oversight

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)

                   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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