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Puerto Rico ReportsIssue Date: April 27, 2007 Title: The Municipality of Toa Baja, Puerto Rico, Needs to Improve Its Community Development Block Grant Program AdministrationWe audited the Municipality of Toa Baja's (Municipality) Community Development Block Grant (Block Grant) program. Our audit objective was to determine whether the Municipality complied with U.S. Department of Housing and Urban Development (HUD) regulations, procedures, and instructions related to the administration of the Block Grant program. The Municipality improperly used Block Grant funds for ineligible new housing construction; did not ensure that units were adequate, safe, and sanitary; and lacked adequate documentation to support program accomplishments. Therefore, program expenditures of more than $77,000 are ineligible, and more than $1 million is considered unsupported pending an eligibility determination by HUD. The Municipality's financial management system did not fully comply with applicable HUD requirements. The system did not properly allocate more than $297,000 in administrative expenditures, did not support the allowability for more than $107,000 in program disbursements, could not account for more than $84,000 in Block Grant receipts, and allowed the use of more than $12,000 for ineligible expenditures. The Municipality awarded six contracts totaling more than $231,000 without following HUD procurement requirements. As a result, it cannot ensure that quality goods and services were obtained at the most advantageous terms. In addition, the Municipality did not support the reasonableness of more than $167,000 in Block Grant disbursements and paid more than $5,000 for excessive expenditures. We recommend that HUD require the Municipality to repay more than $89,000 in ineligible expenditures and $5,190 in excessive costs. HUD should also require the Municipality to provide all supporting documentation showing the appropriateness and eligibility of more than $1.72 million in Block Grant disbursements. We also recommend that HUD require the Municipality to develop and implement an internal control plan to ensure that the Block Grant program has (1) controls and procedures which ensure that the housing rehabilitation activities meet the program objectives, (2) a financial management system that complies with HUD requirements, and (3) procurement procedures which ensure that goods and services are obtained at the most advantageous terms and in a manner providing full and open competition. In addition, we recommend that HUD require the Municipality to ensure that Block Grant expenditures are properly accounted for, reconciled with HUD's disbursement system, and in compliance with requirements. Issue Date: March 29, 2007 Title: The Puerto Rico Department of Housing, San Juan, Puerto Rico, Did Not Effectively Administer Its Section 8 Housing ProgramAs part of the U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General's (OIG) strategic plan, we audited the Puerto Rico Department of Housing (authority) Section 8 Housing Choice Voucher program. Our audit objectives were to determine whether Section 8 units met housing quality standards in accordance with HUD requirements and whether the authority properly determined housing assistance subsidies. Of the 66 units inspected, 63 (95 percent) did not meet minimum housing quality standards, and 23 of those were in material noncompliance. As a result, Section 8 program funds were not used efficiently and effectively to provide units that were decent, safe, and sanitary; and the authority made housing assistance payments for units that did not meet standards. We estimate that over the next year, the authority will disburse housing assistance payments of more than $2.6 million for units in material noncompliance with housing quality standards if it does not implement adequate controls. The authority overhoused 29 tenants and miscalculated Section 8 assistance because it did not have effective controls in place to ensure that its staff assigned the correct voucher size and calculated the correct assistance payment. As a result, it made overpayments and underpayments totaling $5,767. It is recommend that the director of the Office of Public Housing require the authority to inspect all of the 63 units that did not meet minimum housing quality standards to verify that the landlords took appropriate corrective actions to make the units decent, safe, and sanitary. If appropriate actions were not taken, the authority should abate the rents or terminate the tenants' vouchers. The director should also require the authority to ensure that the errors in tenant files are corrected and reimburse HUD $5,451 and the tenants $316 for the identified errors that affected the assistance payments. We also recommend that the director require the authority to establish and implement controls to ensure that it follows HUD requirements so that assistance payments are correct and to prevent an estimated $2.6 million from being spent on units that are in material noncompliance with standards. Issue
Date: September 6, 2006 Title: The Municipality of Toa Baja, Puerto Rico, Did Not Administer Its Section 108 Loan Guarantee Assistance Program in Accordance with HUD RequirementsWe audited the Municipality of Toa Baja's (Municipality) Section 108 Loan Guarantee Assistance (Loan Guarantee) program. Our audit objective was to determine whether the Municipality complied with HUD regulations, procedures, and instructions related to the administration of the Loan Guarantee program. The Municipality did not manage two Loan Guarantee program activities in an economical, efficient, and effective manner. It paid more than $4.8 million for two activities in which the intended benefits and compliance with Community Development Block Grant (Block Grant) national objectives were not met and paid $70,369 for unreasonable/unnecessary expenditures. In addition, the Municipality did not maintain adequate records to demonstrate that it complied with environmental review procedures associated with the construction of the Toa Baja public library. As a result, HUD has no assurance that requirements were met or whether potential findings or concerns were properly addressed. We recommend that HUD require the Municipality to develop and implement a corrective action plan to eliminate safety hazards and ensure that the public library meets a national objective or repay $3.8 million used for its construction. HUD should also require the Municipality to provide all supporting documentation showing that it obtained HUD approval to change the purpose and scope of the Candelaria multipurpose center or repay $1 million used for its construction. We also recommend that HUD require the Municipality to repay $70,369 in unreasonable/unnecessary cost for repairs at the public library. In addition, we recommend that HUD require the Municipality to develop and implement an internal control plan to ensure that the Loan Guarantee program has (1) procedures that ensure funded activities provide the intended benefits to the community and meet at least one of the Block Grant national objectives and (2) environmental review procedures that ensure funded activities are properly assessed and supported. Issue
Date: July 28, 2006 Title: The Municipality of Humacao, Puerto Rico, Did Not Administer Its Community Development Block Grant in Accordance with HUD RequirementsWe audited the Municipality of Humacao's (Municipality) Community Development Block Grant (Block Grant) program. Our audit objective was to determine whether the Municipality complied with HUD regulations, procedures, and instructions related to the administration of the Block Grant program. The Municipality's financial management system did not properly identify the application of more than $1.2 million in program income, did not properly allocate more than $315,500 in administrative salaries, allowed the use of more than $66,500 for ineligible expenditures, and could not account for more than $79,900 in Block Grant receipts. In addition, the Municipality awarded 12 contracts without following HUD procurement requirements, and did not support the reasonableness of $1.9 million in Block Grant contracts and paid more than $102,500 for excessive or unnecessary expenditures. Further, the Municipality did not maintain adequate records to demonstrate that activities met at least one of the three Block Grant national objectives. Therefore, the intended benefits and compliance with the Block Grant national objectives and related expenditures totaling $211,860 are unsupported. We recommend that HUD require the Municipality to repay $102,533 in excessive costs and $66,593 in ineligible operating expenditures. HUD should also require the Municipality to provide all supporting documentation showing the appropriateness and eligibility of $3.8 million in Block Grant disbursements. We also recommend that HUD require the Municipality to develop and implement an internal control plan to ensure the Block Grant program has (1) a financial management system that complies with HUD requirements, (2) procurement procedures that ensure goods and services are obtained at the most advantageous terms and in a manner providing full and open competition, and (3) procedures that ensure funded activities meet at least one of the Block Grant national objectives. In addition, we recommend that HUD require the Municipality to ensure Block Grant expenditures are properly accounted for, reconciled with HUD's disbursement system, and in compliance with HUD requirements. Issue
Date: July 27, 2006 Title: The Municipality of Bayamon Housing Authority, Bayamon, Puerto Rico, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and SanitaryWe audited the Municipality of Bayamon Housing Authority's (Authority) Section 8 Housing Choice Voucher program. Our audit objective was to determine whether Section 8 units met housing quality standards in accordance with HUD requirements. Fifty-eight of the 66 units we inspected did not meet minimum housing quality standards. Of the 58 units, 15 were in material noncompliance with housing quality standards. As a result, tenants lived in units that were not decent, safe, and sanitary, and HUD made housing assistance payments for units that did not meet standards. We estimate that over the next year, HUD will pay housing assistance payments of more than $1.4 million for units in material noncompliance with housing quality standards. We recommend that HUD require the Authority to inspect all of the 58 units that did not meet minimum housing quality standards to verify that the landlords took appropriate corrective actions to make the units decent, safe, and sanitary. If appropriate actions were not taken, the Authority should abate the rents or terminate the tenants' vouchers. HUD should also require the Authority to implement an internal control plan and incorporate it into the Authority's Section 8 administrative plan to ensure units meet housing quality standards and inspections meet HUD requirements to prevent an estimated $1.4 million from being spent on units that are in material noncompliance with standards. Issue Date: February 23, 2006 Title: The Municipality of San Juan Housing Authority, San Juan, Puerto Rico, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and SanitaryWe audited the Municipality of San Juan Housing Authority's (Authority) Section 8 Housing Choice Voucher program. Our audit objective was to determine whether Section 8 units met housing quality standards in accordance with HUD requirements. Sixty-three of the 67 units we inspected did not meet minimum housing quality standards. Of the 63 units, 25 were in material noncompliance with housing quality standards. As a result, tenants lived in units that were not decent, safe, and sanitary, and HUD made housing assistance payments for units that did not meet standards. We estimate that over the next year, HUD will pay housing assistance payments of more than $5.8 million for units in material noncompliance with housing quality standards. We recommend that HUD require the Authority to inspect all of the 63 units that did not meet minimum housing quality standards to verify that the landlords took appropriate corrective actions to make the units decent, safe, and sanitary. If appropriate actions were not taken, the Authority should abate the rents or terminate the tenants' vouchers. HUD should also require the Authority to implement an internal control plan and incorporate it into the Authority's Section 8 administrative plan to ensure units meet housing quality standards and inspections meet HUD requirements to prevent an estimated $5.8 million from being spent on units that are in material noncompliance with standards. Issue
Date: September 29, 2005 Title: Municipality of San Juan Housing Authority San Juan, Puerto RicoWe completed an audit of the Municipality of San Juan Housing Authority's (Authority) Section 8 Housing Choice Voucher program as part of our strategic plan goals to reduce erroneous payments in rental assistance programs. The review was initiated in response to a request from the Department of Housing and Urban Development's (HUD) San Juan Office of Public and Indian Housing. The San Juan office advised that it was not satisfied with the Authority's overall performance in administering its Section 8 program. The Authority did not have adequate controls to ensure tenants received the proper voucher size, assistance payments were correct, files were properly documented, and participants were properly selected from the waiting list. As a result, the Authority made erroneous housing assistance payments totaling $9,601 and could incur additional overpayments of $148,827. We recommend HUD require the Authority to repay $9,601, less the $3,138 already recovered, for excessive and erroneous housing assistance payments and take measures to avoid future estimated overpayments of $148,827. HUD should also require the Authority to review tenant files with inadequate income verifications, locate missing tenant files, and determine the appropriateness and eligibility of the $121,638 in housing assistance disbursed. Further, since the Authority failed to correct deficiencies identified by HUD in December 2002, HUD should reduce the Authority's administrative fees earned by 10 percent retroactively to July 2003 or about $413,327. HUD should continue to monitor the Authority and withhold 10 percent of the administrative fee, about $410,338, until the Authority complies with requirements. We also recommend HUD require the Authority to establish and implement controls to ensure it follows HUD requirements so that assistance payments are correct, files are properly documented, and participants are properly selected from the waiting list. Issue Date: September 15, 2005 Title: Corporaci�n para el Fomento Econ�mico de la Ciudad Capital, San Juan, Puerto RicoWe completed an audit of the Corporaci�n para el Fomento Econ�mico de la Ciudad Capital (Corporation), a nonprofit subgrantee for the Municipality of San Juan, PR. The review was initiated in response to a request from the Department of Housing and Urban Development's (HUD) San Juan Office of Community Planning and Development, which was not satisfied with the Corporation's overall performance in administering its independent capital fund. Contrary to HUD requirements, the Corporation retained more than $1.48 million in interest earned from its Community Development Block Grant (Block Grant) revolving fund account. The Corporation's financial management system did not properly identify the application of more than $1 million in administrative fees charged, allowed the use of $463,618 for ineligible expenditures, did not account for all program income, and maintained a high balance in its Block Grant fund account. In addition, the Corporation did not maintain adequate records to demonstrate that activities met at least one of the three Block Grant national objectives. Therefore, the related expenditures of four loans totaling $631,195 are considered unsupported pending an eligibility determination by HUD. We recommend HUD require the Municipality to repay $1.48 million in interest earned from the Block Grant revolving fund and repay $463,618 in ineligible expenditures. HUD should also require the Municipality to provide all supporting documentation and determine the appropriateness and eligibility of $1.64 million in Block Grant disbursements. We also recommend that HUD require the Municipality to develop and implement an internal control plan to ensure the independent capital fund has a financial management system that complies with HUD requirements and that funds are used in a timely manner. Issue Date: January 27, 2005 Title: Pan American Financial Corporation Non-Supervised Direct Endorsement Lender Guaynabo, PROIG audited Pan American Financial Corporation (Pan American), a non-supervised direct endorsement lender. We selected Pan American because of its high default rate. Pan American did not follow HUD requirements when originating and approving 17 Federal Housing Administration-insured loans totaling $2,782,706. In 10 loans, Pan American did not exercise the care expected of a prudent lender in the analysis of the borrower's assets, earnings, and debts. Pan American also approved seven loans that did not comply with HUD's self-sufficiency requirement, and were over-insured by $209,889. The deficiencies occurred because Pan American did not establish and implement adequate controls to ensure its employees followed HUD requirements when processing and underwriting loans. In addition, Pan American did not implement procedures or controls to ensure all Federal Housing Administration-insured loans that default within 6 months of closing undergo a loan origination quality control review.We attribute this deficiency to Pan American's disregard of HUD requirements and instructions. The deficiencies contributed to Pan American's high default rate and increased HUD's risk to the Federal Housing Administration insurance fund. HUD has no assurance of the accuracy, validity, and completeness of Pan American's loan origination operations. We recommend the HUD require Pan American to indemnify $1.39 million against future losses on nine loans and pay down the mortgages of the seven over-insured loans by $209,889. We further recommend HUD take appropriate monitoring measures to ensure Pan American establishes and implements appropriate controls so that its employees follow HUD requirements when processing and underwriting loans. Finally, HUD should require Pan American to take the needed action to ensure the required quality control plan reviews are conducted. Issue Date: June 29, 2004 Title: Audit Survey of Municipality of Humacao Section 8 Housing Choice Voucher Program, Humacao, Puerto RicoWe completed a survey of the Municipality of Humacao Housing Authority's (Authority) Section 8 Housing Choice Voucher Program. The review was initiated in response to a request from the Department of Housing and Urban Development's (HUD) Caribbean Office of Public Housing. Our objective was to obtain information on the Authority and assess whether the administration of the Section 8 Program was carried out in accordance with HUD requirements, and determine if a full audit was warranted. Our survey disclosed some minor deficiencies related to unit inspections, assistance determination, financial reporting, and record keeping of client files. Based on the survey results, we determined that a detailed audit was not warranted. Issue Date: April 22, 2004 Title: Puerto Rico Public Housing Administration, San Juan, Puerto RicoThe Authority did not comply with Federal requirements governing the management and use of HUD funds. It improperly withdrew and used over $1.1 million in operating subsidies for program activities not related to the administration of its public housing projects. In addition, the Authority did not provide support to document the purpose of over $4.23 million owed to its Low-Income Public Housing Program by the Puerto Rico PBA, and its public housing management agents. We attribute these deficiencies to the Authority's disregard of program requirements and because it did not efficiently implement controls to ensure that grant funds were used solely for authorized purposes. Issue Date July 30, 2003 Title: Puerto Rico Department of Housing State HOME Investment Partnership ProgramIn response to a request from HUD's Caribbean Office of Community Planning and Development, we performed an audit of the Puerto Rico Department of Housing's State HOME Investment Partnership Program. The request was based on the results of a HUD August 31, 2001, monitoring report covering a sample of activities funded from 1992 to 2000. We found the Puerto Rico Department of Housing's HOME grants were unauditable and its financial management system was inadequate. The Department did not accomplish its intent for two of three new housing development/rehabilitation projects tested. We identified $1,687,484 of ineligible and $627,015 of unsupported HOME Program funds; and recommended $1,029,814 be reprogrammed and put to better use. We also recommend that HUD suspend disbursements of any further HOME awards until the Department can demonstrate accountability and compliance for all HOME grants. Issue Date: March 21, 2003 Title: Procurement of Management Agents Puerto Rico Public Housing Administration San Juan, Puerto RicoWe completed a review of the Puerto Rico Public Housing Administration's management agent contracts. Our objectives were to determine whether the management agent contracts awarded during 1999 were procured in a manner providing full and open competition consistent with the standards and awarded on terms and prices beneficial to the PRPHA. Our assessment showed that the former PRPHA Administrator failed to ensure that the contracts awarded were procured in a manner providing full and open competition consistent with the standards, and were reasonable and beneficial to the PRPHA. The PRPHA: (1) disregarded procurement requirements; (2) executed financially burdensome management contracts; (3) paid excessive non-project salaries; and (4) paid excessive overhead and profit. We estimate these 5-year contracts to have been awarded at $35 million more than were necessary. We recommend that HUD work with the PRPHA to remedy the deficiencies in the contract, or require the PRPHA to pursue all available options provided by the agents' service contracts to ensure the best interests of the PRPHA and HUD are being served, and possibly save $10.8 million in costs not incurred. In addition, we recommend that HUD consider appropriate administrative action against the former PRPHA Administrator and others for gross mismanagement of the procurement process. Issue Date: March 20, 2002 Title: Jardines DE Valencia Housing Cooperative, Rio Piedras, Puerto RicoAt the request of HUD's Caribbean Multifamily Program Center Director, the OIG reviewed the Jardines de Valencia Housing Cooperative. We found that the former Project Administrator received excessive benefits of $25,562 from the Cooperative's operating funds, falsified payroll records, and performed other improper actions, while administering the Cooperative. These actions were performed with the assistance of the former Fee Accountant. Further, some of the Board of Directors were negligent in carrying out their duties, making the former Cooperative Officials' actions possible. This caused an unnecessary burden on the Cooperative's financial resources. As a result of the improper administration, during 1997 and 1998, the Cooperative was in a negative surplus cash position. We are recommending repayment of $25,562 and debarment of the Cooperative and Board Officials involved. Issue Date: January 11, 2002 Title: Puerto Rico Public Housing Administration (PRPHA) Citizen Complaint on Martinal Property, Inc (Management Agent) San Juan, Puerto Rico We completed a review of the subject Management Agent's procedures
in awarding a contract under Bid 99-12. The procurement was for
roof repairs at Luis Llorens Torres, Parque San Agustin, and Puerta
de Tierra public housing projects. Martinal Property, Inc. is the
manager of these projects under a contract with the Puerto Rico
Public Housing Administration (PRPHA). Our review was prompted by
a citizen's complaint alleging irregularities in the procurement
process. Our objective was to determine the validity of the complaint
and if the procurement procedures used by the Management Agent for
Bid 99-12 complied with HUD requirements. While we found the complainant's specific allegations were not valid, we did confirm irregularities in the procurement process. The Management Agent did not properly advertise the bid, did not perform a cost and price analysis, and awarded contracts for a different scope of work and twice the price of the winning bid. Consequently, the bid process failed to give assurances of either adequate competition or of value received. We are making no recommendations regarding procurement procedures since HUD is now working closely with the PRPHA to correct a myriad of management deficiencies, especially in the area of procurement. However, we are recommending that HUD direct the PRPHA to assure that all work under the subject contract was satisfactorily completed. Issue Date: March 30, 2001 Title: Puerto Rico Public Housing Administration HOPE VI Program, Comprehensive Grant Program, and Economic Development and Supportive Services Program San Juan, Puerto RicoWe attempted to audit the HOPE VI Program of the Puerto Rico Public Housing Administration to revitalize the New San Juan Gateway. We reviewed the HOPE VI Implementation and Planning grants, and related funding from the Comprehensive Grant Program and the Economic Development and Supportive Services Program. We conducted the audit work in response to HUD officials' concerns about the PHA's financial management of the HOPE VI Program. In general, our audit objective was to determine whether the PHA properly administered HOPE VI, CGP, and EDSS funds assigned to the Gateway initiative. Our audit disclosed a total breakdown of the PHA's administration of the New San Juan Gateway Project. The PHA lacked effective management and accounting controls over its Federal funds and did not effectively monitor the activities of its project manager, Carrero and Associates. Due to the unreliability of the amounts reported in the grant program accounts, we were unable to determine total program expenditures. The HOPE VI grants and related funds were essentially unauditable. However, at the request of HUD, we attempted to determine the application of funds and compliance with program regulations. We identified $5.4 million of ineligible expenditures, $10.5 million of unsupported costs, and $3.8 million in cost efficiencies (see Appendix A). Our audit disclosed:
The PHA failed to properly administer payments of CGP funds. It approved $3.8 million as project management fees without proper solicitation of the vendor and without cost analysis and justification. In addition, the PHA did not maintain adequate documentation to support the disbursements to Carrero and Associates, paid excessive charges, and failed to obtain proper approval prior to disbursement. These actions occurred because PHA's management disregarded Federal procurement requirements and did not establish adequate internal controls over payments. In the absence of proper support, the PHA is liable for $3.8 million ($1.7 million paid as of May 1999) for improper project management fees and $326,260 for other unsupported costs. The PHA had no system of internal control. It had an inadequate accounting system, inadequate disbursement control and recordkeeping, and commingled cash from the various grants. It failed to meet matching state requirements, and used Federal funds to overcome a shortfall in state funds. The PHA executed no inventory control over purchases of goods and services for the HOPE VI Program and failed to monitor its project manager. This situation existed, in our opinion, because the PHA's management was unprepared or incapable of administering the program and disregarded program requirements. Consequently, the HOPE VI grants were unauditable, millions in costs are questionable or unsupported, and HUD has no basis for assurance of economy or efficiency of this project. We recommend that you declare the PHA in default of its grant agreements for the HOPE VI Program and take the necessary steps to oversee completion of the Gateway initiative as planned. We also recommend that you take administrative action against former PHA officials who disregarded program requirements and failed to take corrective action on known deficiencies. We have questioned over $19.8 million in costs which the PHA must repay from non-Federal sources or justify. Finally, we recommend that you work closely with the newly appointed PHA administration to rebuild its management and internal controls systems. We provided copies of the draft report to the PHA and HUD on February 2, 2001. We discussed the report with the officials at the exit conference on February 8, 2001. The PHA provided written comments on March 12, 2001. Top officials in both the Puerto Rico Department of Housing and the PHA have been replaced. The new administration is working to implement programmatic reform and to create internal controls to safeguard the integrity of its programs. The PHA response is limited by the fact that the new administration has had, as we did, significant difficulty in locating many of the documents pertaining to the HOPE VI Program. The PHA is committed to continue to work to resolve this problem. The letter responds to the recommendations and sets forth the action being taken by the new administration to correct the deficiencies found at the PHA. The PHA's comments are summarized in the findings and included in their entirety as Appendix F. Issue Date: December 12, 2000 Title: Municipality of Aguadilla, Aguadilla, Puerto RicoThe Municipality did not comply with the procedures required in Section 106 of the NHPA. It did not provide adequate evidence to demonstrate that it: (1) identified the historic properties affected by the Waterfront project; (2) assessed the effect the Waterfront project would have on historic properties; and (3) properly consulted the SHPO. As a result, on August 24, 1998, the Municipality started the demolition of the Casa Parroquial, a property designated eligible for the National Register, in violation of HUD's CDBG regulations. Date Issued: March 9, 2000 Title: Misuse of HUD Funds, Puerto Rico PHA, San Juan, Puerto RicoWe identified several conditions regarding the Puerto Rico PHA's use of HUD funds. These conditions were not within the scope of the audit but warrant immediate attention and resolution. We found that the PHA: Improperly withdrew and used Public Housing operating funds totaling about $17 million for ineligible disaster relief expenses, and Improperly withdrew and transferred $1 million in Comprehensive Grant Program (CGP) funds to the Puerto Rico Economic Development Bank for public housing resident loans. Date Issued: March 6, 2000 Title: Puerto Rico PHA, Procurement Management, San Juan, Puerto RicoWe have completed an audit of the Puerto Rico Public Housing Administration's (PHA) management of its central office procurement system. Our audit objectives were to determine whether the PHA administered its activities in compliance with HUD requirements. This report presents four findings that detail the PHA's need to improve its procurement operations. Date Issued: November 5, 1998 Title: Municipality of Arecibo, Community Development Block Grant and Section 108 Loan Guarantee Assistance Programs, Arecibo, PRAt the request of HUD, we conducted an audit of the Municipality of Arecibo's administration of the Community Development Block Grant (CBDG) and Section 108 Loan Guarantee Assistance (LGA) Programs. Our objectives were to determine whether the grantee: (a) administered program activities in an economical, efficient, and effective manner, (b) complied with program requirements, and (c) established adequate management controls to ensure compliance. Our review disclosed that the grantee did not manage the programs in an economical, efficient, and effective manner. The grantee also did not comply with all program requirements. This occurred because the grantee disregarded requirements and had not established adequate management controls to ensure compliance. We identified about $6.2 million of ineligible and $.3 million of unsupported costs. Cost efficiencies totaled about $.3 million. (See Appendix A.) We found serious deficiencies in the administration of HUD funded and guaranteed programs. * The grantee failed to meet program objectives by not completing two major construction projects and by allowing properties purchased with LGA funds to significantly deteriorate. Since 1988, the grantee has spent about $5.3 million in program funds on these projects. In May 1997, the grantee approved the sale of part of one of the properties for $250,000. In July, it advertised the remaining part for sale, although no value determination had been made. In addition, HUD had not approved either sale. * During the period July 1993 through June 1997, the grantee improperly used about $768,000 in CDBG funds to pay employees who performed general government duties. About $237,000 was budgeted for similar employee services for the 1997-1998 fiscal year. * The grantee did not comply with procurement requirements. Contract files were not documented to show: (a) how contracts were awarded (e.g., solicited), (b) whether contract expenditures addressed program objectives, (c) justification for sole-source contracts and contract amendments, (d) that price or cost analyses were performed, and (e) contract specifications or detailed contract requirements. The grantee did not provide for full and open competition by splitting contracts and routinely awarding sole-source contracts to avoid required advertising and bidding. * The grantee paid about $200,000 in LGA funds for poor and incomplete work on six construction projects. Contractors were paid for the work although the grantee's inspector had reported significant construction deficiencies. Our subsequent site visits found the deficiencies had not been corrected. Some deficiencies were serious safety hazards. Final payments were made on four of the contracts. About $6,200 remained to be paid on the other contracts. * The grantee paid about $83,000 in CDBG and HOME funds to a consulting firm for services related primarily to general government activities. The semi-annual sole-source contracts stated that the firm would assist the grantee to implement commercial, industrial, and residential loan programs. Although the grantee had received similar services from the firm for over 10 years, no loan programs had been established. * The grantee's financial management system and related controls need immediate improvement. Accounting records and reports were not accurate, current, or complete. Bank statements were not reconciled timely. Numerous accounting adjustments from prior reconciliations were not posted. Grant expenditures reported to HUD did not agree with grantee accounting records. Required single audit reports were not submitted on time. Similar deficiencies had been reported previously by independent public accountants (IPA) and by HUD but the grantee did not provide resources to correct the problem. The last IPA who reviewed the grantee's financial statements expressed no opinion on them. * The grantee could not account for program funds in investment accounts totaling about $224,000. The grantee had recorded the funds in its accounting system; however, investment entity statements did not show the funds being held. The grantee did not reconcile these type statements with its accounting records. We recommend that you sanction the grantee for continuing to disregard program requirements and for failing to take corrective actions on known deficiencies. We also recommend that you require the grantee to reimburse the ineligible costs and determine eligibility of the unsupported costs (see Appendix A) and strengthen various management control systems. Issue Date: June 24, 1998 Title: PRPHA, San Juan, PROur assessment showed the PHA had slowly implemented some of the goals and strategies contained in the agreements. We noted that the PHA did not complete many of its strategies within the established target dates. Although the PHA had made some improvements, it still had much work to do to become operationally sound. The PHA still lacked adequate systems, controls and procedures. Many of the PHA's actions involve continuing activities. The PHA needs to be more diligent and aggressive in pursuing corrective actions. It also needs to periodically assess its actions to assure its initiatives correct the problems they were designed to address. Issue Date: November 17, 1997 Title: Bucare Mgmt Corp., San Juan, PRThe management agent needed to improve certain practices. The agent did not maintain the projects in good repair and condition, charged a higher management fee than approved by HUD, did not fully secure or invest reserve for replacement accounts, and did not properly verify tenant income and calculate tenant rent. As a result, maintenance problems lowered the quality of living for the residents and increased HUD?s risk on the mortgages. Also, project assets were not fully protected, and costs of $4,423 were ineligible, while costs of $15,600 were unsupported. Issue Date: July 1, 1997 Title: Municipality of Mayaguez, Mayaguez, PRWe found serious deficiencies in the grantee's administration of the HUD programs. The grantee did not: (1) timely and effectively administer the LGA activities; (2) adequately demonstrate that each activity met at least one of the national objectives of the CDBG Program; (3) properly monitor the activities of a subrecipient; (4) adequately charge costs that are eligible, allocable, reasonable, and properly supported; and (5) maintain an adequate financial management system for the CDBG and LGA Programs. These weaknesses resulted in ineligible and unsupported costs of $4,724,934 and $2,224,877, respectively. Additionally, there were opportunities for cost efficiencies of $3,365,180. Issue Date: June 26, 1996 Title: Puerto Rico Public Housing Administration, San Juan, PR We found that: Issue Date: May 16, 1996 Title: Office of the Commissioner of Municipal Affairs, Hato Rey, PROCMA generally followed the method of distribution described in the Final Statement. However, we noted five projects in which OCMA did not properly document and justify its funding decisions. Issue Date: October 13, 1995 Title: Continental Building Management CO., Inc., San Juan, PRWe confirmed that the Continental Building Management Company, Inc., the former management agent, improperly disbursed $1,295,065 of project funds during the period from 1989 to 1993 at the direction or on behalf of its owner; and Executive Homesearch, which replaced Continental Building as management agent in the five projects, charged $19,628 to Jardines de Country Club and $2,059 to Lissette Apartments for personnel costs of employees who provided services to other projects. Executive Homesearch also prorated an excessive portion of its controller's salary to the 11 projects it administered.
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