OFFICE OF AUDIT
REGION 4
ATLANTA, GA
The Municipality of Arecibo, PR
HOME Investment Partnerships Program
2014-AT-1001 DECEMBER 3, 2013
Issue Date: December 3, 2013
Audit Report Number: 2014-AT-1001
TO: María Ortíz, Director, Community Planning and Development, San Juan Field
Office, 4ND
//signed//
FROM: Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
SUBJECT: The Municipality of Arecibo Did Not Properly Administer Its HOME Program
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Municipality of Arecibo’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
404-331-3369.
December 3, 2013
The Municipality of Arecibo Did Not Properly
Administer Its HOME Program
Highlights
Audit Report 2014-AT-1001
What We Audited and Why What We Found
We audited the Municipality of The Municipality did not ensure that home-buyer
Arecibo’s HOME Investment acquisition-only activities met housing standards and
Partnerships Program as part of our that the principal residency requirement was met for
strategic plan based on the results of a the duration of the period of affordability. In addition,
recent audit of the Municipality’s it failed to return more than $26,000 in unexpended
Community Development Block Grant drawdowns to HUD and did not support the eligibility
program. The objectives of the audit of $30,000 in program charges. As a result, HUD had
were to determine whether dwelling no assurance that more than $1 million disbursed was
units acquired under the home- used solely for eligible purposes and that HOME-
ownership program complied with the funded activities met program objectives and fully
U.S. Department of Housing and Urban provided the intended benefits.
Development’s (HUD) housing
standards and affordability The Municipality failed to reprogram and put to better
requirements, whether the Municipality use more than $3,900 in unexpended obligations
disbursed HOME funds within HUD- associated with an activity that was terminated, did not
established timeframes, and reported report more than $1,400 in program income, and in
accurate and supported information in two activities it overstated the commitment amount by
HUD’s Integrated Disbursement and $919. In addition, the Municipality reported other
Information System. inaccurate information concerning HOME-funded
activities. As a result, HUD had no assurance that the
Municipality met HOME program commitment and
What We Recommend
disbursement requirements.
We recommend that HUD require the
Municipality to (1) support that it spent
more than $1 million on eligible
activities, (2) remit $26,094 in
unexpended drawdowns, (3) reprogram
and put to better use $4,825 in
unexpended and overstated
commitments, and (4) develop and
implement an internal control plan to
ensure that only supported and accurate
information is reported to HUD.
TABLE OF CONTENTS
Background and Objectives 3
Results of Audit
Finding 1: The Municipality Did Not Always Comply With HOME 5
Requirements
Finding 2: The Municipality Did Not Have Adequate Controls Regarding 10
Information Entered Into HUD’s Information System
Scope and Methodology 14
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 18
B. Auditee Comments and OIG’s Evaluation 19
C. List of Activities Not Inspected 20
D. List of Activities Not Meeting Principal Residency Requirement 21
E List of Activities With Undated Signatures and Missing Agreement Clauses 22
2
BACKGROUND AND OBJECTIVES
The HOME Investment Partnerships Program is authorized under Title II of the Cranston-
Gonzalez National Affordable Housing Act as amended. The U.S. Department of Housing and
Urban Development (HUD) allocates funds by formula to eligible State and local governments
for the purpose of increasing the supply of decent, safe, sanitary, and affordable housing to low-
and very low-income families. State and local governments that become participating
jurisdictions may use HOME funds to carry out multiyear housing strategies through acquisition,
rehabilitation, new housing construction, and tenant-based rental assistance.
Participating jurisdictions are required to commit HOME funds within 24 months and expend
them within 5 years after the last day of the month in which HUD notifies the participating
jurisdiction of HUD’s execution of the HOME agreement. 1 In addition to the HOME program’s
regulatory 5-year disbursement requirement, the National Defense Authorization Act of 1991
(Public Law 101-510, dated November 5, 1990) requires that on September 30 of the fifth year
after the period of availability for obligation of a fixed-appropriation account ends, the account
be canceled and thereafter not be available for obligation or expenditure for any purpose. 2
Participating jurisdictions are required to expend, for eligible costs, HOME funds drawn down
from the treasury account within 15 days. Any unexpended drawdowns must be returned to the
treasury account. HUD also requires that HOME funds in the participating jurisdiction’s local
bank account, including program income and recaptured funds, 3 be disbursed before additional
grant funds are requested.
Participating jurisdictions draw down HOME funds through HUD’s Integrated Disbursement and
Information System (IDIS). HUD’s information system is also used to monitor and track HOME
commitments, program income, repayments, and recaptured funds, among other things. In
addition, HUD uses the data that the participating jurisdiction provides in HUD’s information
system to report on the performance of the HOME program to Congress and other program
stakeholders.
The Municipality of Arecibo was founded in 1616, and its governing system consists of an
executive and legislative body: a mayor and 16 members of the municipal legislature elected for
4-year terms. The Municipality is the seventh largest local participating jurisdiction in Puerto
Rico, for which HUD has approved more than $1.7 million in HOME funds during the past 3
fiscal years. HUD’s information system reflected HOME drawdowns exceeding $1.28 million
during the 24-month period ending December 31, 2012.
1
For purposes of determining compliance with commitment and disbursement requirements, HUD considers the
sum of commitments and expenditures from the fiscal year allocation being examined and later allocations.
2
Fiscal year 2006 HOME funds that are not spent by September 30, 2013, would be subject to recapture by the
United States Treasury.
3
Program income and recaptured funds may result from the resale and recapture requirements imposed by HUD and
the participating jurisdiction on the participants to ensure affordability during predetermined periods, depending on
the assistance amount provided.
3
The Municipality’s Department of Municipal Development is responsible for administering the
HOME program. Its books and records are maintained at Vidal Street, Arecibo, PR. We audited
the Municipality’s HOME program as part of the HUD Office of Inspector General’s (OIG)
strategic plan. The Municipality was selected for review based on the results of a recent OIG
audit of the Municipality’s Community Development Block Grant program. 4
The objectives of the audit were to determine whether dwelling units acquired under the home-
ownership program complied with the HUD’s housing standards and affordability requirements,
whether the Municipality disbursed HOME funds within HUD-established timeframes, and
reported accurate and supported information in HUD’s Integrated Disbursement and Information
System.
4
Audit report number 2013 AT 1003 issued on March 22, 2013.
4
RESULTS OF AUDIT
Finding 1: The Municipality Did Not Always Comply With HOME
Requirements
The Municipality did not ensure that home-buyer acquisition-only activities met housing
standards and that the principal residency requirement was met for the duration of the period of
affordability. In addition, it failed to return more than $26,000 in unexpended drawdowns to
HUD and did not support the eligibility of $30,000 in program charges. These deficiencies
occurred because the Municipality was not fully familiar with HOME requirements, followed
incorrect advice from its consultant, and disregarded HUD’s requirements. As a result, HUD
had no assurance that more than $1 million disbursed was used solely for eligible purposes and
that HOME-funded activities met program objectives and fully provided the intended benefits.
Property Standards
Requirements Not Supported
The Municipality disbursed more than $749,000 in HOME funds for 32 home-
buyer acquisition-only activities without supporting whether the dwelling units
met HOME property standards requirements in 24 CFR (Code of Federal
Regulations) 92.251(a)(2). Neither the Municipality nor a party contracted by the
Municipality inspected the 32 homes. The table in appendix C of this report
shows the activities for which the Municipality did not have appropriate
documentation supporting that homes met HUD’s property standards
requirements.
Contrary to HUD’s requirements, the Municipality relied on inspections
performed by Federal Housing Administration (FHA) appraisers. HUD’s
HOMEfires, volume 6, number 2, states that participating jurisdiction must
perform inspections of units purchased with HOME funds. Participating
jurisdictions may not rely on independent inspections performed by any party not
under contract with the participating jurisdiction. Third parties such as consumer
inspectors or FHA appraisers are not contractually obligated to perform the
participating jurisdictions’ duties. Their inspections cannot be used to determine
compliance with HOME property standards requirements.
The Municipality’s HOME program coordinator informed us that she was not
familiar with this restriction and that she followed the advice of the
Municipality’s former HOME program consultant who instructed to use the FHA
appraisals to document compliance with HOME property standards. Therefore,
the Municipality lacked sufficient documentation to support that it used $749,954
5
in HOME funds for eligible homes that met HUD’s property standards
requirements.
Principal Residency
Requirement Not Supported
The Municipality disbursed more than $307,000 for home-buyer acquisition-only
activities without making appropriate monitoring efforts to ensure that home
buyers met the HOME principal residency requirement in 24 CFR 92.254(a)(3).
Two internal monitoring reports, dated February 2010 and 2012, identified 21
home-buyer activities that did not comply with HOME’s primary residency
requirement for the duration of the period of affordability. Appendix D provides
details on the 21 activities.
Contrary to requirements in 24 CFR 92.504(a), the Municipality did not ensure
that home buyers complied with all program requirements and did not take
appropriate measures when performance issues arose. In eight activities, more
than 3 years had elapsed since the Municipality became aware that the intended
benefits had not occurred without making appropriate monitoring efforts. The
Municipality’s HOME program coordinator informed us that she was aware of the
home-buyer activities that did not comply with the principal residency
requirement and that notification letters were sent to the participants. She also
stated that no further action was taken because the Municipality wanted to allow
the home buyers an opportunity to sell the dwelling units. This was not an
acceptable explanation for not performing an integral component of the
Municipality’s HOME program responsibilities. Section VII of HOME Notice
12-003 provides that it is the Municipality’s responsibility to ensure that the
HOME-assisted housing qualifies as affordable housing during the period of
affordability. If the original home buyer no longer occupies the unit as his or her
principal residence, the Municipality, as the entity responsible for the day-to-day
operations of its HOME program, must repay its Investment Trust account with
non-Federal funds. The Municipality did not enforce the residency requirement
and did not reimburse the HOME program when they became aware of the
noncompliance. Thus, the Municipality did not adequately manage these
activities to ensure that $307,537 in HOME funds disbursed met program
objectives and fully provided the intended benefits.
Unexpended Drawdown Not
Returned to HUD
The Municipality withdrew from its treasury account more than $1.2 million in
HOME funds between January 1, 2011, and December 31, 2012. Contrary to
HUD’s regulations at 24 CFR 92.502(c)(2), the Municipality failed to disburse
two drawdowns totaling $46,094 in HOME funds within 15 days. Further, it did
not return $26,094 in unexpended drawdowns to HUD. A Municipality official
6
informed us that she was not aware that unexpended funds had to be returned and
that the Municipality planned instead to reassign the funds to another activity.
Any unexpended drawdowns must be returned to the treasury account in
accordance with HUD’s instructions. A HUD memorandum, dated April 5, 2011,
provides additional guidance to participating jurisdictions on returning funds
drawn down from the treasury account in advance or excess of need instead of
revising vouchers in HUD’s information system.
The following table shows the voucher and activity number, date of drawdown,
and HOME funds for the drawdowns that were not disbursed within 15 days.
Days elapsed
between
Date of deposit and
Voucher Activity drawdown Amount Date of disbursement
number number Amount deposit disbursed disbursement dates
$17,190 June 8, 2012 49
5414943 1174 $20,000 Apr. 20, 2012
2,810 Oct. 23, 2012 186
5516527 1186 26,094 Jan. 14, 2013 0 Not disbursed 107 5
Total $46,094 $20,000
Unsupported Home-Buyer
Activity
The Municipality did not properly document the eligibility and assistance level of
one home-buyer activity (number 1184). Regulations at 24 CFR 92.217 require
that with respect to home-ownership assistance, HOME funds invested in
dwelling units be occupied by households that qualify as low-income families.
Therefore, the Municipality must determine whether each family is income
eligible by determining the family’s annual income. Annual income must include
income from all family members as required by 24 CFR 92.203(d)(1). The
Municipality adopted additional requirements and procedures for determining the
assistance level of the participant.
The Municipality did not verify discrepancies found associated with the income
of the family. The Municipality’s HOME program coordinator informed us that
she was aware of the discrepancies and they were not verified because she
believed that lenders tend to overestimate the income of participants to qualify
them for a mortgage loan. This was not an acceptable explanation for not
performing an integral component of the Municipality’s HOME program
responsibilities. As a result, HUD lacked assurance that all of the family’s annual
income was considered and whether participants qualified as low-income families
as required by HUD. HOME funds totaling $30,000 disbursed for the acquisition
of the dwelling unit was unsupported.
5
As of May 1, 2013, funds remained unexpended and had not been returned to HUD.
7
Conclusion
The Municipality did not implement adequate procedures and controls to ensure
that it appropriately followed HUD’s requirements. It did not (1) inspect
properties to ensure compliance with property standards, (2) ensure that activities
met the affordability requirements, (3) ensure that unexpended drawdowns were
returned to HUD, and (4) properly verify the income eligibility of a participant.
As a result, HUD had no assurance that funds were used solely for eligible
purposes and that HOME-funded activities met program objectives and fully
provided the intended benefits.
Recommendations
We recommend that the Director of the San Juan Office of Community Planning
and Development
1A. Require the Municipality to submit appropriate inspection reports showing
that the 32 home-buyer acquisition-only activities met HOME property
standards requirements or reimburse its HOME program from non-Federal
funds the $719,954 disbursed. 6
1B. Require the Municipality to submit all supporting documentation showing
that 21 home-buyer activities met the principal residency requirement for
the duration of the period of affordability or reimburse the HOME
program from non-Federal funds the $307,537 disbursed.
1C. Require the Municipality to return to its line of credit and put to better use
$26,094 associated with unexpended funds drawn from its treasury
account.
1D. Require the Municipality to submit supporting documentation evidencing
the income eligibility and level of assistance of the participant assisted
with $30,000 in HOME funds or reimburse the program from non-Federal
funds.
1E. Require the Municipality to develop and implement controls and
procedures to ensure that (1) HOME-funded dwelling units meet
applicable property standards, (2) assisted activities meet applicable
affordability requirements, (3) HOME funds are disbursed within HUD-
established timeframes and unexpended drawdowns are returned to HUD,
and (4) program participants’ income eligibility is properly verified and
determined.
6
Total disbursements of $749,954 were adjusted to consider $30,000 questioned in recommendation 1D.
8
1F. Provide training and increase monitoring of the Municipality’s
performance in the administration of its HOME program.
9
Finding 2: The Municipality Did Not Have Adequate Controls
Regarding Information Entered Into HUD’s Information System
The Municipality failed to reprogram and put to better use more than $3,900 in unexpended
obligations associated with an activity that was terminated, did not report more than $1,400 in
program income, and in two activities it overstated the commitment amount by $919. In
addition, the Municipality reported other inaccurate information and omitted information
concerning HOME-funded activities. These deficiencies occurred because the Municipality did
not properly monitor the accuracy of commitments and other information reported in HUD’s
information system. As a result, HUD had no assurance that the Municipality met HOME
commitment and disbursement requirements.
Unexpended Commitments Not
Reprogrammed
The Municipality did not reprogram and put to better use $3,906 in unexpended
obligations associated with a terminated home-buyer activity (number 1186).
HUD’s regulations at 24 CFR 92.205(e) provide that a HOME assisted project
that is terminated before completion, either voluntarily or otherwise, constitutes
an ineligible activity. Therefore, HOME funds invested in the project must be
repaid and unexpended funds deobligated. On March 14, 2013, the participant
informed the Municipality that she was no longer interested in taking part in the
home-buyer program. Therefore, the activity was terminated. As of May 1, 2013,
the activity remained open, and unexpended obligations had not been
reprogrammed. As a result, obligations in HUD’s information system were
overstated, and more than $3,000 in HOME funds was not available for other
eligible efforts. The Municipality should reprogram these funds and put them to
better use.
Program Income and
Recaptured Funds Not
Reported
Contrary to HUD requirements, the Municipality did not report proceeds of
$1,473 in program income and recaptured funds in HUD’s information system.
HUD’s regulations at 24 CFR 92.503 provide that program income, recaptured
funds, and repayments received must be deposited into the participating
jurisdictions’ HOME account to carry out eligible activities. These receipts must
be reported in HUD’s information system and used before additional HOME
withdrawals are made, as required at 24 CFR 92.50(c)(3). More than 6 months
had elapsed since the Municipality received these funds, but it had not reported
them in HUD’s information system. Consequently, HUD had no assurance of the
accuracy of the amount that the Municipality received and its compliance with
HOME disbursement requirements.
10
Inaccurate Commitment
Amount
HUD’s information system reflected that the Municipality committed more than
$1.2 million in HOME funds (89 activities) between January 1, 2011, and
December 31, 2012. We examined 15 commitments totaling more than $290,000.
The Municipality reported inaccurate commitment amounts in 5 of the 15
commitments reviewed. Three activities had understated commitments, and in
two the committed amounts were overstated by $919. 7 The overstated
commitments were unsupported, and the Municipality must deobligate the funds
and put them to better use for other eligible activities.
Committed amount
Activity in HUD’s Amount per Understated Overstated
number information system agreement commitment commitment
1161 $7,440 $7,445 $5
1162 $8,467 $8,473 $6
1163 $8,643 $8,649 $6
1160 $8,932 $8,925 $7
1207 $6,036 $5,124 $912
Inaccurate Commitment Date
The Municipality reported in HUD’s information system 9 commitments of more
than $159,000 between 5 and 64 days after the grant agreement was executed.
Therefore, the actual commitment data were entered into HUD’s information
system with delays and inaccurate commitment dates.7
Days elapsed between
Activity Committed Grant agreement and
number amount Funding date agreement date funding dates
1172 $30,000 Feb. 3, 2012 Dec. 1, 2011 64
1202 5,694 Aug. 16, 2012 June 26, 2012 51
1161 7,440 Jan. 12, 2012 Dec. 14, 2011 29
1160 8,932 Jan. 12, 2012 Dec. 15, 2011 28
1163 8,643 Jan. 12, 2012 Dec. 15, 2011 28
1162 8,467 Jan. 12, 2012 Dec. 15, 2011 28
1219 30,000 Mar. 11, 2013 Feb. 21, 2013 18
1184 30,000 Apr. 9, 2012 Mar. 30, 2012 10
1182 30,000 Mar. 26, 2012 Mar. 21, 2012 5
Total $159,176
7
HOMEfires, volume 2, number 5, states that HUD requires reliable IDIS information for various purposes,
including reporting to Congress, monitoring financial information, tracking program performance, and identifying
grantee and program needs. The reliability of the HOME IDIS data centers on participating jurisdictions reviewing,
updating, and correcting their HOME program information.
11
Other Deficiencies
The Municipality did not comply with additional HUD requirements when
committing HOME funds.
Undated signatures in agreements - The Municipality did not implement adequate
controls by not requiring that the signatures of all parties be dated in 12 written
agreements reviewed to show the execution date as required by HUD in section
VII of HOME Notice 07-06. As a result, HUD had no assurance of the actual
commitment date and Municipality’s compliance with HUD’s commitment
requirements.
Missing agreement clauses - The Municipality did not ensure that five grant
agreements reviewed included the following clauses required by HUD at 24 CFR
92.504(c)(5) and 92.254(a)(3) for home-buyer activities:
• Value of property to be acquired,
• Principal residency requirement,8
• Period of affordability,8 and
• Resale or recapture provisions. 8
The table in appendix E of this report shows the activities for which the
Municipality did not require that signatures of all parties in written agreements be
dated and that agreements contain all HUD-required clauses.
Inadequate Monitoring
The Municipality did not properly monitor the accuracy of commitments and
other information reported in HUD’s information system. The Municipality’s
HOME program coordinator informed us that the most recent reconciliation
between HUD’s information system and its records was performed in 2008. In
addition, the Municipality did not have written procedures providing guidance to
its personnel regarding the monitoring of information reported to HUD and
establishing responsibility among its personnel. Therefore, the Municipality had
not established and implemented a system to verify the accuracy of data reported
to HUD on a regular basis.
Conclusion
Because the Municipality did not properly monitor, it did not ensure the accuracy
of commitments and other information entered into HUD’s information system.
There was no assurance that the Municipality met HUD commitment and
8
The clause was included in the mortgage note but not in the grant agreement.
12
disbursement requirements. The inaccurate data compromised the integrity of
HUD’s information system and the degree of reliability HUD could place on the
data for monitoring commitments and compiling national statistics on the HOME
program.
Recommendations
We recommend that the Director of the San Juan Office of Community Planning
and Development require the Municipality to
2A. Deobligate and put to better use $3,906 in unexpended commitments
associated with the terminated activity.
2B. Correct any inaccurate information in HUD’s information system,
including but not limited to the receipt of $1,473, associated with program
income and recaptured funds not reported, and inaccurate commitment
amounts and dates.
2C. Deobligate and put to better use $919 in overstated commitments.
2D. Develop and implement controls and procedures to ensure that (1)
accurate information on HOME-funded activities is reported in HUD’s
information system in a timely manner, (2) program income and
recaptured funds are properly reported, and (3) grant agreements contain
all HUD-required clauses and signatures are properly dated.
13
SCOPE AND METHODOLOGY
The objectives of the audit were to determine whether dwelling units acquired under the home-
ownership program complied with the U.S. Department of Housing and Urban Development’s
(HUD) housing standards and affordability requirements, whether the Municipality disbursed
HOME funds within HUD-established timeframes, and reported accurate and supported
information in HUD’s Integrated Disbursement and Information System.
To accomplish our objectives, we
• Reviewed applicable HUD laws, regulations, and other HUD program
requirements;
• Interviewed HUD and Municipality officials;
• Obtained an understanding of and reviewed the Municipality’s controls and
procedures related to our objectives;
• Reviewed monitoring, independent public accountant, and HUD’s information
system reports;
• Reviewed the Municipality’s files and records, including grant agreements and
bank statements; and
• Traced information reported in HUD’s information system to the Municipality’s
records, including grant agreements, program income and recaptured funds
receipts, and disbursement records.
We reviewed a sample of transactions based on the dollar amount, and/or on nature of the
expenditure; examining 100 percent of the transactions were not feasible. All of the transactions
associated with property standards and program income were reviewed because of the small size
of the universe. The results of the audit apply only to the items selected and cannot be projected to
the universe or population.
HUD’s information system reflected that the Municipality committed more than $800,000 in
HOME funds between January 1, 2011, and December 31, 2012, associated with 36 home-buyer
acquisition-only activities. We selected all of these activities for review. We reviewed one
additional activity with a funding date of March 11, 2013, because of the large amount
committed. The 37 activities were reviewed to determine whether the Municipality performed
the required inspections to ensure that the dwelling unit was eligible and complied with HOME’s
property standards requirements.
The Municipality issued two monitoring reports in February 2010 and 2012. The reports
identified 23 home-buyer activities that did not comply with HUD’s principal residency
requirement for the duration of the period of affordability. For these activities, the Municipality
14
disbused $324,895 in HOME funds. We reviewed the 23 activities to determine whether the
Municipality made proper monitoring efforts to ensure that activities met program objectives and
fully provided the intended benefits.
HUD’s information system reflected that the Municipality drew down from its treasury account
more than $1.2 million (758 withdrawals) in HOME funds between January 1, 2011, and
December 31, 2012. We reviewed all 21 withdrawals greater or equal to $20,000 totaling more
than $550,000. We also reviewed a withdrawal of $26,094 made on January 10, 2013. A total
of 22 withdrawals totaling more than $580,000 were reviewed to determine whether the
Municipality expended HOME funds within HUD-established timeframes.
HUD’s information system reflected that the Municipality committed more than $1.2 million in
HOME funds between January 1, 2011, and December 31, 2012, associated with 89 activities.
We reviewed the seven highest commitments of the home-buyer and tenant-based rental
assistance activities in 2012. The sample resulted in 14 activities with commitments totaling
more than $260,000. We reviewed one additional activity totaling $30,000 that was committed
out of our audit period. We reviewed these 15 activities to determine whether the information
the Municipality reported to HUD, including commitments, was accurate and supported.
The Municipality’s records showed that between October 7, 2010, and December 4, 2012, it
received program income and recaptured funds in the amount of $23,058. We reviewed all of
the receipts to determine whether funds were properly reported in HUD’s information system.
To achieve our audit objectives, we relied in part on computer-processed data contained in
HUD’s information system. Although we did not perform a detailed assessment of the reliability
of the data, we performed a minimal level of testing and found the data adequate for our
purposes. We did not rely on computer-processed data contained in the Municipality’s database.
The audit generally covered the period January 1, 2011, through December 31, 2012, and we
extended the period as needed to accomplish our objectives. We conducted our fieldwork from
February through July 2013 at the Municipality’s offices in Arecibo, PR.
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 objectives.
15
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objectives:
• Program operations - Policies and procedures that the audited entity has
implemented to provide reasonable assurance that a program meets its
objectives, while considering cost effectiveness and efficiency.
• Relevance and reliability of information - Policies and procedures that
officials of the audited entity have implemented to provide themselves with
reasonable assurance that operational and financial information that they use
for decision making and reporting externally is relevant, reliable, and fairly
disclosed in reports.
• Compliance with applicable laws, regulations, contracts, and grant agreements
- Policies and procedures that the audited entity has implemented to provide
reasonable assurance that program implementation complies with provisions
of laws, regulations, contracts, and grant agreements.
• Safeguarding of assets and resources - Policies and procedures that the audited
entity has implemented to reasonably prevent or promptly detect unauthorized
acquisition, use, or disposition of assets and resources.
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
16
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
• The Municipality did not implement adequate controls and procedures to
ensure that (1) home-buyer acquisition-only activities met property standards
and affordability requirements, (2) funds were disbursed within HUD-
established timeframes, and (3) the eligibility of program charges was
supported (see finding 1).
• The Municipality did not implement adequate controls and procedures to
ensure that accurate information on HOME activities was reported to HUD
(see finding 2).
17
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put
number Unsupported 1/ to better use 2/
1A $719,954
1B 307,537
1C $26,094
1D 30,000
2A 3,906
2C _________ 919
Total $1,057,491 $30,919
1/ 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/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an OIG recommendation is implemented. These amounts include
reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
implementing recommended improvements, avoidance of unnecessary expenditures
noted in preaward reviews, and any other savings that are specifically identified. In this
instance, if the Municipality implements recommendations 1C, 2A, and 2C, funds will be
available for other eligible activities consistent with HOME requirements.
18
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
The Municipal Development Department director informed us that the Municipality was not
going to submit a written response to the audit report and recommendations. Therefore, the
report was issued without auditee comments and OIG’s evaluation.
19
Appendix C
LIST OF ACTIVITIES NOT INSPECTED
Activity number Funding date Amount
1096 Feb. 23, 2011 $20,000
1099 Mar. 30, 2011 30,000
1100 Mar. 30, 2011 20,000
1103 Apr. 28, 2011 30,000
1104 Apr. 28, 2011 20,000
1105 Apr. 28, 2011 30,000
1107 May 4, 2011 30,000
1112 May 20, 2011 30,000
1135 Aug. 19, 2011 19,645
1136 Aug. 19, 2011 29,258
1142 Sept. 19, 2011 30,000
1143 Sept. 23, 2011 30,000
1157 Dec. 8, 2011 29,176
1158 Dec. 19, 2011 20,000
1159 Jan. 11, 2012 12,238
1165 Jan. 27, 2012 19,127
1169 Feb. 3, 2012 20,000
1170 Feb. 3, 2012 19,298
1171 Feb. 3, 2012 10,453
1172 Feb. 3, 2012 30,000
1173 Feb. 3, 2012 17,040
1174 Feb. 10, 2012 17,190
1178 Feb. 14, 2012 29,296
1181 Mar. 20, 2012 20,000
1183 Mar. 29, 2012 29,684
1184 Apr. 9, 2012 30,000
1185 Mar. 29, 2012 20,000
1187 Apr. 23, 2012 30,000
1204 Aug. 27, 2012 11,790
1206 Oct. 29, 2012 20,000
1212 Nov. 29, 2012 15,759
1219 Mar. 11, 2013 30,000
Total $749,954
20
Appendix D
LIST OF ACTIVITIES NOT MEETING PRINCIPAL
RESIDENCY REQUIREMENT
Activity Affordability Affordability Monitoring
number period period end Amount report date
date
11 20 years June 29, 2013 $5,000 Feb. 2012
17 20 years Nov. 10, 2013 18,721 Feb. 2012
18 20 years Nov. 10, 2013 18,721 Feb. 2012
20 20 years Nov. 10, 2013 18,721 Feb. 2012
34 20 years July 5, 2014 14,400 Feb. 2012
35 20 years Sept. 19, 2014 5,600 Feb. 2012
45 20 years July 5, 2014 5,000 Feb. 2012
88 30 years Apr. 30, 2026 9,153 Feb. 2012
89 30 years Apr. 30, 2026 9,746 Feb. 2012
483 10 years Mar. 26, 2012 15,000 Feb. 2012
653 10 years Nov. 12, 2014 20,000 Feb. 2010
654 10 years Aug. 19, 2014 19,485 Feb. 2010
778 10 years Mar. 29, 2016 9,407 Feb. 2010
793 10 years July 19, 2016 18,583 Feb. 2010
795 10 years Aug. 29, 2017 30,000 Feb. 2010
819 10 years Oct. 19, 2016 20,000 Feb. 2010
Not available 9 10 years Mar. 31, 2010 15,000 Feb. 2010
Not available9 10 years July 6, 2010 15,000 Feb. 2010
Not available9 10 years Apr. 1, 2013 20,000 Feb. 2010
Not available9 10 years May 19, 2010 15,000 Feb. 2010
Not available9 20 years July 2, 2013 5,000 Feb. 2012
Total $307,537
9
The activity was part of a global payment for several home buyer activities. The Municipality records did not
contain sufficient information to trace the individual activity in HUD’s information system.
21
Appendix E
LIST OF ACTIVITIES WITH UNDATED SIGNATURES AND
MISSING AGREEMENT CLAUSES
Activity Undated signatures in Missing agreement
number agreement clauses
1160 X
1161 X
1162 X
1163 X
1172 X X
1184 X X
1187 X X
1202 X
1207 X
1212 X X
1213 X
1219 X X
Total 12 5
22
The Municipality of Arecibo Did Not Properly Administer Its HOME Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-12-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)