Puerto Rico Reports

Information by State  Print version

Issue Date: September 30, 2009
Audit Report No.: 2009-AT-1015
File Size: 1.74MB

Title: The Puerto Rico Public Housing Administration, San Juan, Puerto Rico, Mismanaged Its Capital Fund Financing Program and Inappropriately Obligated $32 Million in Recovery Act Funds

We audited the Puerto Rico Public Housing Administration's (authority) Capital Fund Financing Program (Financing Program) as part of the Office of Inspector General's (OIG) strategic plan goals to improve the U.S. Department of Housing and Urban Development's (HUD) fiscal accountability. The objectives of the audit were to determine whether the authority obligated and expended the 2003 Financing Program funds in accordance with HUD requirements, the authority's financial management system complied with program requirements, the authority completed the proposed modernization activities under its 2003 Financing Program, and the authority had the capacity to administer additional funds under the American Recovery and Reinvestment Act (Recovery Act) of 2009.

The authority did not manage the 2003 Financing Program in an economical, efficient, and effective manner. It did not complete all of the proposed rehabilitation activities and did not expend all of the borrowed private capital. As a result, it did not meet its rehabilitation goals. In addition, the authority disbursed more than $57.4 million in capital funds to pay for interest charges on unused borrowed capital that did not provide the intended benefits to the public housing program or its residents.

The authority also could not account for more than $18.7 million in program income and did not use $50.3 million in program income to defray program costs. In addition, it did not maintain accurate and current accounting records and provided HUD inaccurate information on its Financing Program activities. As a result, its internal controls were not sufficient to safeguard assets or ensure that funds were used in accordance with applicable requirements, and HUD lacked assurance regarding program accomplishments.

The authority inappropriately obligated $32.12 million in Recovery Act funds to supplant expenditures from other nonfederal funds in violation of its annual contributions contract with HUD. This deficiency occurred because the authority substituted the obligations related to nonfederal funds with Recovery Act funds. As a result, the authority will use Recovery Act funds to pay for expenditures that were the responsibility of nonfederal sources.

We recommend HUD require the authority to reimburse more than $57.4 million in unallocable and ineligible Financing Program expenses, account for more than $18.7 million in unrecorded program income, and develop and implement an action plan to use $50.3 million in program income to defray program costs. We also recommend that the authority establish better controls to ensure that the Financing Program has (1) a financial management system that complies with HUD requirements and (2) procedures to ensure that program goals are achieved in a timely and efficient manner and avoid unreasonable/unnecessary expenses. In addition, we recommend HUD require the authority to properly account for its 2003 Financing Program receipts and disbursements.

HUD should also require the authority to deobligate more than $31 million in Recovery Act funds that were contracted before the authorized obligation start date and implement adequate procedures and controls to ensure that Recovery Act funds are used effectively, efficiently, and in accordance with applicable requirements.

Issue Date: September 25, 2009
Audit Report No.: 2009-AT-1012
File Size: 973.62KB

Title: The Municipality of Río Grande, Puerto Rico, Needs to Improve Administration of Its Community Development Block Grant Program and Its Recovery Act Funds

We audited the Municipality of Rio Grande's (Municipality) Community Development Block Grant (Block Grant) program. We selected the Municipality for review as part of our strategic plan. The objectives of the audit were 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 and whether the Municipality had the capacity to administer additional funds allocated under the American Recovery and Reinvestment Act of 2009 (Recovery Act).

The Municipality awarded 110 contracts totaling more than $1 million without following HUD and local procurement requirements. As a result, it could not 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 $1 million in Block Grant contracts.

The Municipality's financial management system did not fully comply with applicable HUD requirements. The system did not support the allowability of more than $57,000 in program disbursements; could not support the allocability of more than $218,000 in administrative costs charged to the Block Grant program; and did not maintain accurate, current, and complete accounting records.

The Municipality's management controls over its housing rehabilitation activities were inadequate. The Municipality improperly used Block Grant funds for deficient housing rehabilitation work and new housing construction. In addition, it did not provide assistance to correct health and safety hazards. Therefore, the related program funds of more than $20,000 were ineligible, and more than $7,000 is considered unsupported pending an eligibility determination by HUD.

The Municipality lacked sufficient capacity to administer additional funds allocated under the Recovery Act. It had not developed and implemented adequate controls to ensure compliance with HUD financial management systems requirements and the purposes of the Recovery Act. As a result, HUD lacked assurance that Recovery Act funds would be adequately accounted for, safeguarded, and used for authorized purposes and in accordance with the Recovery Act and HUD requirements.

We recommend HUD require the Municipality to repay more than $20,000 in ineligible expenditures. HUD should also require the Municipality to provide all supporting documentation showing the reasonableness and eligibility of more than $1 million in Block Grant contracts and more than $276,000 in Block Grant disbursements. We also recommend HUD require the Municipality to develop and implement an internal control plan to ensure that the Block Grant program has (1) procurement procedures which ensure that goods and services are obtained at the most advantageous terms and in a manner providing full and open competition, (2) a financial management system that complies with HUD requirements, (3) controls and procedures which ensure that the housing rehabilitation activities meet the program objectives, and (4) policies and procedures to ensure that Recovery Act funds are effectively and efficiently used and in accordance with applicable requirements. In addition, we recommend HUD increase monitoring of the Municipality's performance in the administration of its Block Grant and Recovery Act funds.

Issue Date: February 25, 2009
Audit Report No.: 2009-AT-1003
File Size: 142.41KB

Title: The Puerto Rico Housing Finance Authority, San Juan, Puerto Rico, Generally Calculated Housing Assistance Correctly

As 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 Housing Finance Authority's (Authority) Section 8 Housing Choice Voucher program. Our audit objectives were to determine whether the Authority properly determined housing assistance subsidies, properly determined the eligibility of tenants, and recertified tenants in a timely manner.

The Authority generally administered its Section 8 program in accordance with HUD requirements. It properly determined the eligibility of the tenants reviewed and recertified tenants in a timely manner. Our review identified minor errors in calculating the housing assistance of Section 8 tenants, but the errors were not monetarily significant. We discussed the deficiencies with Authority officials who implemented corrective action.

This report does not contain any recommendations as it contains no findings.

Issue Date: September 22, 2008
Audit Report No.: 2008-AT-1014
File Size:

Title: Doral Bank, San Juan, Puerto Rico, Needs to Improve Controls over Its Mortgage-Backed Securities Program

We reviewed Doral Bank Puerto Rico (Doral), an approved issuer for the Government National Mortgage Association (Ginnie Mae). Our objective was to determine whether Doral complied with Ginnie Mae requirements associated with its mortgage-backed securities activities. The review was initiated in connection with the 2007 Ginnie Mae financial statement audit.

Doral did not fully comply with Ginnie Mae requirements because it maintained seven noninsured loans in Ginnie Mae pools. It also failed to ensure that data on its pooled loans were accurate. As a result, Doral retained defective loans with unpaid principal totaling $448,167 in its Ginnie Mae pools and reported inaccurate information to Ginnie Mae and HUD.

We recommend Ginnie Mae require Doral to take corrective measures to ensure that the defective loans identified during the review are reinsured or removed from the Ginnie Mae pools and that the loans reflect complete and accurate mortgage information. We also recommend that Ginnie Mae ensure that Doral establishes and implements adequate controls and procedures to periodically verify that all of its Ginnie Mae pooled loans are insured in accordance with Ginnie Mae requirements.

Issue Date: June 6, 2008
Audit Report No.: 2008-AT-1008
File Size:103.3KB

Title: The Municipality of Carolina, Puerto Rico, Needs to Improve Procurement of Its Housing Rehabilitation Activities

We audited the Municipality of Carolina's (Municipality) Community Development Block Grant (Block Grant) program. We selected the Municipality for review as part of our strategic plan. The objective of the audit 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 generally complied with requirements of the Block Grant program. However, we found deficiencies associated with the procurement of its housing rehabilitation activities. The Municipality awarded 65 housing rehabilitation contracts totaling more than $400,000 without following HUD and its own procurement requirements. As a result, it obtained goods and services without full and open competition. In addition, the Municipality did not support the reasonableness of more than $81,000 in Block Grant disbursements.

We recommend HUD require the Municipality to provide support showing the eligibility and reasonableness of more than $81,000 or reimburse the Block Grant program from nonfederal funds. HUD should also require the Municipality to implement procurement procedures and controls that comply with HUD requirements to ensure that goods and services are obtained at the most advantageous terms and in a manner providing full and open competition.

Issue Date: May 30, 2008
Audit Report No.: 2008-AT-1007
File Size: 1.21MB

Title: The Municipality of Caguas, Puerto Rico, Needs to Improve Controls over Its Section 8 Program

As part of the U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General's (OIG) strategic plan, we audited the Municipality of Caguas (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 10 units inspected, eight (80 percent) did not meet minimum housing quality standards, and three of those were in material noncompliance. The authority also failed to ensure that quality control inspections were performed in accordance with HUD requirements. As a result, the authority made housing assistance payments for units that did not meet standards.

The authority miscalculated Section 8 assistance, overhoused tenants, made duplicate payments, and did not abate rents. As a result, it made overpayments and underpayments totaling $14,074 and did not support $1,957 in assistance payments. We estimate that over the next year, the authority will disburse more than $6,800 in subsidy overpayments if it does not implement adequate controls.

We recommend that HUD require the authority to inspect the eight 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 housing assistance contracts. HUD should also require the authority to ensure that errors in tenant files are corrected and reimburse its program $13,086 and the tenants or landlords $988 for the identified errors that affected the assistance payments. We also recommend that HUD require the authority to submit supporting documentation that would justify the issuance of a voucher larger than the administrative plan allowed or reimburse its program $1,957 from nonfederal funds for the five unsupported vouchers. Additionally, we recommend that HUD require the authority to establish and implement controls to prevent $6,804 in overpayments because of incorrect payment standards.

Issue Date: November 15, 2007
Audit Report No.: 2008-AT-1002
File Size: 3.06MB

Title: The Municipality of Canovanas, PR, Needs to Improve Administration of Its Community Development Block Grant Program

We audited the Municipality of Canovanas' (Municipality) Community Development Block Grant (Block Grant) program. We selected the Municipality for review as part of our strategic plan. The objective of the audit 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's financial management system did not fully comply with applicable HUD requirements. The system did not support the allowability of more than $885,000 in program disbursements, could not account for more than $501,000 in Block Grant receipts, allowed the use of more than $23,000 for ineligible program expenditures, and did not disburse Block Grant program funds in a timely manner.

The Municipality's management controls over its housing rehabilitation activities were inadequate. It improperly used Block Grant funds for new housing construction, and lacked adequate documentation to support program accomplishments. Therefore, the related program expenditures of more than $36,000 are ineligible, and more than $324,000 are considered unsupported pending an eligibility determination by HUD.

The Municipality awarded six contracts totaling more than $1 million 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 $109,000 in Block Grant disbursements and paid more than $70,000 for excessive expenditures.

We recommend that HUD require the Municipality to repay more than $59,000 in ineligible expenditures and $70,374 in excessive costs. HUD should also require the Municipality to provide all supporting documentation showing the appropriateness and eligibility of more than $1.82 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) a financial management system that complies with HUD requirements, (2) controls and procedures which ensure that the housing rehabilitation activities meet the program objectives, 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 HUD requirements.

Issue Date: November 8, 2007
Audit Report No.: 2008-AT-1001
File Size: 738.20KB

Title: The Municipality of Ponce, PR, Needs to Improve Controls over Section 8 Program

As part of the U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General's (OIG) strategic plan, we audited the Municipality of Ponce (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 paid program landlords and properly determined housing assistance subsidies.

Of the 54 units inspected, 39 (72 percent) did not meet minimum housing quality standards, and 12 of those were in material noncompliance. The authority also failed to ensure that annual housing quality inspections were performed in a timely manner. As a result, Section 8 program funds were not used 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 $190,000 for units in material noncompliance with housing quality standards if it does not implement adequate controls.

The authority did not pay program landlords in a timely manner. As a result, it owed landlords more than $185,000 in rental payments. The authority also did not apply utility allowances for tenant-supplied appliances. We estimate that over the next year, the authority will underpay more than $71,000 in housing assistance and/or utility allowance disbursements if it does not implement adequate procedures regarding its utility allowance policy.

We recommend that HUD require the authority to inspect all of the 39 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 establish and implement adequate procedures and controls to prevent $190,080 from being spent on units with material housing quality standards violations and for the timely disbursement of more than $185,000 in back payments to landlords. We also recommend HUD require the authority to develop a utility allowance schedule that complies with program requirements and recognizes the costs of tenant-supplied appliances to ensure that $71,232 in program funds is used in accordance with HUD requirements.

Issue Date: April 27, 2007
Audit Report No.: 2007-AT-1007
File Size: 1.75MB

Title: The Municipality of Toa Baja, Puerto Rico, Needs to Improve Its Community Development Block Grant Program Administration

We 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
Audit Report No.: 2007-AT-1005
File Size: 779.67KB

Title: The Puerto Rico Department of Housing, San Juan, Puerto Rico, Did Not Effectively Administer Its Section 8 Housing Program

As 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
Audit Report No.: 2006-AT-1019
File Size: 1.84MB

Title: The Municipality of Toa Baja, Puerto Rico, Did Not Administer Its Section 108 Loan Guarantee Assistance Program in Accordance with HUD Requirements

We 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
Audit Report No.: 2006-AT-1016
File Size: 1.22MB

Title: The Municipality of Humacao, Puerto Rico, Did Not Administer Its Community Development Block Grant in Accordance with HUD Requirements

We 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
Audit Report No.: 2006-AT-1015
File Size: 1.72MB

Title: The Municipality of Bayamon Housing Authority, Bayamon, Puerto Rico, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary

We 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
Audit Report No.: 2006-AT-1006
File Size: 849.40KB

Title: The Municipality of San Juan Housing Authority, San Juan, Puerto Rico, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary

We 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
Audit Report No.: 2005-AT-1015
File Size: 1.1MB

Issue Date: September 15, 2005
Audit Report No.: 2005-AT-1013
File Size: 590.78KB

Title: Corporación para el Fomento Económico de la Ciudad Capital, San Juan, Puerto Rico

We completed an audit of the Corporación para el Fomento Económico 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
Audit Report No. 2005-AT-1005
File Size: 1.11MB

Title: Pan American Financial Corporation Non-Supervised Direct Endorsement Lender Guaynabo, PR

OIG 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
Audit Memorandum No. 2004-AT-1805
File Size: 181.9KB

Title: Audit Survey of Municipality of Humacao Section 8 Housing Choice Voucher Program, Humacao, Puerto Rico

We 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
Audit Memorandum Report: 2004-AT-1006
File Size: 1.49MB

Title: Puerto Rico Public Housing Administration, San Juan, Puerto Rico

The 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
Audit Report No.: 2003-AT-1006
File Size: 2.54MB

Title: Puerto Rico Department of Housing State HOME Investment Partnership Program

In 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
Audit Report No.: 2003-AT-1002
File Size: 1.74MB

Title: Procurement of Management Agents Puerto Rico Public Housing Administration San Juan, Puerto Rico

We 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
Audit Memorandum No.: 2002-AT-1807
File Size: 111KB

Title: Jardines DE Valencia Housing Cooperative, Rio Piedras, Puerto Rico

At 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
Audit Report No.: 2002-AT-1805
File Size: 218KB

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
Audit Report No.: 2001-AT-1004
File Size: 878KB

Title: Puerto Rico Public Housing Administration HOPE VI Program, Comprehensive Grant Program, and Economic Development and Supportive Services Program San Juan, Puerto Rico

We 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 provide full and open competition when it awarded a sole source contract to the project manager of the Gateway project and did not perform a price or cost analysis when procuring the services. In addition, the PHA made payments in excess of the contract limits and did not maintain proper disbursement control. We also determined that the PHA acquired property on which to develop replacement housing that was still sitting vacant after 5 years. The former PHA management was inept and appeared to make no attempt to monitor the activities of its project manager. As a result, HUD has no assurance that services were acquired at the most beneficial terms and that the funds were used in an economical, efficient, and effective manner. Of the $28.3 million disbursed as of August 2000, we have questioned a total of $12.1 million spent from these two grants.

• Carrero and Associates did not comply with Federal or the PHA’s procurement requirements. It did not: (1) follow established procedures, (2) use the proper procurement methods, (3) maintain procurement files, and (4) perform price or cost analyses. The project manager obtained goods and services without full and open competition, charged unrelated and unnecessary costs to the HOPE VI project. We identified ineligible costs of $736,031 and unsupported costs totaling $196,206 (see Appendix C). This occurred because the PHA failed to monitor the activities of its project manager as required. As a result, HUD has no assurance that goods and services were obtained at the most advantageous terms.

• Carrero and Associates did not follow proper procurement procedures in contracting with its subcontractor, Freeman and Associates. Instead, Carrero selected the firm as a sole source without justifying the lack of competition or the validity of the cost. Further, the PHA did not review invoices submitted by Carrero for the services provided by Freeman. Had it done so, the PHA would have found unnecessary, unrelated, and unsupported charges. The PHA was negligent in its oversight of Carrero. We identified $10,508 of ineligible costs and $923,542 as unsupported.

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
Audit Memorandum No.: 01-AT-241-1801
File Size: 589KB

Title: Municipality of Aguadilla, Aguadilla, Puerto Rico

The 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
Audit Related Memorandum No.: 00-AT-201-1801
File Size: 194KB

Title: Misuse of HUD Funds, Puerto Rico PHA, San Juan, Puerto Rico

We 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
Audit Report No.: 00-AT-201-1003
File Size: 396KB

Title: Puerto Rico PHA, Procurement Management, San Juan, Puerto Rico

We 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
Audit Report No. 99-AT-241-1001
File Size: 1,196KB

Title: Municipality of Arecibo, Community Development Block Grant and Section 108 Loan Guarantee Assistance Programs, Arecibo, PR

At 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
Audit Report No. 98-AT-201-1806
File Size: 165KB

Title: PRPHA, San Juan, PR

Our 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
Audit Related Memorandum 98-AT-212-1802
File Size: 43 KB

Title: Bucare Mgmt Corp., San Juan, PR

The 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
Audit Case Number 97-AT-241-1003
File Size: 135KB

Title: Municipality of Mayaguez, Mayaguez, PR

We 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
Audit Related Memorandum 96-AT-201-1821
File Size: 27KB

Title: Puerto Rico Public Housing Administration, San Juan, PR

We found that: - Procurement actions were not properly documented in accordance with federal procurement requirements. - A management agent charged $433,736 of duplicate costs to federal programs. - Accounting records for the 1990 Drug Elimination Grant program were deficient and $347,839 could not be traced to supporting records. - The PRPHA had not remitted to HUD $1,175,998 of unspent 1990 Drug Elimination Grant funds.

Issue Date: May 16, 1996
Audit Related Memorandum 96-AT-241-1817
File Size: 23KB

Title: Office of the Commissioner of Municipal Affairs, Hato Rey, PR

OCMA 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
Audit Related Memorandum 96-AT-212-1801
File Size: 26KB

Title: Continental Building Management CO., Inc., San Juan, PR

We 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.