We audited the Office of the Commissioner for Municipal Affairs’ Section 108 Loan Guarantee program as part of our strategic plan and based on the deficiencies noted during our recent review of Municipal Affairs’ Section 108 Loan Guarantee program, concerning the slow progress of the Vieques Sports Complex project (Audit memorandum number 2014-AT-1801, issued March 20, 2014). The objectives of the audit were to determine whether Section 108 loan program funds were effectively used to meet a Community Development Block Grant (CDBG) program national objective and provide the intended benefits and whether borrowers complied with loan contract and the U.S. Department of Housing and Urban Development (HUD) requirements.
Municipal Affairs did not ensure that borrowers completed three Section 108 Loan Guarantee activities that showed signs of slow progress. As a result, HUD had no assurance that more than $21 million awarded and disbursed for three Section 108-funded activities met a national objective of the CDBG program and fully provided the intended benefits.
Section 108 loan program borrowers used more than $1 million for ineligible expenditures and did not support the eligibility of more than $367,000 in program disbursements. In addition, loan proceeds were not disbursed within the established timeframe, borrowers did not provide HUD the required loan collateral, borrowers did not establish a financial management system in accordance with HUD requirements, and investments were not fully collateralized. As a result, HUD lacked assurance that funds were adequately accounted for, safeguarded, and used for authorized purposes and in accordance with HUD requirements.
We recommend that HUD (1) determine the eligibility of more than $20 million in unsupported Section 108 program costs and activities that showed signs of slow progress and (2) require the repayment of more than $1 million in ineligible expenditures.
Recommendations
Community Planning and Development
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Status2015-AT-1001-001-AOpenClosed$7,010,276.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Submit a plan for how it will proceed with respect to the Municipality of San Lorenzo activity center project, including a schedule that HUD can track to ensure its completion. HUD must reevaluate the feasibility of the activity and determine the eligibility of the $7,010,276 already invested. (Footnote 6: Total investments of $7,999,275 were adjusted to account for $988,154 questioned in recommendation 2A and $845 in recommendation 2C.) If HUD determines that the activity has been canceled or is not feasible, Municipal Affairs must mitigate activity losses by committing any unused loan proceeds for future loan repayments.
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Status2015-AT-1001-001-BOpenClosed$7,369,000.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Submit a plan for how it will proceed with respect to the Municipality of Dorado hotel project, including a schedule that HUD can track to ensure its completion. HUD must reevaluate the feasibility of the activity and determine the eligibility of the $7,369,000 already invested. If HUD determines that the activity has been canceled or is not feasible, Municipal Affairs must mitigate activity losses by committing any unused loan proceeds for future loan repayments.
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Status2015-AT-1001-001-COpenClosed$5,474,376.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Submit a plan for how it will proceed with respect to the Municipality of Camuy hotel project, including a schedule that HUD can track to ensure its completion. HUD must reevaluate the feasibility of the activity and determine the eligibility of the $5,474,376 already invested. (Footnote 7: Total investments of $5,830,878 were adjusted to account for $436 questioned in recommendation 2A and $356,066 in recommendation 2C.) If HUD determines that the activity has been canceled or is not feasible, Municipal Affairs must mitigate activity losses by committing any unused loan proceeds for future loan repayments.
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Status2015-AT-1001-001-DOpenClosed
Conduct monitoring of the Section 108 activities with signs of slow progress to ensure that program objectives are met and provide the intended benefits.
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Status2015-AT-1001-002-AOpenClosed$1,080,242.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Recover from the borrowers and reimburse $1,080,242 to the applicable loan guarantee account from non-Federal funds for ineligible disbursements that were not related to the approved projects and used to finance local government operations.
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Status2015-AT-1001-002-COpenClosed$367,840.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Obtain and submit supporting documentation showing the eligibility and propriety of $367,840 in disbursements or reimburse the loan guarantee account from non-Federal funds.
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Status2015-AT-1001-002-DOpenClosed
Ensure that the borrowers either transfer the unexpended Section 108 loan proceeds to the repayment account or submit a request for extension to HUD.
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Status2015-AT-1001-002-EOpenClosed
Ensure that the borrowers provide HUD the additional security requirements according to the loan agreement.
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Status2015-AT-1001-002-FOpenClosed
Ensure that borrowers develop and implement a financial management system in accordance with HUD requirements to ensure that program funds can be traced to a level that ensures that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes.
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Status2015-AT-1001-002-GOpenClosed
Ensure that all Section 108 loan proceeds deposited at commercial banks are properly collateralized with Government obligations.
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Status2015-AT-1001-002-HOpenClosed
Conduct monitoring reviews of all Section 108 projects and ensure that borrowers comply with all loan agreement provisions and HUD regulations.