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We audited the Yabucoa Volunteers of America Elderly Housing, Inc., Section 202 Supportive Housing for the Elderly Program.  We selected the Yabucoa housing project for review based on concerns regarding the slow progress of the project as noted during the audit of the Puerto Rico Department of Housing multifamily special escrow funds.  The objective of this audit was to determine whether Volunteers used Section 202 funds in accordance with HUD agreements and requirements.

Volunteers disbursed Section 202 funds for a housing project that was incomplete and charged the project unallowable construction costs.  In addition, Volunteers was paid for duplicate construction costs.  These deficiencies occurred because the contractor filed for bankruptcy, Volunteers was not able to reach an agreement with the bonding company to pay the bond or complete the project, and Volunteers did not receive the special escrow funds in a timely manner.  As a result, more than $1.8 million was disbursed for a project that did not meet HUD requirements.  In addition, Volunteers received more than $1 million in duplicate payments.

We recommend that HUD (1) track and ensure that Volunteers returns to the Treasury any funds recovered through the ongoing litigation pertaining to the Yabucoa housing project, (2) deobligate and recapture $1,440,165 in undrawn Section 202 funds assigned to the project, (3) require Volunteers to reimburse to the United States Treasury $140,000 from non-Federal funds for ineligible project construction costs charged to the Section 202 project, and (4) instruct Volunteers to return to the Puerto Rico Department of Housing $1,057,467, plus any interest earned, for the duplicate special escrow fund payments it received.