oversight

Neighborhood Housing Services of South Florida, Miami, FL Did Not Ensure That NSP2 Funds Were Used for Eligible Purposes and Sufficiently Supported

Published by the Department of Housing and Urban Development, Office of Inspector General on 2017-05-08.

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

     Neighborhood Housing Services of
         South Florida, Miami, FL
              Neighborhood Stabilization Program 2




Office of Audit, Region 4         Audit Report Number: 2017-AT-1004
Atlanta, GA                                              May 8, 2017
To:            Ann D. Chavis, Office of Community Planning and Development, Miami Field
               Office, 4DD


               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       Neighborhood Housing Services of South Florida, Miami, FL Did Not Ensure
               That NSP2 Funds Were Used for Eligible Purposes and Sufficiently Supported




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 Miami-Dade NSP Consortium’s administration
of the Neighborhood Stabilization Program 2, particularly whether the use of grant funds by two
consortium members, Neighborhood Housing Services of South Florida and the Urban League of
Greater Miami, were eligible and sufficiently supported.
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 website. 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
404-331-3369.
                       Audit Report Number: 2017-AT-1004
                       Date: May 8, 2017

                       Neighborhood Housing Services of South Florida, Miami, FL Did Not Ensure
                       That NSP2 Funds Were Used for Eligible Purposes and Sufficiently
                       Supported



Highlights

What We Audited and Why
The U.S. Department of Housing and Urban Development (HUD) awarded the Miami-Dade NSP
Consortium more than $89.3 million in Neighborhood Stabilization Program (NSP) 2 funds. We
audited two of the consortium members, Neighborhood Housing Services of South Florida, the
lead member, and the Urban League of Greater Miami, in accordance with our annual audit plan.
The audit objective was to determine whether the two members used NSP2 funds for eligible
activities in compliance with HUD requirements and whether the use of the funds was
sufficiently supported.

What We Found
Neighborhood Housing Services did not ensure that some NSP2 funds were used for an eligible
purpose and properly supported. Specifically, it drew down $59,523 in NSP2 funds to reimburse
payments on a loan used to acquire a piece of land before the NSP2 grant was executed and for a
cost item that was not an NSP2-funded activity. In addition, it lacked documentation to justify
payroll costs or that purchases of materials and supplies were made. This condition occurred
because Neighborhood Housing Services was not aware that HUD did not allow NSP2 funds to
be used to retroactively pay for acquisition costs. It also did not adequately manage its resources
to ensure that sufficient documentation was maintained. As a result, it charged $59,523 in
unallowable costs and $228,037 in insufficiently supported costs to NSP2.

Our review of select transactions and events administered by the Urban League disclosed no
reportable conditions.

What We Recommend
We recommend that the Director of the Miami HUD Office of Community Planning and
Development require Neighborhood Housing Services to (1) reimburse NSP2 $59,523 for
ineligible disbursements from non-Federal funds; (2) provide documentation to support that
$224,868 in NSP2 funds drawn down from four vouchers was eligible or repay the program from
non-Federal funds; and (3) provide documentation to support that the differences resulting from
the payroll costs for three vouchers, which netted $3,169, were offset in later drawdown
vouchers or repay the program from non-Federal funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: Neighborhood Housing Services Did Not Ensure That Some NSP2 Funds
         Were Eligible and Properly Supported........................................................................... 5

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

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

Appendixes ..............................................................................................................13
         A. Schedule of Questioned Costs .................................................................................. 13

         B. Auditee Comments and OIG’s Evaluation ............................................................. 14




                                                             2
Background and Objective
In 2008, Congress appropriated funds for neighborhood stabilization. In 2009, Congress
appropriated additional neighborhood stabilization funds under the American Recovery and
Reinvestment Act. This grant, referred to as the Neighborhood Stabilization Program (NSP) 2, was
used to stabilize neighborhoods, the viability of which had been and continued to be damaged by
the economic effects of properties that had been foreclosed upon and abandoned. NSP funds may
be used to (1) establish financing mechanisms for the purchase and redevelopment of foreclosed
homes and residential properties; (2) purchase and rehabilitate abandoned or foreclosed homes and
residential properties; establish land banks for foreclosed homes; demolish blighted structures; and
redevelop demolished or vacant properties. The U.S. Department of Housing and Urban
Development (HUD) competitively awarded NSP2 funds to eligible applicants, which included
States, units of general local government, nonprofits, and consortia of nonprofits. A consortium is
defined as two or more private or public nonprofit organizations that collectively have the capacity
and experience to carry out the proposed NSP2 activities in the target area.
In February 2010, HUD executed a grant agreement for more than $89.3 million in NSP2 funds
with Neighborhood Housing Services of South Florida as the lead member of the Miami-Dade NSP
Consortium. The lead member was authorized to act as a representative of the consortium members
and assume overall responsibility for ensuring that the consortium’s NSP2 program was carried out
in compliance with program requirements. The consortium is made up of six other members, one of
which is the Urban League of Greater Miami. The 2009 Recovery Act required grantees to expend
at least 50 percent of allocated funds within two years of the date funds become available for
obligation, and 100 percent of the funds within three years. HUD’s 2014 monitoring report of the
consortium indicated that both expenditure deadline dates were met by the required time frame.
The entire award amount had been disbursed.
Neighborhood Housing Services is a nonprofit organization, the mission of which is to collaborate
with residents and other stakeholders to stabilize neighborhoods and develop sustainable housing.
To that end, it is committed to educating consumers in their housing choices, offering residents
access to appropriate financial products for buying and maintaining their homes, and providing
homeowners with environmentally safe and affordable housing. Neighborhood Housing Services
used NSP2 funds for administration costs and three activities, one of which had been canceled,
totaling more than $11.3 million. One activity entailed the acquisition and rehabilitation of
scattered-site single-family properties for resale to income-eligible individuals and households. The
other activity entailed the construction of new single-family houses in a subdivision for sale to
income-eligible individuals and households.
The Urban League of Greater Miami is a nonprofit community service agency that provides
services in the community in the areas of employment, childcare, senior citizen services, housing,
economic development, training, community service, political advocacy, and education. New
Urban Development, LLC, the housing development affiliate of the Urban League, was our point of
contact during the review. The Urban League used NSP2 funds for administration costs and the
redevelopment of five properties totaling more than $21.9 million.

                                                  3
The audit objective was to determine whether the Miami-Dade NSP Consortium administered its
NSP2 in accordance with HUD requirements. Specifically, we focused on determining whether the
use of grant funds by consortium members, Neighborhood Housing Services and the Urban League,
were eligible and sufficiently supported.




                                              4
Results of Audit

Finding: Neighborhood Housing Services Did Not Ensure That
Some NSP2 Funds Were Eligible and Properly Supported
Neighborhood Housing Services did not ensure that NSP2 funds were used for an eligible
purpose and were sufficiently supported in compliance with HUD requirements. Specifically, it
drew down $59,523 in NSP2 funds to reimburse payments on a loan that was used to acquire a
piece of land before the NSP2 grant was executed and for a cost item that was not an NSP2-
funded activity. In addition, Neighborhood Housing Services lacked documentation to justify
payroll costs or that purchases of materials and supplies were made. This condition occurred
because Neighborhood Housing Services was not aware that HUD did not allow NSP2 funds to
be used to retroactively pay for acquisition costs. It also did not adequately manage its resources
to ensure that sufficient documentation was maintained. The lack of knowledge of NSP policy
and inadequate resource management resulted in $59,523 in unallowable costs that did not
achieve program purposes and $228,037 in insufficiently supported costs, for which HUD had no
assurance that the costs achieved program purposes.

Use of NSP2 Funds Not Eligible
Neighborhood Housing Services drew down $59,508 in NSP2 funds to reimburse loan payments.
The loan was used to acquire a piece of land, which Neighborhood Housing Services later used
to build 27 new single-family houses with NSP2 funds for sale to income-eligible individuals
and households. Four of the fourteen drawdown vouchers reviewed related to this loan
repayment.

Our review of NSP policies and communications with HUD revealed that Neighborhood
Housing Services’ use of NSP2 funds to reimburse the loan payments was not eligible as the
NSP2 grant award came after the acquisition of the land. Although the mortgage was executed
in December 2007, the NSP2 grant agreement was executed in February 2010. In essence,
Neighborhood Housing Services used NSP2 funds to make payments on a loan used to acquire
the land for a project that was not yet an NSP2-funded project. It believed that once financing on
the project was in place and the construction began, previous cost items, such as the acquisition
cost, became development costs and could be reimbursed with NSP2 funds.

Neighborhood Housing Services was not aware that HUD did not allow NSP2 funds to be used
to retroactively pay for the acquisition cost. HUD’s policy (see NSP FAQ (frequently asked
questions) ID 776) states that retroactive reimbursement for property acquisition is not an
eligible use and NSP funds cannot be used to pay property acquisition costs. The grantee may
recover the cost of acquisition at sale or refinancing. HUD officials agreed with this position.
Thus, the drawdown from the four vouchers for reimbursement on the loan payments totaling
$59,508 was not allowable.



                                                 5
In addition, one of the vouchers included a $15 cost item for a canceled Neighborhood Housing
Services NSP2 activity. Since the activity was canceled at the time the cost was incurred, the
amount was not eligible.

By using NSP2 funds contrary to regulations, $59,523 ($59,508 + $15) was not available to
assist in benefiting eligible aspects of the program. Table 1 below details the unallowable costs
for the five vouchers.

Table 1
                                                         Voucher
                                      Voucher                            Unallowable
          #        Voucher                              drawdown
                                    submit date                             cost
                                                         amount
          1        204500           10/18/2012             $12,148              $12,148
          2        204993           10/22/2012             203,720                   15
          3        210859           12/18/2012              11,578               11,577
          4        215661           02/01/2013              57,424               11,928
          5        223180           04/03/2013             151,946               23,855
                                   Totals                                        59,523

NSP2 Funds Not Sufficiently Supported
Neighborhood Housing Services did not maintain documentation to sufficiently support some of
the disbursements in 6 of the 14 vouchers reviewed. Specifically, the voucher packages did not
contain invoices or written explanations to support the payroll amount, travel expenses, or that
purchases of appliances or supplies were made. The net unsupported costs for the six drawdown
vouchers totaled $228,037. See table 2.
Table 2
                                  Voucher
                   Voucher
 #   Voucher                     drawdown             Cost with inadequate documentation
                 submit date
                                  amount
                                                   Missing        Payroll: actual
                                                                                          Total
                                                  documents        vs. estimated
 1    126262      06/08/2010      $148,930           $18,351                              $18,351
 2    161476      07/08/2011        97,454            44,125               $6,540           50,665
 3    204993      10/22/2012       203,720           159,104                              159,104
 4    205583      10/26/2012        43,003                                   4,428           4,428
 5    215661      02/01/2013        57,424                                 (7,799)         (7,799)
 6    223180      04/03/2013       151,946              3,288                                3,288
                  Totals                              224,868                3,169        228,037




                                                  6
Below are examples of two vouchers.

     •   Drawdown voucher 204993 consisted of cost items for the construction of new single-
         family houses. The documentation contained purchase orders and requests for payment
         for appliances, materials for interior framing packages, and roofing supplies. However,
         the voucher package did not also contain documentation to support that the materials
         were purchased and paid for. The purchase orders and requests covered $158,941 in
         material costs. Another payment for $163 had no corresponding invoice to determine
         what the payment was for. The lack of documentation resulted in $159,104 ($158,941 +
         $163) in insufficiently supported costs.

     •   Drawdown voucher 205583 for $43,003 was based on an estimated payroll amount for
         the pay period ending October 26, 2012. Although estimated, the voucher package
         contained documentation summarizing and supporting the actual payroll costs for the pay
         period and other administrative costs. The payroll and other invoices in the package
         supported total actual costs of $39,790. According to the voucher document, the
         drawdown amount subtracted $1,215, which was notated as an amount due to HUD from
         an earlier pay period. Thus the amount to be requested for drawdown should have been
         $38,575 ($39,790 – $1,215). Since Neighborhood Housing Services drew down $43,003
         but the voucher package supported the actual amount of $38,575, a $4,428 ($43,003 –
         $38,575) overpayment occurred. Therefore, Neighborhood Housing Services did not
         support that $4,428 was eligible for NSP2.
         Of the 14 vouchers reviewed, 5 were drawdowns for administration costs, and all 5
         included drawdowns for payroll costs. Three of the five vouchers, or 60 percent,
         consisted of drawdowns based on estimated payroll costs resulting in differences with the
         actual payroll amounts. According to the drawdown voucher report from HUD’s
         Disaster Recovery Grant Reporting system, 1 Neighborhood Housing Services drew down
         207 vouchers for administration costs. Because it provided no documentation to
         evidence that the resulting differences for the three vouchers were later offset and there
         were 202 (207 – 5) other drawdown vouchers related to administration costs, additional
         differences could exist that would require a reconciliation of the drawdown of NSP2
         funds for payroll costs to the actual payroll amount to ensure the appropriate use of
         program funds.
HUD regulations at 24 CFR 84.21(b)(2) state that a recipient’s financial management system
must provide for records that adequately identify the source and application of funds for
federally sponsored activities. These records are to contain information pertaining to Federal
awards, authorizations, obligations, unobligated balances, assets, outlays, income, and interest.
Yet Neighborhood Housing Services did not adequately manage its resources and tools to ensure
that it maintained sufficient documentation to support the use of the NSP2 funds. With the lack



1
    Grantees use the Disaster Recovery Grant Reporting system to access grant funds and report performance
    accomplishments for grant-funded activities to HUD. HUD also uses the system to review grant-funded
    activities, prepare reports to Congress and other interested parties, and monitor program compliance.

                                                         7
of documentation to support the disbursements, HUD had no assurance that Neighborhood
Housing Services used $228,037 in NSP2 funds to achieve the program’s purpose.
Conclusion
Neighborhood Housing Services did not ensure that some NSP2 funds were used for eligible
purposes and sufficiently supported. Specifically, it drew down $59,523 in NSP2 funds for
reimbursement of loan payments used to acquire a piece of land before the NSP2 grant was
executed and for a cost item that was not an NSP2-funded activity. In addition, it did not
sufficiently support NSP2 disbursements of $228,037. The lack of knowledge of NSP policy and
inadequate resource management resulted in unallowable disbursements that did not achieve
program purposes and in insufficiently supported disbursements for which HUD had no
assurance that the costs achieved program purposes.


Recommendations
We recommend that the Director of the Miami Office of Community Planning and Development
require Neighborhood Housing Services to

         1A.     Reimburse NSP2 from non-Federal funds for the $59,523 in ineligible
                 disbursements on the five vouchers.
         1B.     Provide documentation to support that the $224,868 in NSP2 funds drawn down
                 from the four vouchers was eligible or repay the program from non-Federal funds.
         1C.     Provide documentation to support that the differences resulting from the payroll
                 costs for the three vouchers, which netted $3,169, were offset in later drawdown
                 vouchers or repay the program from non-Federal funds.
         1D.     Review all administration drawdown vouchers 2 and provide documentation to
                 support that the drawdowns for estimated payroll costs are reconciled with the
                 actual payroll costs for the pay periods. Any calculated overpayment by NSP
                 should be returned to the program to meet program purposes.




2
    HUD’s Disaster Recovery Grant Reporting system showed that there were 207 drawdowns under the
    administration activity code, submitted from June 8, 2010, to July 25, 2014.



                                                      8
Scope and Methodology
Our audit objective was to determine whether the use of grant funds by consortium members,
Neighborhood Housing Services and the Urban League, were eligible and sufficiently supported.
We performed the following audit work to accomplish the objective:
   •   reviewed relevant program and HUD requirements;
   •   reviewed HUD’s monitoring reports of the consortium;
   •   analyzed the drawdown voucher report generated from HUD’s Disaster Recovery Grant
       Reporting system;
   •   reviewed the consortium’s Action Plan and quarterly performance reports;
   •   reviewed the reports required by Office of Management and Budget Circular A-133 and
       consolidated financial statements;
   •   reviewed the compliance reports on the two consortium members;
   •   interviewed officials from Neighborhood Housing Services and the Urban League to
       understand the processes followed by staff to administer the NSP2 grant and to obtain
       explanations and clarifications during the audit work; and
   •   communicated with HUD officials to obtain their position on certain events and discuss
       audit results.
The audit period was January 1, 2010, through May 31, 2015, which covered the period from
when HUD approved the NSP2 grant to the consortium to the date of the last drawdown
transaction listed in the consortium’s drawdown voucher report. We conducted the audit
fieldwork mainly from September 2016 to February 2017 at the Miami HUD field office and
also performed interviews at the offices of Neighborhood Housing Services and the Urban
League, both located in Miami, FL.


Neighborhood Housing Services
The drawdown report from HUD’s Disaster Recovery Grant Reporting system showed that
Neighborhood Housing Services drew down $11,397,301 in program funds and was approved
$1,673,400 in program income, for a total of $13,070,701. The total came from 776 vouchers,
660 for program funds and 116 for program income. We did not review 100 percent of the
drawdown vouchers and did not use statistical sampling. We selected for review 12 drawdown
vouchers to determine whether the use of NSP2 funds was eligible and sufficiently supported.
Neighborhood Housing Services used NSP2 funds for administration costs and 2 activities, each
represented by different activity codes in HUD’s reporting system. The 12 vouchers included 5
from the activity code for administration, 5 from the activity code used to construct the new
single-family homes, and 2 from the activity code used to purchase and rehabilitate single-family
houses. More vouchers were selected from the first two activities because of concerns raised in


                                                9
the Single Audit report and an accounting assessment report performed by a hired consultant.
The vouchers from the activity codes were then selected based on their high dollar amount for
the activity code or time period. The 12 vouchers selected totaled $1,332,223 or 10.2 percent of
the total NSP2 funds drawn down and approved for the consortium member ($1,332,223 ÷
$13,070,701). During our review of the loan payments, two additional vouchers used to
reimburse the loan payments were identified and included in the review. The review of the 14
vouchers resulted in 2 deficiencies as detailed in the finding.

The results from the review of the drawdown vouchers and the corresponding supporting
documentation reflect only the vouchers reviewed and will not be projected to the universe of
vouchers for the program funds drawn down and program income approved. The questioned
costs were based on the review of the documentation provided for the vouchers. Thus, it was not
necessary to test the reliability of computer-processed data.


Urban League
Our review of the compliance reports and consolidated financial statements identified certain
issues that we evaluated further. We evaluated for eligibility (1) the use of NSP2 funds for a
bridge loan on the construction of one of its projects (ULG007-ULG007A) and determined
whether the Urban League repaid the loan and (2) the use of NSP2 funds to set up and pay off a
prior construction lien on one of its other projects (ULG002-ULG002A and ULG008-
ULG008A). We also determined whether the $520,932 spent by the attorney who worked with
the Urban League was from NSP2 funds and if so, whether the funds were repaid. To make our
assessments, we interviewed officials from Neighborhood Housing Services and the Urban
League, obtained and reviewed pertinent documentation, and discussed the issues with HUD. In
addition, we reviewed the corresponding drawdown voucher packages to determine whether the
related disbursements were sufficiently supported. The review of the select transactions and
events resulted in no reportable conditions.

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 objective.




                                                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 objective:

•   Effectiveness and efficiency of program operations – Controls over program operations
    include policies and procedures that the audited entity has implemented to provide reasonable
    assurance that a program meets its objectives, while considering cost effectiveness and
    efficiency.
•   Relevance and reliability of information – Controls over the relevance and reliability of
    information include policies and procedures that the audited entity has implemented to
    reasonably ensure that operational and financial information used for decision making and
    reporting externally is relevant, reliable, and fairly disclosed in reports.
•   Compliance with laws and regulations – Controls over compliance include policies and
    procedures that the audited entity has implemented to reasonably ensure that program
    implementation is in accordance with provisions of laws, regulations, contracts, and grant
    agreements.
•   Safeguarding of assets – Controls over the safeguarding of assets and resources include
    policies and procedures that the audited entity has implemented to reasonably prevent or
    promptly detect unauthorized acquisition, use, or disposition of assets and resources.
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.




                                                  11
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   Neighborhood Housing Services inappropriately drew down NSP2 funds to reimburse loan
    payments and did not adequately manage its resources, thereby resulting in a lack of
    documentation to sufficiently support some of the NSP2 disbursements (finding).




                                                 12
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                $59,523
                          1B                                  $224,868
                          1C                                      3,169

                        Totals               59,523             228,037



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.




                                              13
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1




                               14
Ref to OIG
Evaluation   Auditee Comments




Comment 1




Comment 2




                                15
Ref to OIG
Evaluation   Auditee Comments


Comment 2




Comment 3




Comment 4




                                16
Ref to OIG
Evaluation   Auditee Comments




                                17
                         OIG Evaluation of Auditee Comments


Comment 1   Neighborhood Housing Services disagreed with HUD OIG’s conclusion that its
            use of NSP2 funds for reimbursement of the loan payments was not allowable. It
            stated that it did not use NSP funds for retroactive reimbursement of principal and
            interest payment before the start of construction on the houses. Neighborhood
            Housing Services reasoned that when construction began, the acquisition loan
            became part of the sources of funds used to finance the land on which to build the
            houses and only after construction began did it make the loan payments with NSP
            funds. In addition, Neighborhood Housing Services stated that if loan payments
            were not made, the lender could have foreclosed during construction. Given the
            rationale, it requested that this issue of concern be removed from the audit report.
            In accordance with HUD’s directive, our position remains that Neighborhood
            Housing Services’ use of the NSP2 funds to repay the acquisition loan was not an
            allowable cost to the program. In the FAQ ID 776, HUD stated that NSP funds
            cannot be used to pay for the cost of the acquisition of the property when the
            property was acquired before applying for NSP funds. In this case, Neighborhood
            Housing Services used NSP2 funds to make principal and interest payments on a
            loan used to acquire the property before it applied for the NSP2 funding. The
            property was acquired through mortgage financing from the lender in December
            2007. Neighborhood Housing Services applied for the NSP2 grant in July 2009
            and HUD executed the grant agreement in February 2010. As the NSP funds
            were expended to repay the loan used to acquire the property before NSP funds
            were applied for, the use is not allowable regardless of when NSP funds were
            used to make the repayments (i.e., after construction began). Therefore,
            recommendation 1A remains unchanged.
Comment 2   Neighborhood Housing Services provided context in supplying the
            documentation. As the lead member of the consortium, it indicated that it had
            processed over 3,000 drawdown vouchers, totaling almost $100 million
            ($89,375,000 grant plus program income) and monitored 24 multifamily projects
            and more than 100 single-family houses in rehab or construction. By April 2013,
            Neighborhood Housing Services had exhausted its program administration funds,
            and had been paying the two part-time independent contractors dedicated to the
            grant from other operating funds. Within that context, it explained that it is
            continuing its research to fully support the expenditures from the drawdown
            vouchers that are not adequately supported. Specifically, for voucher 204993, one
            of its independent contractors noted that most of the $159,104 in unsupported
            expenditures were based on purchase orders and said that such payments were
            common in the construction lending industry. In addition, Neighborhood Housing
            Services explained that in a power outage last year, it lost one of its software
            systems that held NSP2 records. It is looking for alternate sources of this NSP2
            data. Because of this, the lack of accounting staff who worked on the grant and
            having only two part-time independent contractors working on the research, it


                                              18
            stated that additional time is needed to obtain documentation to sufficiently
            support vouchers 126262, 161476, 204993, and 223180.
            We recognize Neighborhood Housing Services’ efforts in administering the grant
            responsibilities as the lead member and acknowledge its cooperation in providing
            requested documentation during the audit. In December 2016, we requested
            explanation or documentation to support the cost items for several of the vouchers
            selected for review. In February 2017, we provided the list of vouchers with
            outstanding items needing sufficient support, which included the four vouchers
            listed. For voucher 204993, the drawdown package contained purchase orders
            and payment requests for appliances, materials for interior framing packages, and
            roofing supplies. By itself, the purchase orders and payment requests are
            insufficient to support that the materials were purchased and paid for. Therefore,
            to resolve recommendation 1B, Neighborhood Housing Services will be required
            to provide documentation to adequately support the questioned costs for the four
            vouchers, or to repay the program from non-Federal funds for those cost items
            without sufficient support.
Comment 3   Neighborhood Housing Services stated that they will reimburse the NSP2
            program the $3,169. The decision was based on the existing staff’s lack of
            knowledge on the grant’s accounting to be able to backtrack on the methodology
            used for payroll reimbursements.
            Neighborhood Housing Services’ reimbursement of the $3,169 from non-Federal
            funds to the program will resolve recommendation 1C.
Comment 4   Neighborhood Housing Services did not address recommendation 1D in its
            response. It should work with HUD during the audit resolution process to resolve
            the recommendation.




                                              19