Rhode Island Housing
Providence, RI
HOME Investment Partnerships Program
Office of Audit, Region 1 Audit Report Number: 2015-BO-1002
Boston, MA February 4, 2015
To: Robert D. Shumeyko
Director of Community Planning and Development, 1 CPD
//SIGNED//
From: Karen Campbell-Lawrence
Acting Regional Inspector General for Audit, 1AGA
Subject: Rhode Island Housing, Providence, RI, Did Not Always Adequately Support
HOME Fund Expenditures
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 Rhode Island Housing 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 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
(212) 264-4174.
Audit Report Number: 2015-BO-1002
Date: February 4, 2015
Rhode Island Housing, Providence, RI, Did Not Always Adequately Support
HOME Fund Expenditures
Highlights
What We Audited and Why
We audited the Rhode Island Housing’s HOME Investment Partnerships Program based on an
Office of Inspector General risk assessment of New England HOME recipients that considered
the amount of funding provided and prior audit and monitoring findings. Our audit objectives
were to determine whether Rhode Island Housing officials awarded HOME funds to grantees in
a reasonable and supported manner and whether HOME funds were disbursed in accordance
with U.S. Department of Housing and Urban Development (HUD) rules and regulations.
What We Found
Rhode Island Housing officials disbursed HOME funds for questionable expenditures.
Specifically, they disbursed HOME funds for (1) expenses incurred before the HOME agreement
was executed, (2) expenses not included in the HOME agreement, (3) expenses that exceeded the
budget allocation, and (4) an activity for which they did not obtain a deed restriction and support
all of the costs incurred. In addition, officials executed a HOME agreement that did not comply
with Federal regulations and approved a HOME application with inaccurate costs. We attributed
these deficiencies to Rhode Island Housing officials’ failure to maintain adequate supporting
documentation and implement oversight controls over disbursements and contract execution. As
a result, they could not assure HUD that reasonable and necessary costs were charged to the
HOME program, and more than $2.3 million in HOME funds was questioned.
In addition, officials did not always properly award and support HOME funds disbursed to
community housing development organizations (CHDO). Specifically, for three CHDOs,
charges for salary and operating expenses were not supported with adequate documentation.
Thus, officials did not have sufficient controls to ensure adequate support for CHDO expenses
and comply with HOME agreements and regulations. As a result, officials could not assure
HUD that $83,580 in HOME funds was allocated and disbursed in compliance with HOME
requirements.
What We Recommend
We recommend that HUD require Rhode Island Housing officials to reimburse HUD $887,544
from non-Federal funds for ineligible costs and provide support for more than $1 million in
costs. If sufficient support cannot be provided, officials should seek reimbursement from non-
Federal funds and redistribute $500,000 in HOME funds to other eligible HOME activities.
Table of Contents
Background and Objectives ...................................................................................3
Results of Audit ........................................................................................................5
Finding 1: Rhode Island Housing Officials Disbursed HOME Funds for
Questionable Expenditures .............................................................................................. 5
Finding 2: Rhode Island Housing Did Not Always Properly Support HOME
Funds Disbursed to Its CHDOs ..................................................................................... 10
Scope and Methodology .........................................................................................12
Internal Controls ....................................................................................................14
Appendixes ..............................................................................................................16
A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 16
B. Auditee Comments and OIG’s Evaluation ............................................................. 17
C. Schedule of Sampled HOME Units ......................................................................... 28
2
Background and Objectives
Rhode Island Housing, a component of the Rhode Island Housing and Mortgage Finance
Corporation of Providence, RI, was created by the Rhode Island General Assembly in 1973 as a
privately funded public purpose corporation.
Rhode Island Housing’s mission is to strive to ensure that all people who live or work in Rhode
Island can afford a healthy, attractive home that meets their needs. To achieve its mission,
Rhode Island Housing offers lending programs, provides housing-related education to consumers
and others, promotes and finances sensible development that builds healthy and vibrant
communities, provides housing grants and subsidies, and teams up with partners to improve
everything it does.
In May 2006, the governor of Rhode Island sent a letter to the U.S. Department of Housing and
Urban Development’s (HUD) Office of Community Planning and Development, explaining that
Rhode Island Housing would act on behalf of the State of Rhode Island to administer funding
under the HOME Investment Partnerships Program. In addition, Rhode Island Housing’s
executive director and his designees were authorized to contract with HUD to administer the
HOME program and ensure compliance with regulations at 24 CFR (Code of Federal
Regulations) Part 92. Rhode Island Housing is overseen by a seven-member board of
commissioners, which generally meets monthly.
The HOME program provides formula grants to States and localities that communities use, often
in partnership with local nonprofit groups, to fund a wide range of activities, including building,
buying, and rehabilitating affordable housing for rent or home ownership or providing direct
rental assistance to low-income people.
HOME is the largest Federal block grant to State and local governments designed exclusively to
create affordable housing for low-income households.
Rhode Island Housing received and used HOME funds as follows:
Funding HOME funding Affordable
period received homes
created
March 1, 2010, to February 28, 2011 $5,491,919 118
March 1, 2011, to February 29, 2012 $4,846,572 77
March 1, 2012, to February 28, 2013 $3,073,000 98
Totals $13,411,491 293
3
Our audit objectives were to determine whether Rhode Island Housing officials awarded HOME
funds to grantees in a reasonable and supported manner, and disbursed HOME funds in
accordance with HUD rules and regulations.
4
Results of Audit
Finding 1: Rhode Island Housing Officials Disbursed HOME Funds
for Questionable Expenditures
Contrary to Federal requirements, Rhode Island Housing officials disbursed HOME funds for
questionable expenditures. Specifically, they disbursed HOME funds for (1) expenses incurred
before the HOME agreement was executed, (2) expenses not included in the HOME agreement,
(3) expenses that exceeded the budget allocation, and (4) an activity for which they did not
obtain a deed restriction and support all of the costs incurred. In addition, officials executed a
HOME agreement that did not comply with Federal regulations and approved a HOME
application with overstated costs. We attributed these deficiencies to Rhode Island Housing’s
failure to maintain adequate supporting documentation and implement oversight controls over
disbursements and contract execution sufficient to ensure compliance with applicable
regulations. As a result, Rhode Island Housing officials could not assure HUD that reasonable
and necessary costs were charged to the HOME program, and more than $2.3 million in HOME
funds was questioned.
Eighteen HOME Activities Were Reviewed
We reviewed 18 HOME activities initiated between March 1, 2010, and February 28, 2013. We
determined that 14 of the 18 activities, or 77 percent, had more than $2.3 million in questioned
costs, of which $883,092 was ineligible, more than $1 million was unsupported, and $500,000
represented funds that could be put to better use. Appendix C lists the 18 HOME activities
reviewed, and the details are described below.
Costs Incurred Before the HOME Agreements Were Ineligible
For four HOME activities, $883,092 in costs was incurred months or years before the HOME
agreements were signed. Section 5 of the HOME agreements prohibits recipients from starting
all or any part of the approved activity or incurring or becoming obligated with respect to any
costs before the recipient’s execution and delivery of the loan documents and notice to proceed.
For activity number 4996, a HOME agreement was executed on July 10, 2012, totaling
$500,000, which included a budget for $400,000 in construction costs and $100,000 in
contingency costs. However, the developer sought reimbursement for $400,000 in construction
costs for the period ending April 30, 2012, which was approximately 2½ months before the
HOME agreement was signed. Therefore, the $400,000 was ineligible.
For activity number 5023, a HOME agreement was executed on December 20, 2012, totaling
$260,000, which included a budget for $200,000 in acquisition costs, $30,000 in construction
costs, and $30,000 in contingency costs. However, the developer sought reimbursement for
$44,759, consisting of $6,180 in relocation expenses, $31,867 in loan interest, and $6,712 for a
developer’s fee. Not only were these items not included in the approved budget, the costs were
incurred 9 to 10 months before the HOME agreement was signed. Therefore, the $44,759 was
ineligible.
5
For activity number 4592, a HOME agreement was executed on February 28, 2011, totaling
$450,000, which included a budget for $405,000 in architectural and engineering costs and
$45,000 in legal, soft, and financing costs. Further, there was an amendment that included an
additional $50,000 in legal, soft, and financing costs. However, the developer sought
reimbursement for $437,574, of which $388,749 (construction and environmental services and
predevelopment loans) was incurred before the HOME agreement was signed and, therefore, was
ineligible and $62,426 consisted of unsupported additional construction costs incurred that were
not included in the budget.
For activity number 4320, a HOME agreement was executed on October 30, 2009, totaling
$675,000 for various costs. The developer sought reimbursement for $49,584, consisting of
$22,000 in architectural and engineering costs and $27,584 in construction costs. Although in
some cases, HUD may allow for reimbursement of architectural and engineering costs incurred
18 months before the HOME agreement is signed, in this case, the costs were incurred between
May and August 2005, more than 4 years before the agreement was signed. Similarly, the
construction costs were incurred in 2005-2006, 3 to 4 years before the HOME agreement was
signed. Therefore, $49,584 was ineligible.
Costs Were Not Included in the HOME Agreement Budgets
For seven HOME activities (see appendix C), there were costs that were not included in the
HOME agreement budgets. Section 5 of the HOME agreements provides that the recipient
agrees that the approved activity must be carried out in accordance with the budget set forth in
attachment A. The budgets stated that “the recipient shall use the proceeds of the Advances
solely for the following purpose” and provides the breakout of expenses covered with HOME
funds and other funding. Therefore, reimbursement should be sought only for expenses agreed
upon in the executed written agreement or an amendment.
For activity number 4596, the HOME agreement was signed on March 2, 2011, not to exceed
$80,000, and the budget allocated the entire $80,000 HOME award for acquisition. However,
the entire $80,000 was drawn down and used for expenses other than acquisition (developer’s fee
– $22,946, construction – $38,191, and contingency – $18,863); therefore, these costs were
unsupported. In another example, for activity number 5000, the HOME agreement was signed
on August 18, 2012, for $140,000. According to the HOME agreement budget, $90,000 was for
contingency, and $50,000 was for soft costs (relocation costs, financing fees, legal and
accounting fees, architectural and engineering services, and other reasonable and necessary
costs), and any amendments to this budget were required to be approved by Rhode Island
Housing in writing before adoption. However, $139,138 was paid for a developer’s fee. Since
the budget did not allocate HOME funds for developer’s fees and there was no amendment, these
costs were considered to be unsupported as they were not paid according to the agreement and
respective budget.
Costs Exceeded the Budgets
For 11 HOME activities (see appendix C), there were costs of $994,257, which exceeded the
allocated amounts approved in the HOME agreements and were unsupported. Although the
expenditures reviewed were supported by backup documentation, deviations from the agreed-
6
upon HOME agreement budgets could have allowed multiple funding sources to pay for the
same reimbursable costs. Therefore, a review of the total sources and uses of funds may be
necessary to determine whether these deviations from the agreed-upon budgets resulted in
duplicative or excessive payments of Federal funds (that is, the Federal Government and another
entity paying for the same expenses).
For example, for activity number 4760, the HOME agreement stated that the recipient was
required to use the proceeds of the advance solely for the following purposes:
Cost category HOME budget
Architecture and $63,060
engineering
Contingency $85,080
Developer’s fee $125,000
Soft costs $26,860
Total $300,000
The agreement further provided that amendments to the budget were required to be approved by
Rhode Island Housing officials in writing before adoption. Based on the support in the files,
$179,436 and $42,020 were drawn down for contingency (funds held for cost overruns) and soft
costs, respectively, which exceeded the amounts budgeted for these items by $109,516 ($94,356
under contingency and $15,160 for soft costs). Since the amount disbursed for contingency and
soft costs exceeded the budgeted amounts according to the HOME agreement and there was no
approved amendment, these costs were unsupported.
Deed Restriction and Costs Were Not Supported
Activity number 4511 was awarded $940,000 in HOME funds for 20 very low-income units and
was completed in January 2013. Despite having been completed for more than a year, the units
did not have an executed deed restriction. Without a deed restriction in place, there was no
assurance that the 20 HOME-assisted units would remain affordable for the next 40 years as
required. After the exit conference, Rhode Island Housing officials submitted evidence that a
deed restriction was recorded in May 2014. However, they could not provide support for $1,839
associated with two drawdown requests totaling $48,865 (voucher number 5466691 for $1,339
and voucher number 5511794 for $500) for construction, engineering, and landscaping services.
HOME Agreements Did Not Comply With Regulations
For activity number 4594, Rhode Island Housing officials did not ensure that the rents charged
complied with HOME requirements. According to 24 CFR 92.252(d), the initial rent schedule
and utility allowances must establish the maximum monthly allowances for utilities and services
(excluding telephone). The participating jurisdiction must review and approve rents proposed by
the owner. Further, if the owner or developer undertakes rental projects, the written agreement
must establish the initial rents and the procedures for rent increases. However, when we
reviewed the written agreements for this activity, they did not include an approved initial rent
schedule and utility allowances, nor did they include procedures for rent increases. Thus, Rhode
7
Island Housing officials did not operate the program in compliance with HOME regulations, and
two unit rents exceeded the maximum amount that could be charged. As a result, rental
overpayments of $4,452 were made to the landlord by either the tenants or the Section 8 program
(see chart below).
HOME Gross Excess Number Unsupported
rent rent rent of months excess rent
Unit no. limit charged charged
1 $968 $1,161 $193 12 $2,316
2 $983 $1,161 $178 12 $2,136
Total $4,452
An Applicant Overstated the Acquisition Cost of a Property
An application for activity number 5021 should not have been awarded $500,000 in HOME
funds because the information in the application was inaccurate. The applicant submitted an
application in January 2012, proposing to develop 40 2- and 3-bedroom units for working
families, stating that the acquisition cost of the rehabilitated property was $1.2 million.
However, the applicant purchased the mostly vacant property in December 2007 for $900,000.
Thus, the applicant overstated the value of the property by $300,000. Since the application
incorrectly stated the acquisition cost, the applicant should not have been awarded HOME funds.
As part of the HOME application process, the applicant signed the agreement and certification,
which stated that the information in the application was true and correct. However, while the
applicant was incorrectly awarded $500,000 in HOME funds, the project was stalled, and no
HOME were expended due to legal matters.
Conclusion
Rhode Island Housing officials disbursed HOME funds for questionable expenditures, executed
a HOME agreement that did not comply with regulations, and approved a HOME application
that contained inaccurate information. We attributed these deficiencies to Rhode Island Housing
officials’ failure to maintain adequate supporting documentation and implement oversight
controls over disbursements and contract and grant application execution sufficient to ensure
compliance with applicable regulations. As a result, Rhode Island Housing officials disbursed
more than $2.3 million in HOME funds for ineligible and unsupported expenditures and could
not assure HUD that reasonable and necessary costs were charged to the HOME program and
that the program was administered in accordance with program regulations.
Recommendations
We recommend that the HUD Director of Community Planning and Development instruct Rhode
Island Housing officials to
8
1A. Reimburse HUD from non-Federal funds for the $883,092 in ineligible costs incurred
before the HOME agreements were executed.
1B. Provide support for $994,257 related to the 11 HOME activities in which the costs
were not included in the budget or exceeded the allocated amounts approved in the
HOME agreement (appendix C). If support cannot be provided, officials should
reimburse HUD from non-Federal funds for the unsupported amount.
1C. Provide support for the $1,8391 in unsupported costs associated with activity number
4511. If support cannot be obtained, this amount should be reimbursed from non-
Federal funds.
1D. Determine whether the tenants or the Section 8 program overpaid rents for activity
number 4594 and if so, reimburse the affected party by $4,452.
1E. Deobligate the $500,000 in HOME funds allocated to activity number 5021 because
the application contained inaccurate cost information.
1F. Develop and implement policies and procedures to ensure that all HOME funds
disbursed are for eligible costs associated with an activity that has an approved
written HOME agreement.
1G. Develop and implement policies and procedures to ensure that written HOME
agreements comply with Federal rules and regulations and rents comply with HUD
regulations.
1
This $1,839 is part of the $940,000 questioned in 1C.
9
Finding 2: Rhode Island Housing Did Not Always Properly Support
HOME Funds Disbursed to Its CHDOs
Rhode Island Housing officials did not always properly award and support HOME funds
disbursed to community housing development organizations (CHDO). Specifically, for three
CHDOs, charges for salary and operating expenses were not supported with adequate
documentation to justify the expenses. Rhode Island Housing officials did not have sufficient
controls to ensure adequate support for CHDO expenses and compliance with HOME
agreements and regulations. As a result, they could not assure HUD that $83,580 in HOME
funds was allocated and disbursed in compliance with HOME requirements.
CHDO Costs Were Not Adequately Supported
We reviewed CHDO costs for six activities and determined that three were adequately supported
and three were not. Specifically, $83,580 of $139,265 in incurred costs (60 percent) was not
properly supported and allocated. For example, one CHDO submitted payroll records for the
quarters ending December 31, 2011, and March 31, 2012, for a total of $15,888. A Rhode Island
Housing official approved a check request form for $7,944 on March 20, 2012, and a second a
check request form for the same amount on October 23, 2012. However, although the
employees’ time cards showed $54,719 in salary, which is significantly greater than the amount
requested for reimbursement, Rhode Island Housing officials could not support the allocation of
the $15,888. As a result, there was no assurance that these CHDO salary costs should have been
charged to the HOME program. Therefore, HUD had no assurance that the employees worked
on a CHDO activity and that expenses were reasonable and necessary.
In another instance, $24,000 in CHDO operating funds was drawn down without sufficient
supporting documentation. The only document available was the CHDO operating funds
agreement. Further, Rhode Island Housing officials approved operating expenses of $43,692 on
March 27, 2012, to another CHDO, and the only documentation available was a budget
comparison report. Without adequate documentation to support the charges, there was no
assurance that the expenses were reasonable and necessary.
Regulations at 24 CFR 92.208(a) provide that operating expenses are reasonable and necessary
costs for the operation of a CHDO. Such costs include salaries and other employee
compensation and benefits; employee education, training and travel; rent; utilities;
communication costs; taxes; insurance; equipment; materials; and supplies. Additionally, 24
CFR 85.20(b)(6) states that records must be supported by source documentation, such as
canceled checks, paid bills, payrolls, time and attendance records, and contract and subgrant
award documents. The documentation provided by Rhode Island Housing officials for the
$83,580 in CHDO operating expenses was not adequate. Therefore, these expenses may not
have been reasonable and necessary and chargeable to the HOME program.
Conclusion
Rhode Island Housing officials did not always support HOME disbursements made to CHDOs.
Specifically, for three CHDOs, charges for salaries and operating expenses were not adequately
supported. This condition occurred because Rhode Island Housing officials did not have
10
sufficient controls to ensure adequate support for CHDO expenses and comply with regulations
and HOME agreements. As a result, they could not assure HUD that $83,580 in HOME funds
was allocated or disbursed in compliance with HOME requirements.
Recommendations
We recommend that the HUD Director of Community Planning and Development instruct Rhode
Island Housing officials to
2A. Provide support for the unsupported $83,580 in salaries and operating expenses.
If proper support cannot be provided, officials should repay this amount to HUD
from non-Federal funds.
2B. Develop and implement policies and procedures to ensure that CHDO salary and
operating expenses are reasonable and necessary and that costs are properly
supported before disbursement.
11
Scope and Methodology
We performed our onsite audit work at Rhode Island Housing’s main office located at 44
Washington Street, Providence, RI, from October 2013 to April 2014. Our audit generally
covered the period March 1, 2010, through February 28, 2013, and was extended when necessary
to meet our audit objectives. We used computer-processed data and verified the data by
reviewing hardcopy supporting documentation or other data from a different source. We found
the data to be adequate for our purposes.
To accomplish our objectives, we
Reviewed applicable laws, regulations, HUD handbooks, HUD notices, and Rhode
Island Housing’s policies and procedures.
Conducted discussions with Rhode Island Housing officials to gain an understanding of
Rhode Island Housing’s financial structure and administration of the HOME program.
Reviewed records of Rhode Island Housing’s board minutes, independent public
auditor’s reports, and monitoring reviews by HUD.
Reviewed Rhode Island Housing’s action plans and consolidated annual performance
and evaluation reports for 2010, 2011, and 2012.
Reviewed various Integrated Disbursement and Information System2 reports.
Determined whether Rhode Island Housing allocated HOME funds in a reasonable and
supported manner.
Determined whether tenants who were residing in selected units were income eligible.
Determined whether rents charged to tenants met HOME program requirements.
Selected a nonstatistical sample of activities to test from a listing of HOME activities
provided by Rhode Island Housing. During the period March 1, 2010, through February
28, 2013, there were 29 agencies, and they committed more than $12.1 million for 69
activities. We subdivided the 29 agencies into three categories: (1) those that received
2
Integrated Disbursement & Information System is a nationwide database that provides HUD with current
information regarding program activities and is the drawdown and reporting system for several programs, including
the HOME program.
12
$500,000 or more (11 agencies), (2) those that received $200,000 but less than $500,000
(10 agencies), and (3) those that received less than $200,000 (8 agencies). We then
selected 8 activities from the first category, 5 activities from the second category, and 5
activities from the third category for a combined total of 18 activities. Our results apply
only to the activities selected. The 18 activities are identified in appendix C.
Performed onsite inspections for selected activities to determine whether they met
housing quality standards.
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 objectives.
13
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:
Compliance with laws and regulations – Policies and procedures that management has
implemented to reasonably ensure that the use of program funds is consistent with laws and
regulations.
Program operations – Policies and procedures that management has implemented to reasonably
ensure that a program meets it objectives.
Safeguarding resources – Policies and procedures that management has implemented to
reasonably ensure that funds are safeguarded against waste, loss, and misuse.
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.
14
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
Rhode Island Housing officials did not have adequate controls over compliance with laws and
regulations when they did not ensure that costs submitted were (1) incurred after the written
agreements were approved and signed and (2) in accordance with and did not exceed the budget.
Also, Rhode Island Housing officials did not ensure that HOME rents complied with rules and
regulations and deed restrictions were obtained (see finding 1).
Rhode Island Housing officials did not have adequate controls over safeguarding resources
when they (1) used HOME funds to pay for costs submitted by organizations, which were not in
accordance with the signed HOME agreements; (2) paid CHDO operating expenses that were
not necessary, reasonable, and supported; and (3) allocated funds for a HOME application in
which the applicant had inflated the acquisition cost of a property by $300,000 (see findings 1
and 2).
15
Appendixes
Appendix A
Schedule of Questioned Costs and Funds To Be Put to Better Use
Recommendation Funds to be put
Ineligible 1/ Unsupported 2/
number to better use 3/
1A $883,092
1B $994,257
1C $1,839
1D $4,452
1E $500,000
2A $83,580
Totals $883,092 $1,084,128 $500,000
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or Federal, State, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this instance, if Rhode Island Housing officials
deobligate the $500,000 related to activity number 5021 because the application
contained inaccurate cost information and the project was stalled, those funds could be
used on another HOME project.
16
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
17
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 1
18
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 2
19
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
20
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 3
21
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 4
22
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 5
23
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 6
Comment 7
24
Appendix B
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 8
Comment 9
25
OIG Evaluation of Auditee Comments
Comment 1 In response to recommendation 1A, while Rhode Island Housing officials agree
that disbursements may not be made before a HOME agreement is executed, they
believe that eligible expenses incurred before the execution of the HOME
agreement are allowable. However, as noted in finding 1 of the report, section 5
of the Rhode Island Housing HOME agreements prohibits recipients from starting
all or any part of the approved activity or incurring or becoming obligated with
respect to any costs before the recipient’s execution and delivery of the loan
documents and notice to proceed. In each of the activities identified, expenses
were incurred months or years before the HOME agreements were signed.
Comment 2 In response to recommendation 1B, Rhode Island Housing officials contend that
all expenses are eligible expenses within the definition of applicable HUD
regulations and in no case were HOME funds disbursed for a particular item in
excess of the HOME funds committed under the HOME agreement. We agree
that the expenses are eligible HOME program expenses and HOME funds
disbursed did not exceed the HOME funds committed under the HOME
agreement. However, as noted in finding 1 of the report, section 5 of the HOME
agreements provides that the recipient agrees to carry out the approved activity in
accordance with the budget set forth in attachment A. Any amendments to this
budget must be approved by Rhode Island Housing in writing before adoption. In
the cases noted, budget amendments were not executed. Rhode Island Housing
officials stated that they established a new policy of allowing payment for only those
line item costs as budgeted in the HOME agreement. This policy change is responsive
to our recommendation, but since we were not provided a copy during the audit,
HUD should verify that the new policy is being followed during the audit
resolution process.
Comment 3 In response to recommendations 1C and 1D, Rhode Island Housing officials
provided documentation showing that a deed restriction was executed and
recorded in May 2014. We adjusted the report as necessary to indicate that a deed
restriction is now in place. However, Rhode Island Housing officials did not
provide support for $1,839 associated with two drawdowns; therefore, those funds
are still considered unsupported.
Comment 4 In response to recommendation 1E, Rhode Island Housing officials stated that the
residents did not overpay the applicant for their portion of the required rent
because these tenants received Section 8 assistance. We revised the report to
read, “As a result, overpayments of $4,452 were made to the landlord by either
the tenants or the Section 8 program.” Rhode Island Housing stated that the
applicant corrected its calculation of gross rent in 2013 to comply with the HOME
agreement, deed restriction, and HOME regulations. However, for a year these
two rents exceeded the maximum rent that could be charged. Therefore, during
the audit resolution process, HUD should determine whether the tenants or the
26
Section 8 program overpaid rents and if so, require reimbursement to the affected
party. Rhode Island Housing also agreed to provide additional guidance and
assistance to an applicant or owners of developments that provide affordable
homes for residents that participate in the Section 8 Housing Choice Voucher
Program to ensure rent is within guidelines, and HUD should review this
guidance during during the audit resolution process.
Comment 5 In response to recommendation 1F, Rhode Island Housing officials believe that
the application properly presented the acquisition cost because other costs were
included in that figure, and they provided additional information on these costs.
We reviewed the additional information and noted that costs such as insurance,
taxes, and fencing were attributed to acquisition, but we do not agree that those
costs should be classified as acquisition costs. However, Rhode Island Housing
officials acknowledge that due to continued litigation, the project is unlikely to
proceed any time soon and have agreed to deobligate the $500,000 HOME award.
Comment 6 In response to recommendations 1G and 1H, Rhode Island Housing officials
stated that they will amend budgets as necessary for eligible expenditures if
appropriate and stated that their staff conducts monitoring of HOME-assisted
projects to ensure that owners and sponsors continue to comply with HOME
agreements, deed restrictions, and Federal rules and regulations. These actions
are responsive to our recommendations, and during the audit resolution process,
HUD should verify that necessary budget amendments have been made.
Comment 7 In response to recommendation 2A, Rhode Island Housing officials maintained
that there was adequate supporting documentation in the three CHDO files
referenced to justify the CHDO expenses; however, this support was not
provided. The officials should provide the support to HUD for its review and
determination during the audit resolution process.
Comment 8 In response to recommendation 2B, Rhode Island Housing officials stated that
they have established CHDO policies and procedures in accordance with
regulations at 24 CFR 92.208. These actions are responsive to our
recommendations, and HUD should review Rhode Island Housing’s policies and
procedures related to CHDO operations in the audit resolution process.
Comment 9 OIG agreed with the request, and we made adjustments where applicable.
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Appendix C
Schedule of Sampled HOME Units
Costs Excess
Costs Costs Funds to
Activity HOME incurred Unsupported rent Application
not in exceed Unsupported Ineligible be put to
number funds before drawdowns charged not accurate
budget budget better use
invested agreement tenants
1 4511 $940,000 X $1,839
2 4996 $500,000 X $400,000
3 5023 $260,000 X X $44,759
4 4760 $300,000 X $109,516
5 4338 $119,018 X $56,935
6 4775 Canceled
7 5021 $500,000 X $500,000
8 4592 $500,000 X X X $62,426 $388,749
9 4503 $142,052 X X $39,601
10 4596 $80,000 X X $80,000
11 5000 $140,000 X X $139,138
12 $675,000 X X $412,093 $49,584
4320
13 4757 $148,000 X $10,802
14 4615 $126,820 X X $11,540
15 4594 $94,820 X X $39,112
16 4827 $97,500
17 4528 $25,000
18 4520 $160,000 X X $37,546
Total $4,808,334 4 7 11 1 1 1 $1,000,548 $883,092 $500,000
Total questioned costs $2,383,640
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Rhode Island Housing, Providence, RI, Did Not Always Adequately Support HOME Fund Expenditures
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-02-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)