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We audited the City of Chicago’s HOME Investment Partnerships Program.  We selected the City’s Program based upon our analysis of risk factors related to Program grantees in Region 5’s jurisdiction.  Our objectives were to determine whether the City complied with HUD’s requirements regarding (1) leases between rental new construction projects’ owners and households, (2) use and reporting of Program income, and (3) monitoring of projects.

Leases between the owners and the households for Program-funded units in two projects included language prohibited by HUD’s regulations and the City’s regulatory agreements with the owners.  As a result, the City drew down nearly $7.4 million in Program funds for two projects in which the rights of 73 households were not protected.

The City did not always follow HUD’s requirements in its use and reporting of Program income.  It (1) inappropriately drew down nearly $25.2 million in Program funds from its HOME investment trust fund treasury account from January 1, 2012, through December 31, 2013, when it had available Program income, (2) inappropriately used Program income, (3) did not report more than $4.3 million in Program income in HUD’s Integrated Disbursement and Information System in a timely manner, and (4) did not deposit Program income into its HOME investment trust fund local account.  As a result, (1) the U.S. Treasury paid more than $30,000 in unnecessary interest on the Program funds that the City drew down from its treasury account when Program income was available, (2) the City had more than $9,000 less in Program income to be used for eligible Program activities, and (3) HUD and the City lacked assurance regarding the amount of Program income available to the City.

The City did not always conduct required annual compliance monitoring of projects in calendar year 2013.  As a result, HUD and the City lacked assurance that households were (1) living in units that met HUD’s property standards requirements, (2) income eligible, and (3) not paying excessive rents.

We recommend that the Director of HUD’s Chicago Office of Community Planning and Development require the City to (1) ensure that leases between the owners and the households for Program-funded units do not include prohibited language; (2) reimburse its Program or HUD, for transmission to the U.S. Department of the Treasury, from non-Federal funds; (3) ensure inspected units were Program-assisted units; and (4) implement adequate procedures and controls to address the findings cited in this audit report.