We audited the Puerto Rico Department of Housing’s multifamily special escrow funds. This audit was the result of a referral from the San Juan Office of Multifamily Housing Programs. The objectives of the audit were to determine whether the Department administered and disbursed its escrow funds in accordance with its memorandum of understanding with the U.S. Department of Housing and Urban Development (HUD) and whether funded activities fully provided the intended benefits.
Since September 2012, the Department had maintained a high balance in its escrow accounts without awarding funds for new projects. In addition, it did not ensure the completion of three escrow-funded activities that showed signs of slow progress and did not support the eligibility and propriety of five disbursements. As a result, HUD had no assurance that more than $12 million in escrow funds was effectively used to meet program objectives and provide the intended benefits.
The Department did not ensure that escrow deposits were fully secured by the Federal Government and that program beneficiaries met income limit requirements. In addition, it failed to certify to HUD that funded activities met program requirements. As a result, HUD lacked assurance that funds were properly safeguarded and used for authorized purposes.
We recommend that HUD (1) determine the eligibility of more than $4 million in unsupported escrow fund disbursements and activities that showed signs of slow progress, (2) use more than $7 million in unspent escrow funds to meet program objectives and increase the supply of low- and moderate-income housing, and (3) require the transfer of unspent funds to a more sound financial institution to ensure that escrow account deposits are fully secured by the Federal Government.
Recommendations
Housing
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Status2017-AT-1003-001-AOpenClosed$7,984,429.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Submit a plan showing how it will use the $7,984,429 in unspent escrow funds to meet program objectives and increase the supply of low- and moderate-income housing for the residents of Puerto Rico, including a schedule HUD can track to ensure the expenditure.
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Status2017-AT-1003-001-BOpenClosed$2,432,271.00Questioned 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 supporting documentation so HUD can reevaluate the feasibility of the three activities and determine the eligibility of the $2,432,271 in escrow funds already disbursed. If HUD determines that an activity has been canceled or is not feasible, the Department must reimburse the escrow account from non-Federal funds.
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Status2017-AT-1003-001-COpenClosed
Submit a plan showing how it will proceed regarding the Yabucoa, Juncos, and Barceloneta housing projects, including a schedule that HUD can track to ensure their completion.
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Status2017-AT-1003-001-DOpenClosed$2,176,733.00Questioned 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 supporting documentation showing the reasonableness and allowability of $2,176,733 disbursed or reimburse its escrow account from non-Federal funds.
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Status2017-AT-1003-001-EOpenClosed
Develop and implement written policies detailing procedures and responsibilities related to program administration and monitoring of the escrow program.
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Status2017-AT-1003-002-AOpenClosedClosed on August 23, 2024
Transfer all escrow funds to a financial institution that is supervised by the Federal Deposit Insurance Corporation or the National Credit Union Administration and ensure that all deposits are secured by the Federal Government. Any amount not recovered from the Development Bank must be reimbursed to the escrow account from non-Federal funds.
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Status2017-AT-1003-002-BOpenClosed
Submit required certifications and supporting documentation showing that residents of escrow-funded activities met the established income limit requirements. Any amounts determined ineligible must be reimbursed to the escrow account from non-Federal funds.