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. 27 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 28
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)