oversight

Pierce County Claimed Ineligible and Unsupported HOME Matching Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-17.

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

OFFICE OF AUDIT
REGION 10
   ing
SEATTLE, WA




                   Pierce County, WA

          HOME Investment Partnerships Program
                   Matching Funds




2014-SE-1003                                JULY 17, 2014
                                                                    Issue Date: July 17, 2014

                                                                    Audit Report Number: 2014-SE-1003




TO:            Jack Peters, Director, Community Planning and Development, 0AD

               //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, Seattle Region, 0AGA


SUBJECT:       Pierce County Claimed Ineligible and Unsupported HOME Matching Funds


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of Pierce County Community Connections’
HOME, Continuum of Care, and Emergency Solutions grant matching contributions.

    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 8M, 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
913-551-5870.




                                               Office of Audit Region 10
                                   909 First Avenue, Suite 126, Seattle, WA 98104
                                      Phone (206) 220-5360, Fax (206) 220-5162
                          Visit the Office of Inspector General Web site at www.hudoig.gov
                                            Date of Issuance July 17, 2014
                                            Pierce County Claimed Ineligible and Unsupported
                                            HOME Matching Funds




Highlights
Audit Report 2014-SE-1003


 What We Audited and Why                     What We Found

We audited Pierce County because it         The County claimed nearly $242,000 in ineligible
received almost $9 million in total         matching funds for three HOME projects. Since these
funding in Washington State for its         three projects had already received HOME funding and
community planning and development          were under affordability agreements, the matching
grants under the 2011 and 2012 notices      funds reported were ineligible.
of funding availability. This amount
represented a significant share of funds    Also, the County did not support $2.6 million in
awarded in Region 10 (Alaska, Idaho,        HOME matching funds carried forward from prior
Oregon, and Washington). Our                years. As a result, it had a shortfall of nearly $395,000
objective was to determine whether          in its match obligation for the program year beginning
Pierce County met the matching              July 2008 and could be required to repay HUD almost
requirements for the HOME Investment        $1.6 million in HOME funds, depriving low-income
Partnerships Program. 	                     people in its jurisdiction of needed housing.

                                            The County has provided proposed corrective actions
 What We Recommend
                                            to the Director of the HUD Seattle Office of
                                            Community Planning and Development for its review.
We recommend that the Director of the
HUD Seattle Office of Community
Planning and Development (1) require
the County to remove nearly $242,000
in ineligible matching funds from its
HOME match carry forward and
provide almost $395,000 in eligible
matching funds to its HOME trust fund
from non-Federal sources or repay
HUD up to nearly $1.6 million, (2)
resubmit its match reports to calculate a
new carry forward amount and ensure
that the new amount is adequately
supported by a running match log and
supporting match documentation, and
(3) ensure that the County prepares and
fully implements effective written
policies and procedures for compliance
with HOME requirements.
                           TABLE OF CONTENTS

Background and Objective                                                        3

Results of Audit
      Finding 1: The County Claimed Ineligible Matching Funds for Three HOME   4
      Projects

      Finding 2: The County Did Not Support HOME Matching Funds Carried        6
      Forward From Prior Periods

Scope and Methodology                                                           8

Internal Controls                                                               9

Appendixes
A.   Schedule of Questioned Costs                                              10
B.   Auditee Comments and OIG’s Evaluation                                     11
C.   Criteria                                                                  14




                                             2
                      BACKGROUND AND OBJECTIVE

HOME Investment Partnerships Program

The National Affordable Housing Act of 1990 created the U.S. Department of Housing and
Urban Development’s (HUD) HOME Investment Partnerships Program. By establishing the
HOME program, Congress intended to establish a partnership between the Federal Government
and States, units of local government, and nonprofit organizations to expand the supply of
affordable, standard housing for low-income families.

In keeping with the concept of partnership, each jurisdiction participating in the HOME program
is required to make contributions to HOME-qualified housing in an amount equal to 25 percent
of the HOME funds drawn down for housing projects. These contributions are referred to as
“match.” A jurisdiction incurs a match liability each fiscal year based on the amount of HOME
funds drawn down from its U.S. Treasury account. In each fiscal year, a jurisdiction must make
eligible matching contributions in an amount that equals the match liability incurred during that
fiscal year. Matching contributions made in excess of the match liability may be carried forward
as match credit toward meeting the match liability incurred in future years.

Each year, the jurisdiction must submit a financial report (form HUD-40107-A) in its
consolidated annual performance and evaluation report showing the amount of match funds
carried forward from the previous year, the amount contributed, the liability amount, and the
excess match funds carried forward to the next year. The form also includes match contribution
details by type and date contributed for each project.

Participating jurisdictions must track matching contributions provided by maintaining records
demonstrating compliance with match requirements, including keeping a running log and
multiyear project records documenting the type, amount, and date of the matching contributions
for each project.

Pierce County

Pierce County is a participating jurisdiction located in Tacoma, WA. The Pierce County
Department of Community Connections administers Pierce County’s HOME program. The
HOME funds are for Pierce County’s low-income housing needs. The Department is responsible
for keeping track of and reporting its matching contributions.

While the County operates on a calendar year, the County’s HOME program year starts in July.
The July 2012 program year corresponds to the most recent HOME plan approved by HUD from
Federal fiscal year 2012.

Our objective was to determine whether Pierce County met the matching requirements
established for the HOME program.




                                                3
                               RESULTS OF AUDIT


Finding 1: The County Claimed Ineligible Matching Funds for Three
HOME Projects
Pierce County claimed ineligible matching funds for three HOME projects. This condition
occurred because the County was unaware of the requirements. As a result, it could spend future
grant funds without spending adequate matching funds.


 The County Claimed Ineligible
 Matching Funds

              The County claimed nearly $242,000 in ineligible matching funds for three
              HOME projects in its program years 2011 and 2012 match reports.

                 One of the projects was acquired with HOME funds in 1998 and was
                  rehabilitated with HOME matching funds claimed in its program year 2012
                  match report.
                 Another project was acquired with HOME funds in 2001 and was also
                  rehabilitated with HOME matching funds claimed in its program year 2012
                  match report.
                 The third project was acquired with HOME funds in program year 2005 and
                  was rehabilitated with matching funds claimed in its program year 2011 match
                  report.

              According to regulations at 24 CFR (Code of Federal Regulations) 92.220(a)(1),
              when matching funds are reported, they must be permanently contributed to the
              HOME program and must comply with HOME rules. Since these three projects
              had already received HOME funding and were under an affordability agreement,
              the matching funds reported were ineligible according to the regulations at 24
              CFR 92.214(a)(6) (see appendix C).

 The County Was Unaware of
 the Requirements

              The County was unaware of the above requirements. It was aware that matching
              funds reported are permanently contributed to the HOME program. However, it
              was not aware that it could not claim funds contributed to the projects as matching
              funds for projects currently under a HOME affordability agreement.




                                               4
The County Could Spend
Future Grant Funds Without
Spending Adequate Matching
Funds

           The County could spend future grant funds without spending adequate matching
           funds to meet a future match obligation. The ineligible match should be removed
           from the HOME match carry forward. The County will then be able to spend
           future grant funds after it provides adequate, eligible, and compliant matching
           funds.

Recommendations

           We recommend that the Director of the HUD Seattle Office of Community
           Planning and Development

           1A. Require the County to remove $241,979 in ineligible match funds from its
               HOME match carry forward for affordable housing projects.

           1B. Ensure that the County’s management and staff prepare and fully implement
               effective written policies and procedures for compliance with HOME match
               eligibility requirements and provide training as needed.




                                           5
Finding 2: The County Did Not Support HOME Matching Funds
Carried Forward From Prior Periods
Pierce County did not support $2.6 million in HOME matching funds carried forward from prior
periods. This condition occurred because the County did not have adequate written procedures
for maintaining a running match log and project documentation. As a result, it had a shortfall of
nearly $395,000 in its program year 2008 match obligation and could be required to repay HUD
almost $1.6 million in HOME funds, depriving low-income people in its jurisdiction of needed
housing and services.


 Pierce County Did Not Support
 HOME Matching Funds
 Carried Forward From Prior
 Periods

               The County could not support the $2.6 million in matching funds reported as
               carry forward to its match report for the program year beginning 2004. These
               funds were also carried forward on each match report through the years to its
               2011 and 2012 match reports. The $2.6 million originated from match funds
               reported before 2004, and no records were available to describe their source or
               age.

 The County Did Not Have
 Adequate Written Procedures

               The County’s draft HOME matching policies and procedures were not adequate.
               There were no procedures for the running match log and project report to support
               the County’s matching funds carried forward as required by HOME regulations at
               24 CFR 92.508(a)(2)(ix) and Community Planning and Development Notice CPD
               97-03 XI, Tracking Match Obligations and Contributions.

 The County Had a Shortfall

               The County had a deficit of almost $395,000 in its match report for the program
               year beginning July 2008. Based on the HOME program’s 25 percent match
               requirement, the County could be required to repay HUD almost $1.6 million
               ($394,811/0.25) in HOME funds, depriving low-income people in its jurisdiction
               of needed housing and services.




                                                6
The County Was Making
Changes

          The County informed us that it had eligible HOME matching funds that had not
          been reported. It planned to resubmit its program years 2004 through 2012 match
          reports to correct these deficiencies. The County was also creating a running
          match log beginning with its program year 2004 matching contributions.

Recommendations

          We recommend that the Director of the HUD Seattle Office of Community
          Planning and Development

          2A. Require the County to provide $394,811 in eligible matching funds to its
              HOME trust fund from non-Federal sources to meet its program year 2008
              match liability or repay HUD up to $1,579,244.

          2B. Require Pierce County to remove $2,640,244 in unsupported excess
              matching funds carried forward from its match report for program years
              2011 and 2012, resubmit any match reports that are used to calculate a new
              carry forward amount, and ensure that the new amount is adequately
              supported by a running match log and supporting match documentation.

          2C. Ensure that Pierce County management and staff prepare and fully
              implement effective written policies and procedures for compliance with
              HOME match record keeping requirements and provide training as needed.




                                         7
                        SCOPE AND METHODOLOGY

Our review period generally covered July 1, 2011, through June 30, 2013, and was expanded as
needed. We performed onsite work from December 18, 2013, through February 21, 2014, at
Pierce County’s offices, located at 1305 Tacoma Avenue, Tacoma, WA.

To accomplish the objective we performed the following review steps:

      Reviewed match requirements for each of the programs in our survey.
      Reviewed the County’s match policies and procedures for these programs.
      Interviewed and obtained additional information from Pierce County personnel to clarify
       the policies and procedures.
      Obtained and reviewed match supporting documents for these programs.
      Determined whether each of the programs met its match requirements.
      Interviewed and coordinated with HUD’s Office of Community Planning and
       Development management and staff located in its Seattle, WA, office.
We reviewed all four of the projects in which the County had HOME matching funds claimed in
its 2011 and 2012 match reports. Therefore, a sample was not needed.
We did not rely on computer-processed data. Instead, we traced or verified information to
supporting documentation, from which we drew our conclusions.
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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                8
                              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:

                     Policies and procedures implemented to ensure that matching
                      contributions were eligible and supported.

               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.

 Significant Deficiencies

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

                     The County did not have controls in place to ensure that matching funds
                      would not be contributed to projects under affordability agreements
                      (finding 1).
                     The County did not have controls in place to ensure that a running match
                      log and project documentation were maintained (finding 2).




                                                 9
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                  Recommendation
                                            Ineligible 1/ Unsupported 2/
                      number
                        1A                     $241,979
                        2A                                      $1,579,244


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.




                                             10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                                  Auditee Comments

Comment 1




                        June 25, 2014

                        HUD Office of Inspector General
                        Office of Audit (Region 10) Attn: Ronald J Hosking,
                        Regional Inspector General for Audit
                        909 First Avenue, Suite 126
                        Seattle, WA 98104


                        RE: HOME Match Audit


                        Dear Mr. Hosking,
                        This letter is in response to the draft audit report dated June 17, 2014. Below is the County's
                        response and written comments on the draft audit report.

                        Finding #1:
                        The County claimed ineligible matching funds for three HOME projects.

                        Response #1:
                        The County has removed the $241,979 in ineligible match from the match logs and match reports.
                        Please note that after the ineligible match was removed the County had a match surplus in each
                        subsequent federal fiscal year. See response to finding #2.

                        The County has revised its written policies and procedures to ensure that local cash contributed to
                        a completed HOME assisted project during its period of affordability is not eligible as cash match
                        for the HOME program. The County will also provide training related to these HOME match
                        requirements to fiscal and program staff working in the HOME program.

                        Finding #2:
                        The County did not support HOME matching funds carried forward from prior periods.

                        Response #2:

                        The County used the existing match records dating back to October 1, 2004, and created a new




                                                           11
running match log starting on that date. The unsupported carryover HOME match balance prior to
October 1, 2004, of $2,640,244 was eliminated, and the County started with a zero balance for
federal fiscal year 2005. The revised match log recorded the type and the amount of match based on
the existing match records. The HOME match log, match reports, and all match records are available
for review.

The County is re-filing the HOME match reports for the nine years for federal fiscal years 2005
through 2013 with the CAPER. The revised match logs and match reports for federal fiscal year
2008 will reflect an excess match carryover of $394,230.47, thus the County will have met its
match obligations for federal fiscal year 2008.

The County has revised its policies and procedures and will retain all match logs, reports, and
records in perpetuity, allowing all carryover matching funds from previous federal fiscal years to
be verified.

If you have any questions you can contact Bryan Schmid, Housing Supervisor at 253-798-6909, or
Tess Colby, Housing, Homeless, and Community Development Manager, at 253-798-6139.


Sincerely,


Dr. Mari Kruger Leavitt
Deputy Director




cc:
John Melgaard, HUD OIG
Tracey Vargas, Assistant Regional Inspector, HUD OIG
Steven Washington, Deputy Director HUD CPD
Helen Howell, Director Community Connections




                                  12
                        OIG Evaluation of Auditee Comments

Comment 1   The County agreed with our findings and recommendations, has implemented
            corrective action, and will work with HUD to resolve the recommendations.




                                          13
Appendix C

                                         CRITERIA

24 CFR 92.214(a)(6) - (a) HOME funds may not be used to: ... (6) Provide assistance ... to a
project previously assisted with HOME funds during the period of affordability established by
the particular jurisdiction in a written agreement consistent with § 92.504.

24 CFR 92.220(a)(1) - Form of matching contribution. (a) Eligible forms. (1) Cash
contributions from nonfederal sources. To be recognized as a cash contribution, funds must be
contributed permanently to the HOME program…

Regulations at 24 CFR 92.508(a)(2)(ix) state that the participating jurisdiction must maintain
records demonstrating compliance with the matching requirements. These records would include
a running log with the project records documenting the type and amount of match contributions
by project.

Notice CPD 97-03 XI, Tracking Match Obligations and Contributions, states that participating
jurisdictions are required to maintain a running log that demonstrates compliance with the
HOME program matching requirements. This log must identify the type and amount of each
match contribution. HUD suggests that participating jurisdictions develop a single match log
that simultaneously tracks both liability and credit and provides the pertinent information about
the housing project and match contribution.




                                                14