Objectives

To determine whether Homes and Community Renewal (HCR) has established and maintains adequate internal controls to oversee and monitor the federally funded Community Development Block Grant (CDBG) program and HOME Investment Partnerships Program (HOME) to ensure they meet requirements, and whether HCR is obtaining federal reimbursements on time and in a manner that recovers all eligible costs. This audit covers the period from April 2017 through June 2022.

About the Program

HCR is the State’s affordable housing agency, with a mission to build, preserve, and protect affordable housing and increase homeownership throughout the State. HCR is comprised of several different offices and agencies, including the Housing Finance Agency, Governor’s Office of Storm Recovery, and Housing Trust Fund Corporation (HTFC). HTFC’s Office of Community Renewal is allocated federal funding from the U.S. Department of Housing and Urban Development (HUD) to administer the CDBG and HOME programs across the State. While HCR administered a variety of programs prior to the COVID-19 pandemic, the unprecedented housing crisis caused by the pandemic escalated the need for programs that provide housing stability. As such, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) provided funding for emergency economic relief for individuals, families, and businesses affected by COVID-19, and the American Rescue Plan Act of 2021 enhanced this assistance.

Between April 1, 2017 and June 6, 2022, HUD allocated over $244 million in CDBG funds to HCR, for grant years 2017 through 2021, and about $127 million in additional funding from CDBG COVID-19 relief aid (CDBG-CV) through the CARES Act. During the same period, HUD allocated about $120 million in HOME funds to HCR, as well as approximately $93 million more in HOME COVID-19 relief aid through the HOME American Rescue Plan Program (HOME-ARP). CDBG and HOME both provide funding to expand the supply of decent, safe, and affordable housing principally for low- and moderate-income households across the State. While CDBG and HOME share the same goals, the programs have different approaches to meeting the needs of low- and moderate-income families and have different rules regarding eligible activities. HCR functions as a pass-through entity, awarding CDBG and HOME grants to Local Program Administrators (LPAs), which may be entities such as units of local government and non-profit corporations. LPAs are subrecipients of pass-through funds from HCR; however, they may elect to further subgrant all or portions of their CDBG funds to another subrecipient (Subrecipient) or contract with another entity (Contractor). LPAs are responsible for monitoring all grant-supported activities provided by the Subrecipient or Contractor to ensure their compliance with applicable State and federal requirements as well as their achievement of performance goals. HCR is responsible for overseeing the activities of LPAs to ensure their compliance with federal requirements and that performance expectations are being achieved.

Key Findings

• In September 2020, HUD provided HCR approximately $127 million in CDBG-CV funds to prevent, prepare for, and respond to the spread of COVID-19 as well as respond to the impacts of the virus and safely reopen and prepare businesses and facilities for new safety protocols. However, as of June 9, 2022 – more than 2 years after the start of the pandemic – HCR had only committed about $98 million, of which less than $5 million has been reimbursed. To meet HUD’s Report 2021-S-10 2 requirements, HCR must expend over $96 million of the CDBG-CV funds – more than 19 times the amount it has been able to spend since the funds were received in September 2020 – by September 23, 2023 to avoid potentially losing the funding.
• HCR could improve its internal controls over the administration of the CDBG program. We found problems with HCR’s monitoring of three ($2 million) of the eight grants ($5 million) we reviewed at three of the five LPAs we visited. While the issues varied, our findings are generally attributable to how HCR monitors LPAs that directly contract with vendors.
• We also identified potential vulnerabilities in the handling of confidential information.

Recommendations

• Work with LPAs to ensure the timely obligation and spending of CDBG-CV and HOME-ARP funded projects. This may include but not be limited to:
  • Improving communication with LPAs regarding, and/or adjusting flexibility of, performance completion requirements.
  • Identifying and reducing delays in releasing funds to LPAs for work completed.
• Improve internal controls over the administration of the CDBG, including:
  • Developing methods to better monitor Subrecipients and Contractors used by LPAs to administer CDBG grants.
  • Helping LPAs to reduce the use of local funds to cover project costs before reimbursement from the State, where practicable.
  • Correcting weaknesses in controls over confidential information.