# Presentation: 411135

## Achieving HOME & CDBG Compliance: Ways to Overcome Common Mistakes, Problems and Issues

- Fort Worth Grantee Conference
- March 2005

## Session Overview

- Review of TX HUD Office monitoring findings FY1999 through FY2004
- Outline the most common findings throughout HOME PJs and CDBG grantees
- Ensure all PJs and grantees assess their own program and ensure compliance

## HUD Monitoring Findings

- Cover a wide spectrum of topics:
- Administration
- Subrecipients and CHDOs
- Specific activities
- Written agreements
- Other Federal requirements
- Monitoring
- Majority of compliance violations related to HOME except:
- Emergency repair
- Program income
- Environmental review
- Administrative Costs
- Slides in order of most common to least

## IDIS

- Findings:
- Data entered into IDIS is inaccurate and incomplete
- Program income not receipted in IDIS
- Resolution:
- Ensure data is entered in IDIS _accurately_, including all program income received
- Review status of incomplete projects and unreserved or uncommitted funds
- Enter completion data in IDIS, at a maximum, within 120 days of final draw
- Check system periodically to ensure data is accurate and complete

## Policies and Procedures

- Finding:
- Written policies and procedures have not been developed and implemented and/or old policies have not been updated
- Resolution:
- Develop and implement written procedures and a management plan that ensure compliance with all HOME program requirements
- The management plan must assign responsibility for staff completion and management oversight of those tasks

## Monitoring: Subrecipients and CHDOs

- Finding:
- Lack of adequate monitoring and oversight of subrecipients and CHDOs by the grantee
- Resolution:
- Develop written procedures and/or management plan to delineate responsibilities
- Ensure appropriate level of monitoring of these entities
- Reference duties, expectations, and monitoring requirements in written agreement

## Property Standards: Local Codes and Written Rehab Standards

- Findings:
- Inspected units to HQS rather than locally adopted codes that are a higher standard
- Lack of written rehabilitation standards and/or documentation of local codes that were used

## Property Standards: Local Codes and Written Rehab Standards

- Resolution:
- Review inspection forms to ensure they meet locally adopted codes and standards
- Include these appropriate codes and standards in all written agreements, contracts, etc.
- Adoption of written rehabilitation standards for use in inspection forms, written policies, work write ups, and construction contracts

## Subrecipients and CHDOs: Audits

- Finding:
- Absent/incomplete financial review of audits
- Resolution:
- Review audits for issues and concerns
- Ensure issues and concerns are addressed
- Document review

## Subsidy Layering

- Findings:
- Lack of documentation that a review for subsidy layering was completed
- Noncompliance with eligible costs and unit allocation for multifamily projects
- Resolution:
- Adopt subsidy layering guidelines for multifamily projects
- Ensure costs are reviewed for eligibility and reasonableness prior to calculating the number of HOME-assisted units

## CHDOs: Low Income Input

- Finding:
- Lack of documentation that the CHDO had a formal process for gathering _low income_ input
- Resolution:
- Review written documents passed by the board (e.g., by laws, resolution) to ensure there is a process for low income input.  This process is generally _not_ included in the above documents.

## Property Standards: Energy

- Finding:
- Lack of documentation that unit meets either Model Energy Code or Texas energy requirements
- Resolution:
- Include the appropriate energy requirements in local codes, inspection forms, for new construction projects
- Bring units/projects into compliance or repay HUD from _nonfederal_ funds.  May or may not be able to use additional HOME/CDBG funds to bring into compliance

## Property Standards: Accessibility

- Finding:
**Lack of documentation that unit meets Section 504 accessibility requirements (mobility and visual and/or hearing)**
- Resolution:
**Include 504 accessibility requirements in procedures and inspection forms**
**Ensure 504 requirements are included in written agreements for multifamily rehabilitation and new construction projects**
**Bring units into compliance or repay HUD from **_**nonfederal**_** funds.  May or may not be able to use additional HOME/CDBG funds**

## Lead Based Paint

- Findings:
- Overall program has not included the Lead Safe Housing Rule (LSHR) into activities funded with HOME and CDBG
- Documentation in the files do not include notices, inspection reports, clearance reports, worker training certificates, etc.

## Lead Based Paint

- Resolution:
- Review post 1/15/02 (if filed extension) projects to ensure all documents related to the LSHR were included
- Adopt written procedures that include LSHR in activity documents (e.g., inspections, rehab standards, etc.) and written agreements
- Ensure all pre-1978 units have LSHR Checklist and Applicability Forms

## Written Agreements

- Findings:
- Lack of written agreements for projects and activities
- Missing required provisions and do not reflect activity to be undertaken
- Resolution:
- Review written agreements for current projects to ensure all information is correct and all provisions are included
- Ensure all written agreements contain the minimum requirements for various entities and are tailored appropriately

## CHDOs: Board Composition

- Finding:
- Lack of documentation that board composition met low income representation
- Resolution:
- Review board makeup initially and at least each year a CHDO is funded
- Require board rosters (e.g., name, address, employer, etc.) with designation of low income representatives

## Uniform Relocation Act

- Finding:
- No documentation in homebuyer files that the required “Notice to Seller” disclosure form was signed and executed
- Resolution:
- Adopt procedures in homebuyer projects that this document is signed-off prior to closing
- Can use form developed by the field office to assure compliance with this requirement

## Income Eligibility

- Findings:
- Determined income eligibility incorrectly or NOT AT ALL resulting in:
- Beneficiaries that may not be eligible
- Over-income beneficiaries
- Determined income eligibility not based upon source documentation
- Lack of documentation that tenant recertifications were completed for income eligibility

## Income Eligibility

- Resolution:
- Review all project files for calculation of income eligibility
- If over-income, determine how to handle based upon activity (i.e., rental project would allow someone to stay, but will pay more rent)
- Institute written procedures for determining income eligibility
- Work with subrecipients and CHDOs to ensure income eligibility is determined properly in the future
- Repay HUD from _nonfederal_ funds

## Homeowner Rehabilitation: Emergency Repair

- Finding:
- Lack of documentation for CDBG-funded emergency repair projects that unit(s) met the definition of “emergency”
- Resolution:
- Adopt written procedures for emergency repair program that uses the correct definition
- Ensure inspection forms include appropriate language to determine if unit meets this definition
- Reclassify homeowner rehabilitation projects as general repair rather than “emergency”

## Match

- Findings:
- Counted match from ineligible sources
- Lack of source documentation for match claimed in file
- Resolution:
- Review match log to ensure all sources are eligible and the calculations were computed correctly
- Revise match log as necessary and/or add sources that eligible to ensure compliance
- Check file contains source documentation for match log

## Monitoring: Overall

- Findings:
- Lack of documentation of completion of ongoing monitoring efforts
- Not obtaining information from rental project owners on at least an annual basis

## Monitoring: Overall

- Resolution:
- Develop written monitoring plan
- Ensure ongoing inspections are occurring at the appropriate frequency
- Reference monitoring requirements in written agreement _and follow up_ to assure all issues are resolved to the grantee’s satisfaction
- Work with property owners to ensure documentation is being completed and sent in at least annually
- Must complete onsite physical inspections of a representative sampling of HOME/CDBG-assisted units as part of the grantee’s monitoring process

## Homebuyer: Recapture and Resale

- Findings:
- Neither recapture nor resale was used to secure HOME investment
- Both recapture and resale was used in Deed of Trust
- Incorrect amount of HOME funds were reflected in Deed or Trust

## Homebuyer: Recapture and Resale

- Resolution:
- Revise written agreements/Deed of Trust, if possible, to reflect either resale or recapture and/or amount of HOME funds (might need to work with HUD office)
- Must choose either resale or recapture and put in Consolidated Plan
- Ensure homebuyer projects in the future include either resale or recapture in documents and reflect correct affordability period
- Refer to new recapture requirement at §92.254(a)(5)(ii)(A), effective December 22, 2005  (net proceeds)
- Must use “resale” provisions if recapture is not applicable

## Homebuyer: Principal Residence and Affordability Period

- Findings:
- No documentation that the homebuyer will occupy the unit as their principal residence and affordability period not reflected
- Unit has not been maintained as the homebuyer’s principal residence
- Incorrect affordability period provided in files

## Homebuyer: Principal Residence and Affordability Period

- Resolution:
- Revise written agreements, if possible, to reflect correct affordability period (might need to work with HUD office)
- Enforce written agreement in units where the principal residence has lapsed
- Ensure homebuyer projects in the future include the principal residence requirement in documents and reflect correct affordability period

## Commitments and Expenditures

- Findings:
- Noncompliance with commitment and expenditure deadlines
- Awarded funds to recipients that do not have capacity to undertake project in a timely manner
- Commitments were not codified in legally binding agreement

## Commitments and Expenditures

- Resolution:
- Review IDIS and HOME Production Reports to ensure deadlines met
- Reprogram funds as necessary to ensure deadlines met
- Execute all funds through a legally binding written agreement
- If statutory commitment and/or expenditure deadlines are not met, HUD will recapture the funds

## HOME Limits: 203(b) and 221(d) 3 Limits

- Finding:
**Lack of documentation that units assisted with HOME were below the 221(d) 3 subsidy limit and 203(b) mortgage limit **
**Resolution:**
**Ensure written procedures include updated limits annually**
**Place documentation in each project file of maximum subsidy limit 221(d)3 (for all activities)  and/or 203(b) limit (for homeowner rehab and homebuyer projects only)**
**If limits are exceeded, may have to repay HUD from **_**nonfederal**_** funds**

## Rental/TBRA: Leases

- Finding:
- Prohibited provisions included in lease documents
- Resolution:
- Review all current rental and TBRA projects leases for compliance
- Immediately amend the leases to remove the prohibited provisions
- Ensure that future written lease documents DO NOT contain any prohibited lease provisions

## Rental: Unit Targeting

- Findings:
- Noncompliance with Program and Project Rule
- Lack of information on rents charged and High/Low HOME rents
- No documentation that ongoing rents charged were reviewed and unit inspections completed

## Rental: Unit Targeting

- Resolution:
- Request and review occupancy reports from housing projects
- Ensure written agreement includes initial rents and designation of High and Low
- Document that rents were reviewed and inspections were conducted
- Take actions necessary to bring project into compliance

## Environmental Review

- Findings:
- Lack of documentation in files that environmental review was completed (including those activities such as CDBG-funded emergency repair and/or minor rehabilitation)
- Resolution:
- Develop process and include procedures for compliance with environmental requirements for every funded activity
- Ensure every project file has the appropriate environmental review documentation
- May have to repay HUD from _nonfederal_ funds

## Rental/TBRA: Tenant Selection

- Finding:
- Lack of written tenant selection criteria and noncompliance with affirmative marketing
- Resolution:
- Review all project files to ensure written tenant selection policies and affirmative marketing are adopted/used

## Minimum HOME $

- Finding:
- Expended less than $1,000 per unit
- Resolution:
- May be possible to change project from HOME-assisted to CDBG-assisted, if eligible
- If continues to be HOME, recalculate assistance to ensure at least each unit has $1,000 or more
- Amend written agreements as necessary and extend affordability period
- Discuss project with HUD representative
- Repay HUD from _nonfederal funds_

## CHDOs: Ineligible Activity

- Finding:
- Awarded funds under the CHDO set aside for an ineligible CHDO activity (e.g., downpayment assistance ONLY)
- Resolution:
- Cancel reservation in IDIS
- Find additional activities to make up the funds that were de-reserved
- Work with CHDO to determine if they could administer program as a subrecipient
- Alter written agreements and financial systems appropriately
- Repay HUD from _nonfederal_ funds

## Program Income

- Findings:
- Lack of accounting by grantee and subrecipients
- Awarded to subrecipients and CHDOs
- Funds are not spent first prior to requesting additional funds from Treasury

## Program Income

- Resolution:
- Review agreements to ensure program income is tracked and reported back to grantee and ensure NO agreement is *awarding* program income (since it must be used first)
- Ensure program income is used first in every transaction

## Subrecipients and CHDOs: Expenses

- Finding:
- Charged expenses that didn’t comply with OMB Circular A-122
- Resolution:
- Ensure written agreement references appropriate circulars
- If possible, review expenses prior to approval of funds

## MBE/WBE

- Finding:
- HUD Form 40107 is incomplete and is not accurate
- Resolution:
- Ensure files have complete and accurate MBE/WBE (minority and women business enterprise) information
- Don’t forget to include the number and dollar amounts of all *subcontracts* awarded to MBE or WBE subcontractors by the general contractor.  These are _in_ _addition_ _to_ the information provided for the general contracts

## Site and Neighborhood Standards

- Finding:
- Lack of documentation in the files that a site and neighborhood review was completed for a new construction multifamily housing project
- Resolution:
- Adopt process and include procedures to ensure future projects include site and neighborhood standard reviews
- Can submit documentation to CPD for review by FHEO.  If this is done, will receive formal notification that site is approved.  If FHEO disapproves, may be able to resubmit additional information

## Adding HOME Funds

- Finding:
- Provision of additional HOME funds after initial year of assistance
- Resolution:
- Repay HOME funds to Treasury from _nonfederal_ funds
- Ensure procedures reflect that no additional HOME funds are allowed after the initial year of assistance

## Debarred/Suspended Contractors

- Finding:
- Did not ensure or document that the contractors used on its projects were not suspended or debarred
- Resolution:
- Adopt process to review the Federal website that posts excluded parties: _[http://epls.Arnet.gov](http://epls.arnet.gov/)_
- Place documentation in the file that the review was completed

## Recordkeeping

- Finding:
- Project files do not meet project recordkeeping requirements
- Resolution:
- Develop program and project checklists
- Review files for completeness
- Preferably, keep complete set of files in a central location so they are ready for HUD monitoring

## Subrecipients and CHDOs: Eligible Recipients

- Finding:
- Awarded subrecipient contract to a for-profit entity
- Resolution:
- Ensure all entities funded with HOME are eligible based upon the activity to be undertaken (i.e., a for-profit cannot be a subrecipient)
- Amend agreements as necessary to ensure compliance

## TBRA Administration

- Finding:
- Awarded TBRA funds to a subrecipient for administrative and/or project delivery costs
- Resolution:
- Include TBRA administration and project delivery costs in 10% cap administrative budget
- Reference in written agreement with subrecipient

## Revolving Loan Funds and HOME

- Finding:
- Awarded HOME funds to set up a revolving loan fund (RLF)
- Resolution:
- Amend agreement that authorized revolving loan fund and convert to regular HOME activity
- Use of HOME funds for an RLF is specifically prohibited