We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of the Assisted Living Conversion Program. We initiated the audit as part of the activities in our fiscal year 2012 annual audit plan, which included contributing to the improvement of HUD’s execution of and accountability for fiscal responsibilities. Our audit objective was to determine whether HUD had adequate oversight of its Assisted Living Conversion Program.

HUD did not always ensure that grant applications contained eligible work items or construction activities. Specifically, 9 of the 19 grant applications reviewed contained items or construction activities that were not directly related to the conversion of units and common space for assisted living. Further, HUD did not ensure that the performance period for six grants did not exceed 18 months. These weaknesses occurred because HUD lacked procedures and controls for identifying ineligible activities and ensuring that grants were executed within 18 months according to HUD requirements. Additionally, the field offices lacked sufficient understanding of the program’s requirements. As a result, HUD lacked assurance that grant funds were solely used for eligible activities as prescribed by the program requirements and guidance. Further, HUD lacked assurance that projects will be completed in a timely manner and without unnecessary waste to meet the special needs of the elderly and disabled persons.

HUD did not always ensure that grantees submitted required biannual progress reports before it released payments. Further, it did not ensure that it conducted bimonthly onsite inspections of the construction activities as required. These conditions occurred because the field offices disregarded or lacked knowledge of the program requirements for progress reporting and inspections. Consequently, HUD lacked assurance that funds were properly used to meet the program objectives, and did not effectively protect its interest.

We recommend that the Director of HUD’s Office of Housing Assistance and Grant Administration (1) identify the ineligible items and seek reimbursement from grantees from nonfederal funds for completed projects or adjust grant amounts accordingly for active projects, and consult with HUD’s Office of General Counsel on the eligibility of items or activities, where necessary; and (2) implement adequate policies, procedures, and controls to address the deficiencies cited in this audit report.