oversight

Vieques Sports City Complex, Office of the Commissioner for Municipal Affairs, San Juan, PR, Section 108 Loan Guarantee Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-03-20.

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

                                               U.S. DEPARTMENT OF
                               HOUSING AND URBAN DEVELOPMENT
                                        OFFICE OF INSPECTOR GENERAL




                                              March 20, 2014
                                                                                              MEMORANDUM NO:
                                                                                              2014-AT-1801


Memorandum
TO:           María Ortíz, Director, Community Planning and Development, San Juan Field
              Office, 4ND

              Paul Webster, Director, Financial Management Division, Office of Block Grant
              Assistance, DGBF

              //signed//
FROM:         Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT:      Vieques Sports City Complex, Office of the Commissioner for Municipal Affairs,
              San Juan, PR, Section 108 Loan Guarantee Program


                                           INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), completed a review of the Office of the Commissioner for Municipal Affairs’ (OCMA)
Puerto Rico State Community Development Block Grant (CDBG) Section 108 Loan Guarantee
program. We selected OCMA for review as part of our strategic plan, based on concerns
regarding the slow progress of the Vieques sports complex project. The objective of this audit
was to determine whether OCMA used Section 108 loan proceeds on a project that met a
national objective of the CDBG program and fully provided the intended benefits.

This memorandum contains five 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 HUD Handbook. Please furnish us copies of any
correspondence or directives issued because of the review.

                                METHODOLOGY AND SCOPE

To accomplish our objective, we performed the following associated with the Vieques sports
complex project:


                                                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.
    •   Reviewed applicable laws, regulations, and relevant HUD program requirements,
        including the Section 108 loan contract and CDBG grant agreements;

    •   Reviewed HUD Section 108 loan-related files, including the application for the loan,
        status reports, and disbursement information reported on the loan proceeds and CDBG
        funds;

    •   Reviewed OCMA project files and records, including proposals submitted by the
        Municipality of Vieques;

    •   Reviewed HUD and OCMA applicable monitoring reports, including action plans
        submitted by OCMA for completing the project and related correspondence;

    •   Reviewed HUD’s Integrated Disbursement and Information System reports;

    •   Conducted site inspections of the project; and

    •   Interviewed HUD, OCMA, and Municipality officials.

We did not review the Municipality’s project files because they were not available for review. 1
The only documentation the Municipality provided for our review was a certification of project
disbursements, dated August 28, 2003, and schedules listing general disbursement information
for the Section 108 loan proceeds and CDBG funds.

To determine the amount of CDBG funds expended for the development of the project, including
repayments of the Section 108 loan and program income proceeds, we

    •   Performed a limited review of OCMA’s financial records, including disbursed amounts
        recorded in budget records corresponding to program years 1993 through 2003 and 2005,
        and reviewed the check register for the period July 1998 through November 2013;

    •   Compared, as applicable, information reported in HUD’s Integrated Disbursement and
        Information System with OCMA’s records;

    •   Reviewed proposals 2 submitted by the Municipality to OCMA, including a balance sheet,
        dated December 31, 1997; and

    •   Obtained from HUD information regarding the source of funds used for the repayment of
        the Section 108 loan.

We reviewed, among other things, loan repayment information provided by HUD, compared
OCMA’s disbursements with drawdowns in HUD’s information system, and compared

1
 The project files date back to 1993. According to a Municipality official, the project files were destroyed.
2
 We reviewed proposals submitted by the Municipality corresponding to program years 1995 through 2003 and
2005.



                                                        2
disbursements reported by the Municipality with HUD’s and OCMA’s records. Although we did
not verify all of the data reported by HUD, OCMA, and the Municipality, we found the data
adequate for our purpose of determining the amount of unsupported CDBG costs incurred for the
incomplete project.

We conducted the review at the HUD field office, OCMA office, and our HUD OIG office in
San Juan, PR, from September through December 2013. We also conducted site inspections of
the project on November 7 and 20, 2013. Our review generally covered the period July 1, 1993,
through August 31, 2013. This was a limited scope review, and we did not review OCMA’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

The Section 108 Loan Guarantee program is the loan guarantee provision of the CDBG program.
Section 108 loans provide grantees with a source of financing for economic development,
housing rehabilitation, public facilities, and large-scale physical development projects. The
principal security for the loan guarantee is a pledge by the grantee or the State of current and
future CDBG funds. Section 108 obligations are financed through underwritten public offerings
and may be for terms up to 20 years. A nonentitlement public entity3 (subrecipient) may apply
for up to five times the latest approved CDBG amount received by its State.

For purposes of determining project and activity eligibility, the CDBG rules and requirements
apply. All projects and activities must meet one of the following three national objectives of the
CDBG program: (1) principally benefit low- and moderate-income persons, (2) assist in
eliminating or preventing slums and blight, or (3) assist with community development needs
having a particular urgency.

OCMA is the lead agency in Puerto Rico charged with the responsibility of overseeing the
administration of the State allocation of CDBG program funds. OCMA was created August 30,
1991, through the Commonwealth of Puerto Rico Autonomous Municipalities Act of 1991. One
of OCMA’s responsibilities is to regulate, advise, and give technical and professional assistance
to municipalities in the areas related to their organization, administration, and operations. In
fiscal year 2013, HUD awarded Puerto Rico nearly $27.8 million in State CDBG funds,
distributed among 51 nonentitlement recipients, including the Municipality of Vieques. Vieques
is an island located about 6 miles east of Puerto Rico with a population of 9,301. 4

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


3
  A nonentitlement public entity represents a unit of general local government that does not receive CDBG funds
directly from HUD as part of the CDBG entitlement program.
4
  According to available data from the U.S. Census Bureau, the population of the Municipality of Vieques increased
from 8,602 in 1990 to 9,301 in 2010.



                                                        3
sports city complex in the Luján ward. 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 in favor of the Section 108 loan. HUD approved the $5 million Section 108 loan in
April 1994. More than $10.8 million in State CDBG funds were disbursed for the development
of a sports complex facility targeted to serve the low- and moderate-income residents of
Vieques. 5

OCMA’s books and records are maintained at 255 Ponce de León Avenue, San Juan, PR.

                                         RESULTS OF REVIEW

OCMA did not ensure that the Municipality completed a Section 108 Loan Guarantee project to
construct a sports complex. The project was abandoned and not completed, materials and
equipment acquired for its construction were unaccounted for, and the intended benefit was not
realized. These deficiencies occurred because no corrective action plan was implemented and
the completion of the sports complex was not feasible. As a result, program objectives were not
met, preventing low- and moderate-income persons from receiving the intended benefits. HUD
also lacked assurance of the allowability of more than $10.8 million in State CDBG funds
invested in the unfinished project.

Incomplete Project

The development of the sports complex project started in 1993. 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, after various negotiation efforts, the plaintiffs entered into a settlement
agreement, and the Municipality agreed to

    •   Not complete the sports complex as designed;

    •   Comply with the requirements for outdoor lighting in case a future facility is constructed;
        and

    •   Continue to maintain the site in full compliance with all applicable Federal and State
        laws, including putting in place erosion control measures and protecting the archeological
        site.



5
 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.



                                                       4
As a result of the settlement agreement, the construction of the sports complex was suspended,
with about 72 percent 6 of the project completed.

According to the Section 108 loan application, the sports complex was to be built on a 61-acre
property conveyed to the Municipality by the U.S. Department of the Interior. 7 The project
consisted of a main recreational building to house, among others 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.

A 1998 aerial picture shows the main recreational building and bleachers for the two baseball
parks that were under construction at the project site.




    Source: HUD San Juan field office files



6
 The construction progress is based on Municipality proposals corresponding to program years 1999 through 2002.
7
 The title of the land was transferred by the U.S. Department of the Interior, National Park Service, through the
Federal Lands to Parks Program, to the Municipality during 2011. The Federal Lands to Parks Program helps
communities obtain surplus Federal property for public parks and recreational use.



                                                        5
We performed two site inspections of the sports complex in November 2013 and confirmed that
the project was not finished. The physical condition of the site demonstrated that the project had
been abandoned for a long time. Dense vegetation had grown over the years and expanded over
the project site and the partially built facilities, which were not accessible by foot.




On November 20, 2013, aerial pictures were taken of the project site. The sports complex was abandoned, and
the main recreational building and the baseball facilities were covered with dense vegetation.

In 2002, an OCMA consultant inspected the sports complex and found unused materials and
equipment stored at the project site, including air conditioning, pool and plumbing, and electrical
equipment.




                                                      6
    The 2002 pictures show materials and equipment stored at the project site and air conditioning systems that
    had not been used.

Municipality officials informed us that they did not know what happened to the unused materials
and equipment stored at the project site. No inventory of the unused materials and equipment
was maintained.

In addition, the Municipality could not provide documentation evidencing the use of the State
CDBG funds disbursed for the sports complex. A Municipality official explained that the
records were destroyed and that they had provided to us all available documentation. This was
not an acceptable explanation for not performing an integral component of the Municipality’s
CDBG and Section 108 loan programs responsibilities. The Municipality failed to maintain
adequate documentation on the use of HUD funds as required by 24 CFR (Code of Federal
Regulations) 85.22. 8 The only documentation available was a spreadsheet listing disbursements
made with general information on the payee and purpose. Among the items listed as having
been paid for with HUD funds were salaries, transportation, gasoline, and ice.

A 2002 HUD monitoring report 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. However, the deficiency remained unresolved. More
than 11 years had elapsed since the construction of the sports complex was suspended, and more
than $10.8 million in HUD funds had been disbursed, but the project remained incomplete and
abandoned without meeting a national objective of the CDBG program. 9 As a result, funds were
wasted, and HUD had no assurance that State CDBG funds were used for allowable purposes
and that program objectives were met. In addition, low- and moderate-income persons did not
receive the intended benefits for which more than $10.8 million in HUD funds was invested.

Unfeasible Project

The sports complex was not a feasible project. An OCMA consultant-engineer inspected the
sports complex in 2002 and concluded that the project was not useful or cost effective to operate
and maintain and was out of proportion, considering the size of the Municipality’s population
and the current infrastructure of the island. In the report, the engineer also stated that the project

8
  Federal regulations at 24 CFR 85.22 provide cost principles for determining allowable costs. Specifically, to be
allowable under federal awards, costs must be necessary, reasonable, and adequately documented.
9
  Required by 24 CFR 570.200(a)(2) and 570.703



                                                           7
was designed and constructed without consideration for the high operating and maintenance
costs that this type of facility would require. 10 In addition, the consultant pointed out that the
location where the project was constructed was not ideal because the site required a large amount
of earth movement, resulting in a considerable increase in development costs.

The Municipality’s 2005 action plan proposed the redesign of the project to reduce its scope.
The Municipality also stated that the project was unrealistic for a town with fewer than 10,000
residents and it lacked the basic infrastructure to accommodate a large number of visitors for a
project of such magnitude. Therefore, the sports complex was not a viable project as originally
planned.

OCMA informed us that it was looking for a solution to the abandoned sports complex and that it
would not be feasible to continue with the original proposed project. It believed that cutting
down the trees and vegetation and rehabilitating the partially built facilities would be too
expensive. OCMA informed HUD that according to the most recent estimate it would costs
more than $16 million to rehabilitate the site, and neither OCMA nor the Municipality had
available funds to complete the project. Therefore, the completion of the sports complex was not
feasible, resulting in the inefficient use of State CDBG funds.

Project Future Uncertain

The Municipality and OCMA submitted various proposals for completing the project. The
proposals included redesigning the project, changing the original scope and use of the project,
and requiring the investment of additional funds. For example, in 2005, the Municipality
requested from OCMA an additional $269,675 from its State CDBG allocation to redesign the
project 11 and estimated that an additional $7 million would be needed to finish the project.

The last proposal submitted to HUD was on February 10, 2011. The proposal stated that the
Municipality wanted to complete the sports complex, by preserving the partially built facilities
and constructing new ones, and use a commercial approach to generate proceeds from
recreational and commercial activities to pay for its maintenance. The estimated cost for
rehabilitating and operating the project with the new facilities was $16.5 million, including a new
Section 108 loan in the amount of $5.5 million and an additional $2.5 million in State CDBG
funds. However, none of the proposed alternatives occurred.

In September 2013, OCMA informed us that it was working on a plan to convert the sports
complex to a forest preservation activity for the benefit of low- and moderate-income persons.
The Municipality informed us that it was looking for alternatives to bring the sports complex into
compliance with HUD requirements. Although the Municipality had conversations with OCMA,
no final determination had been made on the future plan for the project.


10
   The main recreational building was about 30 feet tall and was designed to have air conditioning in all of its
interior facilities, which would result in excessive energy costs to operate. In addition, the Municipality would incur
high maintenance costs for cleaning and painting the facilities.
11
   From the $269,675 in 2005 State CDBG funds requested, only $87,681 was expended. OCMA reprogrammed the
unused allocation to other subrecipients.



                                                          8
In a letter dated January 7, 2014, addressed to the San Juan Field Office Director, OCMA
proposed a change in the use of the project to a wild life refuge and cultural resources
conservation site. However, OCMA did not address the issues related to the abandoned and
deteriorated structures, and the wasted materials and equipment for which more than $10.8
million in HUD funds was invested. In its letter OCMA stated that for years the Municipality
sought a solution to the abandoned project, but the Municipality and the State did not have the
funds to rehabilitate the abandoned facilities. The San Juan Office of Community Planning and
Development informed us that it has not received OCMA’s letter nor approved a change to the
use of the project site.

The Municipality and OCMA failed to develop an acceptable solution to resolve the issues
associated with the abandoned project. Therefore, the future of the sports complex remained
uncertain.

Other Deficiencies

Our review disclosed other instances of noncompliance with HUD requirements and loan
agreement provisions.

Unsupported drawdown - OCMA could not support the use of $37,215, which it withdrew from
HUD on August 8, 2006 (voucher number 1305973/2). OCMA identified in HUD’s information
system that the funds were used for a repayment of the Section 108 loan. However, the loan was
paid in full in 2003, and no evidence was found that these proceeds corresponded to a repayment.
OCMA provided no other documentation that could support the use of these funds.

Inaccurate reporting - HUD’s information system reflected inaccurate information. OCMA did
not properly classify in HUD’s information system four withdrawals totaling $216,630 to
properly reflect the use of State CDBG funds for the repayment of the Section 108 loan. These
withdrawals corresponded to deductions made by HUD from OCMA’s line of credit between
2001 and 2003. One withdrawal was posted under an incorrect repayment activity, and three
withdrawals were not posted in HUD’s information system to a corresponding repayment
activity, resulting in the understatement of $132,985 in loan repayments made with CDBG funds.

               Voucher
               number        Draw date        Amount               Comment
               606618/2   February 27, 2001   $83,645    Posted to an incorrect activity
               606618/3   February 27, 2001     21,475   Not posted to an activity
               722895/1    February 6, 2002     74,295   Not posted to an activity
               852308/1   February 12, 2003     37,215   Not posted to an activity
                          Total:              $216,630



Conclusion

OCMA failed to properly administer its State CDBG and Section 108 Loan Guarantee programs
by not ensuring compliance with program requirements and loan agreement provisions. It



                                                9
permitted the use of more than $10.8 million in State CDBG funds for a sports complex that did
not achieve program objectives and did not provide the intended benefits. More than 11 years
had elapsed since the 2002 HUD monitoring review; however, the deficiencies remained
unresolved. OCMA and the Municipality had not developed an acceptable solution to the issues
associated with the abandoned sports complex and to bring the project into compliance with
HUD requirements. These deficiencies occurred because the completion of the sports complex
was not feasible. The failure to implement a corrective action plan also contributed to the
abandonment and deterioration of the facilities, which were subsidized with mostly Federal
funds. 12

The failure of the sports complex had a large negative impact on the State CDBG program, as
more than $10.8 million in Federal funds was used to repay the Section 108 loan debt and to
develop a project that was not completed. The Municipality of Vieques and other nonentitlement
recipients were deprived of State CDBG funds that could have been used for other and more
efficient and effective activities. Thus, not only were the objectives of the Section 108 Loan
Guarantee program not met, the State CDBG program and its intended benefit to low- and
moderate-income residents would be deprived of more than $10.8 million in State CDBG funds.

                                            RECOMMENDATIONS

We recommend that the Director of the Financial Management Division of the Office of Block
Grant Assistance instruct OCMA to

1A.         Submit a plan for the sports complex project within 30 days, without proposing the use of
            additional HUD funds to implement it. HUD must reevaluate the feasibility of the sports
            complex project. If HUD determines the project has been canceled or not feasible,
            OCMA must reimburse total project costs in the amount of $10,838,88013 to its State
            CDBG program from non-Federal funds.

We also recommend that the Director of the San Juan Office of Community Planning and
Development instruct OCMA to

1B.         Provide all supporting documentation associated with the $10,838,880 13 in State CDBG,
            Section 108, and program income proceeds disbursed for the development of the sports
            complex, if HUD determines the plan to be feasible (recommendation 1A). HUD must
            determine the eligibility, reasonableness, and allocability of the funds disbursed. OCMA
            must reimburse its State CDBG program from non-Federal funds any amount determined
            ineligible.

1C.         Ensure that the Municipality maintains adequate documentation related to the Vieques
            sports complex project in accordance with HUD requirements and that these demonstrate
            the allowability, necessity, and reasonableness of the costs incurred.


12
     The Municipality expended an additional $4.7 million from local funds for the development of the project.
13
     Total disbursements of $10,876,095 were adjusted to consider $37,215 questioned in recommendation 1D.




                                                           10
1D.   Submit supporting documentation showing the eligibility and propriety of $37,215 drawn
      from HUD or reimburse the State CDBG program from non-Federal funds.

1E.   Correct any inaccurate information in HUD’s information system related to the sports
      complex, including but not limited to the drawdowns of $216,630 associated with the
      loan repayment.




                                             11
Appendix A
                 SCHEDULE OF QUESTIONED COSTS


                       Recommendation
                           number                    Unsupported 1/
                             1B                       $10,838,880
                             1D                            37,215
                            Total                     $10,876,095


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.




                                             12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         13
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 5




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 5




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6



Comment 7



Comment 5



Comment 8




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 9




Comment 5




Comment 10




                         19
Ref to OIG Evaluation   Auditee Comments




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 7




                         21
Ref to OIG Evaluation   Auditee Comments




                         22
Ref to OIG Evaluation   Auditee Comments




                         23
Ref to OIG Evaluation   Auditee Comments




                         24
                                   OIG Evaluation of Auditee Comments

Comment 1           OCMA requested that we identify the administrative or professional standards
                    used for the review, including the need of the review, objective, purpose, and
                    procedures used to prepare a response and take future administrative or legal
                    actions.

                    As stated in the Introduction, OCMA was selected for review as part of our
                    strategic plan, based on concerns regarding the slow progress of the Vieques
                    sports complex project. A survey is the first step in an audit that permits an
                    orderly approach to planning and carrying out the audit work. The audit work
                    done during the survey was sufficient to address our objectives and identify the
                    reportable conditions of noncompliance. The objective of this audit was to
                    determine whether OCMA used Section 108 loan proceeds on a project that met a
                    national objective of the CDBG program and fully provided the intended benefits.
                    The Inspector General Act of 1978, as amended, authorizes OIG to conduct
                    audits, reviews, inspections, and evaluations related to HUD programs and access
                    to any and all documents associated with any HUD program or operation held by
                    any entity or individual. The audit was conducted in accordance with OIG
                    policies and procedures, and consistent with our statutory mission of detecting
                    and preventing fraud, waste, abuse, and mismanagement and promoting the
                    effectiveness and efficiency of government operations.

Comment 2           OCMA requested that we eliminate the statement because it was inaccurate and
                    misleading and made reference that the interest paid on the Section 108 loan were
                    questioned although these were properly recorded in the accounting records. We
                    disagree with OCMA’s statement; its records did not reflect information on all
                    loan repayments. In addition, OCMA did not provide additional support
                    identifying the alleged inaccurate information. Therefore, we did not eliminate
                    the statement from the memorandum.

Comment 3           OCMA requested that we rewrite the statement because it did not recommend the
                    approval of the sports complex and was obligated to pledge future CDBG funds.

                    Contrary to OCMA’s statement, in a letter dated August 16, 1993, 14 the former
                    Commissioner did recommend that HUD approve the loan and agreed to pledge
                    future CDBG funds as follows: “Based [on] our review and taking [into]
                    consideration that the municipality performance meets the standard required by
                    the state we recommend the application and agree to make the pledge of future
                    grants required under 570.705(b)(2).” We modified the statement clarifying
                    OCMA’s recommendation of the Section 108 loan.

                    We disagree with OCMA’s statement that it did not disburse State CDBG funds
                    for the development of the sports complex. OCMA disbursed more than $6.8


14
     Application for the Section 108 Loan Guarantee Vieques, Puerto Rico.



                                                         25
            million to repay the Section 108 loan and more than $3.7 million for development
            costs.

Comment 4   OCMA suggested we revised the statement in the memorandum. However, it did
            not provide additional information showing or explaining what was incorrect.
            Therefore, we did not modify the statement in the memorandum.

Comment 5   OCMA requested the removal from the memorandum of all reference to the lack
            of feasibility as the cause for the abandonment and non-compliance with CDBG
            program requirements. It attributed the halting and abandonment of the project to
            the legal action against the Municipality, HUD, and the U.S. Department of the
            Interior. It further added that the settlement agreement made the completion of
            the project an unreasonable and impossible task to accomplish. Thus, OCMA
            claimed it could not be held liable and responsible for not completing the sports
            complex.

            We acknowledge that the construction work of the sports complex was suspended
            because of the legal action against the parties involved in the project. However,
            OCMA and the Municipality abandoned the sports complex project and allowed
            the existing facilities to deteriorate after an agreement was reached with the
            plaintiff. OCMA informed us and HUD that the completion of the sports complex
            was not feasible because it would cost more than $16 million to rehabilitate and
            that it did not have the funds to complete the work. We added this information to
            clarify the memorandum, but did not remove the statement as requested.

            We disagree with OCMA’s statement that it should not be held responsible for not
            completing the project. States are responsible for managing the day-to-day
            operations of their CDBG program and ensuring that funds are used in keeping
            with all program requirements. Implementation of activities by other entities
            (units of local government, nonprofit development organizations, etc.) does not
            relieve states of this responsibility. OCMA did not ensure that the Municipality
            completed the sports complex and failed to perform an integral component of the
            State’s CDBG program responsibilities. As a result, program objectives were not
            met, preventing low- and moderate-income persons from receiving the intended
            benefits.

            We also disagree with OCMA’s statement that the settlement created
            unreasonable and impossible burdens to complete the project. Contrary to
            OCMA’s statement, the September 2002 settlement did not prohibit or impose
            unreasonable burdens on the sports complex project. The Municipality agreed to

               •   Not complete the sports complex as designed;

               •   Comply with the requirements for outdoor lighting in case a future facility
                   is constructed; and




                                            26
               •   Continue to maintain the site in full compliance with all applicable Federal
                   and State laws, including putting in place erosion control measures and
                   protecting the archeological site.

            OCMA did not provide additional information to support that the settlement
            imposed unreasonable burdens that impeded the completion of the sports complex
            and ensure that low- and moderate-income persons received the intended benefits.


Comment 6   OCMA believed that the questioned costs should not include the interest paid on
            the Section 108 loan and that the correct unsupported amount was more than $8.4
            million. OCMA disbursed State CDBG funds to repay the Section 108 loan,
            including principal and interest, of a project that did not meet program objectives.
            Therefore, all CDBG funds disbursed for the sports complex are unsupported.
            OCMA did not provide additional information or explain why the interest paid
            with CDBG funds should be excluded from the questioned amount. Therefore,
            the memorandum and recommendation were not modified.

Comment 7   OCMA requested that we eliminate the statement because it was inaccurate. We
            updated the memorandum to acknowledge that OCMA sent a letter to the San
            Juan, PR, HUD Field Office Director, proposing a change in the use of the project
            to a wild life refuge and cultural resources conservation site. We did not
            eliminate the statement because change in use of the site had not been evaluated
            or approved by HUD. In addition, the proposed change in the use of the site did
            not address the issues related to the abandoned and deteriorated structures, and the
            wasted materials and equipment for which more than $10.8 million in HUD funds
            was invested.


Comment 8   Contrary to OCMA’s claim, HUD did monitor the Vieques sports complex and
            the results of the review were discussed with OCMA’s former Commissioner on
            August 21, 2002. However, the deficiencies remained unresolved.


Comment 9   OCMA stated that it would be impossible to determine the feasibility of the sports
            complex after 20 years and disagreed with the recommendation to reimburse
            $10.8 million if HUD determines the project to have been cancelled or not
            feasible. In addition, it stated that Recommendation 1A must specify the type of
            plan to be submitted and its scope.

            OCMA must reimburse any ineligible amounts determined by HUD. During the
            audit resolution process, HUD will request all pertinent information to address the
            audit findings and recommendations. We disagreed with OCMA’s statement and
            did not modify the recommendation.




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Comment 10 OCMA suggested the merger of Recommendations 1B and 1C because these were
           related. We disagree with OCMA’s statement and did not modify the
           recommendations. Although related, each recommendation was directed to
           different entities and addressing specific deficiencies found. Recommendation 1B
           is directed to OCMA and 1C is directed to the Municipality of Vieques.




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