oversight

Essex County, NJ, HOME Investment Partnerships Program was not Always Administered in Compliance with Program Requirements and Federal Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-08-09.

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

 D
OFFICE OF AUDIT
REGION 2
NEW YORK-NEW JERSEY




                      Essex County, NJ

       HOME Investment Partnerships Program




2013-NY-1009                             AUGUST 9, 2013
NOVEMBER xx, 2012
                                                  Issue Date: August 9, 2013

                                                  Audit Report Number: 2013-NY-1009




TO:            Anne Marie Uebbing
               Director, Office of Community Planning and Development, Newark Field Office,
               2FD



FROM:          Edgar Moore
               Regional Inspector General for Audit, New York-New Jersey Region, 2AGA

SUBJECT:       Essex County, NJ’s HOME Investment Partnerships Program Was not Always
               Administered in Compliance With Program Requirements and Federal
               Regulations


    Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final audit report on our review of Essex County, NJ’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
212-264-4174.
                                      August 9, 2013

                                      Essex County, NJ’s HOME Investment Partnerships
                                      Program Was not Always Administered in Compliance
                                      With Program Requirements and Federal Regulations



Highlights
Audit Report 2013-NY-1009


 What We Audited and Why                  What We Found

We audited Essex County, NJ’s HOME       The County’s HOME program was not always administered
Investment Partnerships Program based    in compliance with program requirements. Specifically, (1)
on a risk assessment that considered     HOME funds were not always committed and expended in a
grantee funding, the U.S. Department of  timely manner as required, (2) program income was not
Housing and Urban Development’s          always expended or reported properly, (3) HOME funds
(HUD) risk analysis, and prior audit     were expended on ineligible and unsupported costs, and (4)
coverage. The objective of the audit     HOME match contribution funds were ineligible and from
was to determine whether County          unsupported sources. We attribute these deficiencies to
officials established and implemented    County officials’ unfamiliarity with HOME regulations and
adequate controls to ensure that the     inadequate financial and administrative controls.
HOME program was administered in         Consequently, (1) $856,543 was not committed and
compliance with program requirements.    expended as required, (2) $63,781 in program income was
                                         not recorded in HUD’s Integrated Disbursement and
  What We Recommend                      Information System, (3) $73,466 and $66,206 in HOME
                                         funds were expended on ineligible and unsupported
                                         activities, respectively, (4) $1,504 was paid by HOME
We recommend that the Director of        tenants in excess of HOME low rent limits, (5) more than
HUD’s Newark, NJ, Office of              $1.1 million in entitlement funds drawn down was
Community Planning and Development unsupported based upon ineligible match contributions, and
recapture $856,543 not committed and (6) ineligible match contributions of more than $16 million
expended as required and instruct        were reported that could be used for future drawdowns of
County officials to record $63,781 in    HOME entitlement funds.
program income, reimburse the HOME
program $73,466 for ineligible
disbursements, reimburse tenants of
HOME-assisted units $1,504, provide
documentation for unsupported costs of
$66,206 and drawdowns of more than
$1.1 million in entitlement funds, and
remove more than $16 million in
ineligible reported match contributions.
                             TABLE OF CONTENTS

Background and Objective                                                              3

Results of Audit
      Finding 1:    HOME Funds and Program Income Were Not Committed and
                    Expended in a Timely Manner                                       4
      Finding 2:    HOME Program Funds Were Disbursed for Ineligible Activities and
                    Contrary to Administrative Requirements                           7
      Finding 3:    There Were Weaknesses in Administrative Controls Over HOME
                    Program Match Contribution Funds                                  12
      Finding 4:    There Were Weaknesses in Financial Controls Over Compliance
                    With Federal Regulations and Program Requirements                 16

Scope and Methodology                                                                 20

Internal Controls                                                                     22

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use                  24
B.    Auditee Comments and OIG’s Evaluation                                           26




                                             2
                            BACKGROUND AND OBJECTIVE
The HOME Investment Partnerships Program, authorized under Title II of the Cranston-
Gonzalez National Affordable Housing Act, as amended, is designed to create affordable
housing opportunities for low-income households. The HOME program is the largest Federal
block grant to State and local governments, through which HUD has allocated approximately $2
billion annually in formula grants to the States and hundreds of local governments. Grantees are
required to provide matching funds of 25 percent from non-Federal sources. HOME program
regulations are found at 24 CFR (Code of Federal Regulations) Part 92. The U.S. Department of
Housing and Urban Development (HUD) has provided additional guidance in its guidebook
entitled “Building Home,” dated March 2008.

The HOME program allows State and local governments flexibility to use HOME funds for a
variety of activities to address local housing needs. Funds may be used to support eligible
activities through grants, direct loans, loan guarantees or other forms of credit enhancement, or
rental assistance or security deposits. Participating jurisdictions may choose among a broad
range of eligible activities, including home purchase or rehabilitation financing assistance to
eligible homeowners and new home buyers, building or rehabilitating housing for rent or
ownership, or other reasonable and necessary expenses related to the development of nonluxury
housing, including site acquisition or improvement, demolition of dilapidated housing to make
way for HOME-assisted development, and payment of relocation expenses.

HUD awarded Essex County more than $1.73 and $1.72 million in HOME funds for program
years 2009 and 2010, respectively.1 The County designated the Division of Housing and
Community Development under the Department of Economic Development, Training, and
Employment to administer its HOME program. The County is governed by a nine-member
board of freeholders, five of whom are elected from districts and four of whom are elected at
large. They are elected for 3-year concurrent terms and may be reelected to successive terms at
an annual election in November.

The County’s HOME program disbursed almost $7.7 million in HOME funds during program
years 2009 through 2011 to assist different types of housing activities, including first-time home
buyer, home ownership, and rental housing activities. Approximately $6.5 million, or 84.9
percent, was used for acquisition, rehabilitation, and new construction of rental housing,
especially for individuals and families with special needs.

The objective of the audit was to determine whether County officials established adequate
controls to ensure that HOME funds were administered in compliance with HOME program
requirements.




1
    The County’s program year begins on June 1 of each year and ends on May 31 of the next year.

                                                          3
                                     RESULTS OF AUDIT


Finding 1: HOME Funds and Program Income Were Not Committed
           and Expended in a Timely Manner
County officials did not always ensure that the County’s HOME funds were committed and
expended in a timely manner in accordance with HOME program regulations, and program
income remained on deposit while entitlement funds were drawn down and was not properly
reported. We attribute these deficiencies to weaknesses in County controls over ensuring the
commitment and expenditure of funds in a timely manner. As result, $856,543 in HOME
program funds was not used in an effective and timely manner, $2.34 million in HOME
entitlement funds was drawn down without need, and $63,781 in program income was not
recorded in HUD’s Integrated Disbursement and Information System (IDIS)2.


    HOME Funds Not Committed
    in a Timely Manner

                 County officials did not commit $100,936 of the County’s 2008 required
                 commitment in a timely manner. Regulations at 24 CFR 92.500(d)(1)(B) provide
                 for the reduction or recapture of any HOME funds that are not committed within
                 24 months after the last day of the month in which HUD notifies the grantee of
                 HUD’s execution of the HOME agreement. Regulations at 24 CFR 92.2 define
                 commitment as when the grantee executes a legally binding agreement with a
                 subgrantee. County officials had not executed HOME agreements with
                 subgrantees for four of the County’s HOME-funded activities before the August
                 31, 2010, deadline. We attribute this deficiency to weaknesses in the County’s
                 management controls over ensuring that commitments of HOME funds are
                 supported with signed subgrantee agreements. Therefore, $100,936 in HOME
                 funds was not committed for eligible HOME activities in a timely manner.

    HOME Funds Not Expended in
    a Timely Manner

                 County officials did not expend the County’s year 2007 accumulated entitlement
                 funds in a timely manner. Regulations at 24 CFR 92.500(d)(1)(C) provide for the
                 reduction or recapture of HOME funds that are not expended within 5 years after
                 the last day of the month in which HUD notifies the grantee of HUD’s execution
                 of the HOME agreement. However, County officials maintained significant
                 amounts of cash in their HOME entitlement local bank account. During the

2
  IDIS is a nationwide database of current information regarding CDBG activities, including HOME. It includes
funding and accomplishment data that HUD uses to report to Congress and monitor grantees.

                                                       4
                    period June 1, 2009, through July 31, 2012, the County’s HOME bank account
                    had an average unexpended cash balance of more than $800,000 and a cash
                    balance of $755,607 as of July 31, 2012, the deadline for expending its 2007
                    program year funds. We attribute this deficiency to weaknesses in the County’s
                    management controls over monitoring the progress of housing projects assisted
                    with HOME funds, which did not allow officials to identify projects experiencing
                    delays and reallocate funds from those projects. Therefore, $755,607 in HOME
                    funds was not expended on eligible HOME activities in a timely manner.

    Program Income Not Disbursed
    Before Entitlement Funds Were
    Drawn Down

                    County officials drew down more than $2.7 million in HOME entitlement funds
                    from HUD’s Line of Credit Control System (LOCCS)3 while the County had an
                    average monthly balance of approximately $2.34 million in the County’s local
                    HOME program income bank account during the period June 1, 2009, through
                    May 31, 2012. Regulations at 24 CFR 902.502(c)(3) require that HOME funds in
                    a grantee’s local bank account be disbursed before HOME entitlement funds are
                    drawn down from the U.S. Treasury account. We attribute this deficiency to
                    weaknesses in the County’s management controls over monitoring the progress of
                    housing properties assisted with HOME funds. Therefore, the County’s HOME
                    entitlement and program income funds were not used in an effective and timely
                    manner as prescribed by regulation.

    Program Income Not Properly
    Recorded


                    Although County officials had established a HOME program income account in
                    IDIS, they did not record HOME program income of $63,781 received during the
                    period June 1, 2009, through November 30, 2012, in IDIS. Community Planning
                    and Development (CPD) Notice 97-09, section III, subsection (N), entitled IDIS
                    and Program Income, provides that IDIS is designed to record the receipt and use
                    of HOME program income and that a participating jurisdiction should establish a
                    program income fund in IDIS to record the receipt of program income. We
                    attribute this deficiency to weaknesses in the County’s management controls over
                    tracking program income, specifically a lack of communication between County
                    employees responsible for receiving program income and reporting program
                    income in IDIS. Therefore, there was no assurance that program income of
                    $63,781 would be used for eligible HOME program activities before the
                    drawdown of HOME program funds from the U.S. Treasury.



3
    LOCCS is the system HUD uses to disburse and track the payment of grant funds to grant recipients.

                                                          5
Conclusion

             The County’s HOME program was not always administered in compliance with
             program requirements. HOME funds were not committed and expended in a
             timely manner as required, and program income was not disbursed before HOME
             entitlement funds were drawn down and was not always recorded in IDIS.
             Consequently, HOME entitlement and program income funds were not made
             available for funding eligible activities in a timely manner. We attribute these
             deficiencies to weaknesses in County controls over ensuring commitment and
             expenditure of funds in a timely manner.

Recommendations

             We recommend that the Director of HUD’s Newark, NJ, Office of Community
             Planning and Development

             1A. Recapture the $100,936 that was not committed as of August 31, 2010, in
                 compliance with program requirements, thus ensuring that these funds are
                 put to better use.

             1B. Recapture the $755,607 that was not expended as of July 31, 2012, in
                 compliance with program requirements, thus ensuring that these funds are
                 put to better use.

             1C. Instruct County officials to strengthen financial controls to ensure that
                 HOME funds are committed and expended in compliance with program
                 requirements.

             1D. Instruct County officials to record program income of $63,781 in IDIS to
                 ensure greater accountability for program income and that future HOME
                 program fund drawdowns are put to better use by using program income
                 before drawing down HOME program funds from the U.S. Treasury.

             1E. Instruct County officials to establish and implement controls to ensure that
                 program income is recorded in IDIS and disbursed before entitlement funds
                 are drawn down in accordance with regulations.




                                              6
Finding 2: HOME Program Funds Were Disbursed for Ineligible
           Activities and Contrary to Administrative Requirements
HOME funds were disbursed for ineligible and unsupported activities. Specifically, contrary to
regulations, HOME funds were provided to a previously assisted rental property during the
affordability period, a housing activity in excess of the HOME subsidy limit, an ineligible
community housing development organization (CHDO), and HOME-assisted units that were
rented for more than HOME rent limits. In addition, HOME funds were disbursed for activities
that did not always comply with administrative requirements. We attribute these conditions to
County officials’ unfamiliarity with HOME regulations and weaknesses in administrative
controls. Consequently, $71,551 in HOME funds was used for ineligible activities, two tenants
of HOME-assisted units were charged rents in excess of HOME rent limits, the County and HUD
lacked assurance that some HOME-assisted activities were carried out as planned, and the public
was not always made aware of how HOME funds were spent.



    Additional Assistance to a
    Previously Assisted Property


                  County officials disbursed $19,935 in HOME funds in 2009 for rehabilitation of a
                  rental property that had been acquired with $250,000 from HOME funds in 2006.
                  This is contrary to regulations at 24 CFR 92. 214(a)(6), which prohibit providing
                  HOME funds to projects that were previously assisted with HOME funds during
                  the affordability period.4 While these same regulations provide that additional
                  HOME funds may be committed to a project for up to 1 year after project
                  completion, County officials provided the additional funds more than 2 years after
                  completion of the acquisition activity5. We attribute this deficiency to County
                  officials’ unfamiliarity with HOME program requirements. Therefore, $19,935
                  was disbursed for an ineligible activity and, thus, was not available for other
                  eligible HOME activities.

    Assistance in Excess of HOME
    Subsidy Limits


                  County officials disbursed $25,116 for the acquisition and rehabilitation of a
                  rental property in excess of HOME subsidy limits. HUD CPD Notice 94-
                  01(3)(B) provides that the maximum subsidy is calculated on the basis of the
                  number of HOME-assisted units in the structure times the allowable per unit
4
  The affordability period is the time during which the assisted property must comply with the specific provisions of
rent affordability contained in 24 CFR 92.504.
5
  The final drawdown for the first IDIS activity was made in July, 2006, more than two years before the second IDIS
activity was created and funded. Further, although the first activity should have been closed in IDIS within 120 days
of that final drawdown, the activity remained open until January, 2011.

                                                         7
           subsidy amount. While the maximum subsidy for the property, which had two
           single-room occupancy units, should have been $253,738 ($126,869 x 2), County
           officials provided $278,854 in HOME assistance. We attribute this deficiency to
           County officials’ unfamiliarity with, calculating the allowable maximum HOME
           assistance. Therefore, $25,116 ($278,854 – $253,738) represented an ineligible
           cost and, thus, was not available for other eligible HOME activities assistance.

Operating Funds Provided to
an Ineligible CHDO


           County officials disbursed $26,500 to an ineligible CHDO in program year 2009.
           Regulations at 24 CFR 92.2 specify the requirements to qualify as a CHDO, one
           of which is that the CHDO maintains at least one-third of its board member
           positions for residents of low-income neighborhoods, other low-income
           community residents, or elected representatives of a low-income neighborhood
           organization. However, County officials provided CHDO operating funds of
           $26,500 to a nonprofit entity that had only 2 of its 15 members, or 13 percent,
           meeting that requirement. We attribute this deficiency to weaknesses in the
           County’s management controls over monitoring its CHDOs and the lack of a
           CHDO policy that continues to ensure that its CHDOs remain qualified CHDOs.
           Therefore, $26,500 was disbursed for ineligible CHDO operating costs and, thus,
           was not available for other eligible HOME activities.

HOME-Assisted Unit Rent
Above HOME Rent Limits


           County officials did not always ensure that County subgrantees rented HOME-
           assisted units in compliance with HOME program rent limits. Regulations at 24
           CFR 92.252(b)(2) provide that the HOME low-rent limit should not exceed 30
           percent of the family’s adjusted income and if the unit receives a Federal or State
           project-based rental subsidy, the maximum rent allowable is the Federal or State
           project-based rental subsidy assistance allowance. Regulations at 24 CFR
           92.252(c) further provide that if a tenant pays utilities, the low-rent limit cannot
           exceed the maximum rent as determined in section (b)(2) minus the monthly
           allowance for utilities and service. However, a County subgrantee required
           tenants of two HOME-assisted units, whose rent was paid from HUD’s Housing
           Choice Voucher program, to pay utility costs without reducing the rent by this
           cost. We attribute this deficiency to weaknesses in the County’s management
           controls over monitoring its subgrantees’ compliance with HOME program rent
           limits. Consequently, the two tenants were overcharged $1,504 for rent during
           the period May 1 through December 31, 2012, and would incur excessive rental
           costs of $2,256 in the next year if the rent were not adjusted.




                                             8
    Program Administration Not
    Always in Compliance With
    Program Requirements

                   County officials did not always administer acquisition and rehabilitation activities
                   for rental and home-ownership properties assisted with HOME funds in
                   compliance with HOME program requirements. Specifically,

                           HOME funds were reported as committed for 7 of 14 rental and home-
                            ownership properties reviewed without a HOME subgrantee agreement
                            having been executed contrary to regulations at 24 CFR 92.2(1), which
                            provide that funds are committed when a legally binding agreement is
                            executed between the grantee and the subgrantee.

                           HOME funds were disbursed for 6 of 14 rental and home-ownership
                            properties reviewed before a HOME subgrantee agreement was executed6
                            contrary to regulations at 24 CFR 92.504(b), which require a grantee to
                            enter into a written agreement with a subgrantee that ensures compliance
                            with the requirements of Part 92 before disbursing any HOME funds to
                            any entity.

                           Six of eight loan agreements with HOME-assisted properties did not
                            contain a timeframe for the completion of construction or rehabilitation
                            contrary to regulations at 24 CFR 92.504(c)(3)(i), which require written
                            loan agreements to have a schedule for completing tasks required under
                            the agreement.

                           The value of a HOME-assisted property was not determined after
                            rehabilitation work was completed to ensure that the property value did
                            not exceed 95 percent of the median purchase price for the area as
                            required by regulations at 24 CFR 92.254(a)(2)(ii).

                           A public notice was not published for public comments for three of eight
                            rental and home-ownership properties, which had experienced substantial
                            changes, although the County’s citizen participation plan required public
                            notice, hearings, and comments for substantial changes.

                   We attribute these deficiencies to County officials’ unfamiliarity with HOME
                   program requirements and weaknesses in the County’s management controls over
                   administering HOME program activities. Therefore, there was no assurance that
                   the County’s HOME funds were committed and expended as required and HOME
                   activities always served the public interest.



6
    Subgrantee agreements have since been executed.

                                                      9
Conclusion

             The County’s HOME program was not always administered in compliance with
             program requirements. Consequently, HOME funds were expended for ineligible
             costs, the County and HUD lacked assurance that some HOME-assisted activities
             were carried out as planned, and the public was not always made aware of how
             HOME funds were spent. We attribute these conditions to County officials’
             unfamiliarity with HOME regulations and weaknesses in administrative controls.

Recommendations

             We recommend that the Director of HUD’s Newark, NJ, Office of Community
             Planning and Development instruct County officials to

             2A. Reimburse the County’s HOME program line of credit $19,935 from non-
                 Federal funds for the ineligible assistance provided to a housing activity
                 during the affordability period.

             2B. Strengthen County administrative controls to ensure that HOME funds are
                 not used for previously HOME-assisted activities during the affordability
                 period.

             2C. Reimburse the County’s HOME program line of credit $25,116 from non-
                 Federal funds for assistance provided in excess of HOME subsidy limits.

             2D. Strengthen County administrative controls to ensure that HOME funds are
                 not used to assist HOME units in excess of HOME subsidy limits.

             2E. Reimburse the County’s HOME program line of credit $26,500 from non-
                 Federal funds for the operating grant provided to the ineligible CHDO.

             2F. Strengthen County administrative controls to ensure that CHDOs are
                 certified and continue to operate in compliance with program requirements.

             2G. Direct the County’s subgrantee to reimburse $1,504 to two tenants of
                 HOME-assisted units for rent charged in excess of HOME rent limits and
                 adjust the rent to comply with HOME rent limits, thus ensuring that the two
                 tenants will not pay $2,256 in excess rent over the next year .

             2H. Strengthen County administrative controls to properly monitor its
                 subgrantees’ compliance with HOME rent limits applicable to housing units
                 assisted with HOME funds.

             2I. Strengthen County administrative controls to ensure that HOME housing
                 activities are administered in compliance with program requirements.

                                             10
2J. Seek and obtain adequate training from HUD to enable County officials to
    properly administer the County’s HOME program in compliance with
    program requirements.




                               11
Finding 3: There Were Weaknesses in Administrative Controls Over
           HOME Program Match Contribution Funds
The County did not always use eligible funds and adequately support that funds used were
eligible as HOME match contributions. Specifically, County officials reported more than $16
million in HOME match contributions from ineligible sources by using funds from the Federal
Tax Credit Exchange Program and various loans and mortgages. We attribute these deficiencies
to County officials’ unfamiliarity with HOME program match contribution requirements and
weaknesses in the County’s record-keeping procedures to track match contributions.
Consequently, while the County met its match contribution requirement for our audit period, the
ineligible excess contributions reported could be used to secure HOME funds in future years.


    Ineligible Match Contributions

                  While County officials reported more than $18.8 million as HOME program
                  match contributions for Federal fiscal years 2009 and 2010, they erroneously
                  counted more than $16 million and $76,873 from ineligible and unsupported
                  sources, respectively. HOME participating jurisdictions are required to make
                  contributions of not less than 25 percent of the funds drawn from the participating
                  jurisdiction’s HOME Investment Trust Fund U.S. Treasury account in a fiscal
                  year, and contributions in a fiscal year that exceed a participating jurisdiction’s
                  match liability for that year may be carried over and applied to a future year’s
                  match liability. HUD CPD Notice 97-03 requires that participating jurisdictions
                  maintain a log identifying match liability as it is incurred and the type and amount
                  of funds used to meet the liability. To be recognized as an eligible match
                  contribution, the source of funds must comply with 24 CFR 92.220. The County
                  match log reported that the following ineligible and unsupported sources were
                  used as HOME match contributions:

                          More than $6 million in financing from the Federal Tax Credit Exchange
                           Program.7 Regulations at 24 CFR 92.220(b)(1) provide that contributions
                           made with or derived from Federal resources or funds, regardless of when
                           the Federal resources or funds were received or expended, are not an
                           eligible source of match contribution.

                          More than $8.4 million in loan principal that was borrowed at a discount
                           rate from different lenders, such as the New Jersey Housing and
                           Management Finance Agency, a nonprofit entity, and the City of Orange,
                           NJ, and were not included at the present discounted cash value.
                           Regulations at 24 CFR 92.220(a)(1)(iii)(B) provide that if a loan is made
                           from funds other than funds borrowed by a participating jurisdiction or
7
  This program was authorized by Section 1602 of the American Recovery and Reinvestment Act of 2009 and
allowed housing credit agencies to exchange a portion of their 2009 housing credit allocation for cash assistance
from the U.S. Treasury.

                                                         12
                           public agency or corporation, the match contribution is the present
                           discounted cash value of the yield foregone.8

                          $838,390 from mortgages obtained by first-time home buyers purchasing
                           HOME-assisted properties. Regulations at 24 CFR 92.220(b)(3) provide
                           that owner equity or investment in a project cannot be counted toward
                           meeting a participating jurisdiction’s matching contribution requirement.

                          $619,015 from two loans that did not represent a permanent contribution
                           obtained by nonprofit entities to rehabilitate HOME-assisted properties.
                           Under the terms of the first loan for $140,065, the nonprofit was
                           reimbursed for the loan amount from the County’s HOME funds and
                           proceeds from a loan obtained by the home buyer. The second loan for
                           $478,950 was financed by a mortgage through the Community Loan Fund
                           of New Jersey, Inc. Regulations at 24 CFR 92.220(a)(1) provide that to
                           be recognized as a cash contribution, funds provided must be contributed
                           permanently to the HOME program. Further, to receive match credit for
                           the full amount of a loan to a HOME project, all repayment of principal,
                           interest, or other return on investment of the contribution must be
                           deposited into the local account of the participating jurisdiction’s HOME
                           Investment Trust Fund to be used for eligible HOME activities.

                          Documentation was lacking that $76,873 reported as a match contribution
                           was eligible. Regulations at 24 CFR 92.508 require each participating
                           jurisdiction to establish and maintain sufficient records to document the
                           type and amount of contribution by project.

                  We attribute these deficiencies to County officials’ unfamiliarity with HOME
                  program match contribution requirements. Therefore, the County incorrectly used
                  ineligible matching contributions and incorrectly applied more than $16 million in
                  excess contributions toward future match liabilities.

    HOME Entitlement Funds
    Matched With Unsupported
    Contributions

                  Regulations at 24 CFR 92.218 provide that each participating jurisdiction must
                  make contributions to housing that qualifies as affordable housing under the
                  HOME program throughout the fiscal year in an amount not less than 25 percent
                  of the funds drawn down from the jurisdiction’s HOME Investment Trust Fund
                  account in the fiscal year. County records indicated that the County drew down
                  more than $2.5 million during 2009 and 2010. Therefore, the County’s HOME
                  match report for Federal fiscal years 2009 and 2010 disclosed that its match

8
 To determine the yield foregone, regulations prescribe a rate equal to the 10-year Treasury note rate plus 300 basis
points.

                                                         13
                 contribution requirement for that period was $640,283. However, review of a
                 sample of $16.6 million, or 88 percent, of the almost $18.9 million in match
                 contributions reported in years 2009 and 2010 disclosed that more than $16.2
                 million, or approximately 98 percent, was ineligible or unsupported.
                 Consequently, $357,940 was from eligible sources, thus creating a shortfall of
                 $282,343 in required matching contributions.9 Therefore, there was no assurance
                 that more than $1.1 million in HOME entitlement funds drawn down ($282,343 /
                 .25) in 2009 and 2010 was matched with eligible sources of match contribution
                 funds.

                 We attribute this deficiency to County officials’ unfamiliarity with HOME
                 program matching requirements. Further, County records reported a significant
                 excess match contribution carryover balance of more than $52.28 million at the
                 start of program year 2009. However, the questionable 2009 and 2010 reported
                 match contribution raised concerns about the eligibility of this reported excess
                 match. As a result, to ensure that the County’s carryover balance of match
                 contributions remaining at the end of 2010 in the amount of $54.5 million was
                 eligible, the entire 2010 carryover match contribution balance would have to be
                 reevaluated.

    Conclusion

                 County officials did not always comply with HOME requirements for providing
                 matching contributions. The County reported more than $16 million in ineligible
                 matching contributions to secure HOME entitlement funds. Therefore, the
                 County incorrectly applied ineligible excess matching contributions.
                 Consequently, County officials could not ensure HUD that matching contributions
                 were eligible for HOME matching, and HOME entitlement funds were secured
                 with supported matching contributions. We attribute these deficiencies to County
                 officials’ unfamiliarity with HOME program match contribution requirements and
                 weaknesses in the County’s procedures for maintaining supporting documentation
                 to track match contributions.

    Recommendations

                 We recommend that the Director of HUD’s Newark, NJ, Office of Community
                 Planning and Development instruct the County to

                 3A. Remove the $16,134,596 in ineligible claimed match contributions from its
                     HOME match report, thus ensuring that the match will not be used to draw
                     down HOME entitlement funds.

                 3B. Provide supporting documentation for the $282,343 in unsupported match
9
  The County reported a significant balance of excess match contributions, which could be made available to meet
this shortfall, but specific funds to meet this requirement were not identified during our review.

                                                        14
                     contributions, and if supporting documentation cannot be provided, the
                     $1,129,372 in HOME entitlement funds drawn down based upon these match
                     contribution funds should be repaid to the program account.

                3C. Strengthen administrative controls over the management of HOME match
                    contribution requirements to ensure that County officials properly recognize
                    HOME match contributions, thus ensuring that future HOME entitlement
                    fund drawdowns of $1,280,56710 will be based upon eligible HOME match
                    funds.

                3D. Strengthen administrative controls to ensure that documentation is
                    maintained to adequately support that claimed matching fund sources comply
                    with HOME program matching requirements.

                3E. Seek and obtain adequate training from HUD to ensure that County officials
                    are aware that funds included as matching contributions must meet all of the
                    HOME program matching requirements.

                3F. Provide HUD with documentation to support the eligibility of the more than
                    $54.5 million in HOME matching contribution carryover at the end of
                    program year 2010.




10
  The $1,280,567 ($2,561,135 / 2) represents average annual HOME fund drawdowns from LOCCS, which was
required to be matched during years 2009 and 2010.

                                                   15
Finding 4: There Were Weaknesses in Financial Controls Over
           Compliance With Federal Regulations and Program
           Requirements
County officials did not always maintain a financial management system in compliance with
Federal regulations. Specifically, unsupported and ineligible costs were charged to the HOME
Program, funds were unnecessarily drawn down from LOCCS, and drawdowns from LOCCS did
not reconcile with the County’s accounting records. We attribute these deficiencies to
weaknesses in the County’s financial controls that did not ensure that an annual reconciliation of
financial records was performed and documentation was maintained supporting the eligibility of
costs. Consequently, $66,206 was expended on unsupported costs, $1,915 was expended on
unallowable costs, $26,525 was not available for eligible HOME expenses, and the County’s
accounting records were not completely reconciled to IDIS.


 Unsupported Costs Charged to
 the HOME Program


               County officials did not maintain adequate accounting records, including general
               ledgers or general journals for its HOME planning and administrative costs, to
               identify the source and application of funds. Regulations at 24 CFR 85.20(b)(2)
               require grantees to maintain records that adequately identify the source and
               application of funds provided for financially assisted activities. However, the
               County’s accounting records did not adequately support $438,325, or 61 percent,
               of the $719,182 drawn down for planning and administrative costs during the
               period June 1, 2009, through May 31, 2012. After we analyzed the County’s
               biweekly payroll records for the 3-year period, $37,166 charged to the HOME
               program was deemed unsupported since we were not provided with adequate
               records. We attribute this deficiency to weaknesses in the County’s financial
               controls over reconciling financial information included in the County’s
               accounting records to the County’s drawdowns from LOCCS for the HOME
               Program’s planning and administrative costs. Therefore, there was no assurance
               that the $37,166 charged to the HOME program was for eligible planning and
               administrative costs.

               County officials also charged $29,040 in indirect costs to the County’s HOME
               program without a cost allocation plan to support that the costs were reasonable.
               Regulations at 2 CFR Part 225, appendix (A)(C)(3)(d), provide that when indirect
               costs will result in charges to a Federal award, a cost allocation plan is required.
               However, County officials charged indirect costs of 19.26 percent of the total
               biweekly employee salaries during program year 2011 without a basis for the
               charge. We attribute this deficiency to weaknesses in the County’s financial
               controls over the allocation of indirect costs among programs. Therefore, there



                                                16
           was no assurance that the $29,040 represented an allowable cost to the HOME
           program.

Ineligible Employee’s
Compensation Paid With
HOME Funds

           County officials charged the County’s HOME program for $1,915 in salary,
           fringe benefits, and indirect costs associated with a HOME program employee
           after he resigned from the County’s workforce. Regulations at 2 CFR Part 225,
           appendix (A)(C)(1), provide that costs must be necessary and reasonable for
           proper and efficient performance to be allowable under Federal awards. We
           attribute this deficiency to weaknesses in the County’s financial controls that
           should have prevented charging costs to the HOME program that were not
           applicable, thereby safeguarding assets. Therefore, $1,915 from HOME funds
           was used for unallowable costs and, thus, was not available for eligible HOME
           activities.

Unnecessary Drawdown From
LOCCS

           County officials drew down $26,525 from LOCCS and maintained the funds in
           the County’s entitlement bank account for more than 6 months. Regulations at 24
           CFR 92.502(c)(2) provide that any funds that are drawn down and not expended
           for eligible costs within 15 days of the disbursement must be returned to HUD for
           deposit in the participating jurisdiction’s U.S. Treasury account of the HOME
           Investment Trust Fund. We attribute this deficiency to weaknesses in the
           County’s financial controls over cash management that allowed drawdowns to be
           made without supporting documentation to ensure that the related purchases were
           actually made and funds were needed to reimburse a subgrantee. As a result,
           $26,525 was not used for eligible activities in a timely manner.

Information in IDIS Not Always
Reconciled With the County’s
Accounting Records


           Information recorded in IDIS did not always reconcile with that in the County’s
           accounting records. Regulations at 24 CFR 85.20(b)(1) require grantees to
           maintain accurate financial records. However, the source of three drawdowns
           from LOCCS totaling $288,400 was recorded in IDIS as HOME program income,
           while the source was recorded as HOME entitlement funds in the County’s
           accounting records. We attribute this deficiency to weaknesses in the County’s
           procedures that did not require reconciling IDIS with the County’s accounting


                                           17
             records to ensure that financial records were accurate. As a result, program
             income was understated by $288,400 in IDIS.

Conclusion

             County officials did not always maintain a financial management system in
             compliance with Federal regulations. As a result, $66,206 was expended on
             unsupported costs, $1,915 was expended on unallowable costs, $26,525 was not
             made available for eligible HOME activities, and the County’s accounting records
             were not completely traceable to information recorded in IDIS. We attribute
             these deficiencies to weaknesses in the County’s financial controls over the
             maintenance and reconciliation of financial records for the HOME program.

Recommendations

             We recommend that the Director of HUD’s Newark, NJ, Office of Community
             Planning and Development instruct the County to

             4A. Provide documentation to support that $37,166 in indirect planning and
                 administrative costs charged to the HOME program represented eligible costs
                 and if such documentation cannot be provided, reimburse the HOME
                 program line of credit from non-Federal funds.

             4B. Provide a cost allocation plan or other documentation to support the
                 allocation of $29,040 in indirect costs charged to the HOME program in
                 program year 2011 and if such documentation cannot be provided, reimburse
                 the HOME program line of credit from non-Federal funds.

             4C. Strengthen the County’s financial controls to ensure that documentation is
                 maintained to support the eligibility of costs paid from HOME funds, and
                 the methodology to allocate annual indirect costs to the County’s HOME
                 program is documented and reasonable.

             4D. Reimburse the County’s HOME program line of credit $1,915 from non-
                 Federal funds for the unallowable employee salary, fringe benefits, and
                 indirect costs charged to the HOME program.

             4E. Strengthen the County’s financial controls to ensure that terminated HOME
                 program employees are removed from the payroll account in a timely manner
                 to prevent ineligible payments.

             4F. Reimburse the County’s HOME line of credit for $26,525 that was drawn
                 down from LOCCS without need so that these funds can be put to better use.




                                             18
4G. Strengthen the County’s financial controls to ensure that HOME drawdowns
    are expended within 15 days of the drawdown date or returned to the
    County’s HOME program line of credit.

4H. Reconcile the $288,400 discrepancy between IDIS and the County’s
    accounting records, thus ensuring that this amount will be put to better use.

4I. Strengthen the County’s financial controls to ensure that financial
    information reported in IDIS and the County’s records is reconciled in a
    timely manner.




                                19
                        SCOPE AND METHODOLOGY
The audit focused on whether County officials established and implemented adequate controls to
ensure that HOME funds were administered in compliance with program requirements and
Federal regulations. We performed the audit fieldwork from November 2012 to April 2013 at
the County’s office at 20 Crestmont Road Verona, NJ.

To accomplish our objective, we

      Reviewed relevant HOME program requirements and applicable Federal regulations to
       gain an understanding of HOME administration requirements.

      Interviewed staff from the HUD Newark, NJ, Office of Community Planning and
       Development and the County.

      Obtained an understanding of the County’s management controls and procedures through
       analysis of the County’s responses to management control questionnaires.

      Reviewed the County’s consolidated annual performance and evaluation reports and
       action plan for HOME program years 2009 through 2011 to gather data on the County’s
       expenditures.

      Reviewed the County’s audited financial statements for the fiscal year ending December
       31, 2010, and personnel files for three of the County’s HOME program employees.

      Analyzed reports from IDIS to obtain HOME disbursements and program income data
       for the audit period and reports from LexisNexis to obtain information related to real
       properties assisted with HOME funds. Our assessment of the reliability of IDIS and
       Lexis-Nexis data was limited to the data sampled and was reconciled with data in County
       records; therefore, we did not assess the reliability of these systems.

      Reviewed the County’s organizational chart for its HOME program and the County’s
       HOME program policies, including home-buyer, monitoring, and administrative policies.

      Reviewed the County’s monitoring reports for HOME activities and the County board of
       freeholders’ resolutions for years 2009 through 2011.

      Reviewed documentation for annual recertification of two nonprofit entities that received
       CHDO operating or reserve funds during program years 2009 through 2011.

      Selected and reviewed a sample of 18 of 48 HOME-assisted properties that received
       more than $4.5 million, or approximately 58.9 percent of the County’s total HOME
       drawdowns made in program years 2009 through 2011, and $748,003 from the County’s
       HOME drawdowns made before or after program years 2009 through 2011. The sample
       of properties was selected based on one or more of the following factors: the county did
       not impose liens on the property; the assisted property address differed from that listed on
                                               20
           the County’s action plan; the actual assistance exceeded the authorized amount listed on
           the action plan; and the dollar value of assistance provided to HOME properties was
           material11. The results of this sample were limited to the items tested and were not
           projected to the universe of HOME assisted properties.

          Reviewed documentation, including subgrantee agreements, environmental reviews,
           appraisal reports, deeds, invoices, contract requests for payment, and canceled checks to
           support the eligibility of the 18 HOME-assisted properties included in our sample and
           costs associated with these 18 HOME-assisted properties.

          Selected and reviewed a sample of documents supporting matching contributions
           representing more than $16 million, or 88 percent, of total contributions reported by the
           County for Federal fiscal years 2009 and 2010. All documents selected for sampling
           supported contributions were associated with first time homebuyers, acquisition and
           rehabilitation of rental properties and homeowner rehabilitation. The results of this
           sample were limited to the items tested and were not projected to the universe of HOME
           assisted properties.

          Reviewed bank statements for three bank accounts used for the County’s HOME
           entitlement and program income funds and traced payments and deposits listed on the
           statements to the County’s accounting records and IDIS reports for its HOME program.
           Our assessment of the reliability of data included in bank statements, IDIS reports, and
           accounting records was limited to the data sampled, which were reconciled among the
           different sources; therefore, we did not assess systems generating the data.

 The audit generally covered the period June 1, 2009, through May 31, 2012, and was extended
 as needed to accomplish the objective.

We conducted the audit in compliance 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.




11
     In this case materiality means the property was provided over $1 million in funding.

                                                           21
                              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:

                     Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                     Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                     Safeguarding resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

                     Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

               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.


                                                 22
Significant Deficiencies

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

                   The County did not always implement adequate internal controls to ensure
                    achievement of program objectives because HOME housing activities were
                    not always administered in compliance with program requirements and
                    Federal regulations (see findings 1 through 4).

                   The County did not always establish or implement adequate internal controls
                    to ensure that resources were used in compliance with laws and regulations
                    because HOME funds were not committed and expended as required,
                    program income was not recorded in IDIS and disbursed before drawdowns
                    were made from entitlement funds, additional HOME funds were provided
                    to a previously assisted HOME property during the affordability period,
                    HOME funds were provided to a housing unit in excess of HOME subsidy
                    limits and to an ineligible CHDO, rent charged to HOME-assisted units
                    exceeded HOME rent limits, and ineligible sources of HOME matching
                    funds were used to meet matching requirements (see findings 1, 2, and 3).

                   The County did not always establish or implement adequate internal controls
                    to ensure that resources were safeguarded against waste, loss, and misuse as
                    HOME funds were used for unsupported and ineligible costs (see findings 2
                    and 4).

                   The County did not always establish or implement adequate internal controls
                    to ensure that valid and reliable data were obtained, maintained, and fairly
                    disclosed in reports as financial information included in the County’s
                    accounting records was not traceable to IDIS reports and program income
                    was not recorded in IDIS (see finding 4).




                                              23
                                     APPENDIXES

Appendix A

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

     Recommendation                           Unsupported      Funds to be put
                           Ineligible 1/
         number                                   2/           to better use 3/
           1A                                                     $    100,936
           1B                                                           755,607
           1D                                                            63,781
           2A               $ 19,935
           2C                 25,116
           2E                 26,500
           2G                  1,504                                     2,256
           3A                                                       16,134,596

           3B                                   $1,129,372
           3C                                                        1,280,567
           4A                                        37,166
           4B                                        29,040
           4D                  1,915
           4F                                                           26,525
           4H                                                          288,400
                             $74,970            $1,195,578         $18,652,668


1/    Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
      that the auditor believes are not allowable by law; contract; or Federal, State, or local
      policies or regulations.

2/    Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
      or activity when we cannot determine eligibility at the time of the audit. Unsupported
      costs require a decision by HUD program officials. This decision, in addition to
      obtaining supporting documentation, might involve a legal interpretation or clarification
      of departmental policies and procedures.

3/    Recommendations that funds be put to better use are estimates of amounts that could be
      used more efficiently if an Office of Inspector General (OIG) recommendation is
      implemented. These amounts include reductions in outlays, deobligation of funds,
      withdrawal of interest, costs not incurred by implementing recommended improvements,
      avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
      that are specifically identified. If HUD implements the recommendation to (1) recapture
                                              24
the $100,936 and $755,607, the funds will be put to better use; (2) report program income
of $63,781 in IDIS, the program income will be available for eligible HOME activities;
(3) adjust the two tenants’ rent, they will not pay $2,256 in excess rent during the next
year; (4) ensure that the County complies with HOME match requirements, HUD will be
assured that $16,134,596 in ineligible match contributions will not be used to drawdown
HOME funds, and eligible match contributions will be used to support drawdowns of
more than $1.2 million in HOME funds; (5) reimburse $26,525 to the line of credit, the
funds will be available for other eligible HOME activities; and (6) reconcile IDIS and
County records, HUD will be assured that $288,400 in program income will be properly
recorded.




                                       25
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 3



Comment 4




Comment 5




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 5


Comment 2


Comment 3


Comment 4


Comment 4

Comment 4




Comment 4




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 4




Comment 6




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 7




Comment 4




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 4



Comment 4

Comment 4

Comment 4



Comment 4

Comment 4



Comment 4




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 6


Comment 7


Comment 4

Comment 4




Comment 8




Comment 4




                         33
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 4




Comment 4




Comment 9




                         34
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11




Comment 4



Comment 4

Comment 8


Comment 10


Comment 4

Comment 4




                         35
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 12



Comment 4




Comment 13




Comment 4




                         36
Ref to OIG Evaluation   Auditee Comments




Comment 12

Comment 12

Comment 4

Comment 4


Comment 4


Comment 13

Comment 4

Comment 4




                         37
                         OIG Evaluation of Auditee Comments

Comment 1   County officials stated that the finding that 2008 funds were not committed in a
            timely manner refers to activities that precede the stated audit period of fiscal
            years 2009 and 2010. However, the scope and methodology section of the audit
            report does note that the audit period was extended as needed to accomplish the
            audit objective. Since the timeframe for year 2008 funds to be committed was
            from fiscal year 2008 through 2010, activities used to commit these funds fell
            within the stated audit scope and needed to be reviewed to verify proper program
            year 2008 commitments.

Comment 2   While County officials stated that they provided material to support that the four
            questionable activities were closed in compliance with the commitment deadline
            requirement, they added that legally binding agreements with subgrantees were
            not executed before committing HOME funds for these activities. Therefore, we
            maintain that $100,936 of HOME funds expended for the four activities were not
            committed in compliance with HOME commitment requirements because legally
            binding agreements were not executed with the subgrantees before committing the
            funds.

Comment 3   County officials stated that a portion of the unexpended balance is attributable to
            administrative costs, which were not reimbursed to the County's general bank
            account in timely manner. Since this documentation was not provided during the
            audit, County officials will need to provide it to the HUD field office as part of
            the audit resolution process, and any unsupported funds should be recaptured.


Comment 4   County officials' planned actions are responsive to the recommendation.


Comment 5   County officials provided documentation at the exit conference to support that the
            $37,097 was not program income. Therefore, the unrecorded program income
            amount of $100,878 included in finding 1 was reduced by $37,097 and the
            remaining balance of $63,781 ($100,878-37,097) will remain unsupported as
            unrecorded program income.

Comment 6   County officials stated that the rent of $1,284, including utilities of $94, was
            within the applicable high HOME rent limit of $1,289, and that the landlord
            received $1,190 for rent from the City of Newark Section 8 program and the
            tenant paid for utilities directly to the utility company. However, since these two
            units were designated as HOME low-rent units, they are required to be rented for
            the applicable HOME low-rent limit of $1,021. However, HOME rent
            requirements allow HOME recipients to increase the HOME low-rent limit,
            which includes utilities, up to the amount of the Federal or state housing subsidy,
            as long as the units are receiving such subsidy. Therefore, the maximum rent
            limit, which includes utilities, cannot be more than $1,190. Consequently, the

                                             38
               landlord needs to reimburse the two tenants $752 each for utilities and adjust the
               rent to comply with HOME program rent limits.

Comment 7     County officials maintain that they implemented corrective action in mid-2010. If
              they comply with these newly established procedures, funds should not be
              disbursed prior to executing a subgrantee agreement, thus addressing the noted
              weakness.

Comment 8     County officials acknowledged errors in calculating eligible match contributions
              and stated that they have addressed weaknesses, which led to these errors. They
              further said that they have prepared an updated assessment of their match
              contribution and believe that the over $52 million carryover balance is valid.
              County officials should provide documentation to verify this belief to the HUD
              field office during the audit resolution process.

Comment 9 County officials removed $76,873 of the 176,873 from the County's matching
          contribution log because it is an ineligible matching contribution and provided
          documentation to support the eligibility of the remaining balance of $100,000. We
          reviewed the additional documentation and concluded that the remaining balance
          of $100,000 is eligible because it is a non-interest bearing grant from a local
          authority. Therefore, the $176,873 is reduced and $76,873 is reclassified as
          ineligible.

Comment 10 County officials stated that they have prepared an updated match report which
           details eligible match contributions of over $4.4 million. This documentation
           should be provided to the HUD field office for verification as part of the audit
           resolution process.

Comment 11 County officials believe that the carryover match balance of $52.28 million at the
           start of 2009 is accurate. However, given the high amount of ineligible match
           contribution we found and County officials agreed was not valid, HUD should
           request that the County officials provide reasonable documentation to verify this
           amount during the audit resolution process.

Comment 12 County officials stated that the County utilizes an annual costs allocation plan and
           at the exit conference provided a copy of the calendar year 2009 and 2010
           allocation plans. We reviewed the provided allocation plans and concluded that
           the County used a reasonable basis to support indirect costs allocated to its
           HOME program in year 2009 and 2010. Therefore, the $78,103 in unsupported
           indirect costs allocated to the County's HOME program is reduced by $49,063 for
           year 2009 and 2010 and the remaining balance of $29,040 represents the
           unsupported indirect costs allocated in year 2011.

Comment 13 County officials stated that they cancelled a check of $26,525, which was
           unnecessary drawn down from the County's HOME program line of credit and
           returned the $26,525 to the County's local bank account to be used for an eligible

                                               39
voucher submission. However, County officials need to provide HUD Newark
CPD office with documentation to support that the fund was returned to the
County's HOME program line of credit or used toward future eligible HOME
costs.




                              40