250 for the deleted item from the contractor’s bid. We removed the remaining deleted
item from the City’s estimate and the contractor’s bid. Therefore, the City’s cost estimate and
the contractor’s bid for the services for which the City paid the contractor were $46,785 and
$57,289, respectively. The contractor’s bid then exceeded the City’s estimate by 22.4 percent.
As a result, the City used $5,825 in Program funds for services in excess of 110 percent of the
City’s estimate for the project. Further, it used $6,826 in Program funds through change orders
for the project without sufficient documentation to support that the cost of the additional services
was reasonable.

In addition, the City entered into a Program-funded term loan with the homeowner for $30,000
and a Program-funded grant agreement with the homeowner for $30,000 on June 30, 2010, for
the price in the rehabilitation construction contract between the homeowner and the contractor
plus a nearly 3 percent contingency of the contract amount. However, the City did not amend
the grant agreement or enter into an additional grant agreement with the homeowner when an
additional $4,115 in Program funds ($64,115 in Program funds used less $60,000 in written
agreements) was used to complete the housing rehabilitation work on the home.




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Appendix E

    SCHEDULE OF PROGRAM INCOME THAT WAS NOT
          REPORTED IN A TIMELY MANNER

                                                                             Days over
        Month Program             Program           Date reported in       HUD’s 30-day           Days over
        income received        income earned         HUD’s System          requirement*           City’s goal
           Dec. 2008                  $48,884         Jan. 16, 2009                                    1
           Jan. 2009                   41,191        Feb. 13, 2009
           Feb. 2009                   22,719        Mar. 25, 2009                10                   10
           Mar. 2009                   30,489        April 22, 2009                                    7
           Apr. 2009                   24,608        May 21, 2009                                      6
           May 2009                    18,337        June 18, 2009                                     3
           June 2009                   24,233         July 16, 2009                                    1
           July 2009                   20,977        Aug. 20, 2009                 5                   5
           Aug. 2009                   25,350        Sept. 18, 2009                                    3
           Sept. 2009                  21,452         Oct. 13, 2009
           Oct. 2009                   22,875        Nov. 23, 2009                11                   8
           Nov. 2009                   20,183        Dec. 28, 2009                5                   13
           Dec. 2009                   23,508        Feb. 18, 2010                22                  34
           Jan. 2010                   17,103        May 26, 2010                 67                  100
           Feb. 2010                   29,822        May 26, 2010                 67                  72
           Mar. 2010                   42,760        May 26, 2010                 67                  41
           Apr. 2010                   25,918        May 26, 2010                 67                  11
           May 2010                    32,973        June 25, 2010                                    10
           June 2010                   35,759         July 15, 2010
           July 2010                   23,099        Aug. 19, 2010                 5                   4
           Aug. 2010                   24,051        Sept. 14, 2010
           Sept. 2010                  29,034         Oct. 28, 2010               14                   13
           Oct. 2010                   26,153        Nov. 18, 2010                                     3
           Nov. 2010                   24,583        Dec. 28, 2010                10                   13
           Dec. 2010                   20,226        Mar. 11, 2011                43                   55
           Jan. 2011                   25,705        Mar. 18, 2011                                     31
           Feb. 2011                   26,424        Mar. 24, 2011                                     9
           Mar. 2011                   81,555        Apr. 11, 2011
           Apr. 2011                   56,956        May 10, 2011
           May 2011                    31,768        June 24, 2011                15                   9
           June 2011                   42,914         July 26, 2011               2                    11
           July 2011                   24,138        Aug. 18, 2011                                     3
           Aug. 2011                   26,355        Sept. 21, 2011                4                   6
      * The number of days after the 30th day since the City last reported Program income in HUD’s Integrated
        Disbursement and Information System




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