oversight

The Office of Community Planning and Development's Reviews of Matching Contributions Were Ineffective and Its Application of Match Reductions Was Not Always Correct

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-11.

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

     Office of Community Planning and
      Development, Washington, DC
     HOME Investment Partnerships Program Matching
                    Requirements




Office of Audit, Region 7    Audit Report Number: 2015-KC-0002
Kansas City, KS                                  August 11, 2015
To:            Harriet Tregoning, Principal Deputy Assistant Secretary for Community Planning
               and Development, D
               //signed//
From:          Ronald Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The Office of Community Planning and Development’s Reviews of Matching
               Contributions Were Ineffective and Its Application of Match Reductions Was Not
               Always Correct


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 Office of Community Planning and
Development’s administration of the HOME Investment Partnerships Program’s matching
requirements.
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-KC-0002
                    Date: August 11, 2015

                    The Office of Community Planning and Development’s Reviews of Matching
                    Contributions Were Ineffective and Its Application of Match Reductions Was
                    Not Always Correct



Highlights
What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) Office of
Community Planning and Development’s (CPD) administration of the HOME Investment
Partnerships Program’s matching requirements to determine whether CPD effectively reviewed
participating jurisdictions’ match logs and the support for their match contributions and whether
it applied the correct match reductions in fiscal year 2013. We selected this audit because of the
results of recent external audits (2014-SE-1003, 2013-SE-1001, 2012-SE-1003) in HUD’s
Region 10 (Alaska, Idaho, Oregon, and Washington) and to address congressional interest in
improving the efficiency of the HOME program.

What We Found
CPD did not always enforce the HOME requirement that participating jurisdictions maintain
sufficient and supported match logs. As a result, not all participating jurisdictions maintained
match logs or support for their match contributions.
CPD applied incorrect match reductions for 63 participating jurisdictions in fiscal year 2013. As
a result, it improperly waived almost $1.7 million in match liabilities for 18 participating
jurisdictions and required 42 to provide almost $8.1 million more match than necessary.
Although we found incomplete match logs, unsupported match contributions, and incorrect
match reductions, there was no appreciable impact on the HOME grant funds. Therefore, we are
not claiming any monetary benefits.

What We Recommend
We recommend that CPD (1) issue guidance to help participating jurisdictions accurately report
the amount of match contributed and consumed; (2) include monitoring of HOME match during
its performance reviews to ensure that match contributions exist, are eligible, and are supported;
(3) require the 10 jurisdictions that overstated their excess match balances to remove the
overstated amounts from their reported HOME match carry-forward balances; (4) create and
implement policies and procedures specifying the process for assigning match reductions; (5)
begin using the poverty rate instead of the family poverty rate for determining eligible fiscal
match reductions; (6) use the national average for per capita income reported by the U.S. Census
Bureau for determining eligible fiscal match reductions; and (7) review the reductions assigned
in HUD’s systems by pulling a report of all match liabilities and comparing that report to the
calculated reductions.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: CPD’s Reviews of Matching Contributions Were Ineffective ................... 4
         Finding 2: CPD’s Application of Match Reductions Was Not Always Correct ......... 6

Scope and Methodology ...........................................................................................9

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

Appendixes ..............................................................................................................12
         A. Auditee Comments and OIG’s Evaluation ............................................................. 12
         B. Criteria ....................................................................................................................... 16
         C. Schedule of Overstated Match Balances ................................................................. 19
         D. Schedule of Improperly Waived and Overrequired Match Amounts ................. 20




                                                                     2
Background and Objectives
The HOME Investment Partnerships Program creates affordable housing for low-income
households by providing formula grants to States and localities. Communities use these grants –
often in partnership with local nonprofit groups – to fund a wide range of activities, including
building, buying, or rehabilitating affordable housing for rent or home ownership or providing
direct rental assistance to low-income people.
Each jurisdiction participating in the HOME program must make contributions to HOME-
qualified housing in an amount equal to 25 percent of the HOME funds drawn down for housing
projects. These contributions are referred to as “match.” A jurisdiction incurs a match liability
each fiscal year based on the amount of HOME funds drawn down from its U.S. Treasury
account. In each fiscal year, a jurisdiction must make eligible matching contributions in an
amount that equals the match liability incurred during that fiscal year. Matching contributions
made in excess of the match liability may be carried forward as match credit toward meeting the
match liability incurred in future years.
For the HOME program, participating jurisdictions rely on the match liability amounts applied in
HUD’s Integrated Disbursement and Information System (IDIS) when determining how much
match they need to provide. IDIS is HUD’s draw down and reporting system for the HOME
program. It provides HUD with current information regarding the program activities underway
across the Nation, which it uses to report to Congress and to monitor grantees. It also provides
grantees information for their consolidated planning.
Each participating jurisdiction must maintain a running log and project records documenting the
type and amount of match contributions by project. This match log should serve as the basis for
reporting match contributions to the U.S. Department of Housing and Urban Development’s
(HUD) Office of Community Planning and Development (CPD) as part of the jurisdiction’s
consolidated annual performance and evaluation report.
CPD may reduce the matching requirements for participating jurisdictions that are either in fiscal
distress or located in a major disaster area. Specific regulations describe the conditions that must
exist for a match reduction of 50 percent or 100 percent to be awarded. For local governments,
the fiscal distress level is based on the average poverty rate and the average per capita income.
The average personal income growth rate is a third factor applicable to State governments. If a
participating jurisdiction is located in a disaster area, it may request a reduction of its matching
requirement, and CPD may reduce it by up to 100 percent. Both fiscal and disaster reductions
remain in place for the fiscal year in which the determination is made and for the following fiscal
year. At its discretion and upon request of the participating jurisdiction, the HUD field office
may extend the disaster reduction for an additional year.
Our objectives were to determine whether CPD effectively reviewed participating jurisdictions’
match logs and the support for their match contributions and whether it applied the correct match
reductions in fiscal year 2013.



                                                 3
Results of Audit

Finding 1: CPD’s Reviews of Matching Contributions Were
Ineffective
CPD did not always enforce the HOME requirement that participating jurisdictions maintain
sufficient and supported match logs. This condition occurred because CPD did not consider
noncompliance with HOME match requirements to be a significant risk to the program. As a
result, not all participating jurisdictions maintained match logs or support for their match
contributions.
Match Reports Not Always Reviewed
CPD did not always review match reports for completeness, eligibility, and accuracy. CPD is
required by 24 CFR (Code of Federal Regulations) 92.550 to review the records of jurisdictions
participating in the HOME program to ensure that the jurisdictions have met the matching
requirements. While HUD has review requirements for other programs with matching
requirements, CPD did not instruct field offices to review HOME match. It did not expect them
to focus on match unless something had been flagged in a previous review.
The applicable requirements are included in appendix B.
Match a Low Priority
CPD indicated that match contributions did not play an important role in fulfilling the HOME
program’s mission. Instead, the more important issue to CPD was leverage. Leverage refers to
all outside funds and services contributed to a HOME project. However, most leverage, such as
owner equity contributions or market-rate bank loans, is not eligible as match. CPD said that
leverage increased the power of HOME funding, while match was only a statutory requirement
that must be documented by the participating jurisdictions. Therefore, compared to income
targeting, affordability, and the acceptable use of grant funds, match contributions were a lower
priority in CPD’s risk assessment.
Inadequate Match Documentation
Not all participating jurisdictions maintained match logs or support for their match contributions.
These issues included

      Having insufficient logs or no logs,
      Not identifying all contributions in their carry-forward balance,
      Including nonexistent contributions in their carry-forward balance, and
      Not fully supporting their match contributions.

Of the 20 jurisdictions sampled, 13 had logs that insufficiently tracked their match contributions,
while 6 did not maintain a match log. We considered a log to be sufficient if it could identify the
specific match contributions that made up the carry-forward balance. Only one jurisdiction



                                                 4
sampled kept such a log, but this was because it had not had a match liability and not needed to
subtract from its running list of match contributions.
Four jurisdictions could not identify all of the contributions in their carry-forward balances.
They were not able to provide us with records dating back far enough to include their entire
balances. Therefore, they could not support more than $175.4 million of their match carry-
forward balances. Without this information, we could not identify the match contributions
associated with 2 of the 28 monetary units statistically selected, and they could not be reviewed.
Eight jurisdictions had nonexistent contributions included in their carry-forward balances. Based
on the information available at some jurisdictions, we had to use their match reports to build a
log that would reconcile to the reported carry-forward balance amount included in the sample
universe. When filling out their annual match reports, some jurisdictions took the ending
balance from the previous year and entered it as the beginning balance of the next year. We
discovered, however, that some jurisdictions had a beginning balance that exceeded the ending
balance on the previous year’s report. Once this mistake was made, that excess amount became
part of the carry-forward balance, although it was not related to a real match contribution.
Nonexistent contributions such as these totaled more than $61.6 million and included 1 of the 28
sample items that could not be reviewed.
Of the 25 match contributions reviewed, 9 were not fully supported. As noted above, 3 of the 28
sampled monetary units were associated with contributions that could not be identified or did not
exist. The 25 contributions reviewed represented more than $293.5 million in match
contributions, of which more than $54.3 million was unsupported.
Appendix C lists the jurisdictions that overstated their match balances due to the issues noted
above.
Recommendations
We recommend that the Deputy Assistant Secretary for Grants Programs

       1A.     Issue guidance to help participating jurisdictions accurately report the amount of
               match contributed and consumed.
       1B.     Include monitoring of HOME match during its performance reviews to ensure
               that match contributions exist, are eligible, and are supported.
       1C.     Require the 10 jurisdictions that overstated their excess match balances to remove
               the overstated amounts from their reported HOME match carry-forward balances.




                                                 5
Finding 2: CPD’s Application of Match Reductions Was Not
Always Correct
CPD applied incorrect match reductions for 63 participating jurisdictions in fiscal year 2013.
This condition occurred because CPD based its decisions on the wrong information and lacked
policies and procedures for assigning and reviewing match reductions. As a result, CPD
improperly waived almost $1.7 million in match liabilities for 18 participating jurisdictions and
required 42 to provide almost $8.1 million more match than necessary.
Incorrect Match Reductions
CPD did not apply the correct match reductions as defined by 24 CFR 92.222 for 63
participating jurisdictions in 2013. Errors included using the incorrect poverty rate, using the
incorrect national per capita income, failing to award higher reduction rates for the second
applicable year, and entering incorrect reductions into HUD’s Integrated Disbursement and
Information System (IDIS). The applicable requirements are included in appendix B.
Incorrect Poverty Rate
CPD used the family poverty rate instead of the average poverty rate. According to 24 CFR
92.222, eligibility for a match reduction is based on the average poverty rate as determined by
the U.S. Census Bureau. CPD, however, used the family poverty rate, which applied the wrong
reduction to 43 participating jurisdictions.
Incorrect Per Capita Income
CPD used the incorrect national average for per capita income. The regulations state that
participating jurisdictions with a per capita income of less than 75 percent of the average national
per capita income are entitled to a match reduction. In 2013, CPD used a different figure as its
threshold, which affected the match reductions of two jurisdictions.
Incorrect Second-Year Reduction Rates
CPD did not apply higher reduction rates from fiscal year 2012 to 2013. Match reductions are
effective for the fiscal year in which they are made and for the following fiscal year. Therefore,
if a jurisdiction qualified for a full match reduction in 2012 but not in 2013, that full reduction
would still apply in 2013. However, CPD did not properly carry these higher reductions forward
for two jurisdictions.
Incorrect IDIS Reductions
CPD entered incorrect reductions into IDIS. Participating jurisdictions rely on the match liability
amounts applied in IDIS when determining how much match they need to provide. We found 14
instances in which CPD determined the correct match reduction levels but the reduction levels
shown in IDIS were wrong.
Incorrect Information and Lack of Policies and Procedures
CPD based its decisions on the wrong information and lacked policies and procedures for
assigning and reviewing match reductions.




                                                 6
Incorrect Information
CPD had family poverty rate data and did not believe using it in place of poverty rate data would
make a difference in the reduction amounts. The family poverty rate is one of the factors in the
HOME allocation formula. While it was aware of the difference in the requirements, CPD
decided to use the family poverty rate instead of obtaining poverty rate data.
In addition, CPD incorrectly calculated the national per capita income instead of relying on the
national average identified by the U.S. Census Bureau. CPD calculated its per capita income
threshold based on a weighted average of the per capita incomes of the States, which should
equal the national average reported by the U.S. Census Bureau. However, it did not include the
per capita income for one Pennsylvania county in its calculation. This error threw off the State’s
per capita income amount and, by extension, the calculated national average amount as well.
No Policies and Procedures
CPD lacked policies and procedures specifying the process for assigning match reductions.
There were no written policies and procedures related to retrieving, evaluating, or entering the
data into IDIS. Instead, the general program requirements at 24 CFR 92.222 were used to guide
CPD’s process.
CPD also lacked review policies and procedures to ensure that the calculated match reductions
were correctly assigned. Despite not having written policies and procedures, CPD staff reviewed
the reductions that were calculated and confirmed that the conclusions were correct but did not
verify the accuracy of the calculations. CPD did not conduct routine checks or periodic audits of
IDIS match reduction levels to ensure that they equaled those that were calculated.
Improperly Waived and Overrequired Match
CPD improperly waived almost $1.7 million in match liabilities for 18 participating jurisdictions
and required 42 to provide almost $8.1 million more match than necessary, as summarized by
cause in the table below. Three of the 63 jurisdictions drew no HOME funds requiring match in
2013 so there was no impact. For a list of the affected jurisdictions and the size of the impact on
each, see appendix D.




                                                 7
                                              Improperly                                        Absolute
          Issue                                                       Overrequired
                                                waived                                           effect

          Wrong poverty rate               14      $1,104,268        29      $2,268,642         $3,372,910
          Proper waiver not
                                                                       2       $218,996           $218,996
          carried forward
          Wrong per capita
                                                                       2         $92,557           $92,557
          income threshold
          Data entry errors                  4       $643,563        10      $5,550,291         $6,193,854

          Subtotal                         18      $1,747,831        43      $8,130,486         $9,878,317

          Overlapping issues1                        $(58,890)        -1       $(58,890)        $(117,780)

          Net impact                       18      $1,688,941        42      $8,071,596         $9,760,537

Recommendations
We recommend that the Deputy Assistant Secretary for Grants Programs

         2A.      Create and implement policies and procedures specifying the process for
                  assigning match reductions.
         2B.      Begin using the poverty rate instead of the family poverty rate for determining
                  eligible fiscal match reductions.
         2C.      Use the national average for per capita income reported by the U.S. Census
                  Bureau for determining eligible fiscal match reductions.
         2D.      Review the reductions assigned in IDIS by pulling a report of all match liabilities
                  from IDIS and comparing that report to the calculated reductions.




1
  For one jurisdiction, the wrong match liability was the result of two separate issues that had opposite effects on the
size of its match reduction. While these two errors had an absolute impact of $176,670, they combined for only
$58,890 in improperly waived match. This correction is presented in the table above to reconcile the impact of the
individual issues to their net impact on the affected jurisdictions.



                                                            8
Scope and Methodology
Our review period generally covered October 1, 2011, through September 4, 2014, and was
expanded as needed. We performed our work from September 2014 through March 2015 at the
HUD OIG Office of Audit in Seattle, WA, the State of California’s office in Sacramento, CA,
and HUD’s headquarters in Washington, DC.
To accomplish our objectives, we performed the following review steps:

      Reviewed match requirements.
      Interviewed CPD staff and obtained additional information about its processes.
      Pulled nationwide data from the U.S. Census Bureau and reperformed CPD’s match
       reduction calculations.
      Compared the match liabilities required by the recalculated match reductions to those
       required by CPD.
      Gathered the most recent match reports from HUD field offices for all participating
       jurisdictions reporting a carry-forward balance.
      Obtained a copy of the sampled jurisdictions’ match logs and reports as necessary.
      Evaluated the quality of the match logs covering the sampled contributions and
       determined whether they were sufficient.
      Reconciled sampled contributions from the match log to supporting documentation.

Sample Selection
We selected the sample using statistical sampling methods; however, we completed the initial
survey of only 28 monetary units so we did not project the results.
The universe for this audit was the more than $8.75 billion in match carry-forward balances that
were reported to HUD as contributed and available for future use as match funds in a HOME-
funded project. These funds were contributed by 543 jurisdictions, which had positive, non-zero
amounts reported as available for future use in matching Federal funds. This audit universe was
divided into two domains to allow separate analysis of jurisdictions with larger match balances
compared to the rest of the country. The first domain covered the jurisdictions of New York,
NY, the State of Massachusetts, Prince Georges County, MD, the State of Georgia, the State of
California, and Phoenix, AZ. The second domain was made up of the remaining 537
jurisdictions in the country that had reported available match.
We sampled the match balances using monetary unit sampling. Without information about the
size of individual transactions, we stacked all dollars in the universe together and sampled
individual dollars at even intervals within each of the two domains. Jurisdictions were ordered in
each domain according to the amount of match contributed. Intervals were estimated as needed
to sample 125 dollar points, and a random start point was selected for each domain using a
random number generator for uniform distributions. A separate sample of 125 dollar points was


                                                9
selected for each domain, from which an initial survey of 14 records was selected for each
domain.
We did not rely on computer-processed data as the basis for our conclusions. We verified the
reported information using supporting documentation.
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:

      Policies and procedures implemented for reviewing participating jurisdictions’ match logs
       and support for their match contributions.
      Policies and procedures implemented for applying the correct match reductions.
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:

      CPD lacked controls to effectively enforce the HOME requirement that participating
       jurisdictions maintain sufficient and supported match logs (finding 1).
      CPD lacked policies and procedures for assigning and reviewing match reductions
       (finding 2).




                                                 11
Appendixes

Appendix A
                      Auditee Comments and OIG’s Evaluation

Ref to OIG                                       Auditee Comments
Evaluation




             MEMORANDUM FOR:               Ronald J. Hosking, Regional Inspector General for Audit, Seattle
                                           Region, 0AGA

             FROM:                         Virginia Sardone, Director Office of Affordable Housing Programs,
                                           DGH

             SUBJECT:                      Response to Discussion Draft Audit Report - HOME Match

                     This memorandum is in response to the Discussion Draft Audit Report – HOME Match,
             dated June 24, 2015. The Office of Affordable Housing Programs (OAHP) is generally in
             agreement with the results of the audit work performed by the Seattle Regional Inspector General’s
             Office.

                     One overarching comment is that the audit assumes that the Office of Affordable Housing
             Programs (OAHP) performs or is responsible for all of the functions related to HOME match that
Comment 1    are outlined in the Discussion Draft Audit Report. This is not the case. While OAHP develops
             policy, technical assistance and compliance materials related to match, the Systems Development
             and Evaluation Division in Community Planning and Development (CPD) Headquarters is
             responsible for match reduction calculations and the CPD Field Offices, which report to CPD's
             Office of Field Management, are responsible for reviewing match reports and conducting
             compliance monitoring reviews of HOME participating jurisdictions (PJs). In recognition of these
             organizational responsibilities, we recommend that you replace “OAHP” with “CPD” throughout
             the Audit Report and issue the report to the Principal Deputy Assistant Secretary for CPD.

                    Specifically, the audit report found that OAHP did not always enforce the HOME
             requirement that PJs maintain sufficient and supported match logs. As a result, not all PJs
             maintained match logs or support for their match contributions. The Report also found that OAHP
             applied incorrect match reductions for 63 PJs in fiscal year 2013. As a result, it improperly waived
             almost $1.7 million in match liabilities for 18 PJs and required 42 to provide almost $8.1 million
             more match than necessary. In addition, during the course of the audit, OIG found incomplete
             match logs, unsupported match contributions, and incorrect match reductions, but determined that
             there was no appreciable impact on the HOME grant funds and, therefore, are not claiming any
             monetary benefits.

             Finding 1: OAHP’s Reviews of Matching Contributions Were Ineffective

                    OAHP did not always enforce the HOME requirement that participating jurisdictions
             maintain sufficient and supported match logs. This condition occurred because OAHP did not
             consider noncompliance with HOME match requirements to be a significant risk to the program.




                                                    12
Ref to OIG                                        Auditee Comments
Evaluation
             As a result, not all participating jurisdictions maintained match logs or support for their match
             contributions. OIG’s audit work determined that Match Reports were not always reviewed by CPD,
             match is considered a low priority among the many requirements of the HOME program, and that
             many PJs had inadequate match documentation.

             Recommendations

             OIG recommended that the Deputy Assistant Secretary for Grants Programs:

             1A. Issue guidance to help participating jurisdictions accurately report the amount of match
             contributed and consumed.
             1B. Include monitoring of HOME match during its performance reviews to ensure that match
             contributions exist, are eligible, and are supported.
             1C. Require the 10 jurisdictions that overstated their excess match balances to remove the
             overstated amounts from their reported HOME match carry-forward balances.

             HUD Response

                     Finding 1 and Recommendations A-C should be directed to CPD and not OAHP. CPD
Comment 1    agrees that additional guidance on HOME match requirements would be helpful to HOME PJs
             (Recommendation 1A). CPD also agrees that PJs that overstated their excess match and carried it
             forward should correct those amounts (Recommendation 1C). However, CPD does not agree that
             HOME match should be included during its monitoring reviews to ensure that match contributions
             exist, are eligible, and are supported to a greater extent than currently occurs. CPD monitors a
             limited number of HOME PJs each year based on its annual risk analysis conducted by CPD Field
             Offices. The time spent on site at each PJ is extremely limited in comparison to the number of
Comment 2    requirements that must be reviewed. To the extent that HOME match is monitored, that means
             other, high priority program requirements cannot be reviewed. These priority compliance reviews
             include income targeting, long-term affordability, and the eligible use of HOME funds.
             Consequently, CPD requests that OIG change Recommendation 1B to a more appropriate
             recommendation that does not include increased monitoring of HOME match without increased
             resources to perform the monitoring. CPD suggests a recommendation that it provide improved
             CAPER review procedures, to include a mandatory review of the HOME Match Report by CPD
             Field Office staff. In addition, CPD suggests providing guidance to CPD Field Office staff on how
             to review the Match Report and how to identify and address errors or potential non-compliance as a
             result of the review.

             Finding 2: OAHP’s Application of Match Reductions Was Not Always Correct

                      OIG found that OAHP applied incorrect match reductions for 63 participating jurisdictions
             in fiscal year 2013. It determined this condition occurred because OAHP based its decisions on the
             wrong information and lacked policies and procedures for assigning and reviewing match
             reductions. According to OIG calculations, OAHP improperly waived almost $1.7 million in match
             liabilities for 18 participating jurisdictions and required 42 to provide almost $8.1 million more
             match than necessary. OIG’s audit work determined that OAHP did not apply the correct match
             reductions as defined by 24 CFR 92.222:it used the incorrect poverty rate, the incorrect national per
             capita income, it failed to award higher reduction rates for the second applicable year, and entered




                                                    13
Ref to OIG                                        Auditee Comments
Evaluation
             incorrect reductions into IDIS. OIG also determined there was incorrect information and lack of
             policies and procedures because OAHP based its decisions on the wrong information and lacked
             policies and procedures for assigning and reviewing match reductions.

             Recommendations

                     OIG recommended that the Deputy Assistant Secretary for Grants Programs:
             2A. Create and implement policies and procedures specifying the process for assigning match
             reductions.
             2B. Begin using the poverty rate instead of the family poverty rate for determining eligible fiscal
             match reductions.
             2C. Use the national average for per capita income reported by the U.S. Census Bureau for
             determining eligible fiscal match reductions.
             2D. Review the reductions assigned in IDIS by pulling a report of all match liabilities from IDIS
             and comparing that report to the calculated reductions.

             HUD Response

                     Finding 2 and Recommendations A-D should be directed to CPD and not OAHP. CPD
Comment 1    agrees that it should develop policies and procedures specifying the process for assigning match
             reductions. It also agrees that it should begin using “poverty rate” instead of the “family poverty
             rate” for determining eligible fiscal match reductions. , This change should be phased in so that it
             does not adversely affect PJs that were receiving a match reduction under “family poverty rate”, but
             will no longer receive a reduction under “poverty rate.” CPD also agrees to use the national average
             for per capita income reported by the U.S. Census Bureau for determining eligible fiscal match
             reductions. Finally, CPD thinks it will be beneficial to review the reductions assigned in IDIS by
             reviewing IDIS data identifying all match liabilities and comparing that data to the calculated
             reductions that are posted annually on HUD Exchange.

                    If you have any questions regarding the CPD response outlined in this memorandum, please
             do not hesitate to contact me or Peter Huber, Director, Financial and Information Services Division,
             Office of Affordable Housing Programs.




                                                     14
                         OIG Evaluation of Auditee Comments


Comment 1   We agree that the report should refer to the broader Office of Community
            Planning and Development (CPD) instead of the specific Office of Affordable
            Housing Programs (OAHP). Consequently, we made changes to the audit report
            to address this comment.
Comment 2   The recommendations suggested by the auditee, if implemented, should expose
            some of the issues we noted during our review and would be constructive steps
            toward addressing Recommendation 1B. However, reviewing the HOME Match
            Reports alone would not uncover all of the issues identified in this finding. While
            we do not expect CPD Field Office staff to review each and every HOME match
            contribution, some additional measures should be implemented that could uncover
            unsupported contributions in future performance reviews. Therefore, we have left
            Recommendation 1B unchanged.




                                             15
Appendix B
                                              Criteria


24 CFR 92.222 – Reduction of matching contribution requirement
a) Reduction for fiscal distress. HUD will determine match reductions annually.
   1) Distress criteria for local government participating jurisdictions. If a local government
      participating jurisdiction satisfies both of the distress factors in paragraphs (a)(1)(i) and
      (ii) of this section, it is in severe fiscal distress and its match requirement will be reduced
      by 100% for the period specified in paragraph (a)(3) of this section. If a local
      government participating jurisdiction satisfies either distress factor in paragraphs (a)(1)(i)
      or (ii) of this section, it is in fiscal distress and its match requirement will be reduced by
      50 percent, for the period specified in paragraph (a)(4) of this section.
       i) Poverty rate. The average poverty rate in the participating jurisdiction was equal to
          or greater than 125 percent of the average national poverty rate during the calendar
          year for which the most recent data are available, as determined according to
          information of the Bureau of the Census.
       ii) Per capita income. The average per capita income in the participating jurisdiction
           was less than 75 percent of the average national per capita income, during the
           calendar year for which the most recent data are available, as determined according to
           information from the Bureau of the Census.
   2) Distress criteria for participating jurisdictions that are States. If a State satisfies at least
      2 of the 3 distress factors in paragraphs (a)(2)(i) through (iii) of this section, it is in severe
      fiscal distress and its match requirement will be reduced by 100% for the period specified
      in paragraph (a)(3) of this section. If a State satisfies any 1 of the 3 distress factors in
      paragraphs (a)(2)(i) through (iii) of this section, it is in fiscal distress and its match
      requirement will be reduced by 50 percent, for the period specified in paragraph (a)(4) of
      this section.
       i) Poverty rate. The average poverty rate in the State was equal to or greater than 125
          percent of the average national poverty rate during the calendar year for which the
          most recent data are available, as determined according to information from the
          Bureau of the Census.
       ii) Per capita income. The average per capita income in the State was less than 75
           percent of the average national per capita income, during the calendar year for which
           the most recent data are available, as determined according to information from the
           Bureau of the Census.
       iii) Personal income growth. The average personal income growth rate in the State over
            the most recent four quarters for which the data are available was less than 75 percent



                                                   16
           of the average national personal income growth rate during that period, as determined
           according to information from the Bureau of Economic Analysis.
   3) Period of match reduction for severe fiscal distress. A 100% match reduction is effective
      for the fiscal year in which the severe fiscal distress determination is made and for the
      following fiscal year.
   4) Period of match reduction for fiscal distress. A 50% match reduction is effective for the
      fiscal year in which the fiscal distress determination is made and for the following fiscal
      year, except that if a severe fiscal distress determination is published in that following
      fiscal year, the participating jurisdiction starts a new two-year match reduction period in
      accordance with the provisions of paragraph (a)(3) of this section.
b) Reduction of match for participating jurisdictions in disaster areas. If a participating
   jurisdiction is located in an area in which a declaration of major disaster pursuant to the
   Robert T. Stafford Disaster Relief and Emergency Assistance Act is made, it may request a
   reduction of its matching requirement. For a local participating jurisdiction, the HUD Field
   office may reduce the matching requirement specified in § 92.218 by up to 100 percent for
   the fiscal year in which the declaration of major disaster is made and the following fiscal
   year. For a State participating jurisdiction, the HUD Field office may reduce the matching
   requirement specified in § 92.218, by up to 100 percent for the fiscal year in which the
   declaration of major disaster is made and the following fiscal year with respect to any HOME
   funds expended in an area to which the declaration of a major disaster applies. At its
   discretion and upon request of the participating jurisdiction, the HUD Field Office may
   extend the reduction for an additional year.
24 CFR 92.550 – Performance reviews
a) General. HUD will review the performance of each participating jurisdiction in carrying out
   its responsibilities under this part whenever determined necessary by HUD, but at least
   annually. In conducting performance reviews, HUD will rely primarily on information
   obtained from the participating jurisdiction’s and, as appropriate, the State recipient’s records
   and reports, findings from on-site monitoring, audit reports, and information generated from
   the disbursement and information system established by HUD. Where applicable, HUD may
   also consider relevant information pertaining to a participating jurisdiction’s or State
   recipient’s performance gained from other sources, including citizen comments, complaint
   determinations, and litigation. Reviews to determine compliance with specific requirements
   of this part will be conducted as necessary, with or without prior notice to the participating
   jurisdiction or State recipient. Comprehensive performance reviews under the standards in
   paragraph (b) of this section will be conducted after prior notice to the participating
   jurisdiction.
b) Standards for comprehensive performance review. A participating jurisdiction’s
   performance will be comprehensively reviewed periodically, as prescribed by HUD, to
   determine:




                                                 17
1) For local participating jurisdictions and State participating jurisdictions administering
   their own HOME programs, whether the participating jurisdiction has committed the
   HOME funds in the United States Treasury account as required by § 92.500 and
   expended the funds in the United States Treasury account as required by § 92.500, and
   has met the requirements of this part, particularly eligible activities, income targeting,
   affordability, and matching requirements; or
2) For State participating jurisdictions distributing HOME funds to State recipients, whether
   the State has met the matching contribution and other requirements of this part; has
   distributed the funds in accordance with the requirements of this part; and has made such
   reviews and audits of its State recipients as may be appropriate to determine whether they
   have satisfied the requirements of paragraph (b)(1) of this section.




                                              18
  Appendix C
                                   Schedule of Overstated Match Balances


                                                      Match                                                 Overstated
Participating                                                        Nonexistent       Unsupported
                              Match balance        information                                                match
jurisdiction                                                           match              match
                                                   not provided                                              balance
New York, NY                     $718,713,614                $0                $0          $5,567,994        $5,567,994
State of Massachusetts           $640,743,258                $0        $2,020,102         $38,387,603       $40,407,705
Prince Georges Co., MD           $312,644,062      $133,875,588        $1,007,985         $7,999,3132      $142,882,886
Riverside Co., CA                $101,436,162                $0        $8,362,721                  $0        $8,362,721
San Bernardino Co., CA            $92,738,149                $0       $32,461,940                  $0       $32,461,940
State of Louisiana                $61,089,831       $31,708,766        $4,970,048               N/A3        $36,678,814
Hudson Co., NJ                    $47,169,174        $9,542,600        $1,070,281          $2,370,000       $12,982,881
Merced, CA                        $25,396,716                $0                $0              $3,404            $3,406
Allegheny Co., PA                 $19,677,615                $0       $11,299,648               N/A4        $11,299,648
Somerset Co., NJ                   $8,811,183          $353,089          $499,860                  $0          $852,949
Total                          $2,028,419,764      $175,480,043       $61,692,585         $54,328,314      $291,500,944




  2
    One of the two sampled contributions occurred in the period for which the jurisdiction could not provide a log or
  summary of contributions. Therefore, we were not able to select a specific contribution to review for that sample
  item. The unsupported amount listed here is for the contribution we were able to review.
  3
    The sampled contribution occurred in the period for which the jurisdiction could not provide a log or summary of
  contributions. Therefore, we were not able to select a specific contribution to review.
  4
    The sampled contribution did not exist so no support could be provided.



                                                            19
 Appendix D
                Schedule of Improperly Waived and Overrequired Match Amounts


                                                                                      Wrong
                                          Applied                          Not
                             Qualified                  Wrong                        per capita   Data entry
Participating jurisdiction               reduction                       carried
                             reduction                poverty rate                    income        error
                                          in IDIS                       forward
                                                                                     threshold
Jefferson Co., AL             100%          0%                          $(142,229)
Baldwin Park, CA               50%        100%              $23,142
Bellflower, CA                 50%         0%                                          $(1,958)
Berkeley, CA                  50%          0%             $(128,904)
Chico, CA                     50%          0%             $(120,112)
Davis, CA                      50%          0%               $(1,775)
Moreno Valley, CA              50%        100%               $50,000
Pomona, CA                     50%        100%               $34,184
Sacramento, CA                50%          0%             $(169,526)
Santa Cruz, CA                 50%          0%             $(44,645)
Aurora, CO                     0%          50%               $70,522
Fort Collins, CO              50%          0%             $(132,374)
Pueblo, CO                     0%         50%               $141,344
State of Connecticut          100%          0%                                                    $(1,756,045)
New Haven, CT                 100%         50%                                                       $(97,556)
Stamford, CT                  100%         0%                                                        $(84,658)
Waterbury, CT                 100%         50%                                                       $(37,780)
Orlando, FL                    0%         50%              $215,780
Tallahassee, FL                50%        100%                                                       $187,407
Augusta-Richmond Co., GA      100%         50%                           $(76,767)
Clayton Co., GA                50%        100%             $119,474
Iowa City, IA                  50%          0%             $(66,849)
Waterloo, IA                   50%          0%             $(74,589)
Urbana, IL                     50%          0%             $(99,626)
Lafayette, IN                  50%          0%             $(66,569)
Lawrence, KS                   50%          0%             $(44,898)
Lexington-Fayette, KY          50%          0%             $(86,222)
Barnstable Co., MA             0%         100%                                                        $32,933
Fall River, MA                100%         50%                                                     $(104,044)
New Bedford, MA               100%         50%                                        $(90,599)
Duluth, MN                    50%          0%              $(72,527)
Columbia, MO                  50%          0%              $(61,201)
Gulfport, MS                   0%         50%              $116,190
Missoula, MT                   50%          0%             $(35,000)



                                                     20
                                                                                     Wrong
                                          Applied                         Not
                             Qualified                  Wrong                       per capita   Data entry
Participating jurisdiction               reduction                      carried
                             reduction                poverty rate                   income        error
                                          in IDIS                      forward
                                                                                    threshold
State of North Dakota          50%          0%                                                    $(283,227)
Vineland, NJ                  100%        50%              $(60,261)
State of New Mexico           100%         50%                                                    $(937,778)
Ithaca, NY                    100%        50%              $(63,016)
Norman, OK                    50%          0%              $(21,458)
Corvallis, OR                 50%          0%             $(104,413)
Eugene, OR                     50%          0%             $(67,305)
State of Pennsylvania          50%          0%                                                   $(2,053,791)
State College, PA             100%         50%             $(59,398)
Woonsocket, RI                100%         50%                                                     $(36,439)
Charleston, SC                50%          0%             $(182,609)
Georgetown Co., SC             50%          0%             $(23,062)
Nashville-Davidson, TN        50%          0%                                                     $(158,973)
Amarillo, TX                   0%         50%               $93,910
Bexar Co., TX                  0%         100%                                                      $305,443
Denton, TX                     50%          0%             $(52,898)
Irving, TX                     0%         50%                $45,718
Killeen, TX                    50%        100%               $31,793
Odessa, TX                     0%          50%               $36,257
Wichita Falls, TX              0%          50%               $50,856
Salt Lake City, UT             50%          0%             $(98,720)
Blacksburg, VA                 50%          0%             $(65,788)
Portsmouth, VA                 0%         50%                $75,098
Bellingham, WA                 50%          0%             $(92,088)
Eau Claire, WI                 50%        100%             $(58,890)                                $117,780
Madison, WI                   50%          0%             $(113,919)

Count                                                       43             2            2            14

Absolute impact                                           $3,372,910    $218,996      $92,557     $6,193,854

Net impact                                            $(1,164,374)     $(218,996)    $(92,557)   $(4,906,728)




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