U.S. Department of Housing and Urban Development District Office of the Inspector General Office of Audit Richard B. Russell Federal Building 75 Spring Street, SW, Room 330 Atlanta, GA 30303-3388 (404) 331-3369 December 22, 1998 99-AT-241-1802 TO: Charles T. Ferebee, Director, Community Planning and Development Division, 4FD FROM: Nancy H. Cooper District Inspector General for Audit-Southeast/Caribbean, 4AGA SUBJECT: Pine Knolls Neighborhood Revitalization Program Town of Chapel Hill, North Carolina In response to citizens’ complaints, we reviewed the Pine Knolls Neighborhood Revitalization Program, funded in part by the Town of Chapel Hill, North Carolina (Town), Community Development Block Grant (CDBG) Program. The program was administered by the Pines Community Center, Inc. (Center). The purpose of our review was to determine whether the Center used CDBG funds for eligible activities in an efficient, effective, and economical manner. SCOPE We interviewed the complainants, staff of HUD’s North Carolina Community Planning and Development Division, the Town Manager, staff of the Town’s Planning and Inspections Departments, and Center officials. We reviewed Department of Housing and Urban Development (HUD) records, applicable Town and Center records, and records maintained by the Orange County, North Carolina, Register of Deeds and Department of Health. We conducted cursory inspections of two houses in the program. Our review generally covered the period February 17, 1994, through August 30, 1998. We conducted our review June through August 1998. BACKGROUND We received complaints from residents of the Pine Knolls neighborhood in May 1998. The general theme of the complaints concerned mismanagement of the Pine Knolls Neighborhood Revitalization Program by the Center. The Center is a non-profit organization established in 1968. It received tax exempt status in 1996 under Section 501(c)(3) of the Internal Revenue Code. It’s purpose is to assist in revitalizing the Pine Knolls neighborhood. The Center is managed by a Board of Directors. The Town entered into three performance agreements with the Center in 1994 and 1995. In accordance with the agreements, the Town loaned $280,000 in CDBG funds to the Center to purchase seven properties (listed in Attachment B). The Center was to repair the properties with local funds provided by the Town and sell them to low-income families. After selling the properties, the Center was required to repay the $280,000 to the Town. The Center also acquired and repaired houses not funded by the CDBG Program. SUMMARY The Town needed to improve the effectiveness of the Pine Knolls Neighborhood Revitalization Program. The Center, as program administrator, did not timely repair and sell houses purchased with CDBG loans. As a result, the objective of home ownership was not met, and the Center had not repaid $181,500 of the loans to the Town. We are recommending the Town: (1) reimburse $181,500 to the Town’s CDBG Program, and (2) if the Neighborhood Revitalization Program is continued, ensure that the administrator implements effective administrative procedures. Details of our finding and recommendations are in Attachment A. We provided the Town a draft of the finding and discussed the need to improve the effectiveness of the Neighborhood Revitalization Program with the Town Manager and staff on November 3, 1998. The Town submitted written comments that disagreed in part with the finding. We summarized the Town’s comments in the finding and included them as Attachment C. Within 60 days, please give us, for the recommendation in the report, a status report 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 the review. We provided a copy of this memorandum to the Town. If you have any questions, please contact me at (404) 331-3369, or Bruce Milligan, Senior Auditor, at extension 4056. Attachments: A - Finding and Recommendations B - Properties Purchased With CDBG Funds C - Auditee Comments D - Distribution 2 Attachment A FINDING AND RECOMMENDATIONS Finding - Need to Improve Program Effectiveness The Town needed to improve the effectiveness of the Pine Knolls Neighborhood Revitalization Program. The program administrator, the Pines Community Center, Inc. (Center), did not timely repair and sell houses purchased with loaned CDBG funds. As a result, the objective of home ownership was not met, and the Center had not repaid $181,500 of CDBG loans to the Town to be reused for other purposes. Grantees are required to monitor grant supported activities to assure compliance with applicable Federal requirements and that performance goals are being achieved (24 Code of Federal Regulations, Part 85.40(a)). Houses Not Repaired and Sold The Center did not timely repair and sell the houses. In 1994 and 1995, the Center purchased seven houses with CDBG funds of $280,000 loaned by the Town. The Center was to repair the houses and sell them to low-income families. The Center had to repay the $280,000 to the Town within one year after acquisition or when the houses were sold, whichever occurred first. At the completion of our review in November 1998, the Center had sold only three of the houses and repaid only $98,500. Three of the four remaining homes were rented; the fourth had not been repaired and was vacant. Other Related Deficiencies The Center also did not effectively perform other elements of the program designed to facilitate repair and sale of the houses. • Originally, the Center was supposed to sell the houses at a price based on the purchase price plus the cost of repairs, or $50,000, whichever was less. The Town subsequently increased the maximum sales price to $65,000 which could include an allowance for Center profit and overhead of up to 20 percent. However, the Center did not maintain records of repair costs for each house. A Center representative stated that the Center gave its records of repair costs to the Town. The Town had copies of invoices but not evidence of the Center’s payment of the costs. • The Center required buyers to contribute sweat equity, but did not maintain accurate records of work performed by buyers. In addition, the Center’s sweat equity requirement was unreasonable. The Center required as much as 2,000 hours of sweat equity by a purchaser, the equivalent of 40 hours a week for almost a full year. The sweat equity requirement caused misunderstandings and complaints by home purchasers. 3 • The Center did not have written procurement procedures and did not maintain formal accounting records. *** The Town did not properly monitor the Center’s performance. The Town executed three agreements with the Center. Two of the three agreements, covering five of the seven houses, did not include requirements for the amount and quality of housing repairs. The Town did not enforce requirements for the Center to submit quarterly financial and work progress reports. Until recently, the Town did not properly address the Center’s slow performance. As a result, only three of the seven CDBG-funded houses met the home ownership objective, and the Town had not recovered CDBG loan funds of $181,500 for other uses. In July 1998, the Town proposed to replace the Center as program administrator. At the completion of our review, the Town was in the process of making administrative changes to improve the program. Town Comments (Summary) The Town agreed the Center had not repaired and sold the houses as required and that 2000 hours of sweat equity by the buyer was unreasonable. However, the Town believed it had acted timely to improve program effectiveness. The Town thought its responsibility was to ensure the Center complied with HUD regulations and contractual obligations. The Town stated it began a review of the Center in October 1996, submitted a report to Town Council in February 1997, and had been working since then to resolve program issues. The Town said when the Center’s compliance was questioned, the Town reviewed Center contractual obligations and put program funds on hold. The Town stated its staff met regularly with representatives of the Center to monitor program progress. The Town stated the Center did not submit reports quarterly as required but did submit occasional progress reports and made periodic reports to Town Council. The Town thought that schedules and invoices the Center submitted adequately supported repair costs. Evaluation of Response We disagree the Town acted timely to improve the effectiveness of the program. The four unsold houses were acquired in 1994 and 1995. The Town monitored the performance of the Center and identified problems in 1996, but it was July 1998 before Town Council passed a resolution providing for program changes. In November 1998, the Town was still negotiating corrective actions with the Center. Although the Center submitted schedules and invoices of repair costs to the Town, the Center needed to maintain such records in a manner that they can be related to disbursement records evidencing payment. 4 Recommendations We recommend that you require the Town to: 1A. Ensure the remaining house is repaired and the four houses are sold. 1B. Repay $181,500 to the Town’s CDBG program. 1C. Ensure the Pine Knolls Neighborhood Revitalization Program administrator establishes effective management procedures, if the program is continued. 5 Attachment B PROPERTIES PURCHASED WITH CDBG FUNDS ADDRESS DATE1 STATUS AMOUNT 122 Johnson Street 2/17/94 Sold 5/3/95 $ 22,500 108 Johnson Street 12/12/94 Sold 3/23/98 48,000 110 Johnson Street 12/12/94 Rented 48,000 104 Johnson Street 8/18/95 Sold 9/8/97 28,000 140 Lincoln Lane 8/18/95 Rented 45,000 142 Lincoln Lane 8/18/95 Rented 45,000 150 Lincoln Lane 8/18/95 Vacant 43,500 Total $ 280,000 1 Date Of Performance Agreement between the Town of Chapel Hill and the Pines Community Center, Inc., which was the same date the properties were purchased. 6 Attachment C Auditee Comments 7 8 9 Attachment D Schedule of Unnecessary/Unreasonable Costs Recommendation Unnecessary/Unreasonable2 1B $181,500 2 Unnecessary costs are those not generally recognized as ordinary, relevant, and/or necessary within established practices. Unreasonable costs exceed the costs that would be incurred by the ordinarily prudent person in the conduct of a competitive business. 10 Attachment E Distribution Secretary's Representative, 4AS State Coordinator, North Carolina State Office, 4FS Director, Office of Community Planning and Development, 4FD Audit Liaison Officer, 3AFI Director, Administrative Service Center, 4AA Acquisitions Librarian, Library, AS (Room 8141) General Counsel, C (Room 10214) Associate General Counsel, Office of Assisted Housing and Community Development, CD (Room 8162) Assistant Secretary for Community Planning and Development, D (Room 7100) Office of Community Planning and Development, DG ATTN: Audit Liaison Officer (Room 7214) Chief Financial Officer, F (Room 10164) (2) Deputy Chief Financial Officer for Finance, FF (Room 10164) (2) Director, Office of Budget, FO (Room 3270) Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W., Room 2474, Washington DC 20548 ATTN: Judy England-Joseph Counsel to the IG, GC Public Affairs Officer, G HUD OIG Webmanager-Electronic format cc:mail- Morris_F._Grissom@Hud.Gov Director, HUD Enforcement Center, 1240 Maryland Avenue, Suite 200, Washington, DC 20024 Assistant to the Deputy Secretary for Field Management, SDF (Room 7106) Assistant to the Secretary for Labor Relations, SLD (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 The Honorable Dan Burton, Chairman, Committee on Government Reform and Oversight, United States House of Representatives, Washington DC 20515-6143 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'Neil Office Building, Washington DC 20515 Town Manager, Chapel Hill, North Carolina 11
Pine Knolls Neighborhood Revitalization Program Town of Chapel Hill, North Carolina
Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-12-22.
Below is a raw (and likely hideous) rendition of the original report. (PDF)