oversight

HUD's Improper Approvals Resulted in Invalid Exemptions and an Ineligible Capital Funds Expenditure for the Lexington-Fayette Urban County Housing Authority

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-28.

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

                                                   U.S. DEPARTMENT OF
                                  HOUSING AND URBAN DEVELOPMENT
                                            OFFICE OF INSPECTOR GENERAL




                                               September 28, 2018
                                                                                                 MEMORANDUM NO:
                                                                                                 2018-AT-0801


Memorandum
TO:              Dominique Blom, General Deputy Assistant Secretary for Public and Indian
                 Housing, P

                 Robert Mulderig, Acting Deputy Assistant Secretary for Public Housing
                 Investments, PIU

                     //Signed//
FROM:            Nikita N. Irons, Regional Inspector General for Audit, 4AGA

SUBJECT:         HUD’s Improper Approvals Resulted in Invalid Exemptions and an Ineligible
                 Capital Funds Expenditure for the Lexington-Fayette Urban County Housing
                 Authority

                                               INTRODUCTION

We reviewed the U.S. Department of Housing and Urban Development’s (HUD) approval of the
Lexington-Fayette Urban County Housing Authority’s Moving to Work (MTW) Demonstration
plan and capital funds drawdowns. The review was performed based on risk indicators identified
during audits of the Authority’s Rental Assistance Demonstration Program (RAD) conversion
and its Section 8 Housing Choice Voucher Program. 1 The objective was to determine whether
HUD properly approved the (1) Authority’s exemption from HUD’s third-party requirements for
unit inspections in the Authority’s MTW plan for fiscal year 2017 and (2) capital funds
drawdowns after the RAD conversion.

This memorandum contains eight recommendations for corrective action. 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 this review.




1
    We issued two external audit reports on the Authority’s Section 8 Project-Based Voucher Program following
    the RAD conversion and Section 8 Housing Choice Voucher Program in July 2018.

                                                   Office of Audit Region 4
                                      75 Ted Turner Drive, Suite 330, Atlanta, GA 30303
                                          Phone (404) 331-3369, Fax (404) 730-2382
                              Visit the Office of Inspector General website at www.hudoig.gov.
                                   METHODOLOGY AND SCOPE

To accomplish our objective, we interviewed HUD program staff and the Authority’s employees.
In addition, we obtained and reviewed the following:

    •   Applicable laws; HUD’s regulations at 24 CFR (Code of Federal Regulations) Parts 982
        and 983; and Office of Public and Indian Housing (PIH) Notices PIH 2012-18 and PIH
        2012-32, REV-1.

    •   The Authority’s RAD application; MTW agreement, dated November 10, 2011, MTW
        plan for fiscal year 2017; housing assistance payments; tenant files; and HUD’s Line of
        Credit Control System reports.

We performed our onsite work between August 2017 and February 2018 at the Authority’s office
located at 300 West New Circle Road, Lexington, KY, and in our Atlanta, GA, office. Our
review period was July 1, 2012, through October 31, 2017. To determine whether HUD’s
approval of its third-party requirements’ exemption for the Authority was proper, we reviewed
the MTW agreement, dated November 10, 2011, approved by HUD’s Assistant Secretary, plus
attachments C and D of that agreement. The review considered 100 percent of the units owned
by the Authority. The Authority owned 206 units at the Centre Meadows Apartments, a RAD-
converted project, and 33 units 2 in its Section 8 Housing Choice Voucher Program. In addition,
to determine whether HUD’s approval of the Authority’s use of capital funds after the RAD
conversion was appropriate, we reviewed 100 percent of the Authority’s capital funds totaling
more than $1.5 million, which were identified as a funding source for its RAD conversion.

We also conducted a brief scan review of other MTW public housing agencies’ annual MTW
plans to determine whether HUD properly approved exemptions from HUD’s third-party
requirements for unit inspections in those plans.

However, this was a limited scope review, and we did not review HUD’s internal and
information systems controls and procedures. Therefore, the review was not performed in
accordance with generally accepted government auditing standards. To meet our objective, it
was not necessary to fully comply with the standards, nor did our approach negatively affect our
review results. In addition, computer-processed data generated by the Authority were not used to
materially support our findings, conclusions, and recommendations. Thus, we did not assess the
reliability of these computer-processed data. Instead, our conclusions were based on the
supporting documentation obtained during the review, including but not limited to written
agreements.




2
    The specific scope for our review for the Authority’s Section 8 Housing Choice Voucher Program was July 1,
    2015, through October 31, 2017; therefore, the number of Authority-owned units identified for the program is
    limited to this scope.



                                                        2
                                              BACKGROUND

MTW is a demonstration program for public housing agencies, which is intended to provide an
opportunity to design and test innovative, locally designed strategies that use Federal dollars
more efficiently and effectively, help residents find employment and become self-sufficient, and
increase housing choices for low-income families. MTW gives public housing agencies (1)
exemptions from existing public housing and voucher rules and (2) more flexibility in how they
use their Federal funds. This flexibility is authorized via exemptions from program requirements
approved by HUD’s Secretary, which are identified in the public housing agencies’ MTW
agreement, attachments C and D. 3 To use an exemption, the public housing agency identifies the
specific authorized exemption in any of its annual plans. In November 2011, the Authority
entered into an MTW agreement, which was signed by HUD’s Assistant Secretary. HUD’s
Office of Public Housing Investments oversees MTW activities. As established under the
Omnibus Consolidated Recessions and Appropriations Act of 1996, 39 public housing agencies
participated in the MTW program as of April 2018. The 2016 Consolidated Appropriations Act
authorized HUD to expand the MTW demonstration to include 100 additional public housing
agencies, which had not been selected as of August 2018.

RAD was authorized to preserve and improve public housing properties and address a $26 billion
nationwide backlog of deferred maintenance. Specifically, RAD’s purpose is to provide an
opportunity to test the conversion of public housing and other HUD-assisted properties to long-
term, project-based Section 8 rental assistance properties to achieve certain goals, including
preserving and improving these properties by enabling public housing agencies to use private
debt and equity to address immediate and long-term capital needs. Under the first component of
RAD, the Authority converted 206 of its 1,303 public units to the Project-Based Voucher
Program on March 4, 2014. HUD’s Office of Recapitalization oversees the RAD activities.

The Section 8 Housing Choice Voucher Program assists very low-income families, the elderly,
and the disabled in affording decent, safe, and sanitary housing in the private market. The program
regulations include basic housing quality standards, which all units must meet before assistance
can be paid on behalf of a family. HUD’s housing quality standards establish the minimum criteria
for the health and safety of program participants. The Authority administered more than 2,400
tenant-based housing choice vouchers and disbursed more than $17.7 million in program funding
for fiscal year 2017.

                                         RESULTS OF REVIEW

HUD improperly approved the (1) Authority’s exemption from HUD’s third-party requirements
for unit inspections in the Authority’s MTW plan for fiscal year 2017 and (2) capital funds
drawdowns after the Authority’s RAD conversion. Specifically, HUD’s Office of Public
Housing Investments’ approval of the Authority’s exemption resulted in the Authority’s failing
to comply with HUD’s third-party requirements for an independent entity to conduct unit
inspections on the Authority-owned units. HUD’s Louisville, KY, PIH field office improperly

3
    77 Federal Register 66864 and 80 Federal Register 18645 granted only the Secretary, Assistant Secretary,
    Principal Deputy Assistant Secretary, and General Deputy Assistant Secretary of HUD the legal authority to
    waive each regulatory requirement.



                                                        3
approved a drawdown after the Authority’s RAD conversion, resulting in an inappropriate use of
the Public Housing Capital Fund program.

HUD Did Not Properly Approve the Authority’s Exemption From HUD’s Third-Party
Requirements

We reviewed the Authority’s MTW plan for fiscal year 2017 and its MTW agreement, dated
November 10, 2011, to determine whether HUD’s Office of Public Housing Investments’
approval of program exemptions 4 for the Authority’s Section 8 Project-Based Voucher and
Housing Choice Voucher Programs was valid. Specifically, for exemption from HUD’s third-
party requirements, the Authority’s MTW plan stated that according to attachment C, paragraph
D.5, of its MTW agreement, the Authority was authorized to certify that housing assisted under
MTW would meet housing quality standards established or approved by HUD. It also stated that
this authorization waived certain provisions of section 8(o)(8) of the Housing Act of 1937 and 24
CFR Part 982, subpart I, as necessary to implement the Authority’s annual MTW plan.

Although the Authority contended that HUD’s approval of its 2017 MTW plan granted it the
exemption, any purported exemption was invalid. We determined that all valid Secretary-
authorized exemptions are contained in attachment C to the standard agreement and not the
annual plan. Therefore, in seeking to implement an exemption, the Authority would reference
the applicable pre-approved waiver or exemption from Attachment C in its annual MTW plan.
However, the exemption referenced by the Authority in its 2017 annual MTW plan did not waive
section 8(o)(11) of the 1937 Act or subpart C of Part 983 and subpart H of Part 982, which
required the Authority to comply with HUD’s third-party requirements. Specifically, the 2017
MTW plan referenced a waiver in paragraph D.5 of attachment C to the Authority’s MTW
agreement and stated that the waiver in paragraph D.5 waived section 8(o)(11) of the 1937 Act
and 24 CFR 983.103(f)(1). However, the waiver in paragraph D.5 explicitly stated that it waived
only section 8(o)(8) of the 1937 Act and 24 CFR Part 982, subpart I. Further, paragraph D.5 of
attachment C to the agreement did not mention or reference section 8(o)(11) of the 1937 Act or
subpart C of Part 983 and subpart H of Part 982.

Nonetheless, HUD’s Office of Public Housing Investments contended that the Authority’s
standard MTW agreement provided the necessary authority to waive the third-party requirements
via D.1.f, D.7.a, and D.7.d in attachment C to the standard MTW agreement in addition to the
already cited paragraph D.5. HUD’s Office of Public Housing Investments stated that not
referencing D.1.f, D.7.a, and D.7.d in the 2017 annual MTW plan was a technical oversight that
can be easily remedied. However, we determined that the citations of D.1.f, D.7.a, and D.7.d
also do not exempt the third-party requirements at section 8(o)(11) of the 1937 Act or subpart C
of Part 983 and subpart H of Part 982. Specifically, paragraph D.1.f simply authorized the
Authority to determine property eligibility criteria, including types of housing currently
prohibited by Section 8 regulations, and waived certain provisions of section 8(p) of the 1937

4
    HUD’s program requirements at 24 CFR 983.103(f)(1) and 24 CFR 982.352(b)(1) provided that in the case of
    Authority-owned units, the unit inspections could not be performed by the Authority but needed to be
    performed instead by an independent entity approved by HUD for the Section 8 Project-Based Voucher and
    Housing Choice Voucher Programs, respectively. Both of these requirements are found in section 8(o)(11) of
    the 1937 Act or subpart C of Part 983 and subpart H of Part 982, respectively.



                                                       4
Act and 24 CFR 983.53-54 and Part 982, subparts H and M, as necessary to implement the
Authority’s annual MTW plan. Viewed in their proper context, these waived provisions are
focused on eligible versus ineligible units and not inspections. Although subsection H contains a
requirement for independent inspections for Authority-owned units to be eligible, D.1.f is silent
on the issue of independent inspection, and the waiver language indicates that only certain
unidentified provisions are waived.

Further, paragraph D.7.a authorized the Authority to project-base assistance at properties it
owned directly or indirectly that were not public housing, subject to HUD’s requirements
regarding subsidy layering, and indicated that project-based assistance for such units did not
need to be competitively bid. D.7.a is silent on the issue of third-party independent inspections.
Similarly, paragraph D.7.d also did not exempt HUD’s third-party requirements for inspections
on units owned by the Authority. The exempted requirements referenced at paragraph D.7.d
stated that all units that received project-based Section 8 assistance must meet either existing
housing quality standards established by HUD’s Secretary or a local standard for communities
receiving project-based Section 8 assistance developed by the Authority and approved by the
Secretary under this MTW agreement as applicable. This authorization waived certain
provisions of section 8(o)(8) of the 1937 Act and 24 CFR Part 982, subpart I, as necessary to
implement the Authority’s annual MTW plan. As stated above, HUD required third-party
inspections to be conducted by an independent entity on units owned by the Authority under
section 8(o)(11) of the 1937 Act or subpart C of Part 983 and subpart H of Part 982.

Lastly, HUD provided that the purpose of having a standard MTW agreement was to reduce
confusion for MTW agencies by providing consistent, clear, and standardized language.
However, requiring citation to four seemingly unrelated provisions of Attachment C to the
standard agreement, all of which are silent as to the third-party inspection requirement, and
arguing for that waiver by implication, is neither consistent, clear, nor standardized. Further,
HUD’s most recent guidance, 82 Federal Register 8056, which pertains solely to the new MTW
agencies to be selected under the MTW expansion, reiterates HUD’s Section 8 Project-Based
Voucher and Housing Choice Voucher Programs requirement for third-party inspections.

In addition, regarding waiver authority, 77 Federal Register 66864 and 80 Federal Register
18645 granted only the Secretary, Assistant Secretary, Principal Deputy Assistant Secretary, and
General Deputy Assistant Secretary of HUD the legal authority to waive each regulatory
requirement. The Appropriations Act of 1996 (Public Law 104 – 134) does not permit any
further delegations down to the MTW Director’s level.

Neither the Authority’s MTW agreement nor its 2017 MTW plan contained or referenced a valid
waiver of HUD’s third-party requirements for the Authority’s Section 8 Project-Based Voucher
and Housing Choice Voucher Programs’ unit inspections. HUD’s Office of Public Housing
Investments improperly approved the Authority’s MTW plan for fiscal year 2017, which did not
cite a valid waiver relating to Authority-owned units’ inspections. As a result of the improper
approval, the Authority provided more than $1.2 million in housing assistance payments and
received more than $156,000 in associated administrative fees for the period August 6, 2016,
through October 31, 2017. This condition occurred because HUD’s Office of Public Housing




                                                 5
Investments did not ensure that reviews of the MTW annual plans were thorough by verifying
that the referenced exemption was valid and appropriate.

HUD Did Not Properly Approve Capital Funds Drawdowns After the Authority’s RAD
Conversion

We reviewed the Authority’s use of capital funds after its RAD conversion and determined that
HUD’s Louisville, KY, PIH field office improperly approved the Authority’s request to draw
down public housing capital funds following its RAD conversion. Paragraph 1.5.A of Notice
PIH 2012-32, REV-1, issued on July 2, 2013, provides that public housing agencies are
permitted under RAD to use available public housing funding, including capital funds, for the
conversion. However, public housing program funds may not be used for a project following
conversion. In addition, 24 CFR 905.202 states that costs not associated with a Public Housing
Capital Fund program public housing project or development are inappropriate activities and
costs. In other words, following the RAD conversion, the project was transferred out of the
Public Housing Capital Fund program; therefore, the capital funds should not have been used for
costs associated with the Section 8 Project-Based Voucher Program.

However, the Authority drew down the funds for the Section 8 Project-Based Voucher Program
units from HUD’s Line of Credit Control System in August 2015 after completing its RAD
conversion in March 2014, based on an improper approval from HUD’s Louisville, KY, PIH
field office in June 2015. Before HUD’s approval of the drawdown, the Authority informed the
field office that the construction process had experienced unexpected issues, which increased
costs. The Authority added that the funds were needed for construction change orders and due to
the depletion of its contingency budget. Therefore, these funds were not identified as a funding
source in the Authority’s RAD financing plan, which was submitted to HUD for review during
the application process.

We informed HUD’s Office of Recapitalization of the issue, and it explained that the review and
approval should have come from the Office of Recapitalization and not the field office. The
Office of Recapitalization added that the Authority could not use capital funds on Section 8
Project-Based Voucher units after the RAD conversion. We discussed the issue with HUD’s
Louisville field office, and it agreed that the funds should not have been drawn down. The
condition occurred because the field office did not follow program requirements for approving
capital funds after RAD conversion. As a result, more than $38,000 in capital funds was
inappropriately used for the Authority’s Section 8 Project-Based Voucher Program.

Conclusion

HUD’s Office of Public Housing Investments improperly approved the Authority’s request for
exemption from HUD’s third-party requirements for unit inspections in its MTW plan for fiscal
year 2017. As a result, the Authority (1) did not comply with HUD’s third-party requirements
and (2) lacked support that it acted in the best interest of its program households when it
conducted in-house inspections of units it owned, provided more than $1.2 million in housing
assistance payments, and received more than $156,000 in associated administrative fees for those
units. In addition, HUD’s Louisville, KY, PIH field office improperly approved the Authority’s



                                               6
request to draw down its public housing capital funds after the RAD conversion for units in the
Section 8 Project-Based Voucher Program. As a result, $38,411 in capital funds, which should
have been used for the remaining units in the Authority’s public housing portfolio, was used
inappropriately.

Other MTW Housing Authority

We conducted a brief review of the annual plans for 38 public housing agencies 5 to determine
whether appropriate exemptions were authorized by HUD on its third-party requirements for unit
inspections. We identified that the Housing Authority of Santa Clara, CA, received an approval
of the exemption regarding HUD’s third-party requirements, which was also improper.
Specifically, in its fiscal year 2011 MTW plan approved by HUD’s MTW Director in the Office
of Public Housing Investments, the Housing Authority of Santa Clara proposed to eliminate
requirements for obtaining HUD’s approval of an independent entity for units owned by it under
the Section 8 Project-Based Voucher and Housing Choice Voucher Programs and stated that
attachment C, paragraphs D.2.b, D.2.c, and D.5, of its MTW agreement authorized it to be
exempt from the requirements. However, the requirements exempted at attachment C, paragraph
D.5, 6 authorized the Authority to certify that units met housing quality standards and waived
only certain unspecified provisions of section 8(o)8 of the 1937 Act and subpart I, as necessary,
but did not waive any portion of section 8(o)(11) of the 1937 Act, subpart C of 24 CFR Part 983,
or subpart H of 24 CFR Part 982, which required inspections to be conducted by a HUD-
approved third party.

                                           RECOMMENDATIONS

We recommend that the Acting Deputy Assistant Secretary for Public Housing Investments

1A.       Ensure that $1,385,791 ($1,229,684 in housing assistance payments and $156,107 in
          associated administrative fees) used by the Lexington-Fayette Urban County Housing
          Authority is supported through a valid and retroactive exemption from HUD’s third-party
          requirements. If a retroactive exemption cannot be issued, HUD should follow recovery
          procedures prescribed in HUD Handbook 2000.06, REV-4.

1B.       Revise the standard MTW agreement for all existing 39 MTW housing agencies to
          clearly and specifically support which provision(s) waive the third-party inspection
          requirements.

1C.       Issue clarifying guidance to all existing 39 MTW housing agencies advising that HUD
          intended to waive the third-party inspection requirements via attachment C to the
          standard agreement.


5
      As of April 2018, 38 public housing agencies, excluding the Lexington-Fayette Urban County Housing
      Authority, actively participated in the MTW program throughout the Nation. Specifically, we reviewed 29
      annual plans, including any amendments, for fiscal year 2018 that had been submitted and approved at the time
      of our review.
6
      Paragraphs D.2.b and D.2.c of the MTW agreement discussed contract rents and rent reasonableness.



                                                          7
1D.    Ensure that reviews of MTW annual plans are thorough by verifying that the MTW plan
       accurately identifies the appropriate exemptions as authorized in the MTW agreements.

1E.    Verify that the Office of Public Housing Investments’ approvals of all MTW public
       housing agencies’ MTW plans’ exemptions from HUD’s third-party requirements were
       valid and appropriate.

We recommend that the General Deputy Assistant Secretary for Public and Indian Housing

1F.    Require the Authority to reimburse its Public Housing Capital Fund program $38,411
       from nonproject funds for the inappropriate use of funds for the Section 8 Project-Based
       Voucher Program units.

1G.    Ensure that the Louisville, KY, PIH field office sends to the Office of Recapitalization
       any requests it receives for approving capital funds expenditures after the RAD
       conversion is complete.

1H.    Require the Authority to ensure that capital funds are used in accordance with the
       program requirements for any future RAD conversions.




                                                8
Appendixes
Appendix A

                              Schedule of Questioned Costs
            Recommendation
                                        Ineligible 1/         Unsupported 2/
                number
                    1A                                           $1,385,791

                    1F                    $38,411

                  Totals                   38,411                 1,385,791

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.




                                              9
Appendix B
             Auditee Comments and OIG’s Evaluation


Ref to OIG
Evaluation     Auditee Comments




Comment 1




Comment 1




                               10
Ref to OIG
Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4
and 1



Comment 5




                            11
                          OIG’s Evaluation of Auditee Comments

Comment 1   HUD provided its program Associate General Counsel’s (Counsel) memorandum
            dated September 14, 2018, and provided its comments based on this
            memorandum. HUD agreed that section 8(o)(11) of the 1937 Act was not
            explicitly cited in the standard MTW agreement. However, it asserted that its
            waiver approval was valid and appropriate. Specifically, HUD stated that its
            Counsel concurred that the authority to provide exemption from third-party
            inspections, as well as the intent to waive, can be found in the standard MTW
            Agreement. This authority to waive third-party inspections requirement is broadly
            provided in paragraph D.7.a, without expressly addressing property inspections.

            We did not include the Counsel’s memorandum in this memorandum as it was not
            necessary for understanding HUD’s comments. Nonetheless, the Counsel’s
            memorandum is available upon request.

            We appreciate HUD’s acknowledgement that section 8(o)(11) was not explicitly
            waived in the standard MTW agreement. However, as stated in this
            memorandum, neither the Authority’s MTW agreement nor its 2017 MTW plan
            contained or referenced a valid waiver of HUD’s third-party requirements for the
            Authority’s Section 8 Project-Based Voucher and Housing Choice Voucher
            Programs’ unit inspections. Specifically, paragraph D.7.a authorized the
            Authority to project-base assistance at properties it owned directly or indirectly
            that were not public housing, subject to HUD’s requirements regarding subsidy
            layering, and indicated that project-based assistance for such units did not need to
            be competitively bid. D.7.a is silent on the issue of third-party independent
            inspections. Therefore, HUD should implement the recommendations provided in
            this memorandum.

Comment 2   HUD stated that its Counsel concluded that the omission of the explicit citation,
            section 8(o)(11), is similar to a technical oversight, rather than a lack of authority
            in the MTW Agreement, because the implementing regulations are waived
            therein.

            Considering HUD’s most recent guidance, 82 Federal Register 8056, which
            pertains solely to the new 100 MTW agencies to be selected under the MTW
            expansion that reiterates, and does not explicitly waive HUD’s Section 8 Project-
            Based Voucher and Housing Choice Voucher Programs requirement for third-
            party inspections, HUD needs to determine whether its formal position is its
            published guidance to public housing authorities or the third-party inspections are
            waived for all 39 housing authorities since they have attachment C as part of their
            agreement with HUD. In other words, given HUD’s stance, it exempts only the
            39 housing authorities that have an attachment C but it does not exempt the 100
            MTW agencies to be selected under the MTW expansion. We encourage HUD to
            further consult with its Counsel in identifying a formal position on the third-party
            requirements for authority-owned unit inspections.



                                              12
Comment 3   HUD agreed that the MTW Director does not have the authority to add waivers
            that are not provided in the standard MTW agreement, which includes waivers
            appropriately approved by the Assistant Secretary. Further, HUD explained that
            the MTW Director was not waiving regulatory provisions by approving MTW
            plans and was acting in accordance with delegated authority in ultimately
            approving the implementation of the MTW waivers.

            We appreciate HUD’s understanding and encourage it to ensure that any future
            waivers are also approved at the appropriate level as required.

Comment 4   HUD disagreed with our conclusion of the Housing Authority of the County of
            Santa Clara that its standard MTW agreement did not waive any portion of
            section 8(o)(11) of the 1937 Act, subpart C of 24 CFR Part 983 or subpart H of 24
            CFR Part 982, which required inspections to be conducted by a HUD-approved
            third party. Instead HUD asserted that Attachment C to the standard MTW
            agreement in paragraphs D.1.f, D.2.b, D.2.c, D.5, and D.7.a provided support,
            which waived the requirement that a HUD-approved independent entity be used
            for inspections.

            We disagree with HUD’s assessment that five different paragraphs in Attachment
            C to the standard MTW agreement provided support to waive the requirement of
            the independent entity to be used for inspections needing to be approved by HUD.
            As discussed in this memorandum and in comment 1 above, the paragraphs cited
            by HUD did not waive any portion of section 8(o)(11) of the 1937 Act, subpart C
            of 24 CFR Part 983 or subpart H of 24 CFR Part 982, which required inspections
            to be conducted by a HUD-approved third party.

Comment 5   HUD acknowledged our finding that the Louisville HUD Field Office had given
            approval to the Authority to use fiscal year 2014 capital funds in a RAD project
            after conversion, even though the request should have gone through HUD’s
            Office of Recapitalization.

            We appreciate HUD’s acknowledgement on its field office’s inappropriate
            approval of funding and encourage it to implement recommendations in this
            memorandum to address the condition identified.




                                            13