Texas NSP Program Audit

The Internal Auditing Division of the Texas Department of Community Affairs released a report last week on TDHCA’s Neighborhood Stabilization Program.  The topline finding:

“The Texas Department of Housing and Community Affairs’ (Department) Neighborhood Stabilization Program (NSP) is not operating as efficiently as it could and may not fully comply with all program rules and federal requirements.”

We’ve discussed the NSP(1) program previously here at Texas Housers, and TxLIHIS issued out own report on the Texas NSP Program last June  This program, funded through the Housing and Economic Recovery Act of 2008 (HERA), provided $102 Million to Texas to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods.

The Internal Audit report detailed extensive issues with Internal Controls and Documentation in the NSP program.  Notably:

• The Auditors attempted to test the quality of obligation data originally provided to HUD for the September 3, 2010 NSP Obligation deadline but “could not confirm that the obligations were satisfied as of the deadline” due to data quality issues.
• Half of the contracts examined by the Auditors showed discrepancies between TDHCA’s internal records and the data reported to HUD, and TDHCA is not reconciling the two systems on a regular basis.
• NSP is not tracking the subgrantees’ milestones and some of these milestones have not been met.
• “The Department currently does not have enough resources to meet the deadline for 400 loan closings, and the anticipated workload for the Legal Division in preparing loan documentation is challenging.”
• NSP did not collection Section 3 data in 2009 or submit an annual Section 3 Report for 2009, as required by HUD.  Only half of the sub-grantees evaluated by the auditor had submitted Section 3 reports to TDHCA since April 2010.

In short, the report paints the picture of a program NSP that is under-staffed and over-worked, with no time to implement formal controls for a rapidly deployed program.  While the NSP program design pushed most program activities (and funding) to local recipients, TDHCA maintained a large part of the administrative burden.

Our report last June identified “Insufficient TDHCA staff assigned to administer the program and support grantees” as a challenge facing this program.  The internal audit shows this challenge has not yet been overcome.

Particularly troubling was the lack of consistent Section 3 data collection and reporting.  The HUD Section 3 jobs requirement centers around the responsibility to offer jobs to residents of public housing and other extremely low-income persons in the communities affected.  Our June report also identified the lack of consistent Section 3 reporting as a program shortcoming, and the audit report indicates little progress has been made since that report on consistent data collection, let alone the actual local job creation tracked by such reports.

The Audit report makes a series of recommendations regarding improved recordkeeping, internal controls, and communications, and states TDHCA is currently in the process of implementing those recommendations.

TDHCA recently stated on a call regarding future NSP programs that they had expended 30% of the NSP1 funds to date.  With 2/3rd of the NSP1 program expenditures before them, as well as the new programs for NSP3 and NSP-PI coming on-line, it is still vitally important that TDHCA gets the administration of the NSP programs in order to ensure Texas maximizes the benefit of these funds to the local communities in need.