U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
OFFICE OF INSPECTOR GENERAL
September 18, 2014
MEMORANDUM NO:
2014-AT-0801
Memorandum
TO: María Ortíz, Director, Community Planning and Development, San Juan Field
Office, 4ND
FROM: Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
SUBJECT: HUD’s Monitoring of the Vieques Sports City Complex’s Section 108 Loan
Guarantee Program
INTRODUCTION
The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), reviewed HUD’s San Juan, PR, Office of Community Planning and Development’s
monitoring of the Vieques, PR, Sports City Complex project. The review was performed based
on indicators identified in the audit of the Vieques Sports City Complex 1, Office of the
Commissioner for Municipal Affairs’ (OCMA) Puerto Rico State Community Development
Block Grant (CDBG) Section 108 Loan Guarantee program. More than 11 years had elapsed
since HUD monitored the sport complex; however, the deficiencies identified remained
unresolved. The objective of this review was to determine whether HUD took effective actions
to enforce the resolution of the deficiencies noted in its 2002 monitoring review of the Vieques
Sports City Complex.
This memorandum contains two recommendations for corrective action. 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 review.
1
Audit memorandum number 2014-AT-1801.
Office of Audit Region 4
75 Spring Street SW., Room 330, Atlanta, GA 30303
Phone (404) 331-3369, Fax (404) 730-2382
Visit the Office of Inspector General Web site at www.hudoig.gov.
METHODOLOGY AND SCOPE
To accomplish our objective, we
• Reviewed applicable laws, regulations, and HUD handbooks;
• Reviewed HUD’s Section 108 loan files related to the Vieques sports complex, including
loan application documents;
• Reviewed HUD’s monitoring report, including action plans submitted by OCMA for
completing the project and related correspondence; and
• Conducted interviews with staff from HUD’s San Juan field office.
We conducted the review at the HUD field office and our HUD, Office of Inspector General
(OIG), office in San Juan, PR, from February through May 2014. Our review generally covered
the period September 1, 2002, through January 31, 2014. This was a limited scope review, and
we did not review HUD’s internal and information system controls and procedures. Therefore,
the review was not performed in accordance with generally accepted government auditing
standards. To meet our objective, it was not necessary to fully comply with the standards, nor
did our approach negatively affect our review results.
BACKGROUND
Vieques Sports City Complex
In July 1993, the Municipality of Vieques, a nonentitlement recipient, submitted an application
for a $5 million Section 108 loan for the planning, design, development, and construction of a
sports city complex in the Luján ward. 2 The Municipality expected to complete the project 2
years after signing the Section 108 loan contract. In August 1993, OCMA recommended the
approval of the loan and agreed to pledge future State CDBG funds for the Section 108 loan.
HUD approved the $5 million Section 108 loan in April 1994.
On December 24, 1997, the Vieques Conservation and Historical Trust, Inc., and a Vieques
resident filed a lawsuit in Federal court, alleging environmental violations by the Municipality
and two Federal agencies, HUD and the U.S. Department of the Interior. The plaintiffs alleged
that the defendants, by planning, funding, and carrying out the construction of the sports
complex, would violate the National Environmental Policy Act, the Endangered Species Act, and
the National Historic Preservation Act. In September 2002, the plaintiffs entered into a
settlement agreement with the Municipality. As a result of the settlement agreement, 3 the
2
The project consisted of a main recreational building to house, among other facilities, a cafeteria, basketball-
volleyball court with a seating area for 1,000 spectators, three handball courts, three game rooms, a child care room,
an exercise room, and a swimming pool. It also included two baseball parks with seating areas for 3,000 spectators.
3
In September 2002, the plaintiffs entered into a settlement agreement, and the Municipality agreed to (1) not
complete the sports complex as designed, (2) comply with the requirements for outdoor lighting in case a future
facility was constructed, and (3) continue to maintain the site in full compliance with all applicable Federal and State
laws.
2
construction of the sports complex was suspended, with about 72 percent of the project
completed and more than $10.8 4 million in State CDBG funds disbursed.
2002 HUD Monitoring Report
HUD conducted a monitoring review of the Vieques sports complex activity and raised two
concerns 5 with specific recommendations in its monitoring report, dated September 19, 2002
(see table 1).
Concern Recommendation(s)
1. The Municipality of Vieques has 1A. OCMA submits to HUD an action plan with a course of
not completed the Vieques sports action to be taken regarding the Vieques sports complex
complex project and has not met project within 30 days.
national objectives.
2. Documentation, record-keeping, 2A. OCMA evaluates and updates all outstanding issues
and financial reporting of the pertaining to the project and maintains updated data.
Vieques sports complex needs 2B. OCMA designs reporting systems that provide the necessary
improvement. data on Section 108 projects to mitigate any adverse effects or
consequences of the deficiency. These records should be
accurate and current and fully disclose financial results.
2C. OCMA assigns staff to provide ongoing technical assistance
throughout the Section 108 loan process.
Table 1
Regarding the first concern, HUD concluded that the Section 108 loan proceeds, as well as
additional CDBG grants used to repay the loan and for the development of the sports complex,
did not accomplish program objectives. OCMA was informed that if the concern was not
properly addressed and a workable solution that corrected the deficiency was not attained, HUD
would raise a finding and consider imposing sanctions, which could include disallowing all funds
expended on the project. In the second concern, HUD pointed out the lack of an inventory and
source documentation pertaining to unused construction materials and equipment found at the
project site.
HUD’s San Juan field office is responsible for monitoring CDBG recipients within its
jurisdiction, which includes Puerto Rico. HUD’s books and records are maintained at 235
Federico Costa Street, San Juan, PR.
RESULTS OF REVIEW
HUD did not take effective actions to enforce the resolution of the deficiencies noted in its 2002
monitoring review of the Vieques sports complex. We attribute this deficiency to HUD’s
4
The more than $10.8 million in State CDBG funds consisted of (1) more than $6.8 million used to repay the
Section 108 loan, (2) more than $3.7 million expended for development costs, and (3) $320,252 in expended
program income proceeds.
5
According to the 2002 HUD monitoring report and the Office of Community Planning and Development’s
Monitoring Handbook 6509.2, REV-6, a finding is a violation of the statute, regulations, or a grant agreement, while
a concern is a deficiency in performance that could potentially become a finding if not properly addressed.
However, corrective actions are not required for concerns.
3
categorizing the monitoring deficiencies as concerns, for which corrective actions are not
required. The monitoring deficiencies are findings because the project remained incomplete and
abandoned without meeting a national objective of the CDBG program, and records were not
accurate and current and did not fully disclose financial results. 6 As a result, HUD had no
assurance that more than $10.8 million in CDBG funds disbursed on the project would meet
program objectives and provide the intended benefits.
Ineffective Efforts
HUD was not effective in enforcing a quick resolution to the monitoring deficiencies of the
Vieques sports complex. HUD performed follow-up inquiries in its annual assessments and held
meetings with OCMA where alternate options to the Vieques project were discussed; however,
these efforts did not result in the implementation of a corrective action plan to mitigate and
resolve the noncompliance issues associated with the sport complex.
The September 19, 2002, monitoring report advised OCMA that if corrective actions were not in
place within 30 days, HUD could consider imposing sanctions. HUD extended the due date
twice for OCMA to complete and submit a plan with a course of action to be taken regarding the
Vieques sports complex project. HUD sent 11 additional letters reminding OCMA that the 2002
monitoring deficiencies were outstanding and that corrective measures were required (see table
2).
Time
extension
Date of granted New due date
HUD letter by HUD for responses Comment
HUD advised OCMA that it was still waiting for the action plan to
correct deficiencies of the sports complex project as noted in the 2002
Nov. 14, 2002 N/A* monitoring report. HUD also instructed OCMA to develop a plan
Sept. 17, 2003 that would bring the project into compliance with one of the three
Aug. 17, 2004 national objectives of the CDBG program.
HUD informed OCMA that it was required to provide a final
determination regarding the use of the sports complex and provide an
Jan. 28, 2005 60 days Mar. 29, 2005 action plan before March 30, 2005.
HUD informed OCMA that it was required to submit an action plan
before March 30, 2006, regarding the proposed use of the sports
Dec. 23, 2005 96 days Mar. 29, 2006 complex.
Nov. 21, 2006 N/A* HUD informed OCMA that it had not received an action plan for the
sports complex and it might consider disallowing the funds if the
Nov. 26, 2007 N/A* information was not received.
HUD informed OCMA that the 2002 deficiencies were still
N/A*
Nov. 17, 2008 outstanding.
HUD informed OCMA that the issues related to the sports complex
N/A* had been outstanding since 2002. It also stated that OCMA had not
Nov. 24, 2009 complied with the action plan submitted on March 13, 2008.
Nov. 26, 2010 N/A*
HUD informed OCMA that the issues related to the sports complex
Nov. 28, 2011 N/A*
had been outstanding since 2002.
Nov. 26, 2012 N/A*
6
Required by 24 CFR 570.200(a)(2), 570.703, and 85.20.
4
HUD informed OCMA that the issues related to the sports complex
N/A* remained outstanding and that it would address them after the OIG
Dec. 13, 2013 audit was completed.
Table 2 * HUD did not impose a due date.
In an email, dated October 21, 2002, the Acting General Deputy Assistant Secretary for
Community Planning and Development informed the San Juan field office that the monitoring
revealed serious problems and that it was time for OCMA to reimburse HUD if it did not
develop options that would bring the project into compliance with one of the three CDBG
national objectives. Despite OCMA’s failure to bring the sports complex into compliance with
program objectives, we did not find documentation from HUD requesting the reimbursement of
the funds invested in the sports complex.
Conclusion
HUD did not take appropriate actions to prevent a continuation of the deficiencies and to
mitigate the adverse effects and consequences of the deficiencies noted in the 2002 HUD
monitoring of the Vieques project, as provided in 24 CFR (Code of Federal Regulations)
570.495. HUD’s actions during the past 11 years did not produce a quick resolution of the
monitoring deficiencies. Although alternate options to the sports complex project were
presented and discussed with HUD, OCMA did not implement a corrective action plan to
mitigate and resolve the noncompliance issues associated with the project.
The failed sports complex project was abandoned and not completed, materials and equipment
acquired for its construction were unaccounted for, and the intended benefit was not realized.
Despite the continued noncompliance on behalf of OCMA to bring a resolution to the concerns
of the project, HUD allowed the situation to continue for more than 11 years without raising a
finding and providing corrective actions or imposing sanctions. The failure of HUD to take
timely actions had a negative impact on the State CDBG program, as more than $10.8 million in
Federal funds were spent for developing a project that was never completed and low- and
moderate-income persons did not receive the intended benefits. 7
RECOMMENDATIONS
We recommend that the Director of the San Juan Office of Community Planning and
Development
1A. Issue a finding pertaining to the deficiencies identified in the 2002 HUD monitoring
report.
1B. Increase its monitoring of OCMA to ensure that the monitoring deficiencies related to the
Vieques sports complex are resolved in a quick manner and in accordance with HUD
requirements.
7
More than $10.8 million disbursed for the sports complex were questioned in the March 20, 2014, audit
memorandum.
5
Appendix A
AUDITEE COMMENTS
The Program Manager of the Office Community Planning and Development San Juan Field
Office informed us via email that HUD would not provide written comments to the audit
memorandum.
6
HUD's Monitoring of the Vieques Sports City Complex's Section 108 Loan Guarantee Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)