AUDIT REPORT City of Seattle HOME Program Seattle, Washington 1999-SE-155-1001 November 20, 1998 OFFICE OF AUDIT, NORTHWEST/ALASKA DISTRICT SEATTLE, WASHINGTON Introduction Issue Date November 20, 1998 Audit Case Number 1999-SE-155-1001 To: John Peters, Director, Office of Community Planning and Development, OAD From: Robert H. Woodard, District Inspector General for Audit, 0AGA Subject: City of Seattle HOME Program We have completed our audit of the City of Seattle’s (City’s) HOME Program. We performed the audit as part of our national annual audit plan. Our objectives were to determine whether the City established controls in its rental development program to ensure that HOME-funded units were in a decent, safe, and sanitary condition and affordable HOME-funded units were provided to eligible families. This report contains one finding. Within 60 days please give us, for each recommendation in this 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 audit. If you have any questions please contact Wayne Rivers or myself at (206) 220-5360. 2 1999-SE-155-1001 Introduction EXECUTIVE SUMMARY We have completed an audit of the City of Seattle’s (City’s) HOME Program. The objectives of the audit were to determine whether the City established controls to ensure that: • HOME-funded units were in a decent, safe, and sanitary condition and • Affordable HOME-funded units were provided to eligible families. The City did not have controls to ensure that subrecipients under its HOME rental development program continued to provide decent, safe, sanitary, and affordable housing. Specifically, the City did not have controls that required annual reviews of subrecipients’ performance. As a result, subrecipients did not consistently maintain rental units in accordance with the City’s minimum housing standards. Our inspections of 45 units at 8 completed projects identified 22 units which were not decent, safe and sanitary. However, our review of the rents and resident files for these eight projects showed that rents were affordable and units were provided to eligible families. The City has not developed controls that require review of subrecipient performance because it has focused on development, not ongoing performance. We are recommending that the City demonstrate to HUD that they have implemented the necessary controls to ensure subrecipients continue to provide decent, safe, sanitary and affordable housing. We submitted a draft of the report to the City on October 13, 1998. The Director, Department of Housing and Human Services provided comments on October 20, 1998, agreeing with the finding. We made revisions to the draft report and incorporated the City’s comments into the report as appropriate. The City’s comments are included in their entirety in Appendix B. ii 1999-SE-155-1001 Table of Contents Management Memorandum i Executive Summary ii Introduction 1 Finding 1 Controls Were Not In Place To Ensure That Rental Housing Continued To Be Decent, Safe, Sanitary and Affordable 5 Management Controls ............................................................................................................................9 Appendices A Summary of Housing Quality Standards Deficiencies Identified in Unit Inspections 10 B Auditee Comments ............................................................................................. 11 C Distribution 13 iii 1999-SE-155-1001 Introduction INTRODUCTION BACKGROUND The City of Seattle (City) operates under a mayor/city council form of government and is a participating jurisdiction (a unit of local government approved by HUD to receive funding) under HUD’s HOME Investment Partnerships Program (HOME). As such, the City receives formula-based allocations of HOME funds. These are administered through the City’s Department of Housing and Human Services. Title II of the Cranston-Gonzalez National Affordable Housing Act of 1990 created the HOME program. In general, the purpose of the HOME program is twofold: 1) to expand the supply of decent, safe, and affordable housing for very low-income and low-income Americans, and 2) to strengthen public-private partnerships in the production and operation of such housing. As a housing block grant, the HOME program gives participating jurisdictions discretion over which housing activities to pursue. These activities may include acquisition, rehabilitation, new construction, and resident-based rental assistance. In addition, participating jurisdictions may provide assistance in a number of eligible forms, including loans, advances, equity investments, and interest subsidies. Up to ten percent of the HOME funds received by a participating jurisdiction may be used to administer the program. Section 215 of the Act defines requirements for rental housing funded by the HOME program to be considered affordable. These requirements include the following: • All units must be occupied by low-income families; • Not less than 20 percent of the units must be occupied by very low-income families and a) family contribution toward rent should not exceed 30 percent of the adjusted income of the family or b) rents should not exceed 30 percent of 50 percent of area median income, as determined by HUD; and • Rents must not be more than the lesser of a) existing fair market rents or b) a rent that does not exceed 30 percent of 65 percent of area median income, as determined by HUD. From 1992 to 1998, the City’s allocations under the HOME program (per its partnership agreements with HUD) totaled $23,363,000. HUD’s reporting system for the HOME program showed that $16,145,137 of this total had been drawn down as of May 1998. A table showing the annual allocations and drawdowns is on the next page. 1 1999-SE-155-1001 Introduction Fiscal Year Allocations Drawdowns 1992 $ 3,928,000 $ 3,928,000 1993 $ 2,588,000 $ 2,588,000 1994 $ 3,086,000 $ 3,086,000 1995 $ 3,348,000 $ 3,081,118 1996 $ 3,441,000 $ 3,312,818 1997 $ 3,358,000 $ 149,201 1998 $ 3,614,000 $ 0 Total $23,363,000 $16,145,137 In the last two years, the City allocated 75 percent of its HOME funds for the following 3 rental programs: Rental Unit Preservation and Development: As of June 1998, City records showed that loan amounts totaling $12,493,275 had been allocated to this program for 16 projects with a total of 527 HOME units. As of the date of our audit, 9 of these 16 projects had been completed; 3 were under construction; and 4 were in the pre- development stage. HOME Rental Assistance: This program had assisted 292 recipients (49 of whom were still active as of June 1998) for a total cost of $537,513. Salvation Army Homeless Family Assistance: For the period 1993 to mid-1998, allocations for this program totaled $1,118,141. The program had assisted 329 households and spent $964,730. The City allocated the remaining 25 percent of its HOME funds for 4 homebuyer assistance programs, as follows: REACH: This loan program focused on preserving single family homes and maintaining the City’s supply of low to moderate income housing. The program offered low interest loans to qualifying homeowners and landlords for repair and weatherization. Since 1992, the City has provided about 200 loans. City records showed that $3,318,550 had been budgeted and $2,636,685 expended under this program as of May 1998. Mobile Home Park Development: Because nonprofit agencies had not applied to participate in the program, no projects were developed. As a result, the City transferred the funds to the Down Payment Assistance program. Community Land Trust: As of the date of our audit, the program had funded only one project: nine town home units for first-time homeowners. The City 2 1999-SE-155-1001 Introduction had executed a commitment letter, and loan negotiations were in process. The City expected construction on this project to be completed in 1998, and the project was expected to cost $33,889 per unit. Down Payment Assistance: This program was in the development stage and the City had not offered any loans as of June 1998. The program is expected to provide down payment assistance to low-income households who purchase homes in special Objectives Areas (as defined by the City’s Consolidated Plan). The City plans to offer the loans at a maximum amount of $25,000 and an interest rate of 3 percent. The City’s Department of Housing and Human Services and its HOME program records are located at 618 Second Avenue, Seattle, WA. AUDIT OBJECTIVES, SCOPE, AND METHODOLOGY We audited the City’s administration of the HOME program to determine whether the City established controls to ensure that: • HOME-funded units were in a decent, safe, and sanitary condition, and • Affordable HOME-funded units were provided to eligible families. To achieve our objectives we performed the following procedures: • Reviewed applicable HUD regulations to gain an understanding of program requirements for multifamily project development, income determination, property standards, affordability, and monitoring; • Interviewed City managers and staff who administer the HOME program to gain an understanding of the structure of the City’s HOME program, to identify procedures and controls in the program, and to identify any monitoring processes in place; • Interviewed subrecipient staff at 8 of the City’s 9 completed rental development projects to gain an understanding of their policies for rental charges and unit inspections; • Reviewed 48 resident files at the 8 completed projects to determine whether the units were affordable and that the housing had been provided to eligible participants; and • Inspected 45 units currently occupied by residents in the 8 completed projects, as well as a common area at one project, to determine whether the projects were decent, safe, and sanitary. 3 1999-SE-155-1001 Introduction Because the City allocated over 60 percent ($14,077,525/$23,363,000) of its HOME funds to rental housing production in the last 7 years, the audit focused on this program. The audit covered the period January 1995 through May 1998 and was extended as appropriate to meet our objectives. Field work was conducted from May through September 1998. We performed the audit in accordance with generally accepted government auditing standards. 4 1999-SE-155-1001 Finding FINDING Controls Were Not In Place To Ensure That Rental Housing Continued To Be Decent, Safe, Sanitary, And Affordable. The City did not have controls to ensure that subrecipients under its HOME rental development program continued to provide decent, safe, sanitary, and affordable housing. Specifically, the City did not have controls that required annual reviews of subrecipients’ performance, which would include inspections of a sample of units and a review of rents charged. As a result, subrecipients did not consistently maintain rental units in accordance with the City’s minimum housing standards. Our inspections of 45 units at 8 completed projects identified 22 units which were not decent, safe and sanitary. However, our review of the resident files for these 8 projects showed that rents were affordable and units were provided to eligible families. The City has not developed controls that require review of subrecipient performance because it has focused on development, not ongoing performance. As a participating jurisdiction, the City is responsible for ensuring that HOME funds are used in accordance with all program requirements and written agreements. In addition, the City is required to review the performance of each contractor and subrecipient at least annually to ensure that funds are used in accordance with all program requirements and to take appropriate action when performance problems arise (24 CFR 92.504(a)). Controls to 24 CFR 92.251 requires participating jurisdictions to have written ensure that standards to ensure that housing constructed or rehabilitated with rental housing HOME funds is decent, safe, and sanitary. Participating is decent, jurisdictions are required to perform on-site inspections of a safe, and sufficient sample of HOME-assisted rental housing to determine sanitary. compliance with these standards. These inspections must be performed at regular intervals (between one and three years, depending on the project size) throughout the project’s affordability period. The City’s loan agreement for HOME projects requires the properties to meet, at a minimum, Housing Quality Standards, as defined at 24 CFR 882.109. At the time of our review, the City’s Multifamily Housing Manager told us that the City did not do any monitoring of properties funded 5 1999-SE-155-1001 Finding by the HOME program. Other City staff stated that they have not yet developed the necessary organizational structure to effectively follow up on rental developments. As a result, subrecipients did not consistently maintain units in a decent, safe, and sanitary condition. Using HUD’s Housing Quality Standards, we inspected 45 units and one common area at 8 completed HOME projects. We found that 22 of the units, as well as the common area, did not meet the City’s minimum standards for decent, safe, and sanitary housing. The units had 41 separate (mostly minor) deficiencies. (See Appendix A for a breakdown of deficiencies.) These included an inoperable window lock, bathroom outlets without ground fault interrupter switches, and a broken door handle. At one of the eight projects, deficiencies identified in an inspection six months earlier had not been corrected as of the date of our inspection. These deficiencies included a leaky dishwasher, a bathroom sink that was not attached to the counter top, and missing handles on oven and refrigerator doors. At another project, a resident told us that project management was notified two years ago about inadequate ventilation in common restrooms. A project manager for the subrecipient told us that these ventilation problems were first identified by the previous property manager about six months after initial occupancy (early 1997). The project manager initially tried to address the problem by having the rehabilitation contractors attempt repairs. He stated that the contractor assured him that the repairs corrected the problem. However, after our review, the project manager hired an independent engineer to conduct additional tests. The engineer indicated that the ventilation system still does not meet requirements. The residents in these units were not living in housing that met the Housing Quality Standards and, without annual reviews, the City has no assurance that HOME program requirements are being met. Controls to We found that the City has controls in place to review and approve ensure that rental initial rent levels at HOME-funded rental developments, but lacks housing remains controls to ensure that subrecipients continue to set affordable rents affordable to and provide units to eligible families. Although controls were eligible families. lacking, our review of 48 resident files at 8 projects showed that rents are being set at affordable levels, as defined by program requirements and the families are eligible. The lack of subrecipient monitoring occurred because the City has The City has focused on development, not ongoing performance. In April 1997, not focused on 6 performance. 1999-SE-155-1001 Finding the local HUD office conducted a monitoring review of the City’s Community Development Block Grant program (CDBG). One of the report’s findings pertained to the HOME program. In its review, HUD found that the City was not monitoring completed multifamily housing projects to determine that all program requirements were met. Responding to the HUD review, the Director of the City’s Department of Housing and Human Services gave reasons why the City has not established controls to monitor its rental development subrecipients. She stated that until recently the City’s staff activities have focused on project development, not ongoing performance of CDBG and HOME projects. To address HUD’s finding, the City hired a consultant to review its organization and procedures, and to develop a monitoring program that addresses all federal program requirements. Our review of the consultant’s draft report, dated June 1998, indicates that implementing the proposal may ensure that the City’s HOME programs operate in compliance with on-site inspection requirements and rent requirements. However, at the time of our review, the City had not yet implemented the proposal. Therefore, the control deficiency still exists. The City is responsible for taking whatever action necessary to ensure that it implements the HOME program in compliance with applicable requirements. A start to this would be to implement the consultant’s report. The City agreed with our finding, noting that HUD’s review of their Auditee CDBG program in 1997 noted a similar finding. The City notes in Comments. their comments that their Compliance Monitoring Program is intended to respond to concerns raised in the audit report. The City also notes that a number of governmental jurisdictions are looking at their new program as a model that can be adopted elsewhere. The City closes by stating that our audit finding identified an issue of which they are already aware and stating that they appreciate knowing the monitoring finding is the only area of concern within a large and complex federal program. We recognize that the City plans to have their Compliance OIG Monitoring Program operational on November 1, 1998. It should Evaluation of be noted that this is over one year after HUD’s monitoring review Auditee identified this problem in the CDBG program. Although we Comments. reviewed the consultant’s draft report on this, it is the City’s responsibility to take whatever action necessary to ensure it implements the HOME program in compliance with applicable requirements, including monitoring its subrecipients. We also note 7 1999-SE-155-1001 Finding that our audit objectives were specific to the rental development program. We are not able to offer an opinion on the HOME program as a whole, but are concerned that the City does not have assurance that its subrecipients continue to provide decent, safe, sanitary and affordable housing, which is the intent of the HOME program. Recommendations: We recommend that you require the City of Seattle to: 1A. Demonstrate they have implemented procedures necessary to ensure that subrecipients continue to provide decent, safe, sanitary, and affordable housing, by: • Submitting a copy of their formally adopted Compliance Monitoring Program. • Submitting a monitoring strategy for the upcoming program years which includes a schedule of what agencies will be monitored. 1B. Provide HUD a status report on the actions they intend to take and the actions taken to date to correct deficiencies noted in Appendix A. 8 1999-SE-155-1001 Management Controls Management Controls In planning and performing our audit, we considered the management controls of the City of Seattle to determine our auditing procedures and not to provide assurance on management controls. Management control is the process by which an entity obtains reasonable assurance as to achievement of specified objectives. Management control consists of interrelated components, including integrity, ethical values, competence, and the control environment which includes establishing objectives, risk assessment, information systems, control procedures, communication, managing change, and monitoring. We determined the following management control categories were relevant to our audit objectives: • Determination of participant eligibility and income; • Monitoring of subrecipient performance, including physical inspections and setting tenant rents. We assessed these controls. To the extent possible, we obtained an understanding of the City’s procedures and HUD requirements, assessed control risk, and performed various substantive tests of the controls. A significant weakness exists if a management control does not give reasonable assurance that goals and objectives are met; 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 audit, significant weaknesses existed in the City’s management controls over monitoring subrecipient performance as discussed in the finding. 9 1999-SE-155-1001 Appendix A Summary of Housing Quality Standards Deficiencies Identified in Unit Inspections Development Unit No. Deficiencies Identified Ambassador Condos E407 1. Oven door handle missing Ambassador Condos E213 1. Missing electrical outlet cover plate Ambassador Condos E411 1. Missing microwave door handle 2. Sealant needs to be replaced in shower/tub Ambassador Condos E310 1. Dishwasher leaks 2. Missing oven handle 3. Missing clothes dryer control switch 4. Running water in toilet Ambassador Condos E311 1. Microwave fan over stove inoperable 2. Smoke alarm in hallway, weak signal 3. Bathroom sink not attached to counter top 4. Running water, toilet tank to bowl 5. Poor seal in shower 6. Toilet paper holder pulled out Ambassador Condos E309 1. Missing oven handle 2. Broken refrigerator door handle 3. Delaminating counter top 4. Smoke detector disconnected Pacific Hotel 109 1. Leak under kitchen sink Pacific Hotel 311 1. Broken bathroom sink handle Seattle Emergency Housing Inst. 2502 1. Hole in kitchen counter top Seattle Emergency Housing Inst. 2504 1. Hole in kitchen counter top 2. Hole through bathroom porcelain 3. Smoke detector not properly functioning 4. Broken light fixture in bathroom 5. Hole in bedroom wall Seattle Emergency Housing Inst. 2506 1. Bathroom bare wood exposed around wash basin 2. Poor seal around tub and floor Seattle Emergency Housing Inst. 2508 1. Missing electrical plug cover, living room Seattle Emergency Housing Inst. 2510 1. Poor seal, kitchen refrigerator door 2. Chips in bathroom wash basin 3. Chips in tub porcelain Las Brisas del Mar 2 1. Smoke detector not working Las Brisas del Mar 7 1. Missing switch plate Las Brisas del Mar 11 1. Door handle broken Denice Hunt Townhomes 8537 1. Smoke alarm missing Denice Hunt Townhomes 8557 1. Missing GFI switch in bathroom Cal Anderson House 204 1. Smoke alarm batteries taken out by tenant Glen Hotel 116 1. Window lock broken Glen Hotel Common Area 1. Inadequate ventilation in common restrooms Villa Park Apartments 9101F 1. Missing GFI switch in bathroom Villa Park Apartments 9113G 1. Missing GFI switch in bathroom Total 41 unit deficiencies; 1 common area deficiency 10 1999-SE-155-1001 Appendix B Page 1 of 2 AUDITEE COMMENTS 11 1999-SE-155-1001 Appendix B Page 2 of 2 12 1999-SE-155-1001 Appendix C Distribution Secretary’s Representative, 0AS Office of the Comptroller, 8AFF, 1st Interstate Tower North, 633 - 17th Street, Denver, CO 80202-3607 Director, Office of Community Planning and Development, 0AD Director, Administrative Service Center, ASC3, 1st Interstate Tower North, 633 - 17th Street, Denver, CO 80202-3607 Director, Field Accounting Division, 0AAF Assistant to the Deputy Secretary for Field Management, SDF (Rm. 7106) Audit Liaison Officer for CPD, DG, Rm. 7214 (3) Acquisitions Librarian, Library, AS (Rm. 8141) Chief Financial Officer, F (Rm. 10164) (2) Deputy Chief Financial Officer for Finance, FF (Rm. 10164) (2) Director, HUD Enforcement Center, 1240 Maryland Ave., Suite 200, Washington DC 20024 Deputy Assistant to the Secretary for Labor Relations, SLD (Rm. 7118) Director, Office of Budget, FO (Rm. 3270) Director, Housing and Community Development Issue Area, US GAO 441 G Street, NW, Room 2474 Washington, DC 20548 Attn: Judy England-Joseph The Honorable John Glenn, Ranking Member Committee on Governmental Affairs United States Senate Washington, DC 20515-4305 The Honorable Fred Thompson, Chairman Committee on Governmental Affairs United States Senate Washington, DC 20515-4305 Mr. Pete Sessions, Government Reform and Oversight Committee Congress of the United States House of Representatives Washington, DC 20510-6250 Ms. Cindy Sprunger Subcommittee on Oversight and Investigations O’Neil House Office Building, Room 212 Washington, DC 20515 13 1999-SE-155-1001 Appendix B Page 2 of 2 Honorable Dan Burton, Chairman Committee on Government Reform and Oversight House of Representatives Washington, DC 20515-6143 City of Seattle Department of Housing and Human Services 618 Second Avenue Seattle, WA 98104-2232 14 1999-SE-155-1001
City of Seattle HOME Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-11-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)