oversight

City of Homestead, Homestead, FL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-03-13.

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

                                                                                    98-AT-255-1002




                            Audit Report
                            District Inspector General for Audit
                            Southeast/Caribbean District
                            Report: 98-AT-255-1002                    Issued: March 13, 1998



TO:             Angelo Castillo, Director, Community Planning and Development Division,
                  Florida State Office, Coral Gables, Florida, 4DD


FROM:           Nancy H. Cooper
                District Inspector General for Audit- Southeast/Caribbean, 4AGA


SUBJECT:        City of Homestead
                HOME Disaster Relief Grants
                Homestead, Florida


We have completed a review of the HOME Disaster Relief Grants received by the City of
Homestead in calendar years 1992 and 1994. Our report includes four findings that need to be
addressed.

Within 60 days please give us a status report for each recommendation on: (1) the corrective
action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is
considered unnecessary. Also, please furnish us copies of any correspondence or directives issued
because of this review.

We are providing a copy of this report to the City.

Should you or your staff have any questions, please contact me at (404) 331-3369.
                                                                                   98-AT-255-1002




Executive Summary
We reviewed the HOME Disaster Relief Grants received and administered by the City of
Homestead. Two such grants were received from HUD totaling over $14 million; a grant
received in December 1992 for $5.4 million and another in October 1994 for $9.1 million. In
response to a request from the Director of Community Planning and Development in the HUD
field office in Coral Gables, the purpose of our review was to help identify where HOME funds
had been spent, and also provide the field office with some assurance that HOME funds
previously drawn by the City were used in accordance with applicable laws and regulations.

WE IDENTIFIED

The City’s inexperience in administering Federal grants, significant turnover in key management
personnel, and the magnitude of the Hurricane Andrew disaster contributed to a number of
problems. At January 1997, the City did not have an effective system to adequately track the
expenditure of HOME funds. As a result, there were significant differences between HUD’s
record of draws and expenditures and the actual expenses incurred by the City (see Finding #1.).

The City’s inexperience in administering Federal grants resulted in the inappropriate accumulation
of income derived by the City from some of its HOME activities. The City did not deposit over
$500,000 in program income into a separate local HOME account and did not use this income
before making additional draws of HOME funds from its US Treasury HOME account. Both
were violations of HOME regulations (see Finding #2.).

The City acquired over 150 lots using, in part or in total, over $3 million in HOME funds.
Although HOME funds can be used to acquire vacant lots, the acquisition of vacant lots must be
part of an otherwise eligible HOME project. The acquisition cost of these lots exceeded what the
City had anticipated, and the City now has insufficient funds to complete HOME eligible projects
on 37 of these 150 vacant lots. Based on the average amount of HOME funds expended on the
acquisition of vacant lots, the total HOME dollars expended improperly on these remaining 37
lots is over $1.4 million (see Finding #3).

Our review identified about $56,000 in ineligible costs which were due primarily to the City’s
inability to effectively track progress payments made to contractors. On at least four occasions,
the City overpaid contractors for work related to HOME-funded projects. The contractors
overdrew the contract amount, and the City did not detect the subsequent overpayments.
Additionally, the City improperly used $5,000 in HOME funds for the acquisition of commercial
property, and the City inappropriately paid about $9,000 in legal fees associated with a
rehabilitation project that was not eligible for HOME funding (see Finding #4).




                                                                                        ii
                                                                                   98-AT-255-1002

EXIT CONFERENCE

We received written responses to the draft report from officials at both the City of Homestead and
the HUD Field Office in Coral Gables, Florida, on January 13, 1998, and February 18, 1998,
respectively. We also discussed the results of this review with officials from the City of
Homestead and the HUD Field Office on January 13, 1998 and January 14, 1998, respectively.
Comments and recommendations for corrective action related to the findings included in this
report are summarized in the text of this report. The complete responses, except for attachments,
are included as Appendix C.

We recommend that HUD, over the next 6 months, closely monitor the corrective actions taken
by the City in response to this report.




                                                                                        iii
                                                                                                        98-AT-255-1002



Table of Contents
Management Memorandum .................................................................................i

Executive Summary............................................................................................ii

Table of Contents ..............................................................................................iv

Introduction........................................................................................................1

Findings and Recommendations

         1.   The City Did Not Effectively Track HOME Expenditures ...................4
         2.   The City Inappropriately Administered Program Income .....................7
         3.   The City Improperly Used HOME Funds To Acquire Vacant Lots ......9
         4.   The City Had Some Other Ineligible Costs ........................................12

Internal Controls...............................................................................................14

Follow-up on Prior Audits ................................................................................15

Appendices

         A.   Status of Funds..................................................................................16
         B.   Inventory of Unused Vacant Lots ......................................................17
         C.   Auditee Comments ............................................................................19
         D.   Schedule of Ineligible and Unsupported Costs...................................25
         E.   Distribution .......................................................................................26




                                                                                                              iv
                                                         98-AT-255-1002


Abbreviations:

CMIS       Cash and Management Information System
CFR        Code of Federal Regulations
CRA        Clark, Roumelis & Associates, Inc.
HUD        Department of Housing and Urban Development




                                                              v
                                                                                    98-AT-255-1002




Introduction
On August 24, 1992, the City of Homestead and the surrounding area were devastated by
Hurricane Andrew. In the aftermath of that disaster, the City of Homestead received over $100
million in financial aid from various State and Federal sources, including two HOME Program
Disaster Relief Grants totaling over $14.5 million from the U.S Department of Housing and
Urban Development (HUD). The first of these HOME grants was awarded in December 1992 for
$5,373,000 from fiscal year 1992 funds, and a second grant was awarded in October 1994 for
$9,149,000 from fiscal year 1993 funds.

BACKGROUND

The purpose of these two special disaster relief HOME grants was to provide the City with
additional funding to help in its effort to restore safe, decent and affordable housing for low-to-
moderate income persons. These special grants can only be used in Presidentially-declared
disaster areas.

In accordance with the Code of Federal Regulations (CFR), 24 Part 92, paragraph 500(d), HUD
can reduce or recapture any HOME funds awarded that are not committed within 24 months or
expended within 5 years after the last day of the month in which the award was made.

By late calendar year 1996, the City was experiencing difficulties in meeting the requirements to
commit and expend the funds awarded to them. As of December 1996, the City still had
$487,406 of its 1992 grant uncommitted and apparently not spent, and $3,897,632 of its 1993
grant in the same status.

The City’s apparent inability to execute its HOME Program in a timely manner prompted a
meeting between officials at the HUD Office in Coral Gables, and City officials. The meeting and
subsequent discussions resulted in the following actions:

       n The City was tasked to provide the Coral Gables HUD Florida State Office with a plan
         of action detailing how the remaining HOME funds would be spent and the timeframes
         needed to obligate and expend those funds.
       n Future draws from the City’s HOME Treasury account were suspended until the City
         could provide the HUD Office with a detailed accounting of how prior HOME funds
         drawn from their Treasury account were used.

The HUD Office, not satisfied with the accounting data provided by the City, requested our
assistance in March 1997 to help provide:

       n   an accounting of where HOME funds had been spent, and;
       n   general assurance of whether the HOME funds spent by the City were eligible under
           applicable laws and regulations.



                                                                                         1
                                                                                      98-AT-255-1002

In September 1997, prior to the completion of our audit, the HUD Office recaptured $1.7 million
in HOME funds previously awarded to the City of Homestead. The HUD Office redistributed
$0.7 million of the $1.7 million recaptured. However, before additional redistributions were
made, the City filed an injunction in Federal court to halt further redistributions and to get the
remaining $1 million in HOME funds reinstated to their HOME Treasury account. A preliminary
hearing was held in November 1997. An additional hearing was scheduled December 19, 1997,
but was postponed.

This matter was subsequently settled between the parties and the City did get $1 million in HOME
funds reinstated to their HOME Treasury account.

AUDIT OBJECTIVES AND SCOPE

The primary objectives of this limited audit were to:

       •   Establish whether the City’s existing or reconstructed records provided acceptable
           support for expenditures related to the HOME Program at Homestead.
       •   Test whether HOME funds expended were used for eligible expenses.

We reviewed and tested summaries of HOME expenditures prepared by City officials which
detailed expenditures by grant, project, and calendar year. To determine if the City’s expenditures
represented eligible HOME costs, we selected a sample of projects. Our sample included projects
from both grants. Information on the sampled projects follows:

      1992 Grant

      Grant amount: $5,373,000
      Total number of projects funded: 133
      Total expenditures as of 8/31/97: $4,298,400
      Total projects included in our sample: 34 (26 percent)
      Total expenditures included in our sample: $1,349,638 (31 percent)

      1993 Grant

      Grant amount: $9,149,000
      Total number of projects funded: 151
      Total expenditures as of 8/31/97: $5,053,283
      Total projects included in our sample: 20 (13 percent)
      Total expenditures included in our sample: $2,929,359 (58 percent)

For each project included in our sample we reviewed the project files to determine:

       •   Project’s eligibility for funding under the HOME Program,
       •   If participants were eligible,
       •   If expenditures were proper and adequately supported,
       •   If other required actions related to these projects were performed and documented in
           accordance with applicable laws and regulations.

                                                                                           2
                                                                                    98-AT-255-1002

We also performed limited testing to verify the accuracy of reports prepared by the City related to
program income and the status of vacant lots acquired by the City using HOME funds.

This limited audit was conducted in accordance with generally accepted government auditing
standards. We began this effort in May 1997, and completed our field work in September 1997.
The audit universe included records and reports related to HOME-funded activities from
December 1992 through August 1997.




                                                                                         3
                                                                                   98-AT-255-1002




Findings
Finding 1

The City Did Not Effectively Track HOME Expenditures

Prior to January 1997, the City did not track HOME expenditures by project or track
expenditures in total against the amounts authorized and drawn. In January 1997, the City
undertook the substantial task of reconstructing its HOME expenditures by year and by project.
Summaries were compiled using data from the general ledgers, copies of related invoices,
canceled checks, and other relevant documents. The results clearly showed that the City had
lacked an effective system to properly monitor, record, and control HOME expenditures and
draws. Based on our tests, we concluded that these reconstructed summaries provided an
acceptable record of actual expenditures.

There were numerous discrepancies in the amounts authorized, expended, and drawn. Our review
and testing of the summary of expenditures related to the 1992 HOME grant showed the
following problems (prior to adjustments):

       •   The City drew a total of $537,300 from its 1992 HOME Treasury account to cover
           administrative expenses. However, the City charged $231,565 in administrative
           expenses to the 1992 grant.

       •   The City drew a total of $446,100 from its 1992 HOME Treasury account to cover
           technical assistance related expenses. In this case, the actual expenses charged to
           technical assistance exceeded the amount drawn by $142,309.

       •   The City expended $447,198 more on projects than authorized and $396,206 in excess
           of draws to cover project expenses from the 1992 grant. We also noted little
           correlation between specific project numbers the funds were drawn for, and projects
           those funds were actually applied to. Because our primary objective here was to
           establish if a generally accurate record of actual expenses existed, we did not attempt
           to correlate these actual expenditures to individual draws.

City officials cited a number of problems they experienced which led to the discrepancies
including:

       •   The City’s inexperience in administering Federal grants,




                                                                                        4
                                                                                    98-AT-255-1002


       •   The significant turnover in key management personnel involved with the HOME
           Program.

       •   The magnitude of the disaster.

The condition of the records related to the HOME Program at the City of Homestead was
unacceptable prior to July 1997. From January 1997 through July 1997 the City completely
reconstructed records related to HOME. This effort revealed for the first time the status of the
HOME grants received by the City. It also identified a number of adjustments that were needed
for funds authorized, drawn, and expended. These adjustments, which we reviewed during our
limited audit, follow:

       •   Reclassification of $51,109 in expenditures originally charged to Technical Assistance
           as Administrative Expenses in the 1992 grant.

       •   Transfer of $447,198 in project expenditures originally charged to the 1992 grant to
           the 1993 grant.

       •   Transfer of $254,626 in Administrative Expenses originally charged to the 1993 grant
           to the 1992 grant.

These adjustments would permit the City to request a final draw of $487,406 on its 1992 HOME
grant and close out that grant. The 1993 grant would have $3,462,561 remaining to be drawn.
(See Status of HOME Disaster Relief Grants in Appendix A.)

We were informed on October 8, 1997, that the above adjustments were made by the City. As of
that date, the City had also requested, but not yet received, its final draw on the 1992 grant.

AUDITEE COMMENTS

Both HUD and City officials agreed with the findings as presented. City officials stated that since
hiring a consultant to manage their HOME program the City now has an effective system in place
to properly track the expenditure of HOME funds. The City also stated, and has provided
appropriate documentation, to indicate that the needed adjustments described above have been
made. The City has requested and received its final draw of $487,406 on the 1992 grant.
However, the 1992 grant has not yet been closed-out.

RECOMMENDATIONS

We recommend that you require the City to:

1A.    Establish an effective system to properly account for and track HOME expenditures.




                                                                                         5
                                                                            98-AT-255-1002

1B.   Make appropriate adjustments to properly align the amount of HOME funds authorized,
      drawn, and expended.

1C.   Promptly and properly close-out the 1992 HOME grant.




                                                                                 6
                                                                                 98-AT-255-1002


Finding 2

The City Inappropriately Administered Program Income
The City did not properly handle HOME Program income and did not establish a separate account
for these funds. The cause was disregard for or a lack of knowledge about HUD requirements.
As a result, Program income funds of over $504,000 were deposited in the City’s general fund.

HOW PROGRAM INCOME WAS DERIVED

The City used HOME funds to acquire vacant lots. The lots were subsequently used to construct
single-family homes which were sold to low-to-moderate income persons under the HOME First-
Time Homebuyer Program. The cash received from the sale of these properties generated
Program income. Twenty-three such sales since July 1995 had generated $466,795 in HOME
Program income to the City.

HOME funds were also used for rental rehabilitation projects. In return for low-interest loans,
owners were required to maintain rents affordable to qualified low-to-moderate income persons
for the period of the loan; normally 20 years. Repayment of these loans also generated Program
income to the City. Principal and interest payments on 10 such loans had generated $37,597 in
income to the City through August 31, 1997.

PROGRAM INCOME NOT MAINTAINED IN SEPARATE ACCOUNT

Title 24 CFR, paragraph 92.503(b) states that any payment of interest or other returns on the
investment of HOME funds must be deposited in the jurisdiction’s HOME Investment Trust Fund
local account. Paragraph 92.502c(3) states that HOME funds in the local account of the HOME
Investment Trust Fund must be disbursed before requests are made for HOME funds in the
United States Treasury account.

The City had not established a local HOME Investment Trust account as of August 31, 1997.
Returns on the investment of HOME funds were deposited in the City’s general fund in violation
of the regulations. Although the Program income was appropriately segmented and recorded
under separate HOME account codes, it was not until September 1997 that the City computed the
amount of HOME Program income they had generated since the grants were received. As a
result, none of the $504,392 in Program income had been applied to HOME eligible projects
before additional draws were made by the City from its United States Treasury HOME
Investment Trust account.

At the conclusion of our field work in September 1997, the City did not have sufficient cash
resources to establish and fully fund a separate local HOME Investment Trust account.




                                                                                      7
                                                                                   98-AT-255-1002

AUDITEE COMMENTS

City officials stated, and have provided appropriate documentation, showing that a separate local
bank account has been established for HOME Program income. That account currently has a
balance of nearly $500,000. City officials stated these funds would be used on HOME-eligible
activities; specifically, the Infill Housing Project and Pioneer Village.

RECOMMENDATIONS

We recommend you require the City to:

2A.    Properly identify and account for all HOME Program income.

2B.    Establish a separate local bank account for HOME Program income.

2C.    Ensure all HOME program income is used for HOME-eligible activities.

We recommend that you:

2D.    Assure that no additional draws from the HOME Treasury account are allowed until the
       City has provided appropriate evidence that all HOME Program income has been properly
       expended and/or obligated for HOME eligible activities.




                                                                                        8
                                                                                     98-AT-255-1002


Finding 3

The City Improperly Used HOME Funds To Acquire Vacant
Lots

In its rebuilding after the hurricane, the City had plans to acquire vacant lots using other sources
of funding, and to use the HOME funds to provide downpayment assistance to first-time
homebuyers. However, the costs to acquire vacant lots exceeded the City’s estimates, and
HOME funds originally planned for downpayment assistance had to be used to complete the
purchases. The City has acquired more lots using HOME funds than it has HOME funds available
to complete; the result is over $1 million of HOME funds were spent for vacant lots that are not
now eligible.

APPLICABLE HOME REGULATIONS

The acquisition of vacant lots is an eligible HOME activity only if it is part of the cost of an
otherwise HOME eligible activity; e.g., construction of a new home for a first-time homebuyer.
Acquisition of vacant land or demolition must be undertaken only with respect to a particular
housing project intended to provide affordable housing. (Title 24 CFR, paragraph 92.205(a)(2)).
Otherwise, the acquisition of vacant land is not a HOME-eligible activity.

Paragraph 92.205(c) states: “The minimum amount of HOME funds that must be invested in a
project involving rental housing or homeownership is $1,000 for each HOME-assisted unit.”

CITY HAS ACQUIRED MORE VACANT LOTS WITH HOME FUNDS THAN
JUSTIFIED

Because our audit did not review 100 percent of the HOME-funded projects, our results may not
include all the vacant lots acquired in part or in total with HOME funds. We did identify 153
vacant lots that had HOME funds applied to them during the acquisition process. The total
HOME funds involved with these lots was more than $3 million. Of these 153 lots, only 31 were
subsequently used for HOME eligible projects leaving 122 vacant lots still owned by the City
which have not yet been developed for a HOME-eligible activity. The total HOME funds
associated with these remaining 122 vacant lots is $3,691,404. Twenty-five of these 122 lots had
less than $1,000 in HOME funds applied per unit.

The City originally planned to use the bulk of its HOME funds set aside for this effort to fund its
First-Time Homebuyer Program. The HOME funds were intended to be used only to fund soft
second mortgages for qualified low-to-moderate income persons. As acquisition costs became
higher than anticipated, HOME funds set aside for soft second mortgages were used instead to
acquire the vacant lots. The funding of acquisition of vacant lots from different sources possibly
caused some complications and confusion in the payment of invoices. Consequently, 25 invoices
under $1,000 were charged to the HOME Program in error.



                                                                                          9
                                                                                      98-AT-255-1002

THE CITY NO LONGER HAS SUFFICIENT HOME FUNDS TO COMPLETE HOME-
ELIGIBLE PROJECTS ON ALL THE VACANT LOTS ACQUIRED USING HOME
FUNDS.

A waiver was granted by HUD to extend the time period to commit and expend HOME funds in
June 1997. Then, the City estimated that they had sufficient HOME funds to complete HOME-
eligible projects on 60 of the 122 HOME-funded vacant lots they owned. That left 62 HOME-
funded vacant lots with no specific HOME-eligible activity.

During our limited audit, a City official stated that they would find alternative funding sources for
the 25 vacant lots that had less than $1,000 in HOME funds associated with them. However, as
of September 30, 1997, the City had not provided any evidence that this refunding had taken
place. If these 25 vacant lots will be funded from other sources, there will be 37 vacant lots still
lacking a HOME-eligible project. Based on the average cost of these lots, the City expended over
$1.4 million on the acquisition of 37 vacant lots that were not part of an otherwise HOME-eligible
activity. The average cost of the remaining 37 unused vacant lots is $38,008 (see Appendix B).

The City officials told us that the remaining 37 lots would be offered to first-time homebuyers
through the Florida Housing Finance Agency. This Agency provides loans through local lenders
to qualified low-income persons who are first-time homebuyers. The loans are 30-year fixed rate
mortgages that as of July 1997 were at 6.92 percent. The available information provided
insufficient evidence on whether and/or when the loans would occur .

AUDITEE COMMENTS

HUD officials commented that the City must develop all lots purchased with HOME funds in
accordance with applicable program regulations and that all lots and all funds should be developed
and spent by October 31, 1999. All plans to accomplish this must be submitted to HUD for
approval.

City officials stated that they intended to develop all lots acquired with HOME funds in
accordance with applicable program regulations. However, the City stated that some lots
acquired were too small for a one-to-one replacement. The City’s consultant has been tasked to
develop plans to accomplish this which will be submitted to HUD for approval. Additionally, City
officials stated that they would find alternative non-Federal sources of funding for approximately
25 vacant lots which were acquired using less than $1,000 in HOME funds per lot.




                                                                                           10
                                                                                   98-AT-255-1002

RECOMMENDATIONS

We recommend you require the City to:

3A.    Provide you with a complete and accurate listing of all vacant lots which the City acquired
       using HOME funds. At a minimum, this listing should include a description and location
       of the property, the amount of HOME funds used in acquiring the property, and the City’s
       intended use of the property.

3B.    Find other non-Federal sources of funds to fund vacant lots acquired by the City using less
       than $1,000 in HOME funds.

3C.    Devise, and submit to you for approval, plans to develop HOME-eligible projects on all
       vacant lots that were acquired in part or in total using HOME funds.

3D.    Reimburse HUD from non-Federal sources for the HOME funds used to acquire any
       vacant lots that do not have a HOME-eligible project completed or under contract by
       October 31, 1999.




                                                                                        11
                                                                                     98-AT-255-1002


Finding 4
The City Had Some Other Ineligible Costs

Our audit identified over $56,000 in ineligible costs. These ineligible costs related primarily to
overpayments made to contractors ($41,745). The City needs to reimburse its HOME Program.

CITY DID NOT EFFECTIVELY TRACK PAYMENTS TO CONTRACTORS

On four separate occasions we found overpayments were made to contractors for work
performed on HOME projects.

      •   Project #306, 23 NW 4th Ave.: The final contract price on this project was $65,800.
          However, progress payments made to the contractor totaled $89,034; an overpayment
          of $23,234. The contractor did not properly report the amount paid to date in requests
          for progress payments, and the City did not detect the misstated amounts.

      •   Project #108, 813 Turner Circle: The City failed to detect an error in a request for a
          progress payment which understated the amount paid to date. As a result, the
          contractor was overpaid $3,195.

      •   Project #63, 722 NW 7th Ave.: The contractor submitted two requests for the second
          progress payment. The second revised the first submission, but the City paid both
          requests for payment resulting in an overpayment to the contractor of $10,414.

      •   Project #70, 278 NW 1st St.: The final progress payment request was paid twice by
          the City and not detected. As a result, this contractor was overpaid $4,902.

Other ineligible costs identified by our audit included:

      •   Project #61, 1040-42 NW 9th Court: This was a rehabilitation project of a duplex. Only
          one-half of the duplex qualified for HOME funding and all the costs associated with this
          project were appropriately split between HOME and other funding sources with the
          exception of legal costs related to this project. The total legal costs of $18,800 related
          to this project were charged to HOME. However, only half of these expenses ($9,400)
          were eligible for HOME funding.

      •   Project #36, 141 W. Mowery: This was a commercially-zoned vacant lot purchased by
          the City from other eligible funding sources. However, the initial deposit of $5,000 on
          this property was charged to HOME. During our audit the City corrected this error and
          made appropriate adjustments to delete HOME funds from this project.




                                                                                          12
                                                                                  98-AT-255-1002

CITY HAS NOT YET MADE ALL THE APPROPRIATE ADJUSTMENTS

During the audit, the City agreed these costs were ineligible and agreed to make appropriate
adjustments. However, by completion of our field work in September 1997, only one adjustment
was actually made. The City has yet to provide any evidence that the remaining $51,145 in
ineligible costs have been funded from other non-Federal sources. Based on the City’s promise to
make the necessary adjustments, the funding status in Appendix A to this report was prepared
assuming that the necessary adjustments would be made.

AUDITEE COMMENTS

Both HUD and City officials agreed with the finding as presented and agreed adjustments were
needed. However, the City provided no evidence that any adjustments had yet been made.

RECOMMENDATION

We recommend you require the City to:

4A.    Make appropriate adjustments to fund the $51,145 in ineligible expenses described above
       from non-Federal sources.




                                                                                       13
                                                                                     98-AT-255-1002




Internal Controls
In planning and performing our audit, we considered the City’s internal controls to determine our
auditing procedures and not to provide assurance on internal controls. Internal controls consist of
the plan of organization and methods and procedures adopted by management to ensure that
resource use is consistent with laws, regulations, and policies; that resources are safeguarded
against waste, loss, and misuse; and that reliable data are obtained, maintained, and fairly
disclosed in reports. We determined that only those internal controls related to the HOME
disaster relief grant activities were relevant to our review. We therefore reviewed controls related
to the following areas:

      •   Recording and reporting of project expenditures and program income.

      •   Eligibility of expenditures and recipients.

It is a significant weakness if internal controls do not give reasonable assurance that resource use
is consistent with laws, regulations, and policies; that resources are safeguarded against waste,
loss, and misuse; and that reliable data are obtained, maintained, and fairly disclosed in reports.

Based on our review, we believe the internal controls were significantly weak in the examined
areas. Finding 1 shows the City did not have adequate controls to effectively track expenditures
of HOME funds. The City did not properly report or use income derived from its HOME
activities (Finding 2). Findings 3 and 4 provide details on the City’s misuse of some HOME
funds.




                                                                                          14
                                                                                  98-AT-255-1002




Follow-Up On Prior Audits
This is the first audit of HOME activities at Homestead, Florida, by the HUD Office of Inspector
General. Reports prepared by independent public accountants for fiscal years 1995 and 1996 did
not contain any significant items for HOME activities.




                                                                                       15
                                                                                              98-AT-255-1002




Appendices
                                                                                        Appendix A


      STATUS OF HOME DISASTER RELIEF GRANTS
                HOMESTEAD, FLORIDA
          After Adjustments Made and Promised

                                     Amount          Funds Drawn            Expended              Amount
                                    Authorized       As of 8/31/97         As of 8/31/97        Left to Draw
1992 GRANT

Project Expenses                   $4,298,400.00        3,902,193.95       $4,298,400.001          $396,206.05
Administrative Expenses               537,300.00          537,300.00           537,300.00
Technical Assistance                  537,300.00          446,100.00           537,300.00               91,200.00

Totals for 1992 Grant              $5,373,000.00       $4,885,593.95        $5,373,000.00          $487,406.05



1993 GRANT

Project Expenses                   $7,319,200.00       $4,470,181.63        $5,053,283.60        $2,265,916.40
Administrative Expenses               914,900.00          781,186.68           409,472.42           505,427.58
Technical Assistance                  914,900.00                               223,682.86           691,217.14

Totals for 1993 Grant             $9,149,000.00       $5,251,368.31      $5,686,438.88          $3,462,561.12




1
    Excludes $51,145 in ineligible costs discussed in Finding #4 which were to be funded by the City from non-
    Federal sources.    The $51,145 is made up of overpayments to contractors of $41,745 and $9,400 of
    unreimbursed ineligible expenditures.



                                                                                                   16
                                                                        98-AT-255-1002


                                                                   Appendix B
                 Inventory Of Unused Vacant Lots

Project                                 Number                  HOME Project
Number    Address                       of Lots   HOME $'s          Location
  200     80 NW 2 St (C-Town)                8    $894,882.15    Pioneer Village
  202     312 NW 1 Ave. (Cordallo)           2    $469,827.73    Pioneer Village
  186     114 NW 5 St (B&V Apts)             6    $445,311.33    Pioneer Village
  203     67-75 NW 2 St                      2    $163,317.66    Pioneer Village
  215     100 NW 1 St                        1    $126,749.34    Pioneer Village
   35     80 NW 4 St                         3    $125,998.08    Pioneer Village
  187     122 NW 5 St                        1    $109,444.21    Pioneer Village
  185     130 NW 5 St                        1     $78,595.30    Pioneer Village
  250     137 NW 2 St                        1     $77,176.76    Pioneer Village
   34     48-64 NW 2 St                      2     $75,674.65    Pioneer Village
  324     145 NW 1 St                        1     $31,526.37    Pioneer Village
  119     146 NW 1 St                        2     $28,943.15    Pioneer Village
  218     135 NW 1 St                        1     $27,723.34    Pioneer Village
  251     146 NW 2 St                        2     $26,306.14    Pioneer Village
   83     40 NW 1 St                         1     $24,651.56    Pioneer Village
  327     110 NW 3 St                        1     $15,976.08    Pioneer Village
   37     51-59 NW 2 St                      2     $15,797.00    Pioneer Village
  194     77 NW 4 St                         1     $14,349.00    Pioneer Village
  222     72 NW 1 St                         2     $13,718.00    Pioneer Village
  144     114 NW 3 St                        1      $9,999.39    Pioneer Village
  197     48 NW 4 St                         1      $8,435.21    Pioneer Village
  224     43 & 49 NW 1 St                    2      $7,652.71    Pioneer Village
188/190   86 & 94 NW 5 St                    2      $7,260.00    Pioneer Village
254/311   122 NW 3 St                        2      $5,410.88    Pioneer Village
  329     121 NW 2 St                        2      $4,277.25    Pioneer Village
  328     122 NW 2 St                        1      $1,937.50    Pioneer Village
  226     212 NW 1 Ave.                      2      $1,835.91    Pioneer Village
  216     110 NW 1 St                        2      $1,375.00    Pioneer Village
          Sub-Total - Pioneer Village       55

  33      604 SW 6 St (Webb/Lieb)          14     $261,231.49         In-Fill
  89      306 SW 6 Ter                      1     $177,885.19         In-Fill
 128      161 NW 1 St                       1      $69,172.88         In-Fill
  55      153 NW 1 St                       1      $58,547.33         In-Fill
 129      169 NW 1 St                       1      $44,759.50         In-Fill
  41      300 NW 5 Ave                      2      $42,974.27         In-Fill


                                                                                17
                                                                              98-AT-255-1002



Project                               Number                   HOME Project
Number    Address                     . of Lots HOME $'s       Location
350       713 SW 11 Ave                    3      $39,397.64   In-Fill
127       243 NW 6 Ave                     1      $36,488.90   In-Fill
54        170-176 NW 1St                   1      $36,349.66   In-Fill
38        136 NW 3 St                      3      $22,214.59   In-Fill
351       1029 W. Lucy St                  1      $21,108.71   In-Fill
84        106 NW 6 Ave                     4      $15,312.11   In-Fill
87        105 NW 5 Ave                     2      $15,141.95   In-Fill
44        304 NW 4 Ave                     2      $13,379.25   In-Fill
86        730 SW 12 Ave                    1       $8,047.95   In-Fill
158       631 SW 11 Ave                    1       $7,729.30   In-Fill
182       621 SW 7 St                      2       $1,510.00   In-Fill
309       320 NW 2 St (WNC)                1       $1,325.00   In-Fill
          Sub-Total - In-Fill             42

          Lots Over $1,000               97    $3,686,727.42 Average Cost Per Lot - $38, 008

259       70 NW 5 St                     3           $715.00
320       122 NW 4 St                    1           $460.00
208       79 NW 3 St                     2           $460.00
252       47 NW 3 St                     2           $408.25
199       87 & 93 NW 3 St                2           $373.75
317       16 N. Krome Ave                1           $310.00
310       NW 4 St & 1 Ave                2           $287.50
330       161 NW 2 St                    1           $276.00
316       806 NW 1 Ave                   2           $250.00
325       145 NW 2 St                    1           $224.25
255       129 NW 3 St                    1           $172.50
314       146 NW 4 St                    2           $166.75
231       95 NW 2 St                     1           $143.75
253       121 NW 3 St                    1           $138.00
319       130 NW 4 St                    1           $100.00
257       137 NW 3 St                    1           $100.00
337       29 NW 1 Ave                    1            $90.91
          Total - Lots Under $1,000     25         $4,676.66

          Grand Total                   122    $3,691,404.08




                                                                                   18
                                                                                                    98-AT-255-1002


                                                                                                  Appendix D
                              SCHEDULE OF INELIGIBLE
                              AND UNSUPPORTED COSTS


                            Recommendations                       Ineligible2 3   Unsupported4

              3A - Vacant lots                                                       $1,406,296
              4A - Overpayments to Contractors                         $41,745
                   Unallowable Expenditures                            $14,400




2
    Costs clearly not allowable by law, contract, HUD, or local agency policies or regulations.
3
    The City has made only one $5,000 adjustment of these amounts.
4
    Costs not clearly eligible or ineligible but which warrant being contested.




                                                                                                          25
                                                                             98-AT-255-1002


                                                                        Appendix E

                                DISTRIBUTION

Secretary’s Representative, 4S
Audit Liaison Officer, 3AFI
Accounting Division, 4AFF
Director, Administrative Service Center, 4AA
Florida State Coordinator, 4DS
Director, Community Planning and Development Division, 4DD
Acquisition Librarian, Library, AS (Room 8141)
Associate General Counsel, Office of Assisted Housing and
  Community Development, CD (Room 8162)
Audit Liaison Officer, Office of Community Planning and
  Development, D (Room 7100)
Chief Financial Officer, F (Room 10164)
Deputy Chief Financial Officer for Finances, FF (Room 10176)
Counsel to the IG, GC (Room 8260)
HUD OIG Webmaster-Electronic format via Electronic mail-Morris_F._Grissom@Hud.Gov
Office of Legal Counsel, G ATTN: Public Affairs Officer (Room 8256)
Director, Housing and Community Development, Issue Area, U.S> GAO
  ATTN: Judy England-Joseph
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Assistant to the Secretary for Labor Relations, SL (Room 7118)
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
        United States Senate, Washington, DC 20510-6250
The Honorable John Glenn, Ranking Member, Committee on Governmental Affairs,
        United States Senate, Washington, DC 20510-6250
Mr. Pete Sessions, Government Reform and Oversight Committee, Congress of the
        United States, House of Representatives, Washington, DC 20515-4305
Ms. Cindy Sprunger, Subcommittee on General Oversight and Investigations,
        Room 212, O'Neill House Office Building, Washington, DC
City Manager, City of Homestead, Homestead, FL




                                                                                     26