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.
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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.
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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
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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.
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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
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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.
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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.
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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
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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
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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.
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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.
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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
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1999-SE-155-1001
Appendix B
Page 1 of 2
AUDITEE COMMENTS
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1999-SE-155-1001
Appendix B
Page 2 of 2
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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
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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
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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)