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MEMORANDUM NO: August 2012 2012-FW-1804 MEMORANDUM FOR: Elva Garcia, Director Office Community Planning and Development, 6JD //signed// FROM: Gerald Kirkland Regional Inspector General for Audit, Fort Worth Region, 6AGA SUBJECT: The City San Antonio, TX, Did Not Administer Its Neighborhood Stabilization Program Grant Accordance With Requirements INTRODUCTION accordance with our goal review Housing and Economic Recovery Act 2008 grantees and because weaknesses identified the U.S. Department Housing and Urban Development (HUD), the Office the Inspector General (OIG) initiated review the City San Antonios activities funded its Neighborhood Stabilization Program grant. The objective was determine whether the City administered its grant accordance with program requirements. METHODOLOGY AND SCOPE performed the audit work the Citys Office Grants Monitoring and Administration, one local for-profit entity, and the OIG audit offices Fort Worth and San Antonio, TX. The audit generally covered the period October 2009, through September 30, 2011, but expanded the scope necessary meet the audit objective. accomplish the objective, reviewed the following: Relevant criteria governing the Act, program regulations, and HUDs guidance; The Citys grant agreement with HUD and its agreements with various entities; The Citys grant expenditures included its audited financial statements for fiscal year 2010; The Citys organizational structure, policies, and procedures for the administration program activities; Program activities residential properties, including that had been sold and that had not been resold during the review period; Bexar County Appraisal District public records for residential properties; and The Citys affordability policies, procedures, and provisions its agreements with various entities and program participants. also conducted interviews with HUD staff, City staff, the staff local entity, and representative from the Texas Department Housing and Community Affairs. BACKGROUND The program was authorized under Division Title III, the Act and provides grants all States and selected local governments formula basis. The Act appropriated $3.92 billion program funds for emergency assistance the redevelopment abandoned, foreclosed-upon, and residential properties. The program was established for the purpose stabilizing communities that have suffered from foreclosures and abandonment. Generally, program funds must used buy, rehabilitate, and resell foreclosed-upon and abandoned homes. Grantees may decide how use the funds and what specific redevelopment activities undertake, subject program requirements. RESULTS REVIEW The City did not administer its program accordance with program monitoring, cost eligibility, and affordability requirements. This condition occurred because the City did not understand the program rules. result, could not support more than $1.1 million program expenditures, including more than million that used acquire, renovate, and resell residential properties without the required affordability provisions and $124,555 for unsupported residential renovation reimbursements. The City also paid more than $2.5 million for renovation contracts that could not show were competitively procured reasonably priced. The City did not ensure that home buyers were aware affordability provisions and did not execute agreements ensure compliance with minimum affordability provisions. provided various entities more than $1.8 million program funds renovate and resell residential properties. nine these properties, with renovation costs more than million, the City did not properly notify home buyers execute agreements with the required affordability provisions. The lack proper affordability agreements occurred because the City was apparently unaware the requirements. The City did not have support for $124,555 reimbursed renovation costs because did not fully understand program requirements. entered into agreements with six local for-profit and nonprofit entities acquire, renovate, and resell residential properties eligible program participants. The City reimbursed more than $1.8 million program funds the local entities for renovation costs related the resold residential properties. reimbursed $219,003 one local entity for the renovation seven residential properties. that amount, the City did not have support for $124,555, about percent, the amount paid the local entity for renovation reimbursements. The City did not have support for $2.5 million development contracts. This condition occurred because the City did not take steps ensure that its developers did not receive undue enrichment from development contracts. The City entered into contracts totaling more than million with the developers three multiple-unit housing developments. reviewed support for $2.5 million construction costs for one the three properties. However, did not take steps monitor the remaining $2.5 million renovation contracts the other two housing developments. The HUD San Antonio Office Community Planning and Development began monitoring review the Citys program activities shortly after began our review. worked closely with the San Antonio office and discussed issues identified both reviews. During our field work, the San Antonio office began working with the City initiate corrective actions address the identified deficiencies. particular, the San Antonio office developed strategies ensure that the City notified homeowners about affordability provisions and executed agreements for the required affordability periods. AUDITEE RESPONSE provided draft memo the City and HUD July 11, 2012, and requested the City provide written response July 30, 2012. held the exit conference July 12, 2012, and the City provided written response July 26, 2012. The City working with HUD address the deficiencies identified the OIG review. The complete text the City's response included appendix RECOMMENDATIONS The San Antonio office working with the City develop corrective actions address the compliance issues identified our review. Therefore, further OIG involvement warranted.