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We audited the Puerto Rico Department of Housing’s multifamily special escrow funds.  This audit was the result of a referral from the San Juan Office of Multifamily Housing Programs.  The objectives of the audit were to determine whether the Department administered and disbursed its escrow funds in accordance with its memorandum of understanding with the U.S. Department of Housing and Urban Development (HUD) and whether funded activities fully provided the intended benefits.

Since September 2012, the Department had maintained a high balance in its escrow accounts without awarding funds for new projects.  In addition, it did not ensure the completion of three escrow-funded activities that showed signs of slow progress and did not support the eligibility and propriety of five disbursements.  As a result, HUD had no assurance that more than $12 million in escrow funds was effectively used to meet program objectives and provide the intended benefits.

The Department did not ensure that escrow deposits were fully secured by the Federal Government and that program beneficiaries met income limit requirements.  In addition, it failed to certify to HUD that funded activities met program requirements.  As a result, HUD lacked assurance that funds were properly safeguarded and used for authorized purposes.

We recommend that HUD (1) determine the eligibility of more than $4 million in unsupported escrow fund disbursements and activities that showed signs of slow progress, (2) use more than $7 million in unspent escrow funds to meet program objectives and increase the supply of low- and moderate-income housing, and (3) require the transfer of unspent funds to a more sound financial institution to ensure that escrow account deposits are fully secured by the Federal Government.