The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the City of Cleveland’s (City) HOME Investment Partnerships Program (Program). The City was selected based upon our analysis of risk factors related to Program grantees in Region V’s jurisdiction, recent media coverage regarding the City’s Program, and a request from the U.S. Department of Housing and Urban Development’s (HUD) Columbus Office of Community Planning and Development. Our objectives were to determine whether the City complied with HUD’s requirements in its use of Program and American Dream Downpayment Initiative (Initiative) funds to provide interest-free second mortgage loans to home buyers through its Afford-A-Home program and its use of recapture provisions for Afford-A-Home program activities (activity).

The City did not comply with HUD’s requirements in its use of Program and Initiative funds to provide interest-free second mortgage loans to home buyers through its Afford-A-Home program and its use of recapture provisions for activities. It (1) provided assistance for ineligible activities; (2) lacked sufficient documentation to support that activities were eligible; (3) included inappropriate recapture provisions in its action plans for program years 2007 to 2008, 2008 to 2009, and 2009 to 2010; (4) did not implement appropriate recapture provisions for all of the activities reviewed; and (5) did not ensure that its Program was reimbursed for Program funds used to assist home buyers in purchasing homes that were later sold through a sheriff’s sale and ownership of the homes had been transferred. As a result, it inappropriately provided $20,000 in Program funds to assist two households that were not income eligible and was unable to support its use of $760,000 in Program and/or Initiative funds. Further, its Program was not reimbursed for $30,000 in Program funds used for three homes that were sold through a sheriff’s sale and ownership of the homes had been transferred. In addition, the City is at risk of being required to reimburse its Program additional non-Federal funds if the ownership of additional homes acquired under its Afford-A-Home program is transferred through foreclosure.

We recommend that the Director of HUD’s Columbus Office of Community Planning and Development require the City to (1) reimburse its Program from non-Federal funds for the $20,000 in Program funds inappropriately used to assist two activities, (2) provide supporting documentation or reimburse its Program $760,000 from non-Federal funds, (3) reimburse its Program $30,000 from non-Federal funds for the three homes that had been sold through a sheriff’s sale and ownership of the homes had been transferred, and (4) implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that over the next year the City appropriately recaptures Program and/or Initiative funds and/or reimburses its Program from non-Federal funds for at least $90,000 in Program and/or Initiative funds used for homes acquired under its Afford-A-Home program in which ownership would be transferred due to foreclosures.