oversight

The State of Rhode Island Did Not Always Operate Its Neighborhood Stabilization Program in Compliance With HUD Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-03-04.

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

                    State of Rhode Island

                Neighborhood Stabilization Program




Office of Audit, Region 1          Audit Report Number: 2015-BO-1003
Boston, MA                                              March 4, 2015
To:            Robert D. Shumeyko
               Director of Community Planning and Development, 1 CPD

               //SIGNED//
From:          Karen A. Campbell-Lawrence
               Acting Regional Inspector General for Audit, 1AGA
Subject:       The State of Rhode Island Did Not Always Operate Its Neighborhood
               Stabilization Program in Compliance With HUD Regulations


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 State of Rhode Island’s Neighborhood
Stabilization 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-1003
                    Date: March 4, 2015

                    The State of Rhode Island Did Not Always Operate Its Neighborhood
                    Stabilization Program in Compliance With HUD Regulations




Highlights

What We Audited and Why
We audited the State of Rhode Island’s Neighborhood Stabilization Program (NSP) based on a
risk assessment that considered the amount of funding, the U.S. Department of Housing and
Urban Development’s (HUD) risk assessment, and HUD findings related to one of the State’s
subrecipients. Our overall audit objective was to determine whether the State properly
administered the NSP and ensured that costs incurred were in accordance with HUD regulations.

What We Found
The State did not properly administer the NSP and ensure that costs incurred were in accordance
with HUD regulations. Specifically, State officials did not ensure that their subrecipients (1) had
an adequate process in place for selecting and approving applicants for NSP funding, (2) always
funded activities that were eligible and supported program costs, and (3) charged only eligible
and supported administrative costs directly related to the NSP. Additionally, we found instances
of potential conflicts of interests. These deficiencies occurred because State officials did not (1)
ensure that the proper agreements were in place to define NSP responsibilities or (2) provide
adequate oversight of their subrecipients to ensure that they followed NSP requirements and had
adequate policies and procedures in place for the NSP. As a result, HUD had no assurance that
more than $6.3 million in NSP funds was effectively and efficiently used.

What We Recommend
We recommend that the Director of HUD’s Boston Office of Community Planning and
Development require State officials to (1) repay more than $1.4 million in ineligible costs, (2)
provide adequate documentation to support or repay more than $4.5 million in NSP costs, (3)
provide support for the necessity and reasonableness of $489,518 in unexpended NSP funds or
reallocate the funds for other eligible NSP activities, (4) ensure that proper affordability
restrictions are put in place, (5) establish an agreement between the State and Rhode Island
Housing to define responsibilities, and (6) properly monitor and oversee its subrecipients.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The State’s NSP Activities Were Not Always Administered in Accordance
                  With HUD Regulations .................................................................................... 5

Scope and Methodology .........................................................................................17

Internal Controls ....................................................................................................19

Appendixes ..............................................................................................................21
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 21
         B. Auditee Comments and OIG’s Evaluation ............................................................. 22
         C. Schedule of Sampled NSP Properties ...................................................................... 43
         D. Schedule of Limited Review NSP Properties.......................................................... 45




                                                             2
Background and Objective
The Neighborhood Stabilization Program (NSP) was authorized under Title III of the Housing
and Economic Recovery Act of 2008 and was established for the purpose of stabilizing
communities that have suffered from foreclosures and abandonment. In 2008, HUD allocated
$3.92 billion for NSP11 on a formula basis to States, territories, and local governments. The goal
of the NSP was to purchase and redevelop foreclosed-upon and abandoned homes and residential
properties. The funding was provided through the U.S. Department of Housing and Urban
Development’s (HUD) Community Development Block Grant (CDBG) program. The NSP
provided grants to every State, certain local communities, and other organizations to purchase
foreclosed-upon or abandoned homes and to rehabilitate, resell, or redevelop these homes to
stabilize neighborhoods and stem the decline in value of neighboring homes.

On March 12, 2009, HUD awarded the State of Rhode Island $19.6 million in NSP1 funds, of
which $16.3 million was administered by Rhode Island Housing and $3.3 million was
administered by the City of Providence, Office of Community Development.2 The State’s Office
of Housing and Community Development was responsible for administering its CDBG and
CDBG-Disaster Recovery programs, the NSP, and other housing and community development
initiatives.

According to the State’s NSP substantial amendment, which outlined the State’s planned uses for
the NSP1 funding, the State planned to use NSP funds for the following types of activities:

       Establishing financing mechanisms for purchase and redevelopment of foreclosed-upon
        homes and residential properties, including such mechanisms as soft-seconds,3 loan loss
        reserves, and shared equity loans for low- and moderate-income home buyers;
       Purchasing and rehabilitating homes and residential properties that have been abandoned
        or foreclosed upon to sell, rent, or redevelop such homes and properties;
       Establishing land banks for homes that have been foreclosed upon; and
       Demolishing blighted structures and redeveloping demolished or vacant properties.

The audit objective was to determine whether the State, through its subrecipients, properly
administered the NSP and ensured that costs incurred were in accordance with HUD regulations.




1
  Congress appropriated a second round of NSP funding (NSP2) totaling $1.93 billion under the American Recovery
and Reinvestment Act of 2009 and a third round (NSP3) totaling $1 billion under Section 1497 of the Wall Street
Reform and Consumer Protection Act of 2010. The State of Rhode Island did not receive any NSP2 funds but did
receive NSP3 funds, which at the time of this audit, were being reviewed by HUD officials. This report addresses
only NSP1funding.
2
  Although the City of Providence, Office of Community Development, administered the NSP, the agreement was
between the Providence Redevelopment Agency and the State’s Office of Housing and Community Development.
3
  “Soft seconds” refers to a subsidized second mortgage.



                                                        3
Specifically, we wanted to determine whether there was an adequate process in place for
selecting and approving applicants for NSP funding, NSP activities were eligible and supported,
and administrative costs charged to the NSP by the City were eligible and supported.




                                               4
Results of Audit
    Finding: The State’s NSP Activities Were Not Always
    Administered in Accordance With HUD Regulations
State officials did not ensure that their subrecipients properly administered the NSP and that
costs incurred were in accordance with HUD regulations. Specifically, they did not ensure that
(1) the selection and approval of applicants for NSP funding were properly conducted or
documented, (2) activities were always eligible and supported, and (3) administrative costs
charged to the NSP by its subrecipient4 were eligible and supported. Additionally, we found
instances of potential conflicts of interests. These deficiencies occurred because State officials
did not provide adequate oversight of their subrecipients to ensure that they followed NSP
requirements and had adequate policies and procedures in place for the NSP and that the proper
agreements were in place to define NSP responsibilities. As a result, HUD lacked assurance that
the State used more than $6.3 million in NSP funds effectively and efficiently.

The Developer Selection Process Was Not Always Adequately Conducted or Documented
State officials did not ensure that there was an adequate process to document how the developers
were selected to receive NSP funds. The State’s NSP substantial amendment states that NSP
funds will be distributed using an open cycle application process by which applications meeting
the minimum threshold criteria will be funded on a first-come, first-served basis. According to
State and Rhode Island Housing officials, there was a funding committee comprised of two staff
members from the State and two from Rhode Island Housing. However, there were no scoring
sheets provided for each project to document that the minimum threshold criteria were met, and
it was not clear whether the committee followed the process or acted objectively in its selections.
Also, officials did not provide a summary sheet of all applicants to show whether projects were
denied and if so, the reasons for those denials.

In addition, the City of Providence’s files did not always include an application for NSP funds,
and when there was an application, the files did not always include an evaluation of the
application. Further, the files that included an application and evaluation sheet showed that the
evaluations performed by the City were completed and approved by one individual. Also, there
was no summary sheet available to show whether projects were denied and if so, the reasons for
denials. Further, the points assigned to many of the projects were fairly low, but projects
received approval and were awarded NSP funds. Therefore, it was not clear that the City’s
process was fair and objective.




4
    The City of Providence



                                                 5
NSP Costs Were Not Always Eligible and Supported
We reviewed 22 properties that received a combination of acquisition, rehabilitation, and home-
ownership assistance funding and found that the files did not always contain documents needed
to support the eligibility of NSP activities and costs. Specifically, the subrecipients did not
document that

      Activities met a national objective,
      NSP agreements were executed with the developers,
      Proper affordability restrictions were in place,
      Rehabilitation costs were necessary and reasonable,
      Purchase price discounts were supported,
      Resale prices were in accordance with NSP requirements,
      Rental amounts were affordable,
      Developers assumed risk by investing some of their own money in the project, and
      Waivers were obtained for potential conflicts of interest.

We attribute these deficiencies to State officials’ not properly monitoring their subrecipients to
ensure that they followed NSP requirements and had adequate policies and procedures to ensure
compliance with NSP requirements. Neither Rhode Island Housing nor the City had adequate
record-keeping controls related to the NSP. The files did not always contain the necessary
documents to support the eligibility of NSP costs. Many of the files were missing key
documents, including (1) the application for NSP funds; evaluation of the application; (2) NSP
agreements; (3) affordability restrictions for NSP funds; (4) initial, progress, and final
inspections; (5) scope of work, cost estimates, and a review of cost reasonableness; (6) “as is”
and final appraisals; (7) budgeted and actual project costs, including the sources and uses of the
funds; (8) support for the NSP funds requisitioned; and (9) support to document developer
investment in the property.

We also performed a limited review of an additional 19 properties, which received rehabilitation
funds and were administered by the City. The review of these properties was limited to
determining whether the City supported that the costs were necessary and reasonable and
whether an NSP agreement was executed. The costs were not supported as necessary and
reasonable and four properties did not have an executed NSP agreement.

As a result, the State incurred more than $1.3 million in ineligible costs, $4.2 million in
unsupported costs, and $489,518 in unexpended funds that could be reallocated to other eligible
NSP activities (see tables in appendixes C and D). The details are described below.

National Objectives Not Met or Properly Documented
State officials did not ensure that their subrecipients documented that 14 of the 22 properties
reviewed met a national objective. Specifically, beneficiary information was not always
adequate to ensure that the homeowners and tenants were income eligible. The Housing and
Economic Recovery Act of 2008, section 2301(f)(3), requires that all funds appropriated or
otherwise made available under this section be used with respect to individuals and families


                                                 6
whose income does not exceed 120 percent of area median income. In some cases, tenant
income and family size documentation was inconsistent, which made it difficult to determine
whether the households were income eligible. In one instance, the property was sold to an
individual whose income exceeded 120 percent of the area median income. The home buyer
paid $350,000 in cash for the property, which had three rental units. However, the owner
occupied at least 50 percent of the house, and the tenants’ income documentation was not
adequate to ensure that they met the income requirements. In another instance, the home buyers
paid $230,000 in cash for a single-family property, but the City’s file did not adequately support
that the home buyer was income eligible. Further, the property was resold to a new home buyer
the following year, but there was no income documentation in the file for the new home buyer.
This deficiency occurred because the developers did not always provide adequate documentation
to support homeowner and tenant income eligibility. Additionally, in March 2014, City officials
admitted that they had not performed monitoring of tenant income information for the NSP
projects that were completed.

In addition, we identified two properties that had been awarded a total of $218,600 in NSP funds
in December 2012 and for which the State had set December 31, 2012, as the expenditure
deadline. According to the City’s NSP agreement with the developers, construction work was
required to commence within 6 months of the agreement, or the City was to terminate the
agreements. However, as of August 2014, rehabilitation work had not begun on the projects (see
photos below), and the activities did not meet a national objective. Therefore, the $218,600
awarded to these two properties will need to be paid back to the NSP.




               100 Burnside Street, Providence, RI




                                                     7
               7 Parkis Avenue, Providence, RI

NSP Agreements Not Always Executed
State officials did not ensure that their subrecipients executed an NSP agreement for nine
activities, including five properties from the sample and four properties from the limited review.
The NSP, like other Federal grant programs, requires that the grantee enter into written
agreements with subrecipients and developers before funds are spent. According to 24 CFR
(Code of Federal Regulations) 570.503(a), before distributing funds to a subrecipient, the
recipient must sign a written agreement with the subrecipient. The agreement must remain in
effect during any period in which the subrecipient has control over funds, including program
income. The NSP agreements are necessary to ensure that NSP regulatory requirements are
followed and HUD and the grantee have provisions in place to recover funds as necessary. The
City originally planned to fund four of the activities with HOME Investment Partnerships
Program funds but switched the funding source without appropriately awarding the funds and
ensuring that the proper agreements were in place. The other five activities had applications and
award letters for the funds in the file, but an NSP agreement was not executed. As a result, the
State spent $889,060 in ineligible NSP funds. However, since $90,000 was paid back as
program income, the questioned costs were reduced to $799,060.

Affordability Restrictions Not Always Put in Place
State officials did not ensure that their subrecipients documented that the proper affordability
restrictions were in place for 14 of the 22 properties reviewed. The State adopted the HOME
program standards at 24 CFR 92.252(a), (c), (e), and (f) and 92.254 (Affordable Rents and
Continued Affordability) as a minimal standard for any unit acquired or rehabilitated with NSP



                                                 8
resources. For example, some of the files did not contain NSP deed restrictions to ensure that the
home-ownership or rental units remained affordable, and in many cases, when both HOME and
NSP funds were used, there was a HOME deed restriction in place, but the restrictions were
specific to the HOME investment and in case of default, would not cover the NSP funds. Rhode
Island Housing staff assumed that the HOME deed restriction was adequate to ensure
affordability; however, although some of the properties had a deed restriction in place, the
affordability period required by NSP was either not listed or not correct. Further, a review of
land records disclosed that the deed restrictions were not always recorded. Additionally, when a
rehabilitated property was sold to a home buyer and there was an NSP deed restriction in place
with the developer, the home buyer was not made aware of the NSP restriction through a written
agreement. Therefore, more than $2.2 million in NSP funds was invested in 14 properties, which
were at risk of not remaining affordable.

Additionally, the State did not include in its substantial amendment whether it would use resale
or recapture provisions to recover NSP funds in instances when a project no longer met NSP
requirements during the affordability period. Rhode Island Housing also did not include this
information in its NSP notices. The Providence Redevelopment Authority’s rules and
regulations stated that housing must remain affordable through resale restrictions; however, City
staff members stated that they were not aware of these rules and regulations and they were not
always followed.

Lack of Documentation Supporting That Costs Were Necessary and Reasonable
State officials did not ensure that their subrecipients documented that rehabilitation costs were
necessary and reasonable for 17 of the 22 properties from our sample5 and in all 19 rehabilitation
properties from our limited review.6 Therefore, the State was not able to support that more than
$5.2 million in NSP funds was necessary and reasonable. However, almost $1.1 million was
paid back to the NSP as program income so we reduced questioned costs based on this
deficiency to around $4.1 million. Further, as of July 2014, the State had not spent $489,518 in
NSP funds allocated to one project in April 2013. Unless the State can support that these funds
were necessary and reasonable and will be spent soon, it should reallocate the funds to other
eligible NSP activities.

Specifically, Rhode Island Housing and City staff did not document an initial inspection of the
property to show what work was necessary or that a cost reasonableness review was performed
before awarding the NSP funds. An initial inspection and a cost reasonableness review would
ensure that the rehabilitation work was a necessary expense and that the costs were reasonable.

Further, the files did not always include progress or final inspections of the work performed to
document that the repairs were made and met NSP requirements. In some instances, according
to the “as-is” appraisals, the condition of the property was fair to good; however, the developers




5
    See appendix C.
6
    See appendix D.



                                                 9
performed a total rehabilitation of the properties or invested a large amount of Federal funds for
rehabilitation, which may not have been necessary.

In addition, in some instances, the estimated cost according to the building permit was
substantially lower than the budgeted development costs. For example, one developer submitted
documentation to the City estimating development hard costs as $640,081; however, the building
permit in the file showed the estimated cost of material and labor as $267,500. Rhode Island
Housing and City staff also did not ensure that the files included support for the final actual total
development cost. Therefore, we could not accurately determine the amount of funds invested in
the properties.

In some cases, developers spent $200,000 to $250,000 per unit on rehabilitation costs.7 In one
instance, the total development cost for a single-family property was approximately $500,000,8
of which $134,933 was funded by NSP; however, the market value after rehabilitation was only
$169,000. This does not appear to be a reasonable use of NSP funds. Further, since developer
fees are based on a percentage of development costs, the fees may have been inflated based on
the substantial cost of the rehabilitation.

HUD does not specify per unit subsidy limits for NSP grantees. However, the Office of
Management and Budget cost principles at 2 CFR Part 225, appendix A, paragraph (C)(1)(a),
require NSP grantees and their subrecipients to ensure that all costs incurred are reasonable and
necessary for proper and efficient performance and administration of Federal awards. Otherwise,
home buyers and developers could receive undue enrichment.

Lastly, Rhode Island Housing and the City did not have adequate controls in place to ensure that
the amount of the grant was not exceeded. In one instance, the City drew down $8,760 over the
NSP amount awarded to a developer; however, it was later identified and paid back at closing as
program income.

Purchase Price Discount Not Properly Supported
The Housing and Economic Recovery Act of 2008, section 2301(d)(1), provides that any
purchase of a foreclosed-upon home or residential property must be at a discount from the
current market appraised value, taking into account its current condition, and such discount must
ensure that purchasers pay below market value for the property. Federal Register 74, FR 29225
(June 19, 2009), requires the discount to be at least 1 percent from the current market appraised
value. The address, appraised value, purchase offer amount, and discount amount of each
property purchased must be documented in the grantee’s program records.




7
 This amount was based on the estimated total development costs, not just NSP funds invested in the property.
8
 The files did not contain cost certifications or actual total development costs so it was difficult to determine how
much was spent per property.



                                                           10
However, State officials did not ensure that their subrecipients documented that the purchase
price discount of 1 percent was supported for 3 of the 22 properties. For example, in one case,
officials avoided the NSP purchase price discount by initially acquiring the property from the
Rhode Island Housing land bank (not the NSP land bank) and then using City NSP funds to
purchase the property from the land bank. However, the property would still have to be
purchased at a 1 percent discount to meet the NSP requirements. The property was appraised at
$20,000, and it was purchased by the Rhode Island Housing land bank for $29,000. The
property was then purchased by a developer for $30,005 using City NSP funds. Therefore,
$10,205, the amount above the 1 percent discount, was an ineligible use of NSP funds. In
another instance, a property purchased with NSP funds was grouped with several other properties
in a large low-income tax credit deal, and the appraisal was for all of the properties. State
officials did not ensure that they obtained an appraisal of each property separately to document
the discount price. Therefore, we had no assurance that the purchase price was discounted.

Resale Prices Not Always in Accordance With NSP Requirements
State officials did not ensure that their subrecipients supported that the resale price set was in
accordance with the requirements for 3 of the 22 properties. Federal Register 73, FR 58330
(October 6, 2008), requires that the maximum sales price for a property be determined by
combining all costs of acquisition, rehabilitation, and redevelopment. Costs to board up or
maintain the property in a static condition are not to be included in determining the sales price.
In its records, each grantee must maintain sufficient documentation about the purchase and sale
amounts of each property and the sources and uses of funds for each activity so HUD can
determine whether the grantee complies with this requirement. While the files did not always
include the actual sources and uses of funds to determine the total development cost, we were
able to determine the cost through alternative means; however, for the three files, there was
inadequate documentation to support that the sales price was set in accordance with the
requirements.

Lack of Documentation To Support That Rental Amounts Were Affordable
State officials did not ensure that their subrecipients documented that rental amounts were
affordable for 9 of the 22 properties. According to the State’s substantial amendment, it used the
upper HOME rent limits for its NSP-funded projects. However, there was no documentation in the
City’s or Rhode Island Housing’s NSP files for these activities, such as a tenant lease, to support
the rental price of the unit.

Lack of Documentation To Support That Developers Assumed Some Risk in the Properties
Based on HUD guidance,9 the right to charge a developer’s fee is available only to an entity that
receives assistance from the grantee or the subrecipient and assumes some of the risk in the
project by investing some of its own money in the project. However, State officials did not
ensure that developer investments were documented for 3 of the 22 properties after the guidance




9
    NSP policy alert, entitled Guidance on Developers, Subrecipients, and Contractors, dated November 16, 2011



                                                          11
was issued, although the developers received a developer fee for these properties. Without
proper developer investment, receipt of a developer fee may have been undue enrichment.

Further, the State and its subrecipients did not document developer investment for an additional
10 properties that were started before the guidance issued in 2011, and these 10 projects received
developer fees. Additionally, for 5 of these 10 projects, the developers may have also received
undue enrichment if program income was not paid back to the NSP or one of the other grant
sources. For example, one developer sold a property for $169,000, and no funds were paid back
to the NSP upon sale of the property. Since the subrecipient did not document a developer
investment, the entire $169,000 may be developer profit in addition to the $47,000 developer fee
received by the developer.

No Waivers for Potential Conflicts of Interest
State officials did not obtain HUD approval to waive the conflict-of-interest provision in 24 CFR
570.611(b) and (c) before providing NSP home-buyer assistance funds to two Rhode Island
Housing employees. According to 24 CFR 570.611(d), upon written request, HUD may grant an
exception on a case-by-case basis. Based on discussions with State officials, Rhode Island
Housing officials did not notify the State of the potential conflict of interest for these two
employees so that they could request a waiver from HUD. Therefore, the State could not assure
HUD that the home buyers who were provided NSP funding did not have a conflict of interest.
In the absence of a HUD waiver, we considered $39,200 in NSP-funded mortgages granted to
these two employees to be unsupported costs.

NSP Administrative Costs Were Not Always Supported or Eligible
State officials did not ensure that all administrative costs claimed by one of their subrecipients
were eligible NSP costs. The City received $300,000 in administrative costs and used an
additional $69,654 in program income to pay administrative costs. However, City officials did
not have adequate controls in place to ensure that administrative costs were eligible and
supported. As a result, the State incurred $100,250 in ineligible costs and $265,572 in
unsupported costs.10

Specifically, City officials used $100,250 in administrative costs to pay for four Web sites used
by City departments; however, the contract and scope of work did not mention the NSP or show
how the NSP would benefit from these Web sites. Therefore, we considered the $100,250 paid
to this contractor an ineligible program expense. In addition, $55,359 was paid to two
contractors without adequate documentation showing that the costs were eligible and the
contracts were procured in accordance with Federal regulations. In one case, $39,459 in
administrative costs was paid for services, some of which may have been related to the NSP;
however, City officials were not able to provide a contract detailing the scope of work or show
that proper procurement policies were followed. Further, the services provided began in
November 2008, which was before the City’s subrecipient agreement with the State to administer




10
     $265,572 = ($39,459 in administrative costs + $15,900 in contractor service cost + $210,213 in staff salaries)



                                                             12
the NSP.11 Also, while the invoices showed that the work was related to various programs and
tasks, the entire amount was charged to the NSP and not allocated to any other program, and one
of the invoices showed that the costs were to be reimbursed by another source. Therefore, it was
not clear why all of the costs were charged to the NSP or whether any reimbursement by the
other source was credited back to the NSP. In the second case, the only documents provided by
City officials were invoices for $15,900, which did not indicate what services were provided.

Further, while City officials charged $210,213 in salaries for staff members who worked on the
NSP, they were not able to provide support for the allocation of these salaries to the NSP.
According to the City’s director of fiscal operations, in 2013, City officials evaluated the
budgeted time charged compared to the actual time charged to each program to determine
whether the percentages were correct. However, this evaluation was performed after the NSP
was completed. The director agreed that the time charged to the program should be based on the
actual time spent working on the program; however, City officials did not have support to show
that it was. Therefore, we questioned the $210,213 charged for salaries as an unsupported NSP
cost.

Written Agreements Were Not Properly Executed
According to the State’s NSP substantial amendment, the Office of Housing and Community
Development and Rhode Island Housing submitted a joint application for NSP funds on behalf of
the State. As the agency responsible for administering the State’s CDBG program, the Office of
Housing and Community Development served as the lead applicant. According to the substantial
amendment, the State NSP was to be administered through a partnership, established through a
memorandum of agreement, which would use the respective capabilities and expertise of the
operating agencies as appropriate. The State’s NSP substantial amendment spelled out some of
the responsibilities; however, the State and Rhode Island Housing did not execute a
memorandum of agreement to specifically define each office’s responsibilities.

For example, for the City’s payment requisitions, Rhode Island Housing officials were under the
impression that State officials reviewed the supporting documentation before approving Rhode
Island Housing to pay the voucher. However, when asked, State officials stated that they did not
review the supporting documentation submitted by the City. Specifically, they stated that for the
City’s requests for payments, they ensured that the funds were available for the project and
assuming the funds were available, they informed Rhode Island Housing so that it could create
the voucher in the Disaster Recovery Grant Reporting system. Once the voucher was created, it
was approved by State officials without a review of the supporting documentation.

Further, the State had an NSP subrecipient agreement with the Providence Redevelopment
Authority; however, the City’s Office of Community Development staff administered the NSP
with limited involvement and oversight by the Providence Redevelopment Agency. Regulations
at 24 CFR 570.501(b) provide that when a unit of general local government participates with or




11
     The subrecipient agreement was dated March 13, 2009.



                                                            13
as part of an urban county or as part of a metropolitan city, the recipient is responsible for
applying to the unit of general local government the same requirements as are applicable to
subrecipients. Section 1-7 of Managing CDBG: A Guidebook for Grantees on Subrecipient
Oversight further clarifies that because 24 CFR 570.501(a) provides that local governments are
subject to the same requirements as subrecipients, interagency or interdepartmental agreements
should include the same provisions as those required in a subrecipient agreement, which is
described in 24 CFR 570.503(b).

In addition, the Providence Redevelopment Agency did not execute an agreement with the City’s
Office of Community Development for administration of the NSP. City officials did not believe
that an agreement between the two departments was necessary and confirmed that no agreement
existed between the departments to ensure compliance with 24 CFR 570.503(b). By not having a
written agreement to define the responsibilities of each department, the Providence
Redevelopment Agency, as the designated department, may not have had adequate control over
or accountability for the decisions made by the Office of Community Development, which may
have negatively impacted the program objective.

State Officials Did Not Provide Adequate Oversight of Their Subrecipients
The State delegated the administration of its entire NSP allocation to Rhode Island Housing and
the City but remained accountable for the administration and monitoring of those funds. HUD
has developed various guidebooks to assist grantees with grant administration, and HUD’s
Managing CDBG: A Guidebook for Grantees on Subrecipient Oversight provides grantees, such
as the State, with detailed information “for the major steps in selecting, training, managing,
monitoring and supporting subrecipients” and notes that “together, these elements constitute the
basic components of a subrecipient oversight system.” However, State officials performed
limited oversight of their subrecipients. They also did not review supporting documentation for
the NSP request for funds from Rhode Island Housing or the City. Instead, they relied on the
subrecipients to review their own support and ensured only that the NSP funds were available
before they approved a request for payment.

According to the Guidebook, “Monitoring should not be a ‘one-time event.’ To be an effective
tool for avoiding problems and improving performance, monitoring must involve an on-going
process of planning, implementation, communication, and follow-up.” However, State officials
did not monitor their subrecipients to ensure that they followed program rules and regulations.
Specifically, the State did not monitor Rhode Island Housing during the grant period, and while
State officials did perform a monitoring review of the City in 2012, the results were provided
only in a draft and not communicated to the City.12




12
  According to the officials at the Office of Housing and Community Development, the monitoring results were not
provided to the City because HUD had also performed a review of the City at that time; therefore, officials stated
that the results were similar and they did not want to interfere with HUD’s actions.



                                                         14
State officials contended that they had planned to conduct a file review at Rhode Island Housing
in January 2014 but did not do so. Instead they planned to work with HUD to conduct a full
monitoring before closeout. In June 2014, the supervisor from the Office of Housing and
Community Development was at Rhode Island Housing reviewing its files; however, this was
done after the NSP1 was completed and all of the projects were finished and funded.

Conclusion
State officials did not ensure that their subrecipients properly administered the NSP and that
costs incurred were in accordance with regulations. As a result, they spent more than $6.3
million in NSP funds for costs that were not properly supported and eligible. We attribute these
deficiencies to the State’s failure to (1) execute the proper agreements to define NSP
responsibilities and (2) implement oversight controls and monitoring sufficient to ensure
compliance with all applicable regulations. As a result, State officials could not assure HUD that
reasonable and necessary costs were charged to the NSP and that NSP funds were used
effectively and efficiently.

Recommendations
We recommend that HUD’s Director of Community Planning and Development instruct State
officials to

       1A.     Repay $1,306,205 in NSP funds spent for ineligible activity costs from non-
               Federal funds.
       1B.     Provide documentation to support that $4,235,773 in NSP funds was spent for
               eligible costs by obtaining documentation showing that the projects met a national
               objective, purchase price discounts were met, rehabilitation costs were reasonable
               and necessary, resale prices were in accordance with NSP requirements, rental
               amounts were affordable, and developers assumed risk by investing some of their
               own money in the project as applicable and if such support cannot be provided,
               repay the amount.

       1C.     Provide support for the necessity and reasonableness of $489,518 in unexpended
               NSP funds or reallocate the funds for other eligible NSP activities.

       1D.     Repay $100,250 in NSP funds that were spent for ineligible administrative
               expenses.

       1E.     Provide documentation to support $265,572 in unsupported administrative
               expenses. Any expenses determined not to be properly supported should be
               considered ineligible and reimbursed.

       1F.     Ensure that all of the NSP activities have the proper deed restrictions in place to
               ensure that the NSP properties remain affordable for the required affordability
               period and the NSP funds are protected.




                                                 15
1G.   Establish an agreement between the State and Rhode Island Housing to define
      responsibilities for the Federal programs they administer.

1H.   Establish an agreement between the Providence Redevelopment Agency and the
      City of Providence, Office of Community Development, to define responsibilities
      for the NSP activities.

1I.   Develop proper record-keeping controls for its federally administered programs to
      ensure that all of the required documents and support are available for review.

1J.   Properly monitor and oversee its subrecipients to ensure that they follow Federal
      requirements.




                                       16
Scope and Methodology
The audit focused on whether State officials established and implemented adequate controls to
ensure that the NSP was administered in accordance with program requirements. We performed
the audit fieldwork from January to July 2014 at the Office of Housing and Community
Development, One Capitol Hill, 3rd Floor, Providence, RI; Rhode Island Housing, 44
Washington Street, Providence, RI; and the Office of Community Development, City of
Providence, 444 Westminster Street, Providence, RI. Our audit covered the period July 2009
through June 2013 and was extended when necessary to meet our audit objective.

To accomplish our objective, we

          Reviewed applicable laws, regulations, HUD handbooks, HUD notices, Rhode Island
           Housing’s policies and procedures, and the Providence Redevelopment Agency’s
           rules and regulations.

          Conducted discussions with State officials, Rhode Island Housing officials, and City
           of Providence officials to gain an understanding of organizational structure and
           administration of the NSP.

          Reviewed records of independent public auditors’ reports and monitoring reviews by
           HUD.

          Reviewed the State’s substantial amendment, grant agreement executed between
           HUD and the State for the NSP1 funds, memorandum of understanding with Rhode
           Island Housing, and subrecipient agreement with the Providence Redevelopment
           Agency.

          Reviewed various Disaster Recovery Grant Reporting system reports to document the
           State’s activities and disbursements. Our assessment of the reliability of the data in
           this system was limited to data reviewed and reconciled with State records; therefore,
           we did not assess the reliability of this system. However, the data were sufficiently
           reliable for our purposes.

          Selected a nonstatistical sample of 22 NSP properties with an authorized amount of
           more than $5.5 million to test for compliance with HUD regulations. This amount
           represented 25 percent of the more than $21.7 million obligated by the State. These
           properties were selected based on risk identified by the HUD Boston Office of
           Community Planning and Development, conflict-of-interest issues, and NSP funding
           provided for the properties.

          Performed a limited review of 19 NSP rehabilitation properties, which received more
           than $1.6 million, administered by the City to determine whether the City supported



                                                17
           that rehabilitation costs were necessary and reasonable.

          Performed inspections of selected activities to determine whether the rehabilitation
           had been completed.

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 finding
and conclusion based on our audit objective.




                                                18
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.

   Reliability of financial data – Policies and procedures that management has implemented to
    reasonably ensure that valid and reliable data are obtained, maintained, and fairly disclosed in
    reports.

   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resources use is consistent with laws and regulations.

   Safeguarding of resources – Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and abuse.

We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

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

   The State did not have adequate controls over the efficiency and effectiveness of program
    operations when officials did not monitor and oversee the State’s subrecipients, establish



                                                   19
    adequate policies and procedures, and ensure that the proper agreements were in place to
    define NSP responsibilities (see finding).

   The State did not have adequate controls over the reliability of financial data when officials
    did not establish adequate financial controls to ensure that the requisitions for funds were
    adequately supported and costs were eligible, necessary, and reasonable (see finding).

   The State did not have adequate controls over compliance with laws and regulations when
    officials did not always comply with HUD regulations to ensure that activities met a national
    objective, the purchase price discount was properly supported, resale prices were in
    accordance with NSP requirements, and the rental amounts were affordable (see finding).

   The State did not have an adequate system to ensure that resources were properly
    safeguarded when officials did not always execute NSP agreements with the developers and
    ensure that the proper affordability restrictions were put in place, developers assumed risk by
    investing some of their own money in the project, and waivers were obtained for potential
    conflicts of interest (see finding).




                                                  20
Appendixes

Appendix A


          Schedule of Questioned Costs and Funds To Be Put to Better Use
        Recommendation                                    Funds to be put
                           Ineligible 1/ Unsupported 2/    to better use 3/
            number
                1A            $1,306,205
                1B                             $4,235,773
                1C                                                   $489,518
                1D              $100,250
                1E                                 $265,572

              Totals          $1,406,455       $4,501,345            $489,518



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 the State implements our
     recommendation to determine the necessity and reasonableness of the $489,518 in
     unspent allocated rehabilitation funds, it can assure HUD that these funds will be
     supported or properly put to better use.




                                              21
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               22
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1


Comment 2




Comment 3


Comment 4


Comment 5




                               23
             Auditee Comments and OIG’s Evaluation




              Auditee Comments
Ref to OIG
Evaluation




Comment 6




Comment 7




Comment 8




                               24
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 9




Comment 10




Comment 11




                               25
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 12




                               26
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               27
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 13




                               28
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 14


Comment 15


Comment 16




                               29
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 17




Comment 18


Comment 19




Comment 20




                               30
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 21




Comment 5




Comments 2
and 13




                               31
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                               32
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 22




Comment 23




                               33
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1
Comment 24




Comment 25


Comment 26




Comment 2
Comment 27




                               34
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 28




                               35
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 28




Comment 29




Comment 29




                               36
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 29


Comment 1




                               37
                         OIG Evaluation of Auditee Comments

Comment 1   We discussed the reported issues with Rhode Island Housing and City staff and
            their consultant throughout the audit and provided a spreadsheet with the results
            of our review to the State on November 17, 2014. Further, during the exit
            conference on December 3, 2014, we stated that we were available to answer any
            questions related to a specific project; however, we were not contacted to provide
            additional information. Therefore, any supporting documentation will have to be
            provided to HUD during the audit resolution process.

Comment 2   While we acknowledge that the record keeping has improved since we began the
            audit, Rhode Island Housing did not always have NSP-specific files, and we were
            provided with every document related to a project, whether it was HOME, low-
            income tax credit, or any other type of funding provided to the project. Toward
            the end of the audit, Rhode Island Housing did provide NSP-specific files;
            however, key documents necessary to document compliance with NSP
            requirements as detailed in the finding were missing from the files. As State
            officials suggest, information will be made available to the HUD field office to
            resolve the issues identified.

            The City had NSP-specific files; however, the majority of the information was
            missing. There were many empty sections in the files. Throughout the audit, we
            requested the missing documentation, and it could not be provided. Therefore,
            the majority of the City’s NSP funds were considered unsupported. The City
            hired a consultant to assist with completing the NSP files after the fact, but this
            was done during our audit. HUD staff will have to work with the City to
            determine what the City is able to support with the new documentation it obtains.

Comment 3   The report was adjusted as suggested to indicate that documentation was not
            available to support compliance with a national objective.

Comment 4   State officials noted that they were working to develop a list of administrative
            costs charged by the City and that some concern with Web site development costs
            was raised previously. State officials will have to work with HUD to determine
            the eligibility of costs claimed.

Comment 5   State officials stated that they repaid the questioned cost. These actions are
            responsive to our recommendation, and HUD should verify this statement during
            audit resolution to ensure that the funds were paid back as required.

Comment 6   State officials said that while pre-inspections and post-inspections were
            conducted, documentation of such was not always filed and indicated that they
            would provide the HUD field office the necessary documentation. However when
            we reviewed the file we found that they did not contain a scope of work or cost




                                              38
              estimates performed by the subrecipients to show that the materials used and the
              costs incurred were reasonable.

Comment 7     If there are permits in addition to building permits to support costs; these should
              be maintained in the files and will need to be provided to HUD during the audit
              resolution process to support costs.

Comment 8     Training may have been provided; however, City staff stated that it had not
              obtained NSP-specific training and was not aware of NSP policies and
              procedures. We obtained NSP policies and procedures from the Providence
              Redevelopment Agency, but the staff implementing the NSP was not aware of the
              policies. It is possible that the City staff members who attended these trainings
              were no longer employed by the City since there has been turnover in
              management. Therefore, we revised the report and removed the statement that
              training may not have been provided. However, when staff is replaced, training
              should be provided to all staff members working on the program.

Comment 9     State officials stated they have developed a subrecipient oversight handbook in
              recent months and will work to assure adequate oversight is provided to its
              partners and subrecipients. HUD should review the handbook during the audit
              resolution process.

Comment 10 State officials agreed that an updated memorandum of agreement needs to be
           established between the agencies to clarify roles and responsibilities. This action
           is responsive to our recommendation and HUD should verify this during the audit
           resolution process.

Comment 11 State officials stated that the NSP funds will be returned for 514 Broadway and
           the project will be terminated and that 100 Burnside and 7 Parkis have not been
           completed and the agency involved with the projects is in negotiations to merge
           with another agency. However, all of the NSP funding was spent for these two
           projects at the beginning of 2013, and as of August 2014, no work had been
           performed. No funds should have been spent for 7 Parkis until the rehabilitation
           work had been completed. If the City had been conducting ongoing inspections
           of its projects, it would have known that work was not completed and that the
           funds should not have been paid to the developer. The City used NSP funds for
           acquisition of 100 Burnside; however, more than a year has passed, and no work
           has been performed. Before awarding funds for this project, the City should have
           ensured that the developer had secured the additional funding necessary to
           complete the project in a timely manner. Therefore, these projects have not met a
           national objective, and the funds need to be repaid.

Comment 12 Without the actual total development costs, which were not documented in the
           files, we were not able to determine whether there was any investment by the
           developers, as was required by HUD, as of 2011. Many of the projects only listed



                                                39
              Federal funds as the source, and the developers were provided a developer fee,
              and in some cases, it also appeared as though the developers were making a profit
              on the sale of the property since a significant amount of the NSP funds awarded
              was for grants and not loans. We revised the report to distinguish whether the
              properties were started before the 2011 HUD guidance.

Comment 13 Both the State and Rhode Island Housing officials have said that there was a
           process in place to review the selection of developers; however, neither office was
           able to provide support to document the evaluation and selection process of the
           developers reviewed.

Comment 14 While Rhode Island Housing officials said that they had documentation to show
           that the national objective to benefit low- and moderate-income persons was met,
           such documentation was either not in the file or sufficient to determine that the
           national objective was met. If officials have such documentation, they will need
           to provide it to HUD during the audit resolution process.

Comment 15 While Rhode Island Housing officials said that they had signed agreements, the
           agreements were not in the file or available when requested for the land bank
           properties. If officials have such documentation, they will need to provide it to
           HUD during the audit resolution process.

Comment 16 Rhode Island Housing officials said that they could adequately demonstrate that
           appropriate affordability restrictions were in place, if officials have such
           documentation, they will need to provide it to HUD during the audit resolution
           process. For example, as stated in the report under section, Affordability
           Restrictions Not Always Put in Place, there were several projects that did not have
           NSP affordability agreements in the file. We requested these documents during
           the audit, and they were not provided. Rhode Island Housing staff stated that if it
           had a HOME or low-income housing tax credit affordability restriction in place,
           that restriction also covered the NSP funds in the property. However, there
           should be an affordability restriction on the property specific to the NSP funds. In
           other instances, the NSP amount of funds listed in the affordability agreement or
           the term of the affordability period was not always accurate.

Comment 17 The files reviewed at Rhode Island Housing and the City did not contain evidence
           of inspections before, during, or after rehabilitation. Inspections before
           rehabilitation are needed to ensure that the work done was necessary. The files
           also did not contain a scope of work or cost estimates performed by the
           subrecipients to show that the materials used and the costs incurred were
           reasonable. The State officials stated that the cost of the rehabilitation was higher
           due to ensuring long-term affordability; however, without cost estimates and a
           scope of work, it is not possible to determine the reasonableness of costs.




                                                40
Comment 18 Rhode Island Housing officials said that they had appraisals for all properties;
           however, appraisals were not always available in the file. If they are available,
           they will need to be provided to HUD to determine that the purchase price
           discount was obtained and supported.

Comment 19 Without knowing the actual total development costs, in three cases, it was not
           possible for us to determine whether the sales price met NSP requirements.

Comment 20 Tenant income and tenant leases were not always in the file for review. Rhode
           Island Housing and the City may be able to obtain this documentation from the
           developers; however, it was not in the file during our review. Therefore, since
           Rhode Island Housing and the City do not have the documentation, they rely on
           the developers to ensure that the tenant’s income and the rents meet NSP
           requirements. It is the subrecipient’s responsibility to determine income
           eligibility and ensure that the rents are affordable.

Comment 21 Rhode Island Housing stated that the developers own the properties, which may
           be true, but in most cases, the properties were purchased with Federal funds,
           which are either grants or not required to be paid back until the property is sold so
           the developers’ risk in the property is limited.

Comment 22 OIG provided the report to the State, which was the auditee. It was the State’s
           responsibility to provide the report to the City. Additionally, City staff was kept
           apprised of our results throughout the audit, and we met with City staff and the
           City’s consultant to request missing documentation to determine whether it could
           be obtained before the end of the audit. The City’s files had limited
           documentation available during the audit, which is why all of the projects
           reviewed were either considered ineligible or unsupported. If additional
           documentation was available to support the projects, it should have been provided
           as requested many times during the audit.

Comment 23 The City’s files had inadequate documentation to support the funds classified as
           ineligible and unsupported. City staff members said during the audit that they
           trusted the developers to determine the necessity and reasonableness of costs. In
           addition, City officials lacked documentation showing that initial and ongoing
           inspections were conducted to document the condition of the property and the
           necessity of the rehabilitation. City officials contend that we are holding them to
           a higher standard than required; however, we are only applying the requirements
           in the NSP regulations.

Comment 24 The national objective was considered unsupported in most cases due to
           conflicting information in the file that was not followed up on by City staff or
           missing documentation to support that all households in the project were low to
           moderate income. There were three instances in which we determined that the
           national objective was not met. See comment 11 for two of them. For the other



                                                41
              project (153 Ontario), we determined that the owner was not income eligible and
              he occupied at least half of the property. In addition, there were three tenants in
              this project, but their income documentation was conflicting and not adequate to
              determine whether they were low to moderate income.

Comment 25 We revised the report and removed the “greatest impact” statement.

Comment 26 If City officials are uncertain as to how best demonstrate and support that a
           national objective is met, they should contact their HUD representative for
           assistance.

Comment 27 We requested all NSP documentation from City staff related to the properties that
           were reviewed. After several requests, the City provided a file for 162
           Devonshire Street. City staff did not indicate that another file was available that
           was not provided. With regard to 87 Princeton, we had several concerns with this
           project. The original owner’s income documentation was conflicting and no
           followup was performed to determine whether the owner was income eligible.
           Further, City staff stated that it did not obtain income documentation to verify that
           the next owner was income eligible as required by the affordability agreement.
           City staff also stated that it did not have a relationship with the new owner, which
           is why we were not able to perform a site inspection of the project as requested.

Comment 28 We requested the necessary information several times throughout the audit, and it
           was not provided. We are willing to provide any information that may be needed
           by the City or the HUD field office to resolve the finding during the audit
           resolution process.

Comment 29 City officials agreed to take corrective actions to ensure affordability of the
           assisted projects. They also agreed to update the written agreements between the
           Providence Redevelopment Agency and the City of Providence, Office of
           Community Development, to define responsibilities for the NSP; develop proper
           record-keeping controls for its federally administered programs; and train,
           monitor, and oversee its subrecipients to ensure that they follow Federal
           requirements. These actions are responsive to our recommendations and should
           be verified by HUD during the audit resolution process.




                                                42
       Appendix C
                                                                     Schedule of Sampled NSP Properties
                      National      NSP      Purchase       Proper        Necessity and                Affordable   Potential        Developer
                                                                                            Resale                                                                             Funds to
                     objective   agreement    discount   affordability   reasonableness                  rental     conflict of    investment in    Unsupported   Ineligible
       Address                                                                             price not                                                                           be put to
                        not         not          not     restrictions      of costs not                 price not    interest     the project not      costs        costs
                                                                                          supported                                                                            better use
                     supported    executed   supported   not in place       supported                  supported    identified       supported

     100 Burnside
1        Street,        X                                     X                X                                                        X                         $43,600
      Providence
      1040 Broad
2        Street,        X                       X             X                X                           X                            X            $500,000
      Providence
      1380 Broad
      Street & 24
3                       X           X                                          X                           X                                         $593,947     $207,400
     Calla Street,
      Providence
      153 Ontario
4        Street,        X           X                         X                X                           X                            X                         $377,521
      Providence
       175 Cross
5        Street,        X                                     X                X              X            X                            X             $29,980
     Central Falls
          367
      Friendship
6                       X                                     X                X                           X                            X            $200,192
         Street,
      Providence
      395 Central
7        Street,        X                                     X                X                                                        X            $276,103
     Central Falls
        41 Pekin
8        Street,        X           X                         X                X                           X                            X             $63,495     $25,000
      Providence
        43 Hyat
9        Street,                    X           X                              X                                                        X                         $90,000
      Providence
     47 Powhatan
10      Street,         X                                     X                X              X            X                            X             $51,000
      Providence


        514
     Broadway
11                                                                             X                                                        X            $130,482                  $489,518
       Street,
     Providence




                                                                         43
                     National      NSP      Purchase       Proper        Necessity and                Affordable   Potential        Developer
                                                                                           Resale                                                                             Funds to
                    objective   agreement    discount   affordability   reasonableness                  rental     conflict of    investment in    Unsupported   Ineligible
       Address                                                                            price not                                                                           be put to
                       not         not          not     restrictions      of costs not                 price not    interest     the project not      costs        costs
                                                                                         supported                                                                            better use
                    supported    executed   supported   not in place       supported                  supported    identified       supported

      5-7 Osborn
12       Street,       X           X           X             X                X                                                                     $300,000      $81,349
      Providence
        7 Parkis
13      Avenue,        X                                     X                X                                                        X                         $175,000
      Providence
     87 Comstock
14      Avenue,                                                               X                                                        X            $134,934
      Providence
     87 Princeton
15      Avenue,        X                                                      X              X                                                                    $90,545
      Providence
     88 Northeast
16       Street,                                                              X                           X                            X            $768,450
     Woonsocket
      526 Power
17       Road,                                               X                                                                                       $22,000
      Pawtucket
      81 Dawson
18       Street,                                             X                                                         X                             $21,400
      Pawtucket
      157 Dexter
19       Street,       X                                     X                                                                                       $38,500
     Cumberland
        29 Starr
20       Street,
       Johnston
     203 Chandler
21      Avenue,                                                                                                        X                             $17,800
      Pawtucket
          113
       Hendricks
22                     X                                     X                X                           X                                          $47,850
         Street,
      Providence
         Totals
                       14           5           3            14              17              3            9            2               13           $3,196,133   $1,090,415   $489,518




                                                                        44
Appendix D
                                                      Schedule of Limited Review NSP Properties
                                                      Program             Initial                         Review of cost        NSP
          Activity      Total           Total                                           Work writeup                                       Ineligible   Unsupported
                                                     income for       inspection not                    reasonableness not   agreement
         address13    obligations    expenditures                                      not documented                                       amount        amount
                                                       activity        documented                          documented        not in file

           169
1        Congress      $199,900        $199,900                             X                X                  X                                        $199,900
         Avenue

           162
2       Devonshire      $42,840        $42,840                              X                X                  X                X         $42,840
          Street

         51 Hyat
3                       $75,000        $75,000         $64,000              X                X                  X                                         $11,000
          Street

       102 Mitchell
4                      $150,000        $150,000       $100,000              X                X                  X                                         $50,000
          Street

        31 Mawney
5                       $90,000        $90,000                              X                X                  X                                         $90,000
           Street

        39 Burnside
6                       $67,000        $67,000                              X                X                  X                X         $67,000
           Street

        118 Potters
7                       $75,000        $75,000                              X                X                  X                                         $75,000
         Avenue

         110 Ford
8                      $196,440        $196,440       $109,800              X                X                  X                                         $86,640
          Street

         14 Lilian
9                       $52,000        $52,000                              X                X                  X                                         $52,000
          Avenue

         42 Violet
10                      $56,000        $56,000                              X                X                  X                                         $56,000
          Street




13
     All of the properties are located in Providence, RI.



                                                                 45
                                                      Program            Initial                         Review of cost        NSP
          Activity       Total           Total                                         Work writeup                                       Ineligible   Unsupported
                                                     income for      inspection not                    reasonableness not   agreement
         address13     obligations    expenditures                                    not documented                                       amount        amount
                                                       activity       documented                          documented        not in file

        63 Candace
11                      $75,000         $75,000                            X                X                  X                                         $75,000
           Street

         25 Lillian
12                      $100,000        $100,000                           X                X                  X                                        $100,000
          Avenue

        93 Goddard
13                      $199,000        $199,000     $125,000              X                X                  X                                         $74,000
           Street

        162 Porter
14                      $80,000         $80,000                            X                X                  X                                         $80,000
          Street

       37 Stillwater
15                      $49,400         $49,400                            X                X                  X                                         $49,400
         Avenue

           90
16      Cumerford       $30,700         $30,700                            X                X                  X                                         $30,700
          Street

           41
17      Whitmarsh       $10,000         $10,000                            X                X                  X                                         $10,000
         Street14

          19 Mt.
18        Vernon        $40,950         $40,950                            X                X                  X                X         $40,950
          Street

         10 Tobey
19                      $65,000         $65,000                            X                X                  X                X         $65,000
          Street

          Totals       $1,654,230      $1,654,230    $398,800             19               19                 19                4         $215,790      $1,039,640




14
     The City was not able to locate this file.



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