oversight

The City of Providence, RI Did Not Properly Administer Its HOME Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-06-20.

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

                   City of Providence, RI
             HOME Investment Partnerships Program




Office of Audit, Region 1        Audit Report Number: 2018-BO-1003
Boston, MA                                             June 20, 2018
To:            Robert Shumeyko, Director, Office of Community Planning and Development,
               1AD

               //signed//
From:          Ann Marie Henry, Regional Inspector General for Audit, 1AGA
Subject:       The City of Providence, RI, Did Not Properly Administer Its HOME Program


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the City of Providence, RI’s HOME Investment
Partnerships program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG 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
617-994-8345.
                    Audit Report Number: 2018-BO-1003
                    Date: June 20, 2018

                    The City of Providence, RI, Did Not Properly Administer Its HOME
                    Program


Highlights

What We Audited and Why
We audited the City of Providence RI’s HOME Investment Partnerships program based on an
OIG risk assessment, which ranked the City as the highest risk HOME grantee in New England.
The objective of the audit was to determine whether the City properly committed and disbursed
HOME funds in accordance with Federal and U.S. Department of Housing and Urban
Development (HUD) rules and regulations.

What We Found
City officials did not properly administer their HOME program. Specifically, they did not
properly commit and disburse HOME funds in accordance with Federal and HUD rules and
regulations. They did not ensure that they (1) met the commitment deadline for their HOME
funds for program year 2013, (2) properly documented and supported their underwriting of
activities, (3) complied with environmental review requirements, (4) disbursed funds in
accordance with requirements, (5) properly tracked and obtained program income, and (6)
supported their administrative fees. These deficiencies occurred because City officials and the
previous directors of community development lacked adequate program knowledge and
disregarded HUD and Federal requirements. Further, City officials did not have adequate
underwriting and environmental policies and procedures and had poor record-keeping practices.
As a result, they incurred more than $1.4 million in ineligible costs, more than $1.8 million in
unsupported costs, and more than $1.2 million in unexpended HOME funds that may need to be
reallocated to eligible activities.

What We Recommend
We recommend that the Director of HUD’s Boston Office of Community Planning and
Development require City officials to (1) repay more than $1.4 million in ineligible costs when
commitment and environmental requirements were not properly completed and funds were not
properly disbursed, (2) support more than $1.8 million was reasonable, supported, and allowable
or repay the funds, (3) support more than $1.2 million in unexpended funds was reasonable and
allowable or reallocate the funds, (4) cancel stalled activities in HUD’s Integrated Disbursement
and Information System, and (5) develop and implement adequate underwriting and
environmental policies and procedures and tools to improve record-keeping practices.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: The City Did Not Properly Administer Its HOME Program.................... 5

Scope and Methodology .........................................................................................15

Internal Controls ....................................................................................................17

Appendixes ............................................................................................................179
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 19

         B. Auditee Comments and OIG’s Evaluation ............................................................. 20

         C. Schedule of Deficiencies and Questioned Costs by Activity .................................. 26




                                                            2
Background and Objective
The City of Providence, RI, is an entitlement grantee that receives annual allocations of HOME
Investment Partnerships program funds from the U.S. Department of Housing and Urban
Development (HUD) authorized under Title II of the Cranston-Gonzalez National Affordable
Housing Act as amended. The program regulations are contained in 24 CFR (Code of Federal
Regulations) Part 92 and the HOME Investment Partnerships Program Final Rule published July
24, 2013. Participating jurisdictions 1 may use these funds for a wide range of activities, which
include building, buying, and rehabilitating affordable housing for rent or home ownership or
providing direct rental assistance to low-income households. Households must meet certain low-
income limited criteria published by HUD to receive HOME assistance.

HOME funds are managed through HUD’s Integrated Disbursement and Information System
(IDIS), which disburses funds that are allocated or reallocated and reports information on the use
of HOME funds in the U.S. Treasury account.

Participating jurisdictions must designate a minimum of 15 percent of their HOME allocations
for investment in housing to be developed, sponsored, or owned by community housing
development organizations (CHDO). A CHDO is a private, nonprofit, community-based service
organization, the primary purpose of which is to provide and develop decent, affordable housing
for the community it serves. All CHDOs must receive a certification from a participating
jurisdiction showing that they meet certain HOME program requirements and are, therefore,
eligible for HOME funding.

Participating jurisdictions must commit HOME funds for each specific fiscal year allocation
within 24 months after the last day of the month in which HUD notifies the participating
jurisdiction of HUD’s execution of the HOME agreement, or HUD will reduce or recapture any
uncommitted HOME funds from the allocation. 2

HUD awarded more than $4.4 million in HOME funds and disbursed more than $2.4 million to
the City from program years 2013 through 2016 funds.




1
    A participating jurisdiction is designated by HUD in accordance with 24 CFR 92.105 and is responsible for
    ensuring that all HOME funds are used in accordance with general administrative requirements.
2
    Congress suspended the 24-month HOME commitment requirement for deadlines occurring in 2016, 2017,
    2018, and 2019 via the Fiscal Year 2017 Consolidated Appropriations Act (Public Law 115-31). This
    suspension does not apply to CHDO reserve funds.




                                                       3
                                                                             Home funds
                Program year            HOME funds awarded
                                                                             disbursed 3
                      2013                     $1,094,249                      $283,854
                      2014                      1,151,171                       888,480
                      2015                        975,686                       875,850
                      2016                      1,258,623                       439,806
                     Totals                     4,479,729                     2,487,990

Our audit objective was to determine whether the City properly committed and disbursed HOME
funds in accordance with Federal and HUD rules and regulations.




3
    This is the amount disbursed from program year 2013, 2014, 2015, and 2016 funds. However, the City also
    disbursed HOME funds from prior-year awards for the activities reviewed.



                                                      4
Results of Audit

Finding 1: The City Did Not Properly Administer Its HOME
Program
City officials did not properly administer their HOME program. Specifically, they did not
properly commit and disburse HOME funds for their affordable housing and downpayment
assistance activities in accordance with Federal and HUD rules and regulations. They did not
ensure that they (1) met the commitment deadline for their HOME funds for program year 2013,
(2) properly documented and supported their underwriting of activities, (3) complied with
environmental review requirements, (4) disbursed funds in accordance with requirements, (5)
properly tracked and obtained program income 4, and (6) supported their administrative fees.
These deficiencies occurred because City officials and the previous directors of community
development lacked adequate program knowledge and disregarded HUD and Federal
requirements. Further, City officials did not have adequate underwriting and environmental
policies and procedures and had poor record-keeping practices. As a result, they incurred more
than $1.4 million in ineligible costs, more than $1.8 million in unsupported costs, and more than
$1.2 million in unexpended HOME funds that may need to be reallocated to eligible activities.

Commitment Deadline Not Met
City officials did not meet the commitment deadline for their HOME funds for program year
2013 5 as required by 24 CFR 92.500(d)(1). According to the HOME Deadline Compliance
Status Report for 2013 Commitments prepared by HUD headquarters, the City had a shortfall of
$613,311. City officials provided HUD their subrecipient agreement to administer their
downpayment assistance program, which was dated before the deadline, and according to the
budget, $540,000 was for downpayment assistance to beneficiaries. According to local HUD
officials, they directed City officials to amend the agreement to increase the amount of program
costs to ensure that they met their commitment deadline. However, City officials did not amend
the agreement until March 9, 2017. The HOME Deadline Compliance Status Report for 2013
Commitments was updated by HUD to show that the requirement was met based on the
subrecipient agreement provided to HUD. However, the requirement was not met because City
officials did not amend the agreement to support that the entire amount was committed by the
deadline as required. According to City officials, this condition occurred because of an
oversight. Therefore, they failed to meet the deadline and must repay $73,311 6 in ineligible
HOME funds.




4
    Program income means gross income received by the participating jurisdiction, State recipient, or a subrecipient
    directly generated from the use of HOME funds or matching contributions.
5
    These funds were required to be committed by September 30, 2015.
6
    ($613,311-540,000)



                                                        5
In addition, City officials did not properly document and support their commitment of 12 of the
13 7 affordable housing activities reviewed in accordance with 24 CFR 92.2(2)(i). (See appendix
C.) Since City officials were not able to support the commitment of these activities, they may
need to be canceled for lack of proper commitment.

City officials also committed $350,000 in HOME funds to an affordable housing activity on
August 31, 2010, and had disbursed $346,556 as of March 2013 for acquisition and other costs.
In 2012, HUD determined that this activity did not meet the environmental requirements, and the
activity was determined to be ineligible. As of March 2018, the $346,556 in ineligible HOME
funds disbursed for this activity had not been returned to the City’s HOME program. The
remaining $3,444 committed to this activity, which had not been spent, needs to be reallocated to
eligible HOME activities.

Underwriting Not Properly Documented and Supported
City officials did not properly document and support their underwriting, 8 in accordance with
HOME regulations for all 13 of their affordable housing activities reviewed. This condition
occurred because City officials did not establish adequate written underwriting policies and
procedures. As a result, the City’s underwriting was based on unsupported and unrealistic
assumptions. Therefore, City officials could not support more than $1.5 million 9 in HOME
funds, and more than $1.2 million may need to be reallocated to eligible and supported HOME
activities. (See appendix C.) Although no significant deficiencies were identified with the
underwriting for the six downpayment assistance activities reviewed, City officials did not
develop or provide underwriting guidelines to their subrecipient that administers the
downpayment assistance program to ensure that its underwriting complied with requirements
established by 24 CFR 92.254. As a result, home buyers could end up paying more than they
can afford.

City officials did not properly document and support their underwriting of the affordable housing
activities in accordance with 24 CFR 92.250(b). Specifically, they did not always

    •    amend the written HOME agreement with changes made based on an updated
         underwriting analysis,
    •    execute a HOME agreement before committing funds in IDIS,
    •    commit HOME funds based on the amount requested by the developer,
    •    document an underwriting analysis and ensure that the property was owned by the
         developer,
    •    document commitment of additional funding sources and obtain construction schedules,

7
    Eleven of the activities were funded in program years 2014 and 2015, which was before the suspension of the
    commitment deadline requirement. Two of the thirteen activities were committed after the suspension of the
    commitment deadline (2016 or later), but one was a CHDO activity so the suspension did not apply.
8
    Underwriting includes an examination of the sources and uses of funds for the project and a determination that
    the costs are reasonable and an assessment, at minimum, of the current market demand in the neighborhood in
    which the project will be located, the experience of the developer, the financial capacity of the developer, and
    firm written financial commitments for the project.
9
    This amount does not include any ineligible HOME funds disbursed.



                                                         6
    •   document the sources and uses of funds,
    •   perform adequate independent cost estimates or document a review of cost
        reasonableness,
    •   perform an initial inspection of the activity, and
    •   document and support that organizations met CHDO certification requirements.

City officials generally performed the underwriting before executing the HOME agreement.
However, in several instances, they updated the underwriting a year later. For two affordable
housing activities, City officials originally underwrote the activity with two HOME units,
including a homeowner and a rental unit. City officials later completed a new underwriting
analysis showing that the rental unit would be market rate instead of HOME compliant, but they
did not document these changes with an amended HOME agreement. They also did not perform
or document a cost allocation as required by 24 CFR 92.205(d)(1). Further, the City’s files did
not contain documentation to explain why the number of units had been reduced. City officials
stated that they changed the number of HOME-assisted units from two to one because they did
not want to be responsible for monitoring the rental units for HOME compliance. Therefore,
City officials did not obtain documentation related to the tenants to support their eligibility in
accordance with 24 CFR 92.203. Because they did not update their HOME agreements to adjust
the number of units, they were still responsible for monitoring the rental units for compliance.

In addition, City officials committed $142,687 in HOME funds in IDIS before executing the
HOME agreement with the developer for one activity in violation of HOME regulations. They
inappropriately certified in IDIS that they had fully executed a written agreement that met the
requirements and definition of a commitment according to 24 CFR 92.2(2)(i).

In five instances, the amount of HOME funds committed to the activity was more than the
amount requested by the developer. However, there was no justification in the underwriting to
explain why City officials provided more HOME funds than the developer requested. For
example, for one activity the developer requested $55,388 in HOME funds for a two-unit project.
The initial HOME agreement was executed in October 2014 for $75,088 and was then voided. A
new HOME agreement was executed in August 2015 for $163,590. The file did not contain an
explanation for the increase in HOME funds.

For one activity, City officials did not document an underwriting analysis. The underwriting
analysis was performed by the State of Rhode Island. The State’s underwriting analysis
recommended that City officials not provide HOME funds for this activity because it did not
meet cost reasonableness standards and the monthly housing costs exceeded the 30 percent
requirement for the home buyer. City officials committed $142,168 to the developer for this
activity without providing an explanation or performing additional underwriting. Further, the
developer did not own the property as required. The property was held by the Rhode Island
Housing land bank and was not transferred to the developer. Rhode Island Housing was not part
of the HOME agreement, which was required since it was the owner of the property. As a result,
$142,168 disbursed for this activity was ineligible.




                                                7
City officials did not document the commitment of funding from all other sources as required for
12 of the 13 affordable housing activities. City officials also did not obtain schedules as required
to ensure that construction would start within 12 months of the HOME agreement 10 for all 13
activities. Of the 13 activities, 10 did not start construction within the required 12 months from
the date of the HOME agreement. Therefore, City officials should have terminated these 10
activities. For example, City officials committed HOME funds to an activity in September 2015,
and construction had not started as of February 2018. (See photo below.) City officials
disbursed $68,489 for this activity for acquisition and other costs. Because construction had not
started in more than 2 years and City officials did not follow the environmental regulations for
this activity, 11 it needs to be canceled in IDIS, and the HOME funds need to be returned to the
HOME program.




City officials did not adequately document the sources and uses of funds for the affordable
housing activities. As a result, they were not able to document which costs were to be paid from
HOME funds at the time of underwriting. Further, actual sources and uses were not properly
documented throughout the completion of the activity. For example, for one activity, the
developer provided documentation showing a construction loan as the other source of funds.
Based on documentation regarding the sale of the property, there was no construction loan
payoff from the sales proceeds. According to the developer, it self-funded the additional costs
and did not use the construction loan. City officials were unaware of the change to the sources
of funds.

City officials did not always perform adequate independent cost estimates or document a review
of cost reasonableness to ensure that construction and rehabilitation costs were reasonable. In


10
     Based on the City’s HOME agreements, the agreements will terminate 6 months from the date of execution if
     construction has not started.
11
     See the Lack of Compliance with Environmental Review Requirements section.



                                                       8
accordance with 24 CFR 92.205-207 and 24 CFR 92.214, the City was required to have a system
for reviewing cost estimates and determining whether the costs were reasonable and the HOME
portion of the funding was used only for HOME-eligible expenses. Although the developer
submitted a budget of the total development costs, City officials had nothing to compare this
amount to. City officials’ underwriting also cited “reasonable cost ranges and reasonable
standards” for per-square-foot costs and non-construction-related costs but did not support and
cite where these standards came from.

In addition, City officials did not always perform an initial inspection of the activities to
determine the condition of the property and ensure that the work planned was necessary and
feasible before committing HOME funds. For example, City officials committed $268,894 to a
rehabilitation activity on September 30, 2015. However, in October 2016, the developer
solicited construction bids, and it was recommended that the developer secure architectural
services first because of the level of work needed and to get a more comparable estimate. In
January 2017, the architect recommended demolishing the existing building and constructing a
new building. Therefore, the developer requested that the City HOME award for rehabilitation
be converted to an award for demolition and new construction. The new budget submitted by the
developer showed the total development costs at more than $800,000. However, the developer
intended to apply for other needed funds from other sources. City officials need to cancel the
activity in IDIS. If City officials had performed an assessment of the property before awarding
the funds, they may have determined that the rehabilitation work was not feasible and not
committed funds to the activity.

Further, City officials did not adequately support that their two CHDOs met all of the
requirements for CHDO certification. The documentation provided was not complete, and City
officials did not complete the recommended checklist to show that all of the information was
obtained and reviewed as necessary to certify the organizations as HUD-approved CHDOs.
Regulations at 24 CFR 92.300 state that the participating jurisdiction must certify the
organization as meeting the definition of a “community housing development organization” and
must document that the organization has the capacity to own, develop, or sponsor housing each
time it commits funds to the organization. Nine of the thirteen activities reviewed were funded
with the City’s CHDO reserves. If City officials cannot support that they properly certified their
CHDOs in program years 2014, 2015, and 2016, the HOME funds disbursed for these activities
need to be repaid to the HOME program.

Lack of Compliance With Environmental Review Requirements
City officials completed the required statutory checklist for the affordable housing activities.
However, they classified 12 of 13 affordable housing activities as exempt without supporting
documentation, such as maps and other source documentation, for each compliance factor.
Therefore, the City did not comply with the requirements in 24 CFR 58.5-6.

Regulations state that exempt activities do not require that the public be notified through a notice
of intent and request for release of funds or that HUD approve the activity before funds are
committed. In addition, an exempt activity does not require mitigation for compliance with any
listed statutes or authorities, nor does it require a formal permit or license. Based on the



                                                 9
documentation in the files, City officials classified 4 of the 12 affordable housing activities as
exempt; however, these activities required further mitigation in areas such as historical
preservation and contamination and toxic substances, including lead and mold remediation.
Therefore, these four activities should not have been classified as exempt. City officials were
required to publish a notification of intent and request for release of funds and obtain a form
HUD-7015.16, Authority to Use Grant Funds, according to 24 CFR 58.70-71, before committing
or drawing down funds. As a result of its noncompliance, the City incurred $826,479 in
ineligible costs. Based on the lack of supporting documentation, we were not able to determine
whether the remaining eight affordable housing activities required further mitigation.

Further, City officials were initially not able to find the environmental review for one of the six
downpayment assistance activities, but it was later provided by City officials. The
environmental review provided was completed before the home buyer signed a purchase and sale
and several months before the home buyer’s application for downpayment assistance, which did
not follow the normal process. Based on the process of the other downpayment activities
reviewed, once the home buyer was approved for assistance and the property was under a
purchase and sales agreement, the subrecipient would request that City officials perform an
environmental review. As a result, City officials could not support that the environmental review
was properly performed and that the $20,000 in HOME funds disbursed for this activity was
supported. In addition, City officials were responsible for completing the environmental reviews
and uniform physical conditions standards (UPCS) inspection for the downpayment program.
City officials documented written notification to the subrecipient regarding the UPCS
inspections but did not provide documentation to the subrecipient related to the environmental
reviews.

HOME Funds Not Disbursed in Accordance With Requirements
For three affordable housing activities, the amount of HOME funds disbursed by the City
exceeded the amount of the HOME agreement. City officials did not amend the HOME
agreement to increase the funding amount. Further, they paid for costs incurred before the
HOME agreement for an additional two affordable housing activities. The written agreement did
not allow for these costs to be incurred before the agreement was executed. As a result, City
officials disbursed $63,045 in ineligible funds above the HOME agreement amount or before the
HOME agreement.

In addition, City officials disbursed HOME funds without properly documenting interim
inspections and did not perform the final inspection on properties until after the property was
sold to the home buyer. Further, the developer submitted the final payment requests, which
included construction-related costs, after the properties were sold to the home buyers. The City
inspector signed a payment request sheet with the requisitions submitted by the developer, but it
was not always clear what work the City inspector was signing off on. A final inspection report
and approval of any final construction payments should be completed before sale of the property
and occupancy by the home buyer to ensure that all work was completed in accordance with the
agreement and scope of work. In one instance, City officials could not support that a final
inspection had been performed for the activity.




                                                10
Program Income Not Properly Tracked and Obtained
City officials did not obtain closing documentation for the eight 12 affordable housing activities
that were sold to home buyers to support the sales price and determine whether there were sales
proceeds that should be returned as program income. City officials requested the settlement
statements from the developer at our request. The statements showed that the developer 13
received a substantial profit from the sale of seven 14 activities even after payment of the
developer’s construction loan. The payoff of the construction loans for these seven activities
was significantly less than the construction loan amount on the source and uses document
provided by the developer. For example, the sources for one activity included $140,032 in
HOME funds, a construction loan of $136,869, and sales proceeds of $20,131. However, the
settlement statement showed that the construction loan payoff off was $17,171. The developer
also received a developer fee for these activities. City officials committed and disbursed CHDO
reserves for these eight activities. In accordance with 24 CFR 92.504(c)(3)(x), the agreement
with the CHDO must specify whether the organization may retain proceeds from the sale of the
housing and whether the proceeds are to be used for HOME-eligible or other housing activities
to benefit low-income families. Recaptured funds are subject to the requirements of section
92.503. However, the HOME agreements did not allow for the developer to retain any proceeds.

According to 24 CFR 92.250(b), the City must not invest any more HOME funds, alone or in
combination with other government assistance, than is necessary to provide quality, affordable
housing that is financially viable for a reasonable period (at minimum, the period of affordability
in section 92.252 or 92.254) and that will not provide a profit or return on the owner’s or
developer’s investment that exceeds the participating jurisdiction’s established standards for the
size, type, and complexity of the project. City officials did not have established standards for
developer profit or developer fee. The developer received $618,318 in sales proceeds for these
seven activities. City officials did not obtain the invoices and payments related to these activities
to reconcile the actual supported total development costs and determine the amount of HOME
funds that needed to be returned to the City as program income. The developer also received
$234,780 in developer fees for these activities. 15




12
     One activity had not closed when the closing documents were requested, but the City provided them once the
     closing was complete.
13
     All of these activities were completed by the same developer.
14
     One activity was not owned by the developer. Therefore, the sales proceeds ($35,000) went to Rhode Island
     Housing to reimburse it for the acquisition of the property.
15
     This is the total developer fee and may not have always been paid entirely with HOME funds.



                                                        11
                                                                                         Sales proceeds
      Property address            Activity number                Developer fee          according to the
                                                                                      settlement statement
     176 Pavilion Avenue                 3526                       $33,781                 $136,429
      159 Rugby Street                   3523                        39,768                   91,758
      125 Byfield Street                 3524                        39,357                  110,676
     172 Pavilion Avenue                 3525                        33,781                   79,587
     201 Pavilion Avenue                 3527                        28,230                   88,698
     182 Pavilion Avenue                 3528                        25,777                   75,999
     164 Pavilion Avenue                 3735                        34,086                   35,171
                        Totals                                      234,780                  618,318

Unsupported Administrative Fees
City officials did not support that they earned $338,665 in administrative fees for program years
2014, 2015, and 2016 based on the deficiencies identified above. Regulations at 24 CFR
92.504(a) held the City responsible for managing the day-to-day operations of its HOME
program and ensuring that HOME funds were used in accordance with all program requirements
and written agreements. Without following requirements, City officials did not ensure program
compliance and the accuracy of activity information. The City received technical assistance
from HUD in 2012, and HUD performed monitoring of the City in October 2015 and identified
similar issues for previous program years. However, audit results showed that the City did not
perform the functions that the administrative fees were intended to provide. While the City’s
new director of community development had prior HUD experience and program knowledge for
administering the HOME program, significant improvements were needed in the City’s HOME
program.

The deficiencies identified occurred because City officials and the previous directors of
community development lacked adequate program knowledge and disregarded HUD and Federal
requirements. Further, City officials did not have adequate underwriting and environmental
policies and procedures and had poor record-keeping practices. As a result, City officials
incurred more than $1.4 million in ineligible costs, more than $1.8 million 16 in unsupported
costs, and more than $1.2 million in unexpended HOME funds that need to be reallocated to
eligible activities.

Conclusion
City officials did not properly administer their HOME program. Specifically, they did not
properly commit and disburse HOME funds for their affordable housing and downpayment
assistance activities. This condition occurred because City officials and the previous directors of
community development lacked adequate program knowledge and disregarded HUD and Federal
requirements, City officials did not have adequate underwriting and environmental policies and
procedures, and the City had poor record-keeping practices. As a result, City officials incurred


16
      This includes the administrative fees for program years 2014, 2015, and 2016.



                                                          12
more than $1.4 million in ineligible costs, more than $1.8 million in unsupported costs, and more
than $1.2 million in unexpended HOME funds that need to be reallocated to eligible activities.
Recommendations
We recommend that the Director of HUD’s Boston Office of Community Planning and
Development require City officials to

         1A.     Repay from non-Federal sources the $1,451,559 17 in ineligible funds when the
                 HOME program commitment requirements were not completed as required, the
                 environmental reviews were not properly completed, and funds were not
                 disbursed in accordance with written agreements.
         1B.     Support that $1,559,908 18 in HOME funds disbursed was reasonable, supported,
                 and allowable in accordance with Federal requirements or repay from non-Federal
                 funds any amount that cannot be supported.
         1C.     Support that $1,253,596 19 in funds not yet expended was reasonable, supported,
                 and allowable or reallocate the funds, thus ensuring that they will be put to their
                 intended use.
         1D.     Develop and implement adequate underwriting policies and procedures for their
                 affordable housing activities and for the downpayment assistance program to
                 ensure that HOME activities are consistent and meet Federal requirements.
                 Further, they should include the downpayment underwriting policies and
                 procedures in the written agreement with the City’s subrecipient.
         1E.     Cancel activities in IDIS that have had no construction in more than 12 months.
         1F.     Develop and implement adequate environmental policies and procedures to
                 ensure that HOME activities are properly classified, the environmental review is
                 documented and supported, and that HUD and Federal environmental
                 requirements have been followed before committing HOME funds to an activity.
         1G.     Determine the total supported development costs for the completed HOME
                 activities and calculate and obtain any program income due to the HOME
                 program.

         1H.     Support that City officials properly administered the HOME program and earned
                 $338,665 in HOME administrative fees or repay from non-Federal funds any
                 amount that cannot be supported.


17
     $73,311+ 346,556 (Commitment Deadline Not Met) + 142,168 (Underwriting Not Properly Documented and
     Supported) + 826,479 (Lack of Compliance With Environmental Review Requirements) + 63,045 (HOME
     Funds Not Disbursed in Accordance With Requirements)
18
     $1,539,908 (Underwriting Not Properly Documented and Supported) + 20,000 (Lack of Compliance With
     Environmental Review Requirements)
19
     $3,444 (Commitment Deadline Not Met) + 1,250,152 (Underwriting Not Properly Documented and Supported)



                                                    13
1I.   Develop and implement tools to improve record-keeping practices to support the
      eligibility, necessity, and reasonableness of the HOME activities.

We recommend that the Director of HUD’s Boston Office of Community Planning and
Development

1J.   Request that HUD headquarters recalculate the City’s commitment shortfall for
      program year 2013 based on the lack of the amendment with the City’s
      subrecipient and for the projects that were not properly committed.

1K.   Provide technical assistance to the City to ensure that City officials responsible
      for administering the HOME program receive necessary HOME program training.




                                      14
Scope and Methodology
We performed our onsite audit work from October 2017 to March 2018 at the City’s office
located at 444 Westminster Street, 3rd Floor, Providence, RI, and the subrecipient’s office located
at 1070 Main Street, 3rd Floor, Pawtucket, RI. The audit covered the period July 1, 2014,
through June 30, 2017, and was expanded when necessary.
To accomplish our objective, we

     •   Reviewed applicable laws, regulations, HUD handbooks, HUD notices, and City and
         subrecipient policies and procedures.

     •   Reviewed the City’s grant agreements executed between HUD and the City for HOME
         program funds and the City’s subrecipient agreement.

     •   Reviewed the City’s consolidated plan, consolidated annual performance and evaluation
         reports, and action plans; the City’s financial data for its HOME program administrative
         and program accounts; and certification documentation for the City’s CHDOs.

     •   Interviewed City officials, subrecipient officials, and HUD Office of Community
         Planning and Development staff in Boston, MA.

     •   Reviewed reports from IDIS to obtain HOME commitment and expenditure data.

     •   Reviewed HUD’s 2015 monitoring report on the City’s HOME program and the City’s
         monitoring report on its subrecipient.

     •   Reviewed the City’s single audit reports for years ending June 30, 2015, and June 30,
         2016.

     •   Followed up on the status of one stalled HOME activity set up in program year 2009.

     •   Selected and reviewed a sample of 13 of the 15 HOME affordable housing activities 20
         that were set up during program years 2014, 2015, and 2016. These 13 commitments
         represented more than $3.8 million, or 95 percent, of the City’s total $4 million in HOME
         funds budgeted for affordable housing during program years 2014, 2015, and 2016. The
         sample was selected based on higher dollar activities and activities that received CHDO
         reserves. We also performed onsite inspections of these activities. We did not use
         statistical samples; therefore, our results were not projected.



20
     This includes rehabilitation and new construction activities.



                                                           15
     •   Selected and reviewed a sample of 6 of the 49 HOME downpayment assistance activities
         that were set up during program years 2014, 2015, and 2016. These six commitments
         represented $112,486, or 17 percent, of the City’s total $646,124 in HOME funds
         budgeted for downpayment assistance activities during program years 2014, 2015, and
         2016. The sample was selected based on higher dollar activities and one activity for
         which the downpayment contract expired in 2017 but was still open. We did not use
         statistical samples; therefore, our results were not projected.

To achieve our audit objective, we relied in part on computer-processed data from the City’s
computer system and reports from IDIS. 21 Although we did not perform a detailed assessment of
the reliability of the data, we did perform a minimal level of testing and found the data to be
adequate for our purposes.

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.




21
     IDIS provides program information and funding data for the HOME program.



                                                     16
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:

•   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.

•   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to provide reasonable assurance that a program meets its objectives, while
    considering cost effectiveness and efficiency.

•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation is in accordance with laws
    and regulations.

•   Validity and reliability of information – Policies and procedures that management has
    implemented to reasonably ensure that valid and reliable information is obtained, maintained,
    and fairly disclosed in reports.

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.




                                                  17
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
•   City officials did not properly commit and disburse HOME funds in accordance with Federal
    and HUD rules and regulations for the City’s affordable housing and downpayment
    assistance activities (finding).




                                                18
Appendixes

Appendix A


          Schedule of Questioned Costs and Funds To Be Put to Better Use
        Recommendation                                    Funds to be put
                           Ineligible 1/ Unsupported 2/
            number                                         to better use 3/
               1A.           $1,451,559
               1B.                             $1,559,908
               1C.                                                  $1,253,596
               1H.                                 338,665

              Totals          1,451,559           1,898,573          1,253,596



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.
3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the City implements our
     recommendation to support that $1,253,596 in HOME funds is reasonable and allowable,
     it can assure HUD that these funds will be supported or put to better use.




                                             19
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1



Comment 2




                              20
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




                              21
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 3




Comment 1




                              22
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 4




Comment 5




                              23
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                              24
                         OIG Evaluation of Auditee Comments


Comment 1   The City acknowledged the finding and recommendations and has begun taking
            corrective action to address the deficiencies identified. It should continue to work
            with HUD during the audit resolution process to close out the recommendations.

Comment 2   HUD and the City were required to follow regulations that were in place at the
            time. Therefore, HOME funds for fiscal year 2015 and earlier were required to be
            committed before the commitment deadline. In addition, repayment of 514
            Broadway was discussed with City officials at the beginning of the audit, and the
            City was given a number of reminders to put a repayment plan into place before
            our written report was issued. This activity was identified as ineligible in 2012,
            but no repayment plan was put into place until June 4, 2018, in response to our
            draft audit report.

Comment 3   Regardless of whether the City can provide adequate documentation for these
            projects, it did not follow environmental regulations, which require publication of
            a notice of intent and that a request for release of funds be completed before the
            funds are committed. These environmental requirements are statutory and cannot
            be waived.

Comment 4   Activities related to two of the eight projects had been closed out in IDIS before
            City officials obtained the settlement statements. Further, five projects were sold
            from July through November 2017, but City officials did not obtain the settlement
            statements until February 2018. The remaining project was sold in February
            2018, and it was not included in this deficiency. The City needs to ensure that it
            obtains the settlement statements at closing and identify and obtain program
            income in a timely manner.

Comment 5   We acknowledge that the current director of community development has been
            working to improve these deficiencies; however, we disagree that these were
            technical errors. The deficiencies identified in the audit were systemic issues that
            had been occurring for years, resulting in millions of dollars in questioned costs.
            Current City staff members had administered the HOME program for several
            years, but they either still lacked adequate program knowledge or disregarded
            HUD and Federal requirements. Further, the files did not always contain the
            necessary documents to support the eligibility of HOME costs. Many of the files
            were missing several key documents as discussed in the finding.




                                             25
Appendix C

                                             Schedule of Deficiencies and Questioned Costs by Activity
                                                                                                            Funds to be       Total
     Activity
                     Activity name             1/     2/     3/   4/   5/   6/   Ineligible   Unsupported   put to better   questioned
     number
                                                                                                                 use          costs
                                                      Affordable housing activities
      3526       176 Pavilion Avenue           X     X    X         X    X       $17,427       $122,605                     $140,032
      3749         528 Dexter Street           X     X    X   X                  660,000                                      660,000
      3519         42 Hanover Street           X     X    X   X                   97,990                        65,600        163,590
      3754           60 King Street                  X                                          618,204        740,147      1,358,351
      3531        49 Stanwood Street           X     X    X   X                                                268,894        268,894
      3512         129 Oxford Street           X     X    X         X            142,168                                     142,168
      3523         159 Rugby Street            X     X    X              X                      168,064                      168,064
      3524         125 Byfield Street          X     X    X              X                      168,064                      168,064
      3525       172 Pavilion Avenue           X     X    X         X    X        17,427        122,605                      140,032
      3527       201 Pavilion Avenue           X     X    X              X                      122,605                      122,605
      3528       182 Pavilion Avenue           X     X    X         X    X        18,191         85,074                      103,265
      3613         267 Veazie Street           X     X    X   X                   68,489                       175,511       244,000
      3735       164 Pavilion Avenue           X     X    X         X    X        10,000        132,687                      142,687
      2864          514 Broadway 22                                              346,556                         3,444        350,000
                   Totals                     12     13 12     4    5    7    1,378,248        1,539,908     1,253,596      4,171,752

1/         Activities not properly committed
2/         Underwriting not properly documented and supported
3/         Environmental review not supported
4/         Notice of intent and request for release of funds not published
5/         HOME funds not disbursed in accordance with requirements
6/         Program income not properly tracked and obtained




22
       Limited review to determine the status of this activity
                                                             26
                                                                                                     Funds to be   Total
 Activity
                Activity name        1/    2/   3/    4/    5/    6/      Ineligible   Unsupported      put to   questioned
 number
                                                                                                      better use   costs
                                       Downpayment assistance activities
               20 Pumgansett
     3656
                   Street
     3701     53 Murray Street
     3738    149 Sunbury Street
     3742   147 Petteys Avenue
                10-12 Massie
     3744
                  Avenue
     3815   208 Pavilion Avenue                  X                                        $20,000                  $20,000
              Totals                             1                                         20,000                   20,000
                                                 Administrative costs
                2014 HOME
     3442                                                                                115,117                   115,117
               administration
                2015 HOME
     3627                                Not applicable                                   97,685                    97,685
               administration
                2016 HOME
     3776                                                                                125,862                   125,862
               administration
              Totals                                                                     338,665                   338,665
                   2013 commitment shortfall                      $73,311                                            73,311
                     Total questioned costs                     1,451,559               1,898,573    $1,253,596   4,603,728

1/      Activities not properly committed
2/      Underwriting not properly documented and supported
3/      Environmental review not supported
4/      Notice of intent and request for release of funds not published
5/      HOME funds not disbursed in accordance with requirements
6/      Program income not properly tracked and obtained




                                                 27