U.S. flag

An official website of the United States government Here’s how you know

The .gov means it’s official.

Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you're on a federal government site.

The site is secure.

The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Hotline

Report Fraud, Waste and Abuse
November 22, 2009
2010-BO-1002
ig1011002.pdf

We audited the HOME Investment Partnerships Program (HOME) and Community Development Block Grant (CDBG) funded housing programs administered by the City of Holyoke’s Office of Community Development (City) as part of our annual audit plan. The City was selected based upon our analysis of risk factors relating to HOME grantees in Region 1.

Our objective was to determine whether the City properly administered its HOME and CDBG funded housing programs in compliance with U.S. Department of Housing and Urban Development (HUD) requirements. Specifically, we wanted to determine whether the City awarded contracts for its HOME Development program in accordance with HOME and federal requirements. In addition, we wanted to determine whether the City adequately monitored its CDBG funded Rental Neighborhood Improvement program and the subrecipient that administers this program.

The City did not always award its HOME Development program contracts in accordance with federal requirements. Specifically, it did not obtain or prepare adequate cost estimates or conduct required cost analysis before it awarded $2.6 million in funds for three noncompetitive construction contracts. Construction cost estimates developed during the audit showed that expenditures claimed by the developer for the construction of the duplex units were an average of 14 percent higher than the construction cost estimates. Totaling $288,000 for seven duplexes. Additionally, all HUD assistance was not properly considered during the City’s evaluations of project total development costs for duplexes developed as part of the HOME Development program. Lastly, the HOME investments subject to recapture were incorrectly calculated so that $344,178 would not be recaptured if the homeowners did not reside in the HUD-funded duplexes for the entire 15-year affordability period.

Additionally, 67 percent of the loans (26 of 39) processed under of the HUD-funded Rental Neighborhood Improvement program went to properties that were owned by either the subrecipient (Olde Holyoke Development Corporation) or a second, related nonprofit, Contemporary Apartment Inc. (Contemporary Apartments). The subrecipient also did not treat related and nonrelated loans consistently regarding use of contracts, enforcement of timetables for completion, accrual of interest on advances, or project record keeping. In addition, (1) related party rehabilitation was not completed in a timely manner, (2) appropriate reviews and approvals of the projects were not made for all loans before committing the funds, (3) the subrecipient did not secure all program investments to related party loans, and (4) not all project records were maintained in accordance with record-keeping requirements.

Further, the City allowed the subrecipient to use program funds totaling $332,105 in the form of “grants.” These grants were used for demolition activities which did not meet the Rental Neighborhood Improvement program’s objectives and were not carried out in compliance with the CDBG program.

We recommend that the Director of the Office of Community Planning and Development require the City to establish appropriate internal controls over the HOME procurement process, including the segregation of duties so that the process is not entirely controlled by one person. We also recommend that the City repay $288,000 in unreasonable construction costs paid under the HOME Development program. Additionally, we recommend that HUD and the City conduct an independent cost analysis for the 2008 procurements to ensure that HOME and CDBG program expenditures of more than $1 million were reasonable and supported. For the unreasonable amounts, the City should reimburse the HOME/CDBG program from nonfederal funds.

Finally, we recommend that the Director of the Office of Community Planning and Development review the revised subrecipient contract for the Rental Neighborhood Improvement program to ensure that it contains appropriate controls, particularly when related parties are involved. These increased controls will ensure that HUD funds used for future related-party activities will be properly spent with appropriate performance measures in place, resulting in more than $1.7 million in funds put to better use for activities properly approved and overseen by independent parties.