oversight

The City of Colorado Springs Did Not Always Administer Its HOME Program in Accordance With Applicable Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-06-30.

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

      The City of Colorado Springs, CO
             HOME Investment Partnerships Program




Office of Audit, Region 8        Audit Report Number: 2015-DE-1003
Denver, CO                                             June 30, 2015
To:            Renee Ryles, Acting Director, Office of Community Planning and Development,
               DOF
              //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 8AGA
Subject:       The City Of Colorado Springs Did Not Always Administer Its HOME Program in
               Accordance With Applicable Requirements


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 City of Colorado Springs, CO’s 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
913-551-5870.
                    Audit Report Number: 2015-DE-1003
                    Date: June 30, 2015

                    The City Of Colorado Springs Did Not Always Administer Its HOME
                    Program in Accordance With Applicable Requirements




Highlights

What We Audited and Why
We audited the City of Colorado Springs’ Community Initiatives and Economic Vitality Division
based upon findings identified in U.S. Department of Housing and Urban Development (HUD),
Office of Inspector General, memorandum number 2014-DE-1802. The objectives of our audit
were to determine whether the City properly committed its HOME Investment Partnerships
Program funds and monitored its subrecipients’ use of tenant-based rental assistance
administrative funds.

What We Found
The City committed HOME grant funds without having properly executed contracts or
environmental reviews. Specifically, it (1) committed funds for 5 Affordable Housing projects
that lacked contracts or environmental reviews at the time of the commitment, (2) committed
funds for 6 Affordable Housing and 26 Residential Rehabilitation projects that had a complete
contract or environmental review but did not have the required signatures or dates, and (3)
increased the original commitment amounts for 15 Residential Rehabilitation projects without
having an amendment to the contract or a change order. Additionally, the City did not monitor
how its subrecipient spent tenant-based rental assistance administration funds.

What We Recommend
We recommend that the Director of HUD’s Denver Office of Community Planning and
Development (1) recapture $1.925 million of the City’s HOME grant, (2) require the City to
provide support for $2.1 million in HOME grant expenses, (3) require the City to provide
support for $36,090 in increased commitments, (4) require the City to develop and implement
detailed policies and procedures to ensure better managerial oversight, (5) monitor the
Authority’s use of the tenant-based rental assistance funds allocated to it from 2009 to 2014 to
ensure that they were used for eligible administration costs, and (6) require the City to develop
and implement detailed policies and procedures for monitoring its subrecipients to ensure that all
HUD funds are spent for eligible program activities.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The City Committed HOME Grant Funds Without Properly Executed
         Contracts or Environmental Reviews ............................................................................. 4
         Finding 2: The City Did Not Monitor Its Subrecipient ................................................ 9

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12
         B. Auditee Comments and OIG’s Evaluation ............................................................. 13




                                                             2
Background and Objectives
The City of Colorado Springs’ Housing Development Division administers the City’s Affordable
Housing, Capital Improvement, Housing Rehabilitation, and Human Service Funding programs.
Its mission is to provide oversight and administration of Federal and local programs by
developing partnerships, preserving neighborhoods, developing and preserving affordable
housing, and stimulating economic revitalization. The City’s main offices are located at 30
South Nevada Avenue, Suite 604, Colorado Springs, CO. The Housing Development Division
reports to the Economic Vitality Division within the City’s mayor’s office.
For grant years 2009 through 2013, the U.S. Department of Housing and Urban Development
(HUD) awarded the City more than $6.8 million in HOME Investment Partnerships Program
funding. HOME funds are awarded annually as formula grants to participating jurisdictions.
The program’s flexibility allows States and local governments to use HOME funds for grants,
direct loans, loan guarantees or other forms of credit enhancements, or rental assistance or
security deposits.
In administering its Federal grants, the City must follow Federal regulations, including those in
the Code of Federal Regulations, Office of Management and Budget circulars, HUD handbooks,
and the City’s policies and procedures.
On September 30, 2014, the Office of Inspector General (OIG) issued memorandum number
2014-DE-1802, which substantiated complaint allegations related to the City’s HOME and
Community Development Block Grant programs. Specifically, the memorandum substantiated
allegations related to the commitment of HOME funds without written agreements. The City
fabricated a contract to avoid deobligation of more than $68,000 in HOME funding. In addition,
it committed $1.625 million in HOME funds for four projects without written agreements.
The objectives of our audit were to determine whether the City properly committed its HOME
funds and monitored its subrecipients’ use of tenant-based rental assistance administrative funds.




                                                 3
Results of Audit

Finding 1: The City Committed HOME Grant Funds Without
Properly Executed Contracts or Environmental Reviews
The City committed HOME grant funds without having properly executed contracts or
environmental reviews. This condition occurred because the City did not want to lose funds by
not meeting its commitment deadline and did not have written policies and procedures for proper
managerial oversight of its HOME programs. As a result, HUD lacked assurance that the
intended program benefits were realized for more than $4 million of the City’s HOME program
grant funds.
Overview of HOME Grant Fund Discrepancies
The City committed HOME grant funds without properly executed contracts or environmental
reviews. It
     Committed funds for 5 Affordable Housing projects that lacked contracts or
       environmental reviews at the time of the commitment,
     Committed funds for 6 Affordable Housing and 26 Residential Rehabilitation projects
       that had a complete contract or environmental review but did not have the required
       signatures or dates, and
     Increased the original commitment amounts for 15 Residential Rehabilitation projects
       without having an amendment to the contract or a change order.

The City Had Commitments Without Contracts or Environmental Reviews
The City did not have contracts in place or environmental reviews completed at the time it
committed its HOME funds for five projects. Regulations at 24 CFR (Code of Federal
Regulations) 92.2(1) required that a commitment take place only when the City had executed a
legally binding agreement with a State recipient, subrecipient, or contractor.

The City had no contracts, requests for bids, or environmental reviews in the project files before
committing grant funds for the Englewood, Christian Church, Austin Bluffs, and Bentley
Commons projects. For the Monument Street project, the City had a contract but no
environmental review or other required project documents before committing the grant funds.

Table 1 illustrates the project Integrated Disbursement and Information System (IDIS) number,
the project name, the date on which the City committed the funds, and the amount of HOME
funds the City committed to the five 2013 Affordable Housing projects.




                                                 4
Table 1
 IDIS #                     Project name                      Commitment       Commitment
                                                                 date            amount
  2002       Englewood Development Village Springs              5/23/2013            $700,000
  2003      Christian Church Homes-Hatler-May Village           5/23/2013            $300,000
  2008         RMCLT-2709 East Monument Street                  6/27/2013            $300,000
  2009              Austin Bluffs Redevelopment                 6/27/2013            $325,000
  2010              Bentley Commons Expansion                   6/27/2013            $300,000
             Total commitments without contracts or
                                                                                   $1,925,000
                      environmental reviews:


The City Had Commitments Without Required Signatures or Dates
The City committed funds for 6 Affordable Housing and 26 Residential Rehabilitation projects
that had a complete contract or environmental review but did not have the required signatures or
dates.

Affordable Housing
The City did not have signed contracts or environmental reviews completed before it committed
its HOME grant funds for six Affordable Housing projects from 2009 to 2012. Of the six
projects, two did not have signed contracts at the time funds were committed, three did not have
environmental reviews completed before to the funds were committed, and one did not have
signed contracts or environmental reviews completed before the funds were committed.

Table 2 shows the IDIS project number, the project name, the committed amount, and whether
the project had the contract or environmental review signed before the commitment date.

Table 2
                                                                              Environmental
 IDIS                                                      Contract not
                                          Committed                             review not
project          Project name                              signed before
                                           amount                            completed before
number                                                      commit date
                                                                               commit date
  1810    RMCLT-ACQUISITION                  $   175,000                             x
           PIKES PEAK SENIOR
  1813                                       $   295,251          x
                  APTS
          RMCLT-ACQUISITION -
  1870                                       $   141,040          x
               scattered site
  1746    RMCLT-ACQUISITION                  $    98,280                              x
  1867      RMCLT-HABITAT                    $   139,450          x                   x
          RMCLT ACQUISITION -
  1952                                       $   187,610                              x
               scattered site
             Total commitments:              $ 1,036,631



                                                 5
Residential Rehabilitation
The City did not have properly signed contracts or environmental reviews for 26 projects.

Table 3 shows the project IDIS number, the committed amount, whether the City signed a
contract or environmental review before the commitment date, and whether the contractor or
homeowner signed and dated the contract before the commitment date.

Table 3
                                                        Environmental
                    Committed       Contract not signed   review not  No contractor or
 IDIS project
                 amount (rounded before commitment complete before      homeowner
   number
                 to nearest dollar)        date          commitment signature or date
                                                             date
   1723                    $21,424           x
   1800                    $30,289           x
   1811                  $339,359                              x
   1815                     $8,145           x
   1883                     $5,137           x
   1887                    $18,148           x
   1941                     $8,537           x
   1942                    $29,542           x
   1943                    $26,281           x
   1944                    $11,389           x
   1945                    $13,409           x
   1950                    $21,862           x
   1951                    $24,136           x
   1953                    $28,085           x
   1954                    $15,828           x
   1955                    $24,533           x
   2011                  $115,315            x
   2015                    $26,924           x
   2018                    $22,507           x
   2026                    $19,152                                           x
   2029                    $34,812           x
   2040                    $12,867           x
   2044                    $38,493
   2048                    $26,734                                           x
   2050                    $28,964                                           x
   2052                    $58,646           x
   Total
                         $1,010,518
commitments:



                                                6
The City Increased Commitments Without Contract Amendments or Change Orders
The City increased commitment amounts without an amendment to the contract or a change
order for 15 Residential Rehabilitation projects.

Table 4 shows the project IDIS number and the increased commitment amounts for the 15
projects.

Table 4
 IDIS                        IDIS
            Increased                    Increased
 project                     project
            amount                       amount
 number                      number
 1887       $      1,239     2014        $1,076
 1941       $      1,549     2015        $1,366
 1942       $      1,482     2017        $4,517
 1951       $      3,155     2029        $3,917
 1953       $      5,708     2044        $1,528
 1954       $      2,885     2049        $2,476
 1955       $      1,803     2052        $1,155
 2011       $      2,232
                  Total: $36,088

The City Did Not Want to Lose Funds and Did Not Have Written Policies and Procedures
The condition described above occurred because the City did not want to lose funds by not
meeting its commitment deadline and did not have written policies and procedures for proper
managerial oversight of its HOME programs. A City official stated that the City committed the
funds in HUD’s system without contracts to ensure that it would not lose the funding by missing
its commitment deadline.
HUD Lacked Assurance That Intended Program Benefits Were Realized
As a result of the City’s noncompliance, HUD lacked assurance that the intended program
benefits were realized for more than $4 million of the City’s HOME program grant funds. More
than $1.9 million of the City’s HOME program grant funds remained committed and unspent in
HUD’s system and were not available for intended program participants. Additionally, HUD
lacked assurance that the intended program benefits were realized for the more than $2 million
spent without the required signatures or dates in place at the time of the commitment or the more
than $36,000 spent without amendments or change orders.

Conclusion
Overall, HUD lacked assurance that the intended program benefits were realized for more than
$4 million of the City’s HOME program grant funds. This condition resulted from the City’s not
wanting to lose funds by not meeting its commitment deadline and not having written policies
and procedures for proper managerial oversight of its HOME programs. More than $1.9 million
in HOME funds remained committed and unspent in HUD’s system without contracts. As a
result, the City missed its commitment deadline, and HUD needs to recapture the funds. The


                                                  7
remaining funds, more than $2 million, had been spent. The City needs to provide
documentation to HUD showing that these funds met the intended program benefits or repay the
funds from non-Federal sources.
Recommendations
We recommend that the Director of HUD’s Denver Office of Community Planning and
Development

       1A.    Recapture $1,925,000 of the City’s HOME grant for the commitments made
              without contracts or environmental reviews.
       1B.    Require the City to provide support for the $2,047,149 in HOME grant expenses
              committed without proper signatures or dates and reimburse from non-Federal
              funds any amount that it cannot support.
       1C.    Require the City to provide support for the $36,088 in increased commitments
              and reimburse from non-Federal funds any amount that it cannot support.
       1D.    Require the City to develop and implement detailed policies and procedures to
              ensure better managerial oversight of its HOME program grant funds.




                                              8
Finding 2: The City Did Not Monitor Its Subrecipient
The City did not monitor how its subrecipient spent tenant-based rental assistance administration
funds. This condition occurred because the City did not have policies and procedures for
monitoring subrecipients. As a result, HUD and the City lacked assurance that the City’s
subrecipient used its administration funds for eligible program costs.
The City Did Not Monitor Its Subrecipient
The City did not monitor how its subrecipient spent tenant-based (rental assistance)
administration funds. The City uses the Colorado Springs Housing Authority to administer its
rental assistance HOME grant funds. Regulations at 24 CFR 92.207 and Part 209 state that
entities must use rental assistance funds on eligible administrative costs. During our audit
period, the City did not monitor the Authority to ensure that its funds were spent on eligible
administrative costs. A City official stated that the City did not monitor the Authority during this
time to ensure that its funds were spent on eligible administrative costs.
The City Did Not Have Policies and Procedures for Monitoring
The City did not have policies and procedures for monitoring subrecipients. A City official
stated that because the City had new management and a high employee turnover rate, it had not
reviewed the policies and procedures for administering its rental assistance funds. The official
stated that the City reviewed only whether the administrative funds were disbursed to the
subrecipient, not how the subreceipt spent the funds. Finally, this official stated that the City
would need to rewrite its policies and procedures to include monitoring how subrecipients spend
administration funds.

HUD and the City Lacked Assurance That Funds Were Spent for Eligible Costs
As a result of the condition described above, HUD and the City lacked assurance that the City’s
subrecipient used its administration funds for eligible program costs.
Recommendations
We recommend that the Director of HUD’s Denver Office of Community Planning and
Development require the City to

       2A.     Monitor the Authority’s use of the tenant-based rental assistance funds allocated
               to it from 2009 to 2014 to ensure that they were used for eligible administration
               costs. For any costs identified as ineligible, the City should reimburse HUD from
               non-Federal funds.
       2B.     Develop and implement detailed policies and procedures for monitoring its
               subrecipients to ensure that all HUD funds are spent on eligible program
               activities.




                                                 9
Scope and Methodology
Our audit covered the period January 1, 2009, through December 31, 2014. We performed our
work between October and December of 2014 at the City’s office located at 30 South Nevada
Avenue, Suite 604, Colorado Springs, CO.

We issued memorandum report 2014-DE-1802 on September 30, 2014 to address allegations made in
a citizen’s complaint. In that memorandum we made three recommendations to address issues
identified during that review. We did not include any items addressed in those recommendations as
part of our testing or results for this review.

To accomplish our objectives, we

      Reviewed applicable laws and regulations,
      Reviewed applicable City policies and procedures,
      Reviewed the City’s HOME Affordable Housing and Residential Rehabilitation project
       files,
      Reviewed the City’s HOME program administration cost files,
      Reviewed the City’s tenant-based rental assistance administration cost files, and
      Interviewed HUD and City staff.
We selected and reviewed all 85 Affordable Housing, Residential Rehabilitation, and tenant-
based rental assistance administration cost project files associated with the City’s HOME grant
funds. We reviewed all of the City’s HOME grants from 2009 to 2014. We extended our review
to 2008 for the City’s tenant-based rental assistance costs because the program director informed
us that there were additional program deficiencies for this year. During our grant years, the City
funded more than $6.8 million in HOME projects.
We did not rely on computer-generated data as audit evidence or to support our audit
conclusions. We used source documentation obtained from HUD and the auditee for background
information purposes. We based all of our conclusions on source documentation reviewed
during the audit.
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.




                                                10
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:

   Controls to ensure compliance with HUD regulations pertaining to committing and spending
    HOME grant funds.
   Controls to ensure oversight of how subrecipients spend HOME grant funds.
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 City lacked detailed policies and procedures for proper managerial oversight of its
    HOME programs (finding 1).
   The City lacked policies and procedures for monitoring its subrecipients (finding 2).




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Appendixes

Appendix A


                           Schedule of Questioned Costs
                  Recommendation
                                    Ineligible 1/  Unsupported 2/
                      number
                          1A           $1,925,000
                          1B                              $2,047,149
                          1C                                $36,090
                        Totals         $1,925,000         $2,083,239


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.




                                              12
Appendix B
                  Auditee Comments and OIG’s Evaluation



Ref to OIG         Auditee Comments
Evaluation




      Comment 1




                                    13
Comment 2




Comment 3




            14
15
                         OIG Evaluation of Auditee Comments


Comment 1   The City did not provide an environmental review for the Monument Street
            project prior to the commitment of funds. As part of the normal audit resolution
            process, HUD will work with the City to determine if the recommendations are
            satisfied.
Comment 2   We appreciate the proactive attention to our recommendations; however, we did
            not verify that the corrections satisfy the recommendations. Therefore, HUD will
            verify whether they adequately meet the intent of the recommendations during the
            normal audit resolution process.
Comment 3   We appreciate the proactive attention of the City regarding this issue: however,
            we did not verify that the corrections satisfy the recommendations. The City will
            need to work with CPD to ensure the tenant-based rental assistance funds
            allocated to it from 2009 to 2014 were used for eligible administration costs.




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