HUD audit criticizes District's use of housing funds

Washington Post Staff Writers
Wednesday, December 29, 2010; 8:10 PM

A federal audit has questioned more than $10 million in spending by the District's housing agency, prompting the return of $1.6 million of Housing and Urban Development grant funds.

In a report released Dec. 23 after examining the city's financing of a long-delayed affordable housing project, its use of federal funds for home-renovation and down-payment assistance, and its transfers to community-based groups, HUD Regional Inspector General John P. Buck raised concerns about the city's oversight of federal funds.

The audit identified nearly $1.7 million in costs that the D.C. Department of Housing and Community Development had improperly charged to the federal government, $6.5 million in expenses that could not be justified to the auditors' satisfaction and $1.9 million in funds that went unspent or were poorly spent.

A city official said in response that the audit raised several issues, particularly poor grant documentation, that had been identified and are being addressed.

"We knew that there were issues when I first started. There were things in the relationship with HUD that had to be worked on," said Leila Finucane Edmonds, DHCD's outgoing director. "We have moved the department to a very different place."

The $1.6 million, which will be returned to HUD's revolving account for the District, will be able to be spent on other projects in the city, Edmonds said, and she added that she was "fairly optimistic" that her agency will be able to document much of the other spending challenged in the audit. Edmonds noted that HUD awarded the city more than $12 million in competitive grants this year.

Buck investigated the department's spending under HUD's affordable housing program between October 2006 and April 2009. The District has received more than $35 million in grants under the program, known as HOME, since the beginning of the audit period. This year's budget for DHCD totals more than $100 million, with more than $80 million coming from various federal programs.

Much of the HOME funds was directed into the city's popular Home Purchase Assistance and Single Family Residential Rehabilitation programs. But the audit found that more than $1 million in federal funds paid for renovations and down-payment assistance on homes that exceeded affordability guidelines, which restrict funding to homes worth no more than 95 percent of the median home value in the District.

The District has agreed to repay nearly $700,000 but requested a waiver for the remainder. It has not been granted, but Edmonds said the city will appeal.

The audit also identified one affordable-housing project that tied up more than $2.5 million for more than eight years before it finally was canceled. The city awarded the money in 2001 to Safe Haven Outreach Ministries to build 48 units of transitional housing for the homeless in Ward 7. Though federal guidelines call for construction to begin no more than one year after a grant is disbursed, city officials repeatedly extended the grant agreement without informing HUD of the delays. DHCD withdrew funding for the project in October.

Marsha Richerson, executive director of Safe Haven, said unexpected delays plagued the project. "It was craziness," she said. "This is my fourth [HUD-funded] project. I've never had anything like this in my life."

She said the nonprofit planned to renovate three run-down buildings but lost time getting zoning approval and appealing a property tax bill. Architectural plans had to be redrawn and parts of buildings torn down. Then a bank that had promised $1.5 million backed out, leaving Safe Haven unable to move forward.

Richerson said the District extended construction deadlines because the delays were beyond Safe Haven's control. "The [city] knew everything," she said. "They knew about the delays. They knew about the property taxes. They knew that we had a credible defense."

Edmonds wrote in an official response to the HUD audit that her agency "acknowledges we did not keep HUD informed of all these delays as they occurred" but "felt the fundamental feasibility of the project continued to exist."

The audit also criticized the city for sending federal funds to a community-based organization that it claims did not meet HUD's standards for such groups. Auditors said Mi Casa, a nonprofit based in Ward 4 that was granted more than $700,000, did not meet a requirement that one-third of its board members live in low-income communities.

Mi Casa and DHCD disputed the audit's findings. "We comply with every requirement," Fernando Lemos, Mi Casa's executive director, said. He said the group used the federal money to develop single-family houses and help low-income tenants purchase and renovate rental buildings.

D.C. Council member Michael A. Brown (I-At Large), who oversees the housing department, said the problems identified by the audit "may just be a technical issue and not a substantive issue."

"Hopefully, it's an easy fix," he said. "If it does turn out to be more than just technical, there will absolutely be a hearing."

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