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HomeMy WebLinkAboutR-98-0580J-98-565 05/15/98 RESOLUTION NO. A RESOLUTION AUTHORIZING AND DIRECTIN HE CITY MANAGER TO APPOINT A SEVEN-MEM (7) HOUSING LOAN COMMITTEE FOR THE PU SE APPROVING AND DISAPPROVING LOANS AND/O WHICH ARE BEING PROVIDED BY THE CI Y OF I THROUGH THE CITY'S CDBG-FUNDED -F Y AND MULTI -FAMILY REHABILITATIO CAN HOME INVESTMENT PARTNERSHIP HOME") G AND STATE HOUSING INIT AT PARTN HIP ("SHIP") PROGRAM; PROVIDI TH 01 N LOAN COMMITTEE WITH THE AUTHORI 0 FOR APPROVAL/DISAPPROVAL LOAN IC S FOR HOUSING FUNDS, SUBO A EM TS, LOAN RESTRUCTURING PLANS REPAYMENT PLANS FOR HOUSIN AN THE C 'S EXISTING HOUSING LOAN PORT 0; THER REQUIRING THE APPROVAL OF SA NS BY THE CITY COMMISSION, STA FI CIAL EMERGENCY OVERSIGHT ARD AND ON CASE BY CASE BASIS, THE U.S. DEPARTME OF HOUSING AND URBAN DEVELOPME FOR CERT N TRANSACTIONS. e 1980's, the City of Miami has provided -interest 1�2ffs and grants to owners of single-family multi -family apartment s or more) for the rehabilitation of substandard in the City's Community Development Block Grant arget areas; and Rescinded by R-00-867 WHEREAS, the City has also provided low -interest loans through the Rental Rehabilitation Grant Program, Urban Development Action Grant ("UDAG") Program, Home Inves Partnership ("HOME") Program and State Housing In' tives Partnership ("SHIP") Program; and WHEREAS, the U.S. Department of Hous' an Development's District Office of the Inspector G a OIG" in its Audit Report dated March 26, 199 ti d eral findings and concerns pertaining to th ity's to un rwriting procedures and the City's abilit o erly afeguard the existing housing loan portfolio; and WHEREAS, in the Audit Re recommended that the City expand the City's in oan Committee to include individuals with the ise va ting loans, with at least one member from a p ate fin ial institution; and WHEREAS, is commen that the City Commission expand the Housing oan C it o include two (2) members from the private sec th perience in real estate lending, one(1) me mb actively ed in the provision of affordable housing, on 1) tuber from Miami Capital Development, Inc., and three r sen Ives from the City, to include the Departments of F' ance, lic Works and Community Development". THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE kTY OF MIAMI, FLORIDA: 2 Rescinded by R-00-867 Section 1. The recitals and findings contained in the Preamble to this Resolution are hereby adopted by reference thereto and incorporated herein as if fully set forth in Section. Section 2. The City Manager is hereby aut ri and directed to expand the City' s Housing Loan Commi e to in two (2) members with private banking experience n ) me er who is an active affordable housing provid ( e from Miami Capital Development, Inc., and t e (3) m er rom the City, to include representatives fr the artme of Finance, Public Works and Community Development. Section 3. It is here that the City's Housing Loan Committee sh be thorized to recommend for approval or disapprov to pp ations for housing funds, loan restructuring ans, loa ep ent plans and subordination of mortgages a eme Secti 4. It_is y further established that all of ansactions shall require approval by the he State Financial Emergency Oversight do Furthermore, it is hereby established, that on rase by se basis, the above mentioned transactions pertaining the ity's existing housing loan portfolio shall require the roval of the U.S. Department of Housing and Urban Development 3 98- 580 Rescinded by R-00-867 Section 6. This Resolution shall become effective immediately upon its adoption. PASSED AND ADOPTED this 9th day of J JOE C; In amo dlw with Miami Code Sec. 2-36, since the Mayor ibis legislation by signing it in the designated becomes effective with the elapse of ten (10) om t regarding same, without the Mayor pxercisi wn . / ATTEST: CITY CLERK'S OFFICE DEPARTMENT 0 V PREPAREII AN �^Tfi ORNE Y W2588 4 Rescinded by R-00-867 of ,t�xxrti JOSE GARCIA-PEDROSA CITY MANAGER May 12, 1998 Mr. Angelo Castillo, Director U.S. Department of Housing and Urban Development Florida State Office of Community Planning and Development Southeast/Caribbean 1320 South Dixie Highway, 5th Floor Coral Gables, FL 33146-2911 Dear Mr. Castillo: 27 P.O. BOX 330708 MIAMI, FLORIDA 33233-0708 (305)416-1025 FAX (305)400-5043 We are in receipt of Audit Report: 98-AT-241-1003, dated March 26, 1998, with the significant Findings relative to the City of Miami Community Planning and Development Programs administered by the City of Miami Department of Community Development. Background The Office of Inspector General conducted a review of the City of Miami's Community Planning and Development (CPD) Programs for the. years 1995 and 1996. The objectives were to determine whether the City: (1) complied with Federal laws, Department of Housing and Urban Development (HUD) regulations, and other requirements; (2) had adequate controls to comply with the requirements; and (3) carried out its activities in an economical, efficient, and effective manner. A draft of the Audit Report was provided to the City on November 21, 1997. The City made an initial response to the draft Audit on December 19, 1997. The final Audit Report was received March 26, 1998. In keeping with the established cooperative working relationship between City staff and HUD staff, and in an effort to resolve any areas of miscommunication or misinterpretation of information, there have been a series of meetings and telephone conference calls relative to the Findings in the draft Audit Report. Through the technical assistance provided by HUD staff and the exchange of information on current procedures and proposed procedures, City staff has gained a more thorough understanding of the concerns raised within the Office of Inspector General Audit Report. As a result of these meetings and exchanges, between the time of the release of the draft Audit and the final Audit Report, an approach to mitigating the problems and redefining the safeguards for the responsible expenditure of HUD funds has been initiated. This teamwork between HUD and City staff has led to the implementation of some early corrective actions, and 98- 580 we are proceeding to expand and enhance the corrective actions necessary to establish the best practices and procedures that will bring the City into full compliance with the regulatory requirements of the programs funded through the Department of Housing and Urban Development ( HUD), and to avoid future deficiencies. The Findings The final Audit Report determined that the City did not have adequate controls to ensure compliance with regulations or properly manage its Community Planning and Development (CPD) Program funds. Also, the City did not efficiently and effectively manage its programs or adequately safeguard its assets. Specifically, the review disclosed: • The City spent $5,203,607 of CDBG funds for grant administrative expenses without proper support. Also, the City spent $484,999 for ineligible grant administrative expenses. As a result, the intended program beneficiaries were deprived of $5,688,606. • The City did not efficiently and effectively administer its loan programs or adequately safeguard its assets. As a result, approximately $9.9 million of the City's outstanding loan portfolio was in default. • The City allocated $4.75 million of HOME funds to develop an affordable housing project that was not feasible. The homes were not affordable for prospective buyers and funding was insufficient to complete the project. Also, the developer owed the City $144,538 of program income. A full and detailed response to each individual Finding is attached to this summary response to the audit. In brief. FINDING This Finding contends that the City: (1) shifted costs between grants to avoid exceeding expenditure limits; (2) exceeded the 20 percent grant administration limit; (3) did not have cost allocation plans to support indirect costs; and (4) paid indirect costs without supporting cost allocation plans, prior to receiving services, and prior to the central service departments incurring costs. As we stated in our initial response to the draft Audit Report, we do not disagree that the methods of reporting can and must be improved. Because of confusion relative to the requirements for Cost Allocation Plans submittal, along with Circular A-87 changes, the City believed it was acceptable to charge indirect costs for previous 2 98- 580 years as long as the charges did not contribute to the City exceeding the 20 percent grant administration limit. However, we are prepared to submit whatever additional information is necessary at this time. We want to stress that at no time was it the intention of the City to avoid exceeding a 20 percent administrative cap by shifting funds between grants. We felt we were following allowable practices, and we submitted support documentation in this regard. In the OIG Evaluation Section on Page 9 of the Audit Report, you acknowledge that the City believed it was acceptable to pay indirect costs in advance. You note that the City had been informed by their consultant that it was a practice common in the industry. You state that based on the City's comments, you made revisions to the Finding and commended the City's positive efforts to resolve the weaknesses. We understand that while the transfer of the funds has been accepted, we failed to demonstrate fully that the expenses charged to each of the years in question were incurred in that year. As you are aware, indirect costs were not previously charged in 1986 through 1990, although indirect costs are an allowable charge under the administrative cap. As a result of the confusion regarding the requirements and submission of indirect costs during the time in question, no formal indirect cost allocation plan was developed by the City. We are proposing to consult with DM Griffiths (I)MG), the City's cost allocation plan consultant, to have them re -construct the plans for the years in question which we feel will fully demonstrate that the expenses charged to each of the years in question were justifiably incurred in that year. In addressing the issue of adequate controls, the Department of Community Development is in the process of developing a full Reorganization Plan. The Plan places focus on the levels of expertise and experience and best practice procedures needed to put in place the proper safeguards necessary to insure adequate controls. All of the OIG recommendations for Finding #1 are addressed in detail in the support documents attached In summary: 1A. Provide adequate support for $2,133,797 of grant administration expenses that were transferred between program years or repay any unsupported costs to the CDBG Program. We are working with DMG, the City's cost allocation plan consultant, to develop an indirect cost rate based on the data for the years in question utilizing the CAFR's, Budget documents and other source documents available for 1986 through 1990, which will justify the allocations (see Attachment A). 1B. Reimburse the CDBG Program for ineligible costs of $484,999. 3 98- 580 The documentation submitted in response to recommendation IA, if accepted, should, resolve the issue prompting this recommendation to reimburse the CDBG Program $484, 999. 1C. Submit certified Cost Allocation Plans as required to support indirect costs charges of $2,518,210 for program years May 1995 through May 1997 or repay any unsupported costs to the CDBG Program. A Cost Allocation Plan for FY 1997, which would be applicable for FY 1995 through FY 1997, has been submitted (see Attachment B). 1D. Provide support for the $551,600 of administrative costs charged to the Supplemental Disaster Relief Grant or repay any unsupported costs to the U.S. Treasury. The City was of the opinion that HUD approval for the projected use of the funds was outlined in the Funding/Approval/Agreement allowing the City to charge $551,600 in administrative costs (see Attachment Q. However, the documentation being submitted in response to Recommendation #1 should resolve the question of allowable indirect cost charges to the administrative cap for this program. 1E. Submit for approval a corrective action plan to correct the systemic weaknesses identified in the finding. The Departmental Reorganization Plan (see Attachment D) addresses the departmental policies and procedures and presents corrective action plans to achieve the Plan's goals. The summary of the Plan and the corrective actions appear on pages 8 through 13 of this report. FINDING 2 This Finding states that the City's loan procedures needed improvement. The City's underwriting and collection procedures were inadequate. In addition, the City failed to pursue legal remedies to cure defaults and recover losses, as well as protect its interests upon foreclosures. Also, loan decisions made by the City Commission were not in the City's best interest. As a result, approximately $9.9 million, or 36 percent, of the City's outstanding loan portfolio was in default. The City's failure to collect the loans reduced the amount of program income available to carry out its CDBG activities. In response to Finding #2, the Department is presenting a series of Resolutions to the City Commission requesting specific legislative changes and policy directives are particularly described below: • Resolution #1 is legislation establishing a moratorium for CDBG and HOME Multi -family Rehabilitation Loan Programs. 4 • Resolution #2 is legislation adopting revised program Lending Guidelines— CDBG Multi -Family Rehabilitation Program, HOME and SHIP Programs. • Resolution 43 is legislation establishing the City's Housing Loan Collection Policies and Procedures. • Resolution #4 is legislation approving the revised composition and policies of the Housing Loan Committee, which additionally addresses the City Commission's involvement in loan approvals. • Resolution #5 is legislation establishing a Housing Loan Recovery Fund; • Resolution #6 is legislation directing the City Manager to engage the services of civil engineering and appraisal firms to perform inspections acid appraisals of CDBG and HOME Multi -family Rehabilitation Loan Programs. • Resolution #7 is legislation establishing a Leveraging Policy for CDBG, HOME and SHIP affordable Housing Projects. Written guidelines are being developed that will clearly delineate the policies and procedures for new construction and rehabilitation project loans. Through the Departmental reorganization, which will include enhanced automated information technology and internal financial and monitoring capabilities, the City's underwriting and collection procedures will improve, and a structured delineation of responsibilities will be implemented, eliminating prior weaknesses. In addition, the City will be establishing a 20% reserve fund from its General Fund Revenue to address and establish reserves to cover loan defaults identified in the Audit Report within the Multi -family Housing Rehabilitation Program. All of the OIG recommendations for Finding #2 are addressed in detail in the support documents. < In summary: 2A. Repay the CDBG Program $686,270 for amounts written off as uncollectible for the DC Two Exponent, Inc. Loan. The City has no recourse to the borrower to collect these funds and therefore, the City agrees to repay the CDBG Program $686,270. 2B. Repay the CDBG Program $368,077 representing past due interest and late fees forgiven for the Ideal Rehab. Inc. and Liberty City Improvement Corporation loans. 5 98- 580- The City has no recourse to the borrower to collect these funds and therefore, the City agrees to repay the CDBG Program $368,077. 2C. Collect all loan payments over 90 days past due, within 90 days, either through repayment from the borrowers, assignment of rents, foreclosure, or personal guarantees. As of May 30, 1997, about $1,500,000 of the loan payments were past due. The City should consider establishing a task force or other committees to aggressively pursue collection. The entire Single-family and Multi -family loan portfolio has been reviewed and a spread sheet prepared with current data, accompanied by individual fact sheets for every loan see Attachment E). A Task Force has been established and is assessing every loan individually and will review each loan with HUD representatives to consider the actions recommended for each specific loan. 21). Implement controls and procedures to ensure proper administration of its loan programs and proper safeguarding of its assets. All controls and procedures addressed in this recommendation have been incorporated into new policy and procedure manuals and are incorporated via legislative action by the City Commission creating the mechanisms to effectively eliminate prior weaknesses. 2E. Assume the risk for any loan transactions approved by the City Commissioners against the recommendation of the loan committee. In Resolution #4, to restructure and expand the Housing Loan Committee, section # in the Resolution specifically addresses the parameters of the City Commission's involvement in loan approvals. 2F. Submit for approval a corrective action plan to correct the systemic weaknesses identified in the finding. The Departmental reorganization plan addresses the departmental policies and procedures and presents corrective action plans to achieve the Plan's goals. The summary of the Plan and the corrective actions appear on pages 8 through 13 in this report. FINDING 3 This Finding says that the City allocated $4.75 million of HOME funds to develop an affordable housing project that was not feasible. The homes were not affordable for prospective buyers and funding was insufficient to complete the project. Also, the developer owed the City $144,538 of program income. The City did not require the developer to demonstrate the homes were affordable to very low income families or require the developer to obtain adequate financing to complete the project construction. As a result, the City spent over $1.9 million of HOME funds as of August 22, 1997, and the developer did not construct or pre -sell any units. In response to this Finding, the Department is presenting two Resolutions to the City Commission: 98- 580 Resolution # 8 requesting legislation directing the City Manager to engage the services of an independent consultant to perform a project analysis of the Northwestern Estates Housing Project; and, Resolution #9 directing the City Manager and City Attorney to take the necessary steps to ensure full compliance, on the part of the principals in the Project, The Urban League of Greater Miami, Inc. and LHL Housing Corporation (AKA Liberty Housing Associates), with the findings and recommendations identified in the Audit Report. The principals will be given a 60-day time period to comply with the requests before the City pursues legal remedies, including the discontinuance of funding for the project and reassignment of the project to another developer. All of the OIG recommendations for Finding #3 are addressed in detail in the support documents. In summary: 3A. Demonstrate how the Northwestern Estates Housing Project can be made affordable to low and very low income families by obtaining sufficient subsidies, reconfiguring the project, or otherwise reducing the costs. In a letter dated February 19, 1998 to Mr. T. Willard Fair, President and CEO of the Urban League of Greater Miami, Inc. (see attachment F), the partnership for the Northwestern Estate Housing Project was informed of the preliminary findings of the draft audit and called for an immediate response to all of the recommendations outlined in that draft audit. Subsequent to the release of the final Audit Report on March 26, 1998, a meeting was held on April 13, 1998 with Mr. Fair and the principals of Liberty Housing Associates, where the final recommendations were discussed at length and a response to all recommendations was once again requested. To further assess this project, Resolution #8 when approved by the City Commission authorizes the engagement of an independent consultant to conduct a project analysis of Northwestern Estates to determine the viability of the project. 3B. Provide evidence the developer has obtained sufficient financing to complete project development. As previously stated, through a letter dated February 19, 1998 and at a meeting on April 13, 1998, the partnership for the Northwestern Estates Housing Project was asked to respond to this recommendation with supporting documentation. 3C. Reimburse $144,538 of program income to its HOME Investment Trust Fund. The partnership of the Northwestern Estates Housing Project has been advised that the $144,538 received by them as a result of condemnation proceedings by 98- 580 the Dade County School Board, is program income and must be returned to the Program. By letter and in personal meetings they have been advised of the urgency of returning this money to the City for deposit into the Program fund. 3D. Discontinue funding the project, except for necessary costs such as relocation and security until the City complies with recommendations 3A, 3B and 3C. Both Resolution #8 and Resolution #9 contain a section calling for the City to suspend all future payments to the Urban League of Greater Miami, Inc. or Liberty Housing Associates as the developer of the Project, until such time as the issues and concerns as cited within the Audit Report from the OIG have been resolved in an acceptable manner. 3E. Take other appropriate action, as needed, to protect the Secretary's interest and the integrity of the HOME Program, including terminating the project. Resolution #9 when approved by the City Commission directs the City Attorney and the City Manager to take the appropriate steps to ensure full compliance with these recommendations. The principals of Northwestern Estates have previously received a letter and have met with staff and have been informed of the City's intent to resolve the issues raised in the recommendations. The Resolution provides the principals of Northwestern Estates a sixty-day (60) time period to resolve the issues raised in the recommendations. Subject to their response the City has discontinued any further funding and is considering legal options to recover the program income and to terminate the project. In addition, the Audit Report indicated that there were significant weaknesses in the internal controls. The Departmental reorganization plan fully addresses the issue of internal controls by establishing the staffing, procedures and technological capabilities necessary to maintain the type of operational oversight that will ensure accurate and timely reporting, assessment and review of all Departmental activities. Finally, the Audit Report calls for further study and consideration of Miami Capital Development, Inc., the City's special economic development loan program. A letter has been sent to the Board of Miami Capital Development, Inc.(see Attachment G) asking for their response to the Audit Report observations that the loan default rate is excessive, that program income may not have been properly disbursed and that there is insufficient public benefit received. A response has been received and is also attached hereto. Additional corrective action is required and recommended. Departmental Evaluation As indicated in the previous meetings between City and HUD staff, and as stated in the response to the draft Audit, the City is in general concurrence with the Audit Findings. It 8 98- 580 is expected that our immediate and planned restructuring and reorganization efforts will provide assurances that the City of Miami is in full compliance with Federal laws, HUD regulations, and other regulatory requirements; that there will be adequate controls in place to be in compliance; and that those activities surrounding the HUD -funded programs will be conducted in an economical, efficient, and effective manner. As you are aware, the basic mission of the Department is to coordinate a variety of programs to assist the City's economically disadvantaged residents and neighborhoods. Through its divisions and a cooperative partnership with the public and private sectors, the Department oversees housing, economic development, immigrant transition assistance, employment and training and other programs dedicated to providing low- income City residents access to sharing in the economic growth and prosperity of the region. As a result of some management concerns and systems and procedural problems, which culminated in this OIG Audit Report, the City has re -confirmed the mission of the Department and re -stated its commitment to the economically disadvantaged residents and communities served by the City. As this re -confirmation begins, we see that immediate corrective actions are required. Among the City's first actions was the appointment of a new Director for the Department of Community Development, Ms. Gwendolyn C. Warren. Ms. Warren was asked to make a thorough evaluation of the operations of the Department, especially as they. relate to the Audit Report Findings. In reporting on her evaluation to the City Manager, she stated that in her estimation the Findings represented the culminating effects of on -going operational problems within the Department. The Audit Findings address specific weaknesses that the auditors found in the City's administration of HUD programs. As a result of Ms. Warren's assessment and evaluation of the overall operation of the Department of Community Development, it is her belief that the primary contributor to the specific weaknesses addressed by the auditors could be found in the general operational procedures of the Department. I believe the concerns addressed in the Audit Report could be summarized as: • A lack of proper programmatic and contract compliance monitoring procedures. • A failure to use best practices in maintaining a proper system of checks and balances in the distribution and monitoring of federal funds. • The lack of a firm financial oversight of federal funds being administered through the Department's offices. • Insufficient staff capacity and capability. In establishing the Corrective Action Plan, those concerns will receive immediate attention by: 9 98- 580 • Establishing new staffing positions to enhance overall staff capacity and capability; • Providing training opportunities for current staff, • Providing on-line computer access with in-house, state and federal grants management programs; • Procurement of additional computer hardware and software programs; • Restoring financial oversight within the Department and enhancing reporting and supervisory procedures; and, • Establishing a Contract Compliance Monitoring Unit within the Department that operates independently from those staff responsible for the day-to-day administration of the programs. Corrective Actions are already underway. The primary areas being addressed are Personnel, Automation, Finance and Monitoring. "0 Personnel: Staff Capacity and Capability; The Community Development Block Grant Division and the Housing Conservation and Development Division, the divisions addressed in the Audit Report, have a total of 42 authorized staff positions, 25 of which perform administrative grants management activities and 17 who provide project delivery services. In assessing the complexity of the programs being administered by the Department at the present time, it has been determined that there is not sufficient numbers of staff to administer properly and fully all phases of the City's grant administration responsibilities. Additionally, it has been determined that there is a need for new staff positions with special skills and expertise in federal grants and contract management. As a result of a lack of staff with those special skills and the need for improved technology, the Department has not been able to maintain a consistent performance level in complying to the regulatory requirements of the grant funded programs. Outdated and/or inadequate systems and procedures have accentuated the need for advanced automation. Personnel: Corrective Actions in Progress A new Table of Organization has been established for the Department of Community Development. A new Administrative Division is being added and will have responsibility for: 10 98- 580 • Finance. • Compliance and Programmatic Monitoring. • Grant Management Information Systems (MIS), and • Grants Administration. These new centralized administration activities, along with new management personnel will provide the nucleus of the Department's efforts to demonstrate that: • Federal funds are being properly spent, • Programs are making an impact in our low-income communities, • Provisions for effective administration of grants programs are in place, and • Funding levels are being maintained and expanded. • -• . The recruitment process for filling vacancies and new positions is focusing on finding the most qualified candidates available who possess the skills and expertise to assist in the Department's capacity and capability building efforts. This level of expertise and experience will allow the Department to take the immediate steps necessary to comply with the Audit Report recommendations. In building the staff capacity and capability, an analysis of current staff capabilities is being completed. Training opportunities will be made available to all current employees. Personnel. Corrective Action Time Frames • 60 to 90 days to classify and recruit all newly authorized positions in the Department. • 60 days to recruit and hire key management personnel for the newly established Division of Administration. • 60 to 90 days to complete the assessment and testing of current staff and commence the development of staff training plans. Automation It has been determined that the Department is operating without the necessary technology that is needed to stay abreast of the reporting and monitoring requirements of our federal 11 98- 580 and state funding sources. This in turn makes it difficult to take advantage of grants management programs that are available through the City's on-line grants management programs and to monitor the financial transactions relative to loans made through the Department's programs. Automation: Corrective Actions in Process. As a result of meetings between the Office of Information Technology and Department of Community Development staff, the information technology needs of the Department to meet the reporting and monitoring regulatory requirements of our funding sources have been discussed. A Work Committee composed of representatives from the Office of Information Technology and the Departments of Finance, Asset Management, Legal and Community Development has been formed. This Work Committee is analyzing the inter -link systems needed to provide the information capabilities that are needed. Once the scope of work has been determined, the Committee plans to request Commission approval to engage the services of a consultant to design the system, identify the hardware and software needed, cost it out, provide the implementation plan and finally, prepare the training program for staff. A new position, CD Technical Grants Administrator, has been developed to work with this consultant and will assume the responsibilities of implementing the design of the system, maintain the system and act as a technical advisor to the staff. Automation: Corrective Actions Time Frames • An in-house technical Work Committee has been formed. • 30 days to bring the Department on-line with the City's computer systems. • 60 days to recruit and hire the CD Technical Grants Administrator (MIS). • 90 to 120 days to engage the services of an Information Project Consultant. • 6 months to one year to develop fully integrated computer software programs with the components necessary to track all grants management activities. Finance Finance: Corrective Actions in Process Consistent with the Audit Report recommendations to increase controls, a Finance Unit will be established within the Department of Community Development with programmatic and financial oversight review capability. A Finance Manager will supervise a staff of professionals who have the capability of monitoring all financial 12 98- 580 transactions and filing all reports. Additional staff expertise will be available in this Unit, such as that of a Default/Loan Specialist who will monitor default loans, including the verification of tax information and property condition. Similar professionals with special expertise will provide the mechanism to demonstrate responsible, effective and efficient use of federal and state funds. Finance: Corrective Action Time Frames • A transition Work Plan Group has been established among the Finance Department, the Office of Budget and Management, and the Department of Community Development. • 60 to 90 days to recruit and hire a Finance Manager. • 120 days to 6 months to have the full Finance Unit completely staffed and in operation. Monitoring .., It has been determined that the Department of Community Development needs to enhance staffing to monitor the on going activities of agencies, developers and companies who have received funds under Department programs to ensure their total compliance to regulatory requirements. The urgent need for independent review capability within the Department and in the field has been established. Monitoring: Corrective Actions in Process An independent Monitoring Unit is being established. This Unit will develop, document and implement a standard annual monitoring process and will respond to all periodic monitoring requirements for all of the agencies, developers and companies receiving support through the various programs administered by and within the Department. This Unit will operate independently of all staff involved in the direct administration of the programs, giving the Department enhanced focus on regulatory, legislative, programmatic and corrective action issues. Monitoring: Corrective Action Time Frames • 60 days to recruit and hire the Contract Compliance Manager. • 90 days to identify and train staff, establishing the independent Monitoring Unit. 13 98- 580 • 120 days to have the monitoring process fully defined and ready for implementation. The goals and objectives, under the administration of our new Department Director, are to bring the Department into full compliance with the regulatory requirements of all federal, state, county and local government funded initiatives. The Office of Inspector General for Audit review has provided an invaluable insight into the day-to-day operations of the Department. The City welcomes this opportunity to re -assess and re- evaluate the policies and procedures within the Department and to be more responsive to the needs of our economically disadvantaged citizens being served through our HUD - funded programs. Sincerely, Donald H. Warshaw City Manager 14 98- 580 I3 - The Finding found that the City spent $5,203,607 of CDBG funds for grant administration expenses without proper support. Also, the City spent $484,999 for ineligible grant administrative expenses. This occurred because the City shifted grant administrative costs between grants; exceeded the 20 percent grant administrative limit: and paid indirect costs without supporting cost allocation plans, prior to receiving services, and prior to central service departments incurring costs. As a result, the City deprived the intended program beneficiaries of $5,688,606. The Finding further states that the City shifted costs between grants to avoid exceeding expenditure limits. By not complying with requirements program beneficiaries were deprived of $2,133,797. The City believed that it was acceptable to shift administrative costs between grant years. The City also believed it was acceptable to charge indirect costs for previous years as long as the charges did not contribute to the City exceeding the 20 percent grant administration limit. In the past HUD has allowed recovery of indirect costs from previous years. In such cases the Grantee would have to account for its expenditures on a grant by grant basis. The Audit states that the City would have to " make such an accounting, support the undercharged amounts, and remain under the 20 percent limit for each applicable program year. As reported in the Audit, HUD agreed that if the City could demonstrate that it would not have exceeded the 20 percent limit for the applicable years, HUD would consider allowing the costs. The Audit reports that thee' City provided documentation to support that the 20 percent limit would not have been exceeded. However, HUD determined the documentation was not sufficient to fully resolve the issues. Therefore the City did not adequately support $2,133,797 of grant administrative expenses that were transferred between program years. The Finding contends that the City exceeded the 20 percent grant administration limit for program years May 1992 ($150,314) and 1994 ($334,685). Because the City failed to comply with requirements and report all expenses, the City expended a total of $484,999 in excess of the grant administration limit in those two program years. The Finding states that the City did not have cost allocation plans to support indirect costs and that the City justified withdrawing the estimated indirect costs from the line of credit based on plans from previous fiscal years. The City did not have an approved provisional rate. The Finding further declares that indirect costs of $551,600 were charged to the Disaster Grant. The City did not have a plan to support the charges. Coincidentally, the $551,600 represented the maximum grant administration expense that could be charged to the Disaster Grant to meet the 20 percent limit. Thus, it appeared the City charged the $551,600 in order to maximize the administrative expense. 98- 580 The Finding says the City paid indirect costs for program years May 1996 and May 1997 prior to receiving services. Because of the differing periods of the grant and the City's fiscal year, the indirect costs charged to the CDBG Program did not match the periods in which the services were rendered. Although the auditors did not take exception to the differing periods, they did not believe the City should pay indirect costs prior to receiving services and prior to the central service departments incurring related costs. The auditors reported that the City believed it was acceptable to pay indirect costs in advance. The City was informed by the consulting firm that prepares its plans (DM Griffiths) that the practice was common in the industry. The auditors cite that according to an OMB Policy Analyst, indirect costs cannot be paid until costs for services are incurred. The City was in general agreement with the Finding. The City provided documentation to support that the 20 percent limit would not have been exceeded for years 1998 through 1991. Based on the City's comments, the auditors made revisions to the finding. The City was commended for its positive efforts to resolve the weaknesses. - IA. Provide adequate support for $2,133,797 of grant administrative expenses that were transferred between program years or repay any unsupported costs to the CDBG Program. The City is entering into a contract with David M. Griffith and Associates Ltd.(DMG) to provide for the computation of an Indirect Cost Application for the purpose of identifying an equitable overhead or indirect cost charge to the CDBG grants for fiscal years 1986, 1987, 1988 and 1989. David M. Griffith & Associates, Ltd. (DMG) has been the City's consultant since 1984 and has prepared Cost Allocation Plans for the City of Miami for all years with the exception of the years 1986 through 1989. Because the records as well as the staff are no longer readily available,- DMG will rely on the CAFR, the Budget.._ documents, and the best available personnel information to prepare a modified cost allocation procedure. DMG will also prepare ratio comparisons to identify the logical relationships of the indirect costs from year to year. The cost allocation procedures will be consistent with the concepts and procedures of OMB A-87 guidelines limited by the information pool available. 1B. Reimburse the CDBG Program for ineligible costs of $484,999. It is believed that the Cost Allocation Plans developed by DMG in response to recommendation 1A, if accepted, should resolve the question of reimbursement in this recommendation. 1C. Submit certified Cost Allocation Plans as required to support indirect costs charges of $2,518,210 for program years May 1995 through May 1997 or repay any unsupported costs to the CDBG Program. The City was required to submit a Cost Allocation Plan for program years 1995 through 1997. In the cooperative spirit that has characterized the relationship between HUD and the City,_a Plan for PY 1997 was prepared, facilitated by the technical assistance of HUD, and submitted to HUD within the prescribed time frame. The Plan is being reviewed by HUD for applicability to program years 1995 and 1996. 1D. Provide support for the $551,600 of administrative costs charged to the Supplemental Disaster Relief Grant or repay any unsupported, costs to the U.S. Treasury. The City was of the opinion that HUD approval for the projected use of the funds was outlined in the Funding/Approval/Agreement allowing the City to charge this administrative cost. However, David M. Griffith & Associates, Ltd. (DMG) will provide a cost allocation analysis to determine the justification for the administrative charges made by the City against this HUD grant related to Hurricane Andrew. DMG will seek to identify allowable costs of administering this grant and indirect costs associated with this grant. DMG will review the cost allocation plan prepared for Fiscal Year 1993 to determine the appropriate citywide overhead allowable to the program. Departmental indirect costs for contributing departments will be considered and calculated where appropriate. After identifying all allowable costs, if there should be any balance due to the U.S. Treasury, the City will repay that balance. It is requested, in light of the City's financial condition, to have the balance payable over a five year period to minimize the financial impact on the City's General Fund. 1E. Submit for approval a corrective action plan to correct the systemic weaknesses identified in the finding. The Departmental reorganizational plan addresses the implementation of controls and procedures to ensure proper administration of the grants programs to safeguard assets and to be in full compliance with all regulations. The Corrective Action Plan is: Establishing new staffing positions to enhance and expand staffing capacity and capability. • Providing training opportunities for current staff. 98 - 580 • Providing on-line computer access with in-house, state and federal grants management programs. • Adding computer hardware and software programs. • Restoring financial oversight within the Department to enhance reporting and supervisory procedures. • Establishing a Contract Compliance Monitoring Unit within the Department operating independently of the staff responsible for the day-to-day administration of the Programs. Staff vacancies and new positions are being filled with candidates who possess the skills and expertise to build the capacity and capability of the Department. The CD Technical Grants Administrator (MIS) will be working with a Work Committee composed of representatives from the Office of Information Technology and the Departments of Finance, Asset Management, Legal and Community Development and a special consultant in creating a computer information system that will give the Department expanded. and professional technology capabilities to vastly improve the implementation and maintenance of the grants funded programs. A Finance Manager will lead a Finance Unit that will have the capability of monitoring all financial transactions and filing all reports relative to the status of all grant related expenses. The Contract Compliance Manager will head an independent Monitoring Unit that will conduct a standard annual monitoring process and all periodic monitoring requirements for all programs. With the full cadre of management and support staff being realized through Departmental reorganization, the Department's capacity and capability will correct the prior weaknesses in administering the CDBG Programs and will safeguard HUD funds as well as the City's assets. •_A� The Finding found that the City's loan procedures needed improvement. The City's underwriting and collection procedures were inadequate. In addition, the City failed to pursue legal remedies to cure defaults and recover losses, as well as protect its interests upon foreclosure. Also, loan decisions made by the City Commissioners were not in the City's best interest. As a result, about $9.9 million, or 36 percent, of the City's outstanding loan portfolio was in default. The City's failure to collect the loans reduced the amount of program income available to carry out it CDBG activities. The City administered several loan programs including multifamily rehabilitation (MF'R), single family rehabilitation (SFR), rental rehabilitation, new construction, and various smaller programs. As of May 30, 1997, the City's loan portfolio contained 634 loans with an outstanding principal balance of $27,658,117. Approximately 87 or 30 percent of the loans were in default. The outstanding balance of the defaulted loans was $9,904,456. The audit limited the review to the MFR loan program due to the large outstanding loan portfolio; high defaults; and high susceptibility to fraud, waste, and abuse. As of May 30, 1997, the MFR loan portfolio outstanding principal balance was $15,031,188, which a represented 54 percent of the City's outstanding loan portfolio. The review judgmentally selected five MFR loans for review. The loans that were reviewed included two loans the City wrote off as uncollectible, one in default, and two that were restructured. The review found that the City's underwriting procedures were deficient. The City did not adequately analyze borrowers' credit worthiness or require equity investments from borrowers. The City's collection procedures were inadequate by not having written collection procedures detailing the collection process and assigning responsibilities for specific tasks. The lack of written procedures caused poor communication and misunderstanding of duties between the responsible parties: Housing Division, Finance Department and Legal Department. The City was faulted for other weaknesses in procedures. The City did not pursue collection through assignment of rent agreements. The City did not pursue personal guarantees to recover losses. The City did not protect its interest upon foreclosure by superior lien holders. The review found that the City Commissioners' involvement hampered loan program operations. As previously noted, the City was in general agreement with the Finding. Between the time of the draft audit in November 1997, and the final Audit Report issued in March 1998, through meetings and telephone conference calls with HUD staff, the City has been responding to the recommended corrective actions requested by HUD. The OIG, in their final Audit Report has commended the City for recognizing the weaknesses and for taking immediate actions to resolve the deficiencies. .. • gi% 1,l .XFR' Tfie City has. een respoo fJO ,.ecomnrendaharrs,ds; olls.°;�� µ" 2A. Repay the CDBG Program $686,270 for amounts written off as uncollectible for the DC Two Exponent, Inc. loan. The City agrees to repay this amount to the CDBG program. In light of the City's budgetary restraints, we are_ requesting that the repayment be scheduled over a five-year period to minimize the financial impact on the City's General Fund Revenues. 2B. Repay the CDBG program $368,077 representing past due interest and late fees forgiven for the Ideal Rehab, Inc. and Liberty City Improvement Corporation loans. , The City agrees to repay this amount to the CDBG Program. In light of the City's budgetary restraints, we are requesting that the repayment be scheduled over a five-year period to minimize the financial impact on the City's General Fund Revenues. 2C. Collect all loan payments over 90 days past due, within 90 days, either through repayment from the borrowers, assignment of rents, foreclosure, or personal guarantees. As of May 30, 1997, about $1,5000,000 of loan payments were past due. The City should consider establishing a task force or other committees to aggressively purse collections. Legislation in the form of a Resolution has been submitted to the City Commission to establish a moratorium for CDBG and HOME Multifamily Rehabilitation Loan Programs (see Resolution #1). This will afford the City an opportunity to work with HUD in addressing the weaknesses and deficiencies cited in the audit. A Task Force has been established with representatives from the Departments of Community Development, Asset Management, Law and-- - Finance to review and assess all options. A thorough review and analysis has been conducted for those loans 90 days or more past due. A spreadsheet has been developed giving an overall status of the loans in question (see attachment If). Additionally, individual fact sheets for each loan have been prepared with a detailed chronology of loan activities. Each of these loans will be reviewed with the staff of the Florida State Office of HUD iri Coral Gables to determine the final actions to be taken in each individual case. Additionally, the City's Housing Loan Collection Policies and Procedures have been established (see Resolution #3) and arrangements have been made to provide inspections and appraisals of all properties (see Resolution #6). Under the Policies and Procedures, a collection agency will be engaged to aggressively pursue those borrowers who are recommended for collection and all avenues of collection will be utilized including seeking repayment from the borrower, assignment of rents and calling in personal guarantees. Through the inspections and appraisals, the City will know the current value and status of each property and will seek the most favorable course of action for maximum return on the City's investment. 21). Implement controls and procedures to ensure proper administration of its loan programs and proper safeguarding of its assets. At a minimum the controls and procedures should include: • Obtaining and analyzing credit reports for the borrowing entity and its principals; • Requiring disapproval of loans to entities and individuals who have demonstrated a lack of credit worthiness; ' • Requiring a minimum equity investment of 10 percent from borrowers; • Written procedures delineating the roles and responsibilities of the various departments in carrying out the loan collection process; • Developing and implementing a ' mortgage tracking system which provides access to information as needed by the various departments. The system should provide for the development of delinquency reports and status reports on cases referred for legal action; • Developing guidelines for analyzing the economic feasibility of_ pursuing foreclosures; • Establishing a pool of funds for use in performing foreclosures and protecting the City's interest upon foreclosure by superior lien holders; • Establishing procedures for managing properties upon foreclosure. • Establishing a loan committee with proper expertise in evaluating loans. The committee should include at least one member from a private financial institution; and • Establishing written procedures and guidelines for use by the loan committee in approving loans, subordinating loans, and restructuring loans. A combination of City Commission approved Resolutions, the Departmental Reorganization and Corrective Action Plans are addressing this recommendation along with 2E and 2F. A series of Resolutions (see Resolutions #s 2 through 7), along with written guidelines and procedures are focusing on the 3 98- 580 recommendations to establish written policies and procedures and strengthen the loan approval process. The Reorganization of the Department, with Corrective Action Plans, is focusing on providing the Department with the capacity and capability necessary to correct prior weaknesses and deficiencies. Summaries of the Resolutions and Corrective Action Plans begin on this page following item 2F. 2E. Assume the risk for any loan transactions approved by the City Commissioners against the recommendation of the loan committee. In Resolution #4, to restructure and expand the Housing Loan Committee, section # in the Resolution specifically addresses the parameters of the City Commission's involvement in loan approvals. 2F. Submit for approval a corrective action plan to correct the systemic weaknesses identified in the finding. A combination of City Commission approved Resolutions, the Departmental Reorganization and Corrective Action Plans are addressing this recommendation along with 2D and 2E. A series of Resolutions (see Resolutions #s 2 through 7), along with written guidelines and procedures are focusing on the recommendations to establish written policies and procedures and strengthen the loan approval process. The Reorganization of the Department, with Corrective Action Plans, is focusing on providing the Department with the capacity and capability necessary to correct prior weaknesses and deficiencies. Resolution #2 calls for the adoption of revised Lending Guidelines for the Community Development Block Grant (CDBG) Multi -Family Rehabilitation Loan Program and the Home Investment Partnership (HOME) and the State Housing Initiatives Partnership (SHIP) Programs. The CDBG Multi -Family Rehabilitation Loan Program guidelines are revised and incorporate all of the recommendations outlined in the Audit Report. The significant modifications include a recommended loan/grant to the property owner, a minimum of 25% owner participation in the project, a minimum of 10% equity, a 90% Loan -to - Value (LTV) limit, a credit report, appraisal reports, a first or second mortgage position, a provision for the escrow of taxes and insurance, and the limit of one subordination of the City's mortgage. Copies of the written guidelines for the CDBG Multi -Family Rehabilitation Loan Program and the HOME and SHIP Programs are attached and made part of the Resolution. Resolution # 3 calls for the establishment of the City's Housing Loan Collection Policies and Procedures. These Policies and Procedures delineate the roles and 4 98- 580 responsibilities of the Department of Community Development and the Legal Department in carrying out the overall loan collection process, to include aggressively pursuing all delinquent debtors through legal actions to safeguard the City's assets. The Policies and Procedures apply to the City's entire housing loan portfolio consisting of low -interest loans which have been provided through the City's CDBG-funded Single Family and Multi -Family Rehabilitation Loan Programs, Rental Rehabilitation Grant Program, Home Investment Partnership Program, and State Housing Initiatives Partnership Program. The City Attorney is directed to coordinate a collection procedure with the Department of Community Development which will include sending certified letters to all delinquent debtors; aggressively pursue all delinquent debtors through legal action by pursuing foreclosure action, the assignment of rents, personal guarantees, and through the engagement of private debt collection agencies. The City Attorney is further directed to provide the City Commission with quarterly reports of all Department of Community Development delinquent loans referred to the City Attorney's Office. The written Housing Loans Collection Procedures' and Policies are attached and made part of the Resolution. Resolution #4 calls for the Appointment of a Seven (7) Member Housing Loan Committee for the purpose of recommending approval or disapproval of loan applications for housing funds, loan restructuring plans, loan repayment plans and subordination agreements. The City Manager is authorized to expand the City's Housing Loan Committee to include two (2) members from the private sector with private banking experience; one (1) member who is an active affordable housing provider; one (1) member from Miami Capital Development , Inc.; and three (3) members from the City to include representatives from the Departments of Finance, Public Works and Community Development. The Resolution recognizes the authority of the City Commission to overrule the recommendation of the Housing Loan Committee involving any loan transaction, with the proviso that any such overrule will obligate the City to assume the risk for repayment of federal funds provided for the loan in the event the loan is a loss through foreclosure. Resolution #5 calls for the establishment of a Housing Loan Recovery Fund in the amount of $500,000. This fund will be utilized by the City to facilitate foreclosure action against outstanding default loan accounts, in addition to protecting the City's interest when foreclosure action has been initiated by a superior lien holder against a loan in the City's housing loan portfolio. The City Manager and the City Attorney are authorized to utilize and disburse the funds from the Housing Loan Recovery Fund on a case -by -case basis, when it has been determined that it is in the City's best interest to mitigate and/or pursue all delinquent loan accounts in excess of 120 days. Resolution #6 calls for the engagement of the services of Civil Engineering and Appraisal Firms for the Housing Programs to perform inspections and appraisals of all CDBG and HOME Program -funded Multi -Family Rehabilitation Loan 98- 580 Program -assisted housing projects which have been identified in the Audit Report issued by the District Office of the Inspector General (OIG). To improve the City's overall loan/grant underwriting procedures, the civil engineering firms will be retained to perform a completed construction cost analysis of all housing projects which are being considered for housing funding through the CDBG, HOME and SHIP Programs. Resolution #7 calls for the establishment of a Leveraging Policy for affordable housing projects requiring all applicants for loan/grant funding from the City of Miami through the CDBG, HOME, and SHIP Programs to leverage other public and private sector funding to develop the proposed housing project. This Policy will require a minimum of a one (1) to three (3) leveraging ratio for homeownership projects and a minimum of a one (1) to five (5) leveraging ratio for rental projects. This Policy comes from the recognition that the participation of both the public and private sectors is necessary to foster the successful development of housing affordable to low and moderate income families and individuals in the City. Departmental Reorganization and Corrective Action Plans address the implementation of controls and procedures to ensure proper administration of the loan programs and the safeguarding of assets and the correction of systemic weaknesses identified in the Finding. The Corrective Action Plan is: • Establishing new staffing positions to enhance and expand staffing capacity and capability. • Providing braining opportunities for current staff. • Providing on-line computer access with in-house, state and federal grants management programs. • Adding computer hardware and software programs. • Restoring financial oversight within the Department to enhance reporting and supervisory procedures. • Establishing a Contract Compliance Monitoring Unit within the Department operating independently of the staff responsible for the day-to-day administration of the Programs. Staff vacancies and new positions are being filled with candidates who possess the skills and expertise to build the capacity and capability of the Department. The CD Technical Grants Administrator (MIS) will be working with a Work Committee composed of representatives from the Office of Information 98-- 580 Technology and the Departments of Finance, Asset Management, Legal and Community Development and a special consultant in creating a computer information system that will give the Department expanded and professional technology capabilities to vastly improve the implementation and maintenance of the grants funded programs. A Finance Manager will lead a Finance Unit that will have the capability of monitoring all financial transactions and filing all reports relative to the status of all loans. Expanded automation will provide the Default/Loan Specialist a mortgage tracking system- providing opportunity to provide current status information to all City Departments involved as well as the capability of monitoring all default loans including the verification of tax information, and the condition of the property. The Contract Compliance Manager will head an independent Monitoring Unit that will conduct a standard annual monitoring process and all periodic monitoring requirements for all of the developers, providers, agencies and companies receiving support through the various programs administered by and within the Department of Community Development. With the full cadre of management and support staff being realized through Departmental reorganization, the Department's capacity and capability will correct the prior weaknesses in administering the Housing Programs and will safeguard HUD funds as well as the City's assets. 98- 580 The Finding found that the City allocated $4.75 million of HOME funds to develop an affordable housing project that was not feasible. The homes were not affordable for prospective buyers and funding was insufficient to complete the project. Also, the developer owed the City $144,538 of program income. The City did not require the developer to demonstrate the homes were affordable to very low-income families or require the developer to obtain adequate financing to complete the project construction. As a result, the City spent over $1.9 million of the HOMEfunds as of August 12, 1997, and the developer did not construct or pre -sell any units. The audit further states that the City authorized the purchase of the development site although the appraisal was inaccurate and an independent consultant determined the project was not viable. In addition, they conclude that financing was insufficient to complete the project, the City did not record the property deed, and yet the City has spent over $1.9 million on this project. As in Finding #2, the City is in general agreement with this Finding. The City is taking steps to ensure full compliance by the developer, or discontinue the project. The OIG made certain recommendations and the City is responding as follows: 3A. Demonstrate how the Northwestern Estates housing project can be made affordable to low and very low income families by obtaining sufficient subsidies, reconfiguring the project, or otherwise reducing the costs. In a letter dated February 19, 1998 to Mr. T. Willard Fair, President and CEO of the Urban League of Greater Miami, Inc., the partnership for the Northwestern Estate Housing Project was advised of the preliminary findings of the draft audit from the OIG. The City called for an immediate response to all of the recommendations outlined in that draft audit. Subsequent to the release of the final Audit Report on March 26, 1998, a meeting was held on April 13, 1998 with Mr. Fair and the principals of Liberty Housing Associates, where the final recommendations were discussed at length and a response to all recommendations was once again requested. To further assess this project, legislation in the form of a Resolution (see Resolution #8) has been recommended to the City Commission to engage an independent consultant to perform a project analysis of the proposed Northwestern Estates Housing Project. The independent consultant will perform an economic and affordability analysis of the proposed Project and will make recommendations to the City Manager. W.r 3B. Provide evidence the developer has obtained sufficient financing to complete project development. As previously stated, through a letter dated February 19, 1998 and at a meeting on April 13, 1998, the partnership for the Northwestern Estates Housing Project was asked to respond to this recommendation with supporting documentation. 3C. Reimburse $144,538 of program income to its HOME Investment Trust Fund. The partnership of the Northwestern Estates Housing Project has been advised that the $144,538 received by them as a result of condemnation proceedings by the Dade County School Board, is program income and must be returned to the Program. By letter and in personal meetings they have been advised of the urgency of returning this money to the City for deposit into the°Program fund. 3D. Discontinue funding the project, except for necessary costs such as relocation and security until the City complies with recommendations 3A, 3B and 3C. Both Resolution #8 and Resolution #9 contain a section calling for the City to suspend all future payments to the Urban League of Greater Miami, Inc. or Liberty Housing Associates as the developers of the Project, until such time as the issues and concerns as cited within the Audit Report from the OIG have been resolved. 3E. Take other appropriate action, as needed, to protect the Secretary's interest and the integrity of the HOME Program, including terminating the project. _ Legislation in the form of a Resolution (see Resolution #9) has been recommended to the City Commission to direct and authorize the City Manager and the City Attorney to take the appropriate steps necessary to ensure full compliance with the findings and recommendations outlined in the Audit Report. The Resolution directs the City Manager and the City Attorney to notify the developer, Liberty Housing Associates, that they are afforded sixty (60) days from the adoption date of this Resolution to reimburse the City the $144,538 in program income paid to the developer by the Dade County School Board in condemnation proceedings on one (1) acre of the eleven (11) acres of land purchased by the developer with HOME Program funds. The developer is equally obligated, in that sixty (60) day period to demonstrate how the Northwestern Estate Housing Project can be made affordable to very low and low-income families by obtaining sufficient subsidies, reconfiguring the project or reducing the project's cost and, in addition, providing evidence that sufficient private financing has been obtained to complete the development of the project. MEM 2 As previously stated, this Resolution calls for the discontinuance of all funding to the Northwestern Estate Housing Project, except for any costs associated with relocation payments and security until such time as there is compliance with the Audit Report recommendations. As previously stated, in a letter dated February 19, 1998 to Mr. T. Willard Fair, President and CEO of the Urban League of Greater Miami, Inc. and at a meeting on April 13, 1998 with Mr. Fair and the principals of Liberty Housing Associates, the partnership for the Northwestern Estates Housing Project was informed of the preliminary findings of the draft audit and the final findings in the Audit Report dated March 26, 1998. Both in the letter and in the meeting, the urgency for the reimbursement of the program funds in the amount of $144,538 was stressed. Additionally, the request for all of the files and records related to the tenant relocation phase of the project to be turned over to the City was repeated, and finally, the obligation of the partners to respond to the additional recommendations in the Audit Report was emphasized. To date there has been no response. With adoption of the Resolution on May 26, 1998 the partnership will have a 60- day time period to be in full compliance or the City Manager and the City Attorney are authorized -to take any legal action necessary including the termination of the Project. CITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM TO: To The Honorable Mayor, Joe Carollo and DATE: Members of the City Commission SUBJECT: FROM: Ona�d H. WarShaW REFERENCES: City Manager ENCLOSURES: RECOMMENDATION: 27a May 11, 1998 FILE Resolution Appointing a Seven (7) Member Housing Loan Committee City Commission Agenda Item - May 26, 1998 It is respectfully recommended that the City Commission adopt the attached resolution, approving the appointment of a seven (7) member Housing Loan Committee, for the purpose of recommending approval or disapproval of loan applications(s) for housing funds, loan restructuring plans, loan repayment plans and subordination agreements. BACKGROUND: In March of 1988, the U.S. Department of Housing and Urban Development's District Office of the Inspector General, in its audit report dated March 26, 1998, cited numerous problems and deficiencies in the City's loan underwriting and collection procedures with respect to the various federal housing programs, which are being administered by the City of Miami. As a part of the City's corrective action plan, new program lending guidelines and procedures have been developed by the Department of Community Development, in an effort to address the programmatic deficiencies which were identified in the audit report. In addition to the aforementioned programmatic weaknesses in the City's loan underwriting and collection procedures, the Office of the Inspector General also recommended that the City of Miami should expand its existing Housing Loan Committee to also include individuals from the private sector with experience in real estate lending. The attached resolution recommends that the City Commission expand the Housing Loan Committee to a total of seven (7) members. The City Manager will recommend to the City Commission for their approval three (3) members from the private sector to include two (2) members with banking experience, and one (1) member who is an active affordable housing provider. The City Manager will appoint one (1) member from Miami Capital Development, Inc., and three (3) members from the City to include representatives from the Departments of Finance, Public Works and Community Development. The Mayor will designate the Chairman of the Housing Loan Committee. The Honorable Mayor, Joe Carollo and Members of the City Commission Page 2 The Office of the Inspector General also expressed concerns relative to what appeared to be City Commission involvement with three (3) Multi Family Rehabilitation Program cases where the borrowers requested the City to subordinate its mortgages in order to allow the property owner to refinance their property. Although the Housing Loan Committee disapproved the borrower's request in all three (3) cases, the City Commission approved the subordination against the loan committee's recommendation. The U.S. Department of Housing and Urban Development is aware that the City Commission has authority to overrule the Housing Loan Committee involving any loan transactions. However, it is now U.S. HUD's position that any Wan transactions involving federal funds, whereby the City Commission approves an action against the recommendation of the Housing Loan Committee, that the City will assume the risk for repayment of said. funds in the event the loan is a loss through foreclosure. JGP:CMC:GCW:JBH:sjg [Memosjg]<Pedrosa9>