Arkansas Administrative Code
Agency 109 - Arkansas Development Finance Authority
Division 04 - Multi-Family Housing
Rule 109.04.10-004 - Compliance Monitoring Policies and Procedures for the HOME Program

It is ADFA's responsibility to monitor all entities that receive HOME funds (generally referred to as Recipients). The various Recipients ADFA must monitor include the following:

> State Recipients. State Recipients are units of local government designated by ADFA to receive HOME funds from its HOME allocation. ADFA, as the State PJ, is responsible for monitoring its State Recipients. State Recipients are monitored for administrative, financial, program, and project-related compliance.

> Subrecipients. Subrecipients are public agencies or nonprofit organizations selected by ADFA to administer HOME Program activities. Subrecipients may be other public agencies, public housing authorities or nonprofit organizations. State recipients that receive funds are also considered subrecipients. Subrecipients are monitored for administrative, financial, and program and project-related compliance.

> Community Housing Development Organizations (CHDOs). CHDOs are special nonprofits that own, sponsor, and/or develop affordable rental or homebuyer housing under minimum of 15 percent of ADFA's HOME Program funds. To be considered a CHDO, the nonprofit must meet certain qualifying criteria. CHDOs are not subject to Federal uniform administrative requirements, except for §84.21 which dictates general financial management standards. Finally, they are eligible for operating assistance and pre-development loans. ADFA is required to monitor CHDOs for all of the above.

> Owners, Developers, and Sponsors. Owners/developers/sponsors may either be for-profit or nonprofit organizations that receive funds to undertake affordable housing projects. They do not administer programs, but simply receive HOME funds to develop a project. If they are not CHDOs, they are monitored for compliance with project activity requirements only. ADFA and its Recipients monitor developers, owners, and sponsors, and primarily focus on performance and regulatory compliance (including eligible costs, labor standards, etc.). These entities differ slightly from CHDOs, but some of the same monitoring occurs.

> Contractors. Contractors are entities that are competitively procured to carry out a specified scope of work for a specified price. They can administer programs and/or provide necessary goods and services to ADFA or one of ADFA's Recipients. Contractors must maintain records and reports demonstrating compliance with HOME Program regulations and written agreements. ADFA monitors contractors for performance under agreements as well as compliance with applicable requirements.

Exhibit 1-1: ADFA Monitoring

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Monitoring is a key method of ensuring compliance with the legal requirements of the HOME Program.

ADFA's Responsibilities

ADFA, as the State PJ, is responsible for managing the day-to-day operations of its HOME Programs and ensuring that HOME funds are used in accordance with program requirements. Implementation of HOME Program activities by other Recipients does not relieve ADFA of this responsibility. As such, the phrase "the monitor is used in this Guide to denote the ADFA staff person that is determining whether a particular program or project is in compliance with the HOME Program regulations and requirements.

ADFA's key compliance responsibilities include:

> Executing written agreements/contracts that establish Recipients' (CHDOs, developers and other partners) responsibilities for receiving HOME funds;

> Monitoring and documenting Recipient activities for compliance with the terms of the agreement and program requirements;

> Conducting progress inspections and reconciling costs with work completed;

> Ensuring income-eligibility of clients served;

> Maintaining a system of documentation and reporting that accurately reflects compliance; and

> Ensuring information in Integrated Disbursement and Information System (IDIS) is accurate and current.

HUD Responsibilities

As the funding agency, HUD is required to monitor all HOME Participating Jurisdictions (PJs), including ADFA, to ensure they are in compliance with the regulations. Key monitoring responsibilities of HUD include:

> Monitoring the performance and compliance of all PJs' HOME activities;

> Reviewing the commitments, expenditures, and performance of PJs and subrecipients through the Integrated Disbursement and Information System (IDIS) and through its reports;

> Examining the Consolidated Plan, Action Plan, and Consolidated Annual Performance and Evaluation Report (CAPER) submitted by PJs;

> Conducting periodic on-site monitoring visits to review PJs' HOME Program activities; and

> Providing HOME resource materials and technical assistance to help subrecipients operate effective programs and comply with HOME requirements.

HUD will review the performance of a PJ in carrying out its responsibilities whenever determined necessary, but at least annually. However, HUD is not simply a regulatory body. One of its primary functions is to be a resource for communities. If ADFA encounters any compliance issues, HUD should be brought in early to help ADFA work toward a resolution. Exhibit 1-2 provides additional guidance regarding the HUD monitoring process.

The HUD Office of Inspector General is established by law to provide independent and objective reporting to the Secretary, Congress, and the American people through its audit and investigative activities. The Inspector General (IG) conducts a risk analysis to determine which PJs to monitor. The IG conducts thorough reviews of PJs on an as-needed basis depending on risk and provides a detailed report of its review to the PJ.

Exhibit 1-2: What Happens to a PJ When Monitored by HUD?

HUD staff members view monitoring, not as a once a year or periodic exercise, but as an I

ongoing process involving continuous communication and evaluation.

> HUD monitoring involves frequent telephone/email contacts, written communications, analysis of PJ reports (e.g., Action Plan, CAPER) and audits, IDIS reports and HOME reports available on the internet, and periodic meetings.

> HUD staff members are required to keep fully informed concerning participant compliance with program requirements and the extent to which technical assistance is needed.

HUD will determine which PJs to monitor using a risk analysis.

> Each program participant's past performance is analyzed and compared against the full spectrum of formula and competitive program participants and programs.

> This method ranks program participants in descending order, from highest to lowest risk. Three categories are used: high, medium, and low risk.

> The risk analysis results are recorded in CPD's Grants Management Process (GMP) information system.

Annually, CPD Field Offices develop Management Plans to facilitate achievement of HUD performance goals in delivering programs and services to our customers.

> Wthin the framework established by the national Management Plan goals and the local risk analysis results, each Field Office develops an annual work plan.

> The work plan identifies the actions that will be taken to assess program participant performance, including which participants will be monitored, the type of monitoring (e.g., in-depth, limited, on-site, remote), the programs/functions to be monitored, the expected monitoring dates, and needed resources (staff, travel funds, etc.).

* Monitoring is conducted either through remote monitoring (similar to desk monitoring) or via on-site monitoring.

> Remote Monitoring: Conducted off-site, typically at the Field Office, based upon analysis of information from the program participant, including interviews.

> On-site Monitoring: Monitoring that is conducted at the program participant's geographic location.

Monitoring is not just a way to comply with legal requirements, but is also instrumental in program assessment and management. Monitoring allows ADFA to examine whether or not it is responding to community needs, is using resources efficiently and effectively, and to appropriately adjust programs and policies. In addition, monitoring allows for a review of program procedures and project designs to ensure they are effective and meet Consolidated Plan and Action Plan goals. Finally, monitoring is a necessary component to comply with the CPD Outcome Performance Measurement system or other performance measurement systems.

It allows the ADFA to assess whether projects are successful in achieving key objectives and outcomes.

Responding to Community Needs

The HOME Program is a block grant that provides considerable flexibility in implementing affordable housing programs that meet local housing conditions and needs. Monitoring programs in relation to those needs can help ADFA determine whether or not HOME funds are being used to address the highest affordable housing priorities of the jurisdiction. Monitoring allows ADFA to ensure that its programs are in line with the Consolidated Plan, which should represent the actual needs of the community, rather than only those needs that are politically popular. In addition, for large jurisdictions where program staff carry out single components of HOME activities, monitoring often provides the "big picture" of all funded activities. This broader perspective is useful in evaluating the overall impact of the program.

Using Resources Efficiently and Effectively

ADFA must be concerned with the efficiency and effectiveness of service delivery. Monitoring systems can help determine how well services are being provided and at what cost. This is important because it is possible for ADFA to use its HOME funds in accordance with all of the HOME requirements, address the jurisdiction's highest priority housing needs, and still be able to improve the effectiveness of its HOME program. Under the HOME program, expenses must be reasonable, but materials should always be of good quality.

Ensuring Program Procedures and Project Designs Are Effectively Implemented

Internal and external monitoring provides information on the effectiveness of the program design, policies and procedures. When monitoring reveals compliance areas that a number of Recipients are in non-compliance, ADFA should evaluate its internal program design and implementation to see if it can address the issue by modifying its own systems. In addition, ADFA may determine that the Recipient's project design or program procedures are not effectively delivering HOME Program funds. Data from monitoring can provide the needed feedback to make changes for future programs that will improve compliance. Feedback from monitoring may also impact future funding decisions and ADFA's strategy to improve the efficiency of internal and external operations. Monitoring may also help to measure if the benefits have been distributed in an equitable manner. Chapter 8 includes a further discussion of ways to utilize the information gained from the monitoring process to improve performance.

Program monitoring determines whether the Recipient has proper procedures, files and forms in place to carry out a program in compliance with the regulations and whether it is following those procedures. Program monitoring can help evaluate the overall health of a program's systems and procedures, but the monitor must differentiate between systemic problems (ones that are present across projects) and problems that might be limited to specific projects. Program monitoring involves the examination of the following items:

> Application for HOME Funds. The Recipient's application documents the basis on which the project was selected for funding. Project activities should conform reasonably to those described in the application.

> Policies and Procedures. Written policies and procedures should be in place and should be followed in the implementation of activities.

> Program Files. These include the Recipient's HOME application, memos, and other written communication documents.

> Financial Files. These include documentation of disbursements or payments, including supporting documentation such as bank statements, accounting records, copies of checks and other financial documents.

> Project Files. Project files include the documentation of funding agreement, work write-ups, bids, change orders, and income eligibility and other relevant documents for each beneficiary assisted. These files must be organized in a logical, accountable system.

> CHDO Files. This includes the documentation of CHDO certifications and recertifications, CHDO set-aside projects and financial assistance.

Program monitoring also includes a review of the overall HOME Program administration to ensure adherence to uniform administrative requirements, meet the goals of the Consolidated Plan, and build and maintain the capacity of CHDOs and other nonprofit developers, sponsors, or owners.

Administrative and financial monitoring ensures that Recipients are administering the program properly (i.e., using funds from authorized sources, tracking funds, using proper methods of record keeping, and managing finances appropriately). Many of these requirements are codified for Recipients through the written agreement with ADFA. See Chapter 3 (Administrative and Financial Requirements) for more information on administrative and financial monitoring.

Project monitoring ensures that each funded project meets all project requirements (i.e., property standards for new construction, cost restrictions, etc.). Project monitoring involves a review of sample files and inspection of units. If a Recipient is involved in the development, sponsorship or ownership of a substantial project, monitoring should determine whether an appropriate level of subsidy has been provided and appropriate payments made. ADFA requires progress reports and regularly scheduled meetings to monitor the development while in progress. For rental projects ADFA also analyzes the projects for financial stability, management capacity and other long-term viability issues.

Finally, project monitoring involves a review of compliance with several other federal regulations including environmental review, the Uniform Relocation Act, the Lead Safe Housing Rule, and others.

Exhibit 1-3: Key HOME Requirements to Monitor

Long-term monitoring begins when HOME project funds have been expended and a project is completed. Long-term monitoring ensures compliance with requirements related to the rents, income of tenants, affirmative marketing and fair housing, the condition of the property, and principal residence and resale/recapture provisions (homebuyer). These are requirements that are imposed for periods of five to 20 years, depending on type of project and amount of HOME funds.

Phase I monitoring responsibilities are carried out by HOME program staff at ADFA. During this phase, ADFA reviews applications for eligibility. Sample steps in this phase include (see activity chapters for more information):

> Reviewing projects to ensure people are income-eligible;

> Ensuring Environmental Review and other pre-approval processes have been completed and documented;

> Assessing whether proposed activities and costs are necessary and reasonable;

> Checking organizational capacity and past performance; and

> Verifying that the level and type of housing benefits that will be produced are consistent with those anticipated in the Consolidated Plan.

This phase culminates with signing a written HOME agreement, which codifies all HOME and other federal regulatory requirements, as well as project specific details such as targeting income levels, number of HOME assisted units, required timelines and reporting, and the terms and conditions for program income or project proceeds. The agreement should include timeline or milestones ADFA will use during Phase II to gauge the progress of the project.

Again, HOME program staff at ADFA are generally responsible for Phase II monitoring. During this phase, ADFA ensures the project is moving along and is completed in the established timeframe. Sample steps in this phase include (see activity chapters for more information):

During this phase, ADFA Compliance staff monitors for compliance with long-term requirements such as affordability, property standards, and resale. Sample steps in this phase include the following for a rental housing project (see activity chapters for more information):

> Annual reexamination of tenant income documentation and leases;

> Checking the number, location, rents and utilities of HOME rental units;

> Inspecting the physical condition of rental units;

> Analyzing rental projects for financial stability, management capacity and other long-term viability issues;

> Verifying that file/record keeping is consistent with a Recipient's application for HOME funds; and

> Enforcing other requirement as outlined in deed restrictions/covenants on rental and homebuyer properties.

Exhibit 1-4: Monitoring Phases

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Initially, the results of the previous year's HOME monitoring activities can serve as the basis for the plan for the coming year. Previously identified problem areas should be closely scrutinized to ensure that the problems have been addressed and do not recur. As the year progresses, HOME monitoring and program staff will meet periodically to review results, revise the monitoring plan if additional areas need more in-depth review, and address any problem areas.

ADFA's monitoring objectives will be determined by its responsibilities under the HOME Program and its affordable housing goals for the community. Appropriate objectives may include:

A well-designed monitoring strategy will help ADFA Compliance staff use the appropriate level of effort to ensure performance and compliance in each focus area. In general, a comprehensive HOME monitoring strategy involves a two-pronged approach:

The monitoring plan will also identify specific staff members and their responsibilities. ADFA's monitoring plan will include not only Compliance staff and their responsibilities, but also HOME program staff who engage in monitoring activities. Below are aspects that may be incorporated.

Different kinds of projects have different monitoring schedules. ADFA Compliance staff create a monitoring calendar annually based on their Monitoring Schedule Excel database, ensuring that tasks are completed in an orderly and organized fashion.

Wth limited staff and time, ADFA may not perform on-site reviews of all HOME-funded activities or Recipients. Therefore, it is helpful to determine which Recipients and program areas warrant the investment of staff time and attention required by an on-site review and to explore alternative methods to provide compliance coverage. A sound basis for making this decision is a risk assessment, in which program and monitoring staff evaluate the likelihood that a project, program, or Recipient has violated HOME regulations, failed to comply with program requirements, or is vulnerable to fraud and abuse. This evaluation may also focus on activities that carry performance risk, such as poor housing unit production, a low number of residents assisted, or slow expenditures.

For a reliable risk assessment, it is useful to gather information from a wide variety of sources, including written reports, HOME program staff, and community residents. ADFA Compliance staff should review results of previous on-site visits, follow-up actions, and recent program activity.

A risk assessment involves the following steps:

> Step 1: Identify the risk factors that generally affect program performance.

A risk assessment protocol can be used in a variety of ways to prioritize not only which Recipient is monitored first, but also how ADFA will prioritize its staff time and the scope of the review.

> Technical Assistance. A risk assessment protocol may be used to determine which Recipient should have a technical assistance visit during the project implementation phase. Risk factors might include staff experience, past performance issues, and project specific risk factors such as a project involving lead hazard control, relocation, or other project specific technical issues. Risk assessment results can be utilized to set priorities in the scheduling of project oversight.

ADFA uses various tools to guide the monitoring process and to ensure consistency among staff conducting monitoring. Important tools to be used in conjunction with the monitoring plan include the following:

> ADFA HOME Compliance Monitoring Manual. This manual establishes protocols and defines ADFA's monitoring responsibilities as well as establishes consistency and helps orient new Compliance staff.

> Form Letters. During the course of a review, monitors correspond frequently with Recipients. Often, the nature of this correspondence is consistent across monitoring reviews and requires certain components to be thorough and complete. A form letter or template gives monitors agreed upon language and headings that identify the key pieces of information that the letter should include. ADFA Compliance staff members use three form letters: a notification letter, a follow-up/monitoring letter, and a close-out letter.

> Forms and Checklists. Standardized forms and checklists ensure that monitors are examining the same items in all their reviews. Checklists are provided in this manual.

> Project Portfolio. Keeping a project portfolio is an important step to formalize and systematize a monitoring approach. This tool can help monitors track projects by the type of project (e.g., rehabilitation, new construction), number of HOME-assisted units, as well as when projects must be monitored. ADFA uses an Excel database to track this information.

> Risk Assessment Protocol. By using a protocol to prioritize organizations and/or project for monitoring, ADFA can schedule on-site visits to Recipients or CHDOs that have received high overall risk scores before making visits to those with lower scores.

> Staff Relationships. Typically, Compliance staff members are assigned based on the organizations, projects, or programs with which they have experience and technical knowledge. In cases where a new perspective is warranted, an experienced staff person with no previous relationship to the organization or program may add value to the monitoring process.

> Monitoring Findings Database. A database of findings allows ADFA to establish a process to track monitoring findings and corrective actions. Staff can use the database to ensure appropriate documentation has been received and reviewed.

> IDIS Reports. A review of Integrated Disbursement and Information System (IDIS) reports to compare information with ADFA spreadsheets and databases:

. Status of HOME Grants "PR27,"

. Status of HOME Activities "PR22", and

. Status of CHDO Funds by Fiscal Year "PR25."

> HDS Software Occupancy Reports. ADFA requires property managers to enter occupancy data for all rental projects electronically through an online system. Monitors may generate and review reports at any time.

Gathering Information

A critical first step in the monitoring process is to gather information. Monitors will obtain the program or project file from the program staff before they begin monitoring. The program or project file includes the written HOME agreement, which contains key information on the project such as the number of HOME-assisted units. Another important first step is to speak with ADFA program staff members who have already been involved in the project about possible issues that may be encountered.

Key Documents to Review

The following documents are essential to monitoring and are helpful to have on hand when conducting monitoring reviews:

> HOME Regulations ( 24 CFR Part 92). The HUD regulations for the HOME Program formally set forth the requirements that PJs and their funding recipients must meet, and establishes a PJ's responsibility for monitoring its funding Recipients.

> HOME Notices. Monitoring staff should use HOME notices such as the most recent one on program income, match, and cost allocation. These notices clarify some of the more complex aspects of the regulations.

> ADFA HOME Program Operations Manual. The monitor should always be familiar with ADFA's own policies for the programs they monitor as well as the Recipient's procedures for administering the program.

> HOME-Related Reports and Correspondence. These include letters discussing previous monitoring findings and/or corrective action.

> HOME Agreements. The HOME agreement is the contract between ADFA and a Recipient, which awards HOME funds and establishes a Recipient's responsibility to comply with HOME Program requirements in administering these funds. HOME agreements are specific to the type of activity supported with HOME funds (e.g., homeowner rehabilitation or rental rehabilitation).

> IDIS Entries and Reports. These are the HUD reports/screens used to set up projects, draw down funds, and close out projects in the HOME Integrated Disbursement and

Information System (IDIS). IDIS forms not only provide a means to access HOME funds; the information on these forms also help ADFA monitor the expenditures and performance of its Recipients.

Monitors will use the monitoring tools and checklists discussed earlier in this chapter in their information gathering, desk reviews, and on-site reviews.

Key People to Consult

There are key individuals who will be consulted at the very beginning of the monitoring process. They include the project manager and staff members who are working on the project.

Desk reviews enable the monitor to assess numerous aspects of a program, project, or Recipient; select those Recipients, programs, or projects that need closer examination on-site; and prepare for an effective on-site monitoring visit.

A desk review may supplement available reports and documentation. Monitors may request specific documents from randomly selected client files. Specific areas of compliance review such as voluntary acquisition or houses being at or below 95 percent of area median sales values might be conducted in this manner.

Defining Desk Monitoring

Desk reviews are the first step in assessing Recipients and projects. Based on the data submitted, monitoring staff may generate internal reports on the status of every

HOME-funded activity. Program-wide data, such as the number of units developed, number of families assisted, and the on-going expenditure rates of

HOME funds, is also tracked. If questions or concerns arise, monitoring staff should request additional information from the appropriate source.

In addition to helping the monitor assess a program, desk reviews also offer the opportunity to identify Recipients with the greatest vulnerability to low unit production or inefficient use of HOME funds; poor expenditure performance that may prevent them from spending their HOME funds within the period of their HOME Agreement; failure to comply with program requirements; and fraud and mismanagement.

The final purpose of the desk review is preparing for the on-site visit.

Steps in Desk Monitoring

> Staff performing desk reviews first examine progress reports, compliance reports, occupancy reports, and financial information to adequately assess performance and look for indicators of performance or compliance problems.

Defining On-site Monitoring

An on-site review allows monitors to evaluate overall performance and determine if compliance problems exist. These reviews involve traveling to the location of the program or project to gather in-depth information about Recipient activities. Often these reviews are necessary if monitors identify potential problems during the desk review. When completing an on-site review, monitors should assess compliance on three levels: project, program, and beneficiary.

During an on-site review, monitors do three primary things: identify aspects where the Recipient is performing well and any areas of weak performance; assess Recipient compliance with program requirements; and determine whether Recipient records are adequate to document compliance.

While on-site, monitoring staff gather information through a combination of: interviews with program/project staff; reviews of program/project/beneficiary files; on-site inspections of units; interviews with residents; and an exit interview with Recipient staff discussing the outcome of the visit.

When performing an on-site review, monitoring staff will complete the appropriate monitoring checklists and prepare a report summarizing the results of the review. The following documents and information will be reviewed prior to the site visit and, if necessary, brought along for reference:

> Written HOME agreement for program/project;

> Project program/checklists;

> Most recent occupancy report from owner (if rental);

> Desk review monitoring file;

> Copy of the HOME regulations;

> Copy of ADFA HOME Program Operations Manual

> High and Low HOME rents for last three years (if rental);

> Income limits for last three years;

> Utility allowances for last three years (if rental);

> Inspection forms;

> Construction specifications; and

> Written construction standards.

The monitor may find it helpful to bring a flashlight, tape measure, calculator, camera, clip board with paper and pen, paper clips, post-it notes, and a stapler to the monitoring visit.

On-site Agenda

The following steps provide the basic framework to follow when conducting on-site program monitoring reviews.

> Step 1: Prepare for the monitoring visit. Before the on-site visit, monitors prepare by reviewing project files and should be thoroughly familiar with the applicable program rules and the established monitoring protocol. Staff will review the following types of in-house data prior to the visit:

. Application for funding;

. ADFA HOME Program Operations Manual;

. Written HOME agreement and, if applicable, loan agreement;

. Recent status reports;

. Financial reports;

. Integrated Disbursement and Information System (IDIS) reports;

. Correspondence between ADFA and Recipient; and

. Reports from previous monitoring reviews.

> Step 2: Conduct the monitoring visit. There are several basic elements to a monitoring visit.

. Send notification letter: Compliance staff begin the monitoring process by calling Recipients to explain the purpose of the visit and to agree upon dates for the visit. A formal notification letter (using ADFA's template) will follow at least several weeks before the planned visit and should include:

- Confirmation of the date and time for the review;

- Name of the ADFA Compliance staff performing the review;

- Elements of the program to be monitored (including number of units that will be reviewed);

- Information needed for review during the visit (number of randomly selected files and records); and

- Staff needed for interviews or other assistance during the review.

Compliance staff must provide a copy of the notification letter to the Compliance Department Manager who will maintain a calendar of scheduled visits.

. Entrance conference. Monitors will begin their on-site visit with an entrance meeting to provide an overview of the visit, make introductions to on-site staff, and ask preliminary questions about the program/project.

. Select files for review. Monitors will randomly select project files for review. Files pulled in advance by Recipient staff will not be accepted for review.

. Review files and take good notes. The information gathered will serve as the basis for conclusions to be included in the monitoring report and follow-up letter. Compliance staff should keep a clear record of information reviewed and conversations held with Recipient staff during the monitoring visit and utilize appropriate checklists. Recipients may request identification of sources if any of the conclusions are disputed.

. Unit inspections. Monitoring staff will randomly select the required number of units to be inspected and utilize the appropriate HQS checklist. A separate inspection form must be completed for each unit inspected and the monitor will also perform a general inspection of the building and common areas.

. Hold exit conference. Monitoring staff will meet with the appropriate Recipient staff members and present preliminary results of the visit and to secure any additional information as needed.

> Step 3: Follow-up

. Hold staff meeting. After completing the on-site visit, Compliance staff may meet with the Department Manager to review the findings of the monitoring visit and agree on a course of action. Responsibility will be assigned for following up on the review depending on the nature of the findings.

. Draw conclusions. ADFA will use the information that was gathered to conduct a thorough analysis in order to develop conclusions about the monitoring visit and determine what steps need to be conducted to get the Recipient back into compliance. While preliminary analysis will be done on-site, more thorough analysis is completed back at ADFA's office. The conclusions may also include what steps the project owner needs to take to remedy the issue. Findings may indicate a failure to implement existing procedures, a need for training, or an issue with a specific staff person's job performance.

> Step 4: Corrective actions

. Determine corrective action. Details on how to handle corrective actions are located in Chapter 8. Compliance staff will determine corrective actions after an on-site monitoring visit. Corrective actions are based upon the nature and severity of violations and amount of HOME funds affected. For example, staff should consider the following when determining corrective actions:

° Can the project be brought back into compliance?

° Do funds need to be repaid?

. Issue monitoring letter Compliance staff must issue a monitoring letter/report within 30 calendar days following the on-site visit.

. Follow up. Compliance staff will follow up with the Recipient to ensure corrective actions are completed. All follow-up correspondence must be reviewed within 15 days of receipt. If additional on-site monitoring visits are needed, monitors should schedule the visit at the time the monitoring letter/report is issued.

Entrance Conference

Entrance conferences are held at the beginning of monitoring visits, usually with the executive director or other official of the Recipient organization, to make sure the Recipient has a clear understanding of the purpose, scope and schedule for the monitoring. The entrance conference will detail the scope of the monitoring review, the planned agenda, and the process and timeline once the monitoring has been completed. This includes the projected timeline for the issuance of the report, the format of findings and concerns, and the responsibilities of the Recipient to respond and complete any required corrective actions.

File Review

For projects of up to 5 units, the monitor will review all tenant files. For projects of more than 5 units, the monitor will review a 20 percent sample and at least one unit in every building if there is more than one building in the project. The sample of units will be randomly selected. However, if any units were identified as out-of-compliance during the desk review or ADFA has received a complaint, the monitor may examine these files during the on-site visit.

The files and units selected for review are presumed to be representative of the overall project. If the initial sampling of files identifies issues, the monitor will determine if the issue is specific to the unit or if it is representative of a program/project wide compliance problem. The monitor may need to review a larger sample of files to determine if a larger issue or program wide issue exists.

Chapter 8 provides guidance on the follow up that should occur after a monitoring review and report/letter. Below is a brief summary for the purposes of understanding the full process.

Exit Conference

At the end of the monitoring visit, the reviewers will meet again with key representatives of the Recipient organization to present preliminary results of the monitoring; provide an opportunity for the Recipient to correct any misconceptions or misunderstandings; secure additional information to clarify or support their position; and provide an opportunity, if applicable, for the Recipient to report on steps the organization may already be taking to address areas of noncompliance or nonperformance. Although the monitor may not be authorized to determine at that time if there will be findings issued, the reviewer should provide an adequate overview of the issues identified in the review.

Monitoring Letter

After the on-site review, monitoring staff must prepare and send a letter (using ADFA's template) describing the results of the review to the organization that has been reviewed. It is important that the monitoring letter include the reasons underlying all conclusions. More information on the monitoring letter/report can be found in Chapter 8.

A CHDO is a private, nonprofit, community-based service organization that has obtained or intends to obtain staff with the capacity to develop affordable housing for the community it serves. ADFA is required under the HOME regulations to set-aside a minimum of 15 percent of its HOME allocation for CHDOs for eligible housing activities that are owned, developed or sponsored by CHDOs. This set-aside helps reduce the competition for limited affordable housing funds and gives these special nonprofits a boost in obtaining funding to own, develop or sponsor affordable housing in the community. ADFA also provides HOME funds for CHDO operating assistance.

CHDOs must meet special criteria pertaining to their legal status, organizational structure, capacity and experience, which are explained in detail in Section 2 of this Chapter. CHDOs must continue to meet the qualifying criteria to remain an eligible CHDO and count the expenditures towards the 15 percent set-aside requirement. Monitors must also be aware that only certain activities are "eligible" as CHDO activities that count towards meeting the 15 percent set-aside.

Each CHDO is required by ADFA to keep records of both its CHDO certification and project activities on site. ADFA monitors are responsible for verifying files for proper documentation of each CHDO-specific requirement in conjunction with onsite project monitoring.

To begin a compliance review of CHDOs, the monitor reviews the areas listed below. Each of these areas is outlined in detail in the following Section of this chapter.

> Recertification: CHDOs must be recertified annually (if an ongoing project exists) or at project funding (if more than a year of last certification has occurred). Since the legal structure of most CHDOs do not change, the monitor should focus on staff capacity, board composition and the review of methods for collecting low-income input.

> CHDO commitments/reservations: ADFA must reserve at least 15 percent of its HOME funds for CHDO activities. These funds must then be reserved or committed to specific CHDOs within 24 months.

> Production levels: The monitor assesses the production levels of the CHDOs and reviews the CHDOs' progress on HOME funded activities. Acceptable production has a process that must be followed. Reservation funds turn into commitments, which turn into disbursements, which result in completed and occupied projects in a timely manner. ADFA may develop standards for these milestones and put them into the written agreements.

. CHDOs that are producing HOME units effectively and efficiently will be monitored, but may not impose as high of a risk for ADFA as non-performing CHDOs.

. CHDOs that are struggling should be reviewed carefully by the monitor.

° Monitors will check to ensure capacity levels of staff are still sufficient to carry out affordable housing activities.

° Non-performing CHDOs should be reviewed carefully before being considered for additional funding.

° ADFA may consider providing technical assistance funds or training to struggling CHDOs.

> Operating assistance: The monitor will verify that ADFA has not provided more than five percent of its annual HOME allocation towards operating assistance for all CHDOs for the year. The monitor will also check to ensure the CHDO does not receive more than ADFA's prescribed limits, as outlined in the following Section.

Exhibit 2-1 below provides a summary of the HOME rules regarding CHDOs that monitors should keep in mind.

Exhibit 2-1 HOME RULES HIGHLIGHTS

A nonprofit organization must meet special requirements to qualify as a CHDO. Its certification as a qualified CHDO must be maintained as long as ADFA wants to count the funding towards its CHDO set-aside requirement. This section of the Chapter uses HUD Checklist 7-11, Guide for Review of Community Housing Development Organization (CHDO) Qualifications and Activities. Monitors may also use CPD Notice 97-11 to review all the requirements a CHDO must meet for HOME.

As mentioned previously, a CHDO is a specific type of private nonprofit entity that meets certain requirements pertaining to its legal status, organizational structure, capacity and experience.

ADFA has up to 24 months from after the last day of the month in which HUD signs the HOME Investment Partnership Agreement transmittal letter to identify and designate the CHDOs it plans to work with, and to reserve monies for the CHDOs' use. ADFA must reserve at least 15 percent of its HOME allocation for housing that is owned, developed, or sponsored by CHDOs. This requirement carries an obligation to monitor the organizational make-up of funded CHDOs to ensure eligibility of the organization, determine eligibility of CHDO activities and other applicable project requirements.

Before committing any funding to a CHDO, ADFA must be sure that the organization meets the qualifying criteria outlined in the HOME Rule at 24 CFR 92.2. This process is discussed in detail in the ADFA HOME Program Operations Manual. ADFA accepts applications for CHDO certification on a continuous basis and the certification is valid for one year. After one year, the organization must be re-certified by ADFA.

The following list provides supporting documentation that ADFA will maintain for CHDO designations. Monitoring staff will confirm that documentation related to each of the key questions in the checklist is available in each CHDO's files.

Legal Structure [24 CFR 92.2]

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CHDOs must maintain certain conditions pertaining to their legal status in order for them to meet the HOME requirements and confirm that documentation related to each of the key questions in the ADFA checklist is available in CHDO files.

* Organized under state/local law: CHDOs must be organized under state and local law. The monitor should see this evidenced by reviewing the charter or articles of incorporation.

* No individual benefit: No part of the CHDO's earnings (profits) may benefit any members, founders, contributors or individuals. The monitor should see statements regarding no individual benefit in either the charter or articles of incorporation.

* Nonprofit status: A CHDO must have received a tax-exempt ruling from the IRS under Section 501(c) of the Internal Revenue Code of 1986 in order to be designated by the PJ as a CHDO.

* There are many incorporation options under Section 501(c), depending on the type and purpose of the organization seeking the designation for tax-exemption. The 501(c) designations permissible under HOME are:

[] 501(c)(3) status - a charitable, nonprofit corporation;

[] 501(c)(4) status - a community or civic organization; and

Section 905 status - a subordinate organization of a 501(c) organization.

* The monitor should see either a 501(c)(3) or (4) certificate from the IRS or a group exemption letter from the IRS that includes the CHDO in the file.

* Purpose of organization: The purpose of the organization must be to provide decent housing that is affordable to low- and moderate-income persons. The monitor should be able to find this purpose in either the organization's charter, articles of incorporation, bylaws or a resolution of the CHDO's board of directors.

* Clearly defined service area: A CHDO should have a clearly defined geographic service area. Maps outlining the area should be in the file and funded projects should be coordinated appropriately.

* CHDO service areas are not limited to a single neighborhood.

* For urban areas, a CHDO service area may comprise a neighborhood or neighborhoods, city, county, or metropolitan area.

* For rural areas, a CHDO service area may comprise a neighborhood or neighborhoods, town, village, county, or multi-county area (but not the entire state).

Nonprofits serving special populations must also define the geographic boundaries of their service areas in order to qualify as CHDOs.

Capacity and Experience [24 CFR 92.2]

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Part of assessing a nonprofit organization's qualifications to be certified as a CHDO includes a review of an organization's financial accountability standards. The monitor should see either a notarized statement by the president or chief financial officer (CFO) of the organization or a certification from a Certified Public Accountant (CPA) indicating that the organization is in conformance with 24 CFR 84.21 "Standards for Financial Management Systems."

CHDOs must also demonstrate the capacity of their key staff to carry out the HOME-assisted activities they are planning. This means that CHDOs must have either of the following:

* Experienced key staff who have successfully completed projects similar to those proposed by the CHDO. The monitor should see resumes of key staff in the file and application.

OR

* Key staff with limited experience that will use experienced consultants for the planning and development activities. In such cases there must be a plan in place for the consultant to train the key staff. The monitor should see a contract in place with a qualified consultant to demonstrate this relationship.

A CHDO must also demonstrate that it has at least one year of experience serving the community where it intends to develop the HOME-assisted housing. The year of service does not have to be directly related to housing. The monitor should see a statement in the application documents evidencing this one year of local experience in the community.

* A newly created organization wishing to become a CHDO can meet this requirement if a parent (or sponsoring) organization is a nonprofit organization and has provided services to the community for at least one year. The monitor should look for a statement in its application that their parent organization has at least one year serving the local community.

* Prior service to the community cannot consist of a for-profit organization's work in that community.

Organizational Structure [24 CFR 92.2]

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There are many restrictions placed on the composition of a CHDO's Board of Directors. All of the board composition requirements listed below must be stated in the nonprofit's by-laws, charter or articles of incorporation:

* At least one-third must be representatives of the low-income community. There are three ways to meet this requirement:

* Residents of low-income neighborhoods in the community, and/or

* Low-income residents of the community, and/or

* Elected representatives of low-income neighborhood organizations.

* No more than one-third may be public officials or employees of ADFA or state Recipient.

* The balance is unrestricted, and may include people such as human and social service providers, lenders, individuals with access to philanthropic resources, or others willing to contribute their professional expertise.

* However, CHDOs sponsored or created by a for-profit entity may not appoint more than one-third of the membership of the CHDO's governing body, and the board members appointed by the for-profit may not in turn, appoint the remaining two-thirds of the board members.

Other Recipients, public bodies or instrumentalities cannot qualify as CHDOs. Examples of instrumentalities of public bodies include public housing authorities (PHAs), urban renewal agencies, redevelopment authorities and downtown development authorities.

To help document proper board composition, the monitor must see a detailed list of the board members in the application and file that includes the following information:

* Home address (if representing members of a low-income neighborhood). The monitor should check census maps that their address is indeed in a low income neighborhood.

* Annual income (if a low-income resident). The monitor should see a signed certification from the board member stating their annual income compare this income amount against the current HUD income guidelines or a signed certification that their annual income is below the current low-income limit by household size; and

* Employer and position. The monitor should review the list of employers to ensure public sector limits are being met.

Monitors must also see evidence that the CHDO provides a formal process for low-income program beneficiaries to advise the CHDO on design, location of sites, development and management of affordable housing. The process must be described in writing, and must be included in the organization's by-laws, or a written statement of operating procedures approved by the governing body [24 CFR 92.2]. Such systems might include special committees of neighbors of a proposed development site, neighborhood advisory councils or open town meetings.

Relationship with For-Profit Entities [24 CFR 92.2]

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CHDOs may have relationships with for-profit entities; however, there are certain restrictions for these particular CHDOs. A CHDO sponsored or created by a for-profit entity may not be controlled or managed by the for-profit organization. The monitor should look for a statement in the CHDO's by-laws or a memorandum of understanding (MOU) between the CHDO and the for-profit sponsor stating they are not controlled by the for-profit "parent" agency.

The monitor must verify that the creating or sponsoring for-profit organization does not have as its primary purpose to develop or manage housing. The monitor should check available information on the for-profit sponsoring organization to ensure that its primary purpose is not housing development or management.

The CHDO must also be free to contract for goods and services from vendors it chooses rather than directed by the sponsoring for-profit organization. The monitor should look at the CHDO's by-laws, charter or articles of incorporation to ensure this "freedom to choose" language is clearly stated and must ensure that no evidence exists in its files that it was forced to use certain contractors or vendors.

CHDOs may use HOME funds for all types of eligible HOME activities; however, only certain types of activities count toward the minimum 15 percent set-aside that ADFA must allocate for CHDO projects. Monitors must determine the project is an eligible activity to be undertaken by a CHDO as an owner, sponsor or developer. Monitors should follow the monitoring guidance for the specified activity as outlined in the corresponding chapters of this manual.

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A community-based nonprofit organization may meet all of the regulatory requirements to be designated as a CHDO. However, in order for CHDO activities to count toward ADFA's CHDO set-aside, the CHDO must be the developer, sponsor and/or owner of the HOME-assisted housing. It is important for the monitor to understand these different roles and be able to identify documentation required for each role.

CHDOs as Owners

The CHDO is an "owner when it holds legal title to or has a long-term (99-year minimum) lease hold interest in a rental property. The CHDO may be an owner with one or more individuals, corporations, partnerships, or other legal entities.

> If the CHDO owns the property, the monitor must see evidence of ownership in the file such as a title or long-term lease.

> If the CHDO owns the property in partnership, it must demonstrate that it is the managing partner with effective control of the project. Evidence that the CHDO is the managing partner should be clearly stated in its written agreement.

CHDOs as Developers

The CHDO is a developer when it owns a property and develops a project, or has a contractual obligation to a property owner to develop a project.

> HOME-assisted rental housing programs:

. For a CHDO that does not own the property, there must be a contractual agreement with the owner to obtain financing and rehabilitate or construct the project. Monitors will verify that a written agreement exists between the CHDO and the property owner detailing the CHDO's specific obligations.

° The CHDO may, at project completion, manage the project for the owner. No additional documentation is needed.

° The CHDO may, at project completion, transfer the project to another entity for long-term ownership and management.

> Homebuyer programs:

. For a CHDO that owns the property and develops homebuyer projects, the monitor must see evidence that the CHDO transferred title of the property and HOME obligations to an eligible homebuyer within a specified period after project completion. This period of time should be specified in the agreement.

° Documents that support the home was purchased and all legal closing documents must be found in the file. For a complete list of documents, please see Chapter 5 (Homebuyer Programs).

. For a CHDO that does not own the property, there must be a contractual agreement with the owner to obtain financing and rehabilitate or construct the project. Monitors will verify that a written agreement exists between the CHDO and the property owner detailing the CHDO's specific obligations.

° The owner must show evidence of transfer title of the property and the HOME

obligations to eligible homebuyers within a specified timeframe of project completion. For a complete list of documents, please see Chapter 6 (Homebuyer Programs).

CHDOs as Sponsors

A CHDO is a "sponsor when it owns the property and shifts responsibility from the CHDO to another specific nonprofit at some specified time in the development process. The transfer of ownership may occur from the CHDO to another entity during the initiation of the construction, completion of the construction, or at the issuance of the certificate of occupancy.

Monitors must look for documentation that supports the conveyance of ownership has occurred. The other nonprofit organization must be financially and legally separate from the CHDO sponsor. (Even if the second nonprofit was created by the CHDO, it must be a separate entity from the CHDO.) Monitors should be able to review financial records that support that the nonprofit is a separate entity.

For a HOME-assisted homebuyer's program, monitors will review files to see that the following conditions were documented:

> The sponsored nonprofit acquired the completed units, or completed the rehabilitation or construction of the property. There should be an agreement in the file that supports this action.

> The sponsored nonprofit sold the property to a homebuyer, along with the HOME loan/grant obligations after completion of the rehabilitation project. Documents that support the home was purchased and all legal closing documents must be found in the file. For a complete list of documents, please see Chapter 6 (Homebuyer Programs).

> A lease purchase approach could occur rather than a clear transfer sale. All proper documents and agreements should be in the file to support these actions such as a lease purchase agreement and evidence of monthly rent payments.

The chart below provides a brief summary of the various eligible and ineligible CHDO set-aside activities.

I Summary of CHDO Set Aside Activities

Given the requirement that the CHDO play the role of owner, sponsor, developer, the activities CHDOs carry out may only be one of the following listed below:

> Acquisition and/or rehabilitation of rental housing;

> New construction of rental housing;

> Acquisition and/or rehabilitation of homebuyer properties;

> New construction of homebuyer properties; and

> Direct financial assistance to purchasers of HOME-assisted housing sponsored or developed by a CHDO with HOME funds.

The following activities are ineligible set-aside activities, but may be carried out by the CHDO as a subrecipient (not counted towards the 15 percent set-aside):

> Tenant-based rental assistance (TBRA);

> Homeowner rehabilitation; and

> Downpayment assistance program for standard housing.

On a case by case basis, ADFA may award a special type of financial assistance, operating assistance, to a CHDO. If ADFA provides this type of special financial assistance to a particular CHDO, ADFA must monitor the administration and uses of the funds.

CHDO Operating Assistance [24 CFR 92.208, 92.300]

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ADFA will provide operating funds to CHDOs to assist in the administration of their organizations. Up to five percent of ADFA's annual HOME allocation may be used to provide general operating assistance to CHDOs that are receiving set-aside funds for an activity (or activities). Operating expenses are not an eligible cost for CHDO set-aside funds. The five percent operating funds are not taken from the 15 percent CHDO set-aside funds. There are certain limitations to the amount of operating assistance awarded. ADFA's assistance for operating expenses is available in the following increments:

> The first allocation will be awarded in an amount not to exceed the lesser of $50,000 or 50% of the CHDO's operating budget;

> The second allocation will be awarded in an amount not to exceed the lesser of $30,000 or 50% of the CHDO's operating budget; and

> The third and final allocation will be awarded in an amount not to exceed the lesser of $10,000 or 50% of the CHDO's operating budget.

> ADFA operating assistance is unavailable to CHDOs for projects in Little Rock, North Little Rock Fort Smith, and Pine Bluff.

> Funds awarded to the CHDO by ADFA for operating expenses (under 24 CFR Part 92.208) and funds provided to the CHDO by HUD through intermediaries for organizational support and housing education (under 24 CFR Part 92.302), count toward the $50,000/50 percent cap (under 24 CFR 92.300(b)).

If a CHDO receives HOME funds for operating assistance, the monitor needs to verify the above limits are met. The monitor should review the CHDO's financial statements to first determine the total operating budget.

> Any administrative funds a CHDO may receive for administering a program as a subrecipient are not included in the calculation for determining the total operating budget.

For CHDOs that receive operating assistance, but have not yet received set-aside funds, the monitor must ensure there is an executed agreement between ADFA and CHDO. This agreement must state:

> The CHDO is expected to receive funds within 24 months for CHDO specific projects;

> The expected outcome from receiving these funds (i.e., number of expected units to be developed, etc.); and

> The monitor should obtain information to ascertain whether or not the CHDO is on target to undertake a CHDO eligible activity with the required timeframe.

ADFA must monitor that these funds are being used for eligible expenses.

> Salaries, wages, benefits and other employee compensation. Check for copies of payroll accounting, timesheets and benefits packages directly supported by HOME funds.

> Employee education, training and travel. Check for copies of expense reports, and training agendas and outlines for courses and seminars attended.

> Rent and utilities. Review copies of rent payments and utility bill payments.

> Communication costs. Look for copies of phone bills and publication costs.

> Taxes and insurance. Monitors should review a copy of a tax bill and a copy of current insurance declaration page and bill.

> Equipment, materials and supplies. Review copies of invoices for necessary items.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

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ADFA monitoring staff will assess capacity and performance issues when monitoring a Recipient. Things to review might include:

> Thoroughness and accuracy of the Recipient's budget with clear line-item assignment of funds.

> Dedication of sufficient staff with appropriate qualifications.

> Maintenance of record keeping systems that demonstrate program and project compliance.

> Development and adherence to production timelines for each phase of production such as: . Marketing and outreach;

. Application processing;

. Rehabilitation and construction starts;

. Loan/grant approvals; and

. Project completions.

> Timeliness and thoroughness of reports.

> Timeliness in expenditure of funds.

> Accuracy of reimbursement requests with proper supporting documentation.

> Compliance with overall program rules and project rules.

> Enforcement procedures including probation, withholding of funds and contract termination for failure to meet contract requirements.

> Client satisfaction. This is another way to check how a Recipient is administering the program. Time permitting, monitors will perform random checks with clients to determine their satisfaction level.

In summary, Recipients must run their programs in accordance with the HOME regulations, and demonstrate an acceptable level of capacity to produce what is expected by the ADFA.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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Monitors review the program files to verify that Recipients were in compliance with ADFA imposed performance standards related to expenditure. Specifically, Recipients are required to expend, from issuance of the Notice to Proceed, the following percentages of their allocation:

> 25% of allocation within 90 days,

> 75% of allocation within 1 year, and

> 100% of allocation within 18 months.

Also, monitors confirm that completion data for all activities was provided to ADFA for entry into IDIS upon final draw (FD) so activities can be marked as complete within the 120 day timeline required by HUD. IDIS Report 22 (Status of HOME Activity) can be used to determine compliance with the 120 day timeline. Specifically, activities that are designated "FD" (final draw) and have status date greater than 120 days are non compliant and should be marked complete "CP."

Finally, monitors compare project file data with IDIS information to verify that correct data is being entered into IDIS, including changes to existing projects. For example, errors may occur in site addresses, beneficiary information. Errors that are identified should be corrected in IDIS as soon as possible. If the monitor finds discrepancies between ADFA files and HUD data, Recipient program staff will be alerted and so that the discrepancies can be resolved.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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A written agreement must be executed with entities before any HOME funds are committed or disbursed. The agreement should be a concise statement of the relationship between the Recipient and any consultants/partners and the end beneficiary. Written agreements must contain certain clauses which are listed in Attachment 3-2, as well as any other terms specified for the type of agreement in 24 CFR 92.504. Because the requirements differ based on the activity type and the parties involved, written agreements must be carefully executed in order to cover the various parties and requirements involved in a project. Also, a properly written and executed agreement is an extremely valuable management tool for verifying compliance and monitoring performance. It enables ADFA to protect its HOME investment. As such, the standard ADFA template agreements should be used

Monitors verify that Recipients have executed the standard ADFA template agreements before any HOME funds are disbursed, including all required signatures. Monitors compare the execution date of the written agreement against drawdown dates. Monitors also verify that written agreements will remain in effect for the relevant periods of affordability and that deed restrictions or other required enforcement mechanisms have been recorded.

Written agreements may be amended by mutual agreement of the parties when regulations and requirements change, or when adjustments to funding levels or other conditions related to a specific project are made. Monitors verify that written agreements are amended as necessary whenever changes occur to the scope of work, financing, or if requirements were not conveyed in the original agreement.

Note that the activity chapters also cover written agreement requirements.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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ADFA requires each Recipient to make contributions equaling 12.5 percent of the ADFA HOME awards. These contributions are called "match," and they must be a permanent contribution from non-Federal public and private sources, such as local and state government, charitable organizations/foundations, and private sector lenders.

Monitors should review the Recipient's system for tracking match, its ability to meet the match requirement and the eligibility of the match the Recipient "counts" as its contribution. HOME funds expended for program administration, CHDO operating expenses, CHDO capacity-building, and forgiven CHDO pre-development loans forgiven are not required to be matched.

Match Notice

Further guidance is available through HUD Notice CPD 97-03

www.hud.gov/offices/cpd/lawsregs/notices/1 997/97-03.pdf

Recipients should have a system that tracks match obligations and match contributions to ensure the match requirement is being managed and will be met for each award. Recipients should keep a match log that demonstrates the source and date a source was credited toward HOME-assisted or HOME match-eligible housing units.

Monitors confirm that a match log is in use and shows all sources counted as HOME match, is currently up-to-date, and the files indicate back up documentation for match sources.

For each match contribution claimed, Monitors verify that the file contains evidence that cash and non-cash forms of match are eligible. For non-cash contributions, Recipients should document the value of the contribution and the process for determining value, in accordance with the HOME regulations and with customary and reasonable means of establishing value.

The match contribution must be a permanent contribution to the HOME or another affordable housing project.

When reviewing match contributions to a HOME-assisted or HOME Match-Eligible Housing project, note that only certain match sources are eligible and a HOME written agreement must be executed with the owner of the project. Monitors confirm the eligibility of the sources for either type of housing project by reviewing the HOME written agreement, the match log and the back up documentation for each project.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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There are different types of funds that Recipients may possess when using HOME funds including program income and recaptured and repayment funds.

> Program income is the gross income received by Recipients directly generated from the use of HOME funds or matching contributions. Program income includes, but is not limited to:

Program Income Notice

Further guidance is available through HUD Notice CPD 97-09

www.hud.gov/offices/cpd/lawsregs/notices/1 997/97-09.pdf

. Proceeds from the sale or long-term lease of real property acquired, rehabilitated, or constructed with HOME funds or matching contributions;

. Income (minus the costs incidental to generating that income) from the use or rental of real property that was acquired, rehabilitated, or constructed with HOME funds or matching contributions and is owned by Recipients who are governmental entities;

. Payments of principal and interest on loans made with HOME or matching funds, and proceeds from the sale of loans or obligations secured by loans made with HOME or matching contributions;

. Interest on program income; and

. Any other interest or return on the investment of HOME and matching funds.

> Recaptured funds are any amount of HOME funds recaptured as a result of a homebuyer property that is sold within the affordability period. These funds should be directed to ADFA and cannot be retained by the Recipient. ADFA must then use the recaptured funds for HOME projects in accordance with all HOME rules.

> Repayments are funds returned for housing that didn't meet the affordability requirements or for funds invested in a project that was terminated prior to completion. Repayments are paid back to ADFA and cannot be retained by the Recipient. ADFA must then re-pay whichever HOME account they were drawn from (i.e., the local HOME Investment Trust Fund or the Treasury HOME Investment Trust Fund). See CPD Notice 97-09 for more information.

Monitors must ensure that if program income, recapture funds, or repayments may be generated from the use of HOME funds, procedures are in place to account for the receipt and use of program income. Written agreements with Recipients must specify that program income is to be returned to ADFA.

On a program-wide basis, monitoring staff should:

> Ensure that written agreements with Recipient and consortium members specify that program income will be returned to ADFA.

. CHDOs are not allowed to retain and use project proceeds and the monitor should ensure that the written agreement details this ADFA-specific rule.

> Ensure that written agreements with Recipients specify that any amount of funds recaptured as a result of a homebuyer property being sold within the affordability period must be returned to ADFA.

Monitors can use IDIS "Drawdown Voucher Summary Report" (PR05) and the "Program Income Audit Trail" (PR09) to compare against Recipient accounting records and confirm that Program Income funds were returned to ADFA. The "Drawdown Voucher Summary Report" identifies the date, amount, type of funds, and other information about all of ADFA's vouchers. The "Program Income Audit Trail" displays an audit trail of program income receipts.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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Federal and ADFA procurement rules apply to how purchases, such as the services of a contractor, are made. These requirements are generally designed to ensure a fair selection process. Solicitations for goods and services provide for all of the following:

> A clear and accurate description of the technical requirements for the material, product or service to be procured. In competitive procurements, such a description shall not contain features which unduly restrict competition.

> Requirements which the bidder/offeror must fulfill and all other factors to be used in evaluating bids or proposals.

> A description, whenever practicable, of technical requirements in terms of functions to be performed or performance required, including the range of acceptable characteristics or minimum acceptable standards.

> The specific features of "brand name or equal'' descriptions that bidders are required to meet when such items are included in the solicitation.

> The acceptance, to the extent practicable and economically feasible, of products and services dimensioned in the metric system of measurement.

> Preference, to the extent practicable and economically feasible, for products and services that conserve natural resources and protect the environment and are energy efficient.

Monitors verify that the program/project files provide evidence that ADFA procurement regulations were followed. Some of these documents would include the adopted procurement procedures, the bid package, bid responses by contractors, analysis of bids through a worksheet or other documentation, and an announcement and/or written agreement with the winning bid.

ADFA also has as part of its procedures and a requirement of Recipients that positive efforts should be made to market to and utilize minority- and woman-owned firms, whenever possible. To that end, monitors verify the completion of the Minority & Women Business Enterprises Plan.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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Recipients must comply with the applicable Federal conflict of interest requirements (Part 85 for government entities or Part 84 for nonprofit Recipients). The HOME Program conflict of interest

_____________Chapter 3: Monitoring Administrative and Financial Requirements_____________

requirements cover government and nonprofit Recipient staff working in the program as well as Recipients in the role of owners, developers and sponsors. Recipients are required to maintain written standards governing the performance of their employees engaged in awarding and administering contracts.

A conflict would arise when any of the following has a financial or other interest in a firm selected for award:

> An employee, agent or officer of ADFA or a Recipient;

> Any member of an employee's, agent's or officer's immediate family;

> An employee's, agent's or officer's partner; or

> An organization that employs or is about to employ an employee, agent or officer of ADFA or a Recipient

Monitors verify that conflict of interest policies are in place, meet the applicable Federal and State requirements, and are used by ADFA and Recipients. Monitors look for any evidence of a disclosure memo or note to the file if conflict of interest may be an issue. Monitors also keep their eyes open for other items that may appear to be a conflict of interest such as similar last names of staff showing up as beneficiaries or contractors often used. Finally, monitors verify that written agreements with Recipients include the relevant conflict of interest requirements.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program files.

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Recipients must establish and maintain complete written records to document compliance with the HOME Program. Consequently, ADFA has established documentation and record keeping requirements that apply to all Recipients receiving HOME funds. This system includes the list of records to keep, how the records are kept (electronic and/or hard copy), the location of files (i.e., central files), and the record retention period. ADFA articulates record keeping requirements in written agreements with third parties.

Monitors verify that Recipients have a record keeping system in place and it is being followed by staff. A thorough record keeping system includes consistently organized and complete files that contain all information needed to determine whether the HOME Program requirements have been met.

All records pertaining to each fiscal year of HOME funds must be retained for the most recent five-year period or as noted in the exceptions under 24 CFR 92.508(c). At a minimum, the following records must be maintained by the Recipient to remain in compliance with the HOME regulations. Monitors verify that the following documents are in the file:

> Project Records (see activity chapters).

> Financial Records (see Section 2 of this chapter).

> Program Administration Records. These program administration records must be maintained:

. Compliance with written agreements;

. Compliance with applicable uniform administrative requirements; and

. Inspections, audits, and resolution of any findings or concerns.

> Other Federal Requirement Records. (See activity chapters).

Record retention is primarily five years. Some records must be kept for this minimum period or for five years after the period of affordability. Specific record retention requirements include:

> Rental. General records must be kept for five years after project completion, and tenant income eligibility certification, rent and inspection information must be kept after the documentation has been created for a period of five years.

> Homeownership. Homeownership records must be kept for five years after project completion, and for resale/recapture records, for the full period of affordability plus five years.

> TBRA. TBRA records must be kept for five years after rental assistance ends.

> Written Agreements. Generally, all written agreements must be maintained for five years after the agreement ends.

> Displacement and Acquisition. Displacement and acquisition records must be kept for five years after final payment to those displaced.

Monitors review the Recipient's record keeping system and policies to ensure that all records will be retained for the required period. This review will include an examination of provisions to ensure that the majority of records, particularly project financing and development documentation, are retained for five years after the rental or homeownership affordability period ends. Some records such as income eligibility must be retained for a total of five years rather than after the period of affordability. Specific records pertaining to each activity are discussed in detail in the activity chapters.

Recipients must also provide citizens and other interested parties with reasonable access to records, consistent with applicable state and local privacy and confidentiality laws. HUD, including Inspector General representatives, have the right to access any records related the use of HOME funds of any Recipient or contractor for auditing, excerpt, or transcript purposes.

Monitors verify whether citizens, public agencies and other interested parties have reasonable access to records, consistent with applicable state and local laws regarding privacy and obligations of confidentiality.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

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General Uniform Administrative Requirements [ 24 CFR 84 or 85 ; A-87 or A-122; and A-133]

Recipients are subject to applicable Uniform Administrative Requirements as described in §92.505.

> Governmental entities (including public agencies) are required to comply with the following Uniform Administrative Requirements:

. Certain provisions of 24 CFR Part 85 "Uniform Administrative Requirements for Grants and Cooperative Agreements with State and Local Governments;"

. OMB Circular A-87 "Cost Principles for State, Local and Indian Tribal Governments;" and

. OMB Circular A-133 "Audits of States, Local Governments and Non-Profit Organizations."

> Nonprofit Recipients are required to comply with the following Uniform Administrative Requirements:

. Specific provisions of OMB Circular A-110, as implemented at 24 CFR Part 84

"Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations;"

. OMB Circular A-122 "Cost Principles for Non-profit Organizations;" and

. OMB Circular A-133 "Audits of States, Local Governments and Non-Profit Organizations."

> CHDOs acting as an owner, developer, or sponsor of HOME-assisted housing, are required to comply with the requirements at 24 CFR 84.21, "Standards for Financial Management Systems."

Monitors confirm that Recipients are meeting the proper uniform and administrative requirements. This starts with ensuring that qualified individuals are managing the Recipient's financial systems. Qualified staff (or a contractor) should have an accounting or finance background, specifically in the applicable HUD and OMB requirements listed above.

Cost Principles [24 CFR A-87 or A-122]

The following are universal administrative requirements for the three basic cost principles: reasonableness, allowability, and allocability:

> Cost Reasonableness. In determining the reasonableness of a cost, consideration must be given to:

. Whether the cost is of the type generally recognized as ordinary and necessary for the operation of the organization for the performance of the award;

. The restraints or requirements imposed by such factors as: generally accepted sound business practices; arms length bargaining; Federal and state laws and regulations; and terms and conditions of the award;

. Market prices for comparable goods or services, which is generally through the procurement requirements in 24 CFR 84 or 85 . If procurement is not required, it can be accomplished by doing an independent cost analysis;

. Whether the individuals concerned acted with prudence in the circumstances, considering their responsibilities to the organization, its members, employees and clients, the public at large and the government; and

. Significant deviations from the established practices of the organization that may unjustifiably increase the award costs.

> Cost Allowability. To be allowable under HOME (and other Federal programs), costs must meet the following general criteria:

. Be necessary and reasonable for proper and efficient performance and administration of the Federal award (see above);

. Be allocable to the Federal award under the provisions of the OMB circulars (see below);

. Be authorized or not prohibited under state or local laws or regulations;

. Conform to any limitations or exclusions set forth in the OMB circulars, Federal laws, terms an conditions of the Federal award, or other governing regulations as to types or amounts of cost items;

. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit;

. Be accorded consistent treatment;

. Be determined in accordance with generally accepted accounting principles;

. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period, except as specifically provided by Federal law or regulation;

. Be the net of applicable credits (that is, any credits such as discounts or price adjustments must be deducted from the total costs charged); and

. Be adequately documented.

> Cost Allocation. Costs charged to HOME must also be allocable to the HOME Program. A cost is allocable if it:

. Is treated consistently with other costs incurred for the same purpose in like circumstances (i.e., ADFA/Recipients must treat costs consistently for all grant programs); and

. Is incurred specifically for the HOME Program;

. Benefits both the HOME Program and other work and can be distributed in reasonable proportion to the benefits received; or

Monitors verify that Recipients have effective control over and accountability for all funds, property, and other assets. Monitors confirm the source and application of funds for Federally-sponsored activities, including records and reports by verifying:

> "Reasonableness, allowability and allocability" of costs;

> Funds have not been used in violation of any of the restrictions or prohibitions that apply to the Federal assistance (through regulatory knowledge, the use of budget controls and adequate accounting records); and

> Accurate, complete and timely disclosure of financial results in accordance with HUD reporting requirements or, for Recipients, Recipient reporting requirements;

The Recipient's qualified financial analyst should review the A-133 audits and ensure they are meeting all requirements as outlined in 24 CDR 92.505 or addressing any identified deficiencies.

When applicable, monitors confirm that documentation in form of timesheets and timekeeping system procedures is available for employees who are charging time to project related soft-cots to keep their time charged to separate accounts while working on HOME and non-HOME projects.

Recipients may acquire or purchase assets with HOME dollars. If they do, monitors confirm that the procedures are in place to track such assets in compliance and documenting property records as required by 24 CFR 85.32(d)(1) or 24 CFR 84.34(f) . Monitors also verify that Recipient has implemented proper safeguards for preventing loss, damage or theft of property. Specifically, monitors confirm that Recipients are following their written procedures for property will be tracked.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

Monitors confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient and ADFA Program staff files.

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The discussion below is applicable to Recipients that are not owners, developers, and/or sponsors of affordable housing developments. They are specific to governmental entities and non-profits who are administering programs. For the purpose of Federal awards, equipment is defined as property with an individual working unit's acquisition or disposition cost of $5,000 or more. In addition, the rules depend on the nature of the property and real property is treated differently from personal property.

> Real Property-land, including any improvements to structures located on the land, but excluding any movable machinery or equipment.

> Personal Property-any kind of property other than real property. Personal property can be tangible (such as supplies, furniture, and equipment), or intangible (such as copyrights, patents, and inventions).

. Non-expendable personal property is generally considered to include tangible personal property having a useful life of more than one year and an acquisition cost of $300 or more per unit; and

. Expendable personal property includes all tangible personal property other than nonexpendable personal property.

Property can only be acquired with HOME funds for a specific purpose. For Recipients, the purpose must be approved by ADFA and will be made a part of the Recipient agreement.

ADFA will conduct a physical inventory of all property at least every two years, with a reconciliation of the inventory results with the equipment records. When original or replacement equipment acquired with HOME funds is no longer needed for the original project or program, or for other activities currently or previously assisted with Federal funds, the following rules of disposition apply:

> Equipment with a current per-unit fair market value of less than $5,000 may be retained, sold or otherwise disposed of by the Recipient, subject to the conditions below.

> Equipment with a current per-unit fair market value of $5,000 or more may be retained or sold by the Recipient with the grantee having the right to compensation in an amount equal to multiplying the current fair market value or the proceeds from sale by the Federal share (percentage) in the original acquisition price of the equipment.

> ADFA may reserve the right to transfer title of the equipment to the Federal government or a third party ( 24 CFR 85.32(g)).

In all cases when equipment purchased with HOME funds is sold, the net proceeds are considered program income. Monitors will verify that if equipment is disposed, the funds received are receipted in IDIS and tracked in local accounting records as cash received.

For supplies that are purchased with HOME funds, if, upon completion or termination of a grant, there is a residual inventory of supplies exceeding $5,000 in total aggregate fair market value, and if such supplies are not needed for any other Federally-sponsored programs or projects, ADFA must compensate HUD (or the Recipient must compensate ADFA) for the share of such supplies acquired with HOME funds.

To ensure property management and disposition occurs correctly, monitors will:

> Review files to ensure property was acquired for a specific purpose.

> Ensure that the use of that property for an approved purpose follows the OMB circular requirements.

> In the case of property disposition, ensure it is sold and/or disposed of following the OMB circular requirements.

> Check files to ensure accurate records were kept on the property.

Monitors also verify that accurate records are kept (e.g., purchase date, price, location, physical description, maintenance history and condition, original and current use, and other inventory types of data).

Monitoring staff confirm that the following key documents are available in recipient files, paying particular attention to any changes in the list of participating households. ADFA must be notified and approve any changes prior to any changes in participating households.

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Monitors review the Recipient's marketing procedures/plan, copies of ads or flyers and other materials used in marketing the program. Policies must prohibit conflict of interest or bias in the selection process including discrimination or favoritism towards friends or relatives. Marketing procedures/plans should also ensure that the program is marketed to the full range of potential clients, including those least likely to apply. These procedures should address the following:

> Literature that is understandable to clients, including key information available in other languages; and

> A schedule and plans to ensure that advertising or other outreach efforts reach potential clients at places they frequent.

Additionally, as part of the Fair Housing element of monitoring marketing related documents, ADFA staff review:

> Recipient's methods for informing the public or potential tenants about fair housing laws. Monitors look for the posting of the Equal Housing Opportunity symbol on all advertising and exterior property signs;

> Availability of Equal Housing Opportunity information, and visibility of the Equal Housing Opportunity symbol on correspondence, exterior property sign, and in office where tenant applications are taken;

> Data on the extent to which each racial and ethnic group and single-headed households (by gender of household head) have applied for, participated in, or benefitted from, any program or activity funded in whole or in part with HOME funds;

> Records demonstrating actions taken to meet the requirements of Section 3 of the Housing Development Act of 1968, as amended (12 U.S.C. 1701u). The purpose of Section 3 is to ensure that the employment and other economic opportunities generated by Federal financial assistance or housing and community development programs be directed toward low and very low income persons, particularly those who were recipients of government assistance for housing.

> Affirmative Fair Housing Marketing Plan (HUD form 935.2).

> Waiting lists and sign-in sheets. The Recipient's selection criteria should identify how applicants are being accepted and how applicants will be selected off the waiting list,

including when it is acceptable to skip down the list for the next appropriate applicant (see discussion below on selection methods). This is very important when preferences have been established for participation. Monitors review how applicants are selected, and if preferences are a part of the program, monitors confirm that the rules for tenant selection are followed by reviewing waiting lists.

It is also recommended that Recipients have policies/procedures for taking and screening applications and selecting homeowners for participation in the program. Monitors confirm that the Recipients are selecting homeowners using one of the following methods:

> First-come, first-served. Monitors verify that a date and time were stamped on each application upon receipt.

> Lottery. Monitors look for a list of applicants in the lottery, the date of the lottery draw, and letters to applicants indicating the outcome of the lottery - both those accepted and rejected.

> Selection criteria. Monitors confirm that there were pre-established criteria (such as urgency of repairs, needs, income, etc.) and documentation of application rankings, in accordance with these criteria. Criteria must be applied in a manner that is consistent with fair housing laws.

Monitors also verify that there is a system in place for written notification to ineligible applicants and applicants who could not be served due to lack of funds. Monitors review several files of denied applicants to confirm that procedures for determining eligibility were followed correctly.

Income Eligibility [§92.203(b), 92.203(a)(2), 92.254(b), 92.508(a)(3)(v)]

Monitoring staff confirm that documentation related to initial and ongoing occupancy of the units is available in Recipient files.

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The HOME Program mandates that all HOME funds benefit low-income households. A low-income household is defined as a household with an income at or below 80 percent of the area median income as determined by HUD, adjusted for household size.

Calculating Income Resources

Technical Guide for Determining Income and Allowances for the HOME Program, is available from Community Connections at 1-800-998 -9999.

HUD's Income and Allowances Calculator is available on the web at:

http://www.hud.gov/offices/cpd/affordablehousing/training/calculator/calculator.cfm.

In order to meet this requirement, Recipients determine the income eligibility of households assisted with HOME funds. In general, income eligibility is based on the anticipated annual income of all adults in the household. ADFA requires all Recipients to use the Part 5 (Section 8) definition of annual income (note that ADFA is more restrictive than the HOME rules which provides additional options). Recipients must use this definition consistently for all program applicants and all project files should show that eligibility was determined using the Part 5 definition.

Monitors ensure that all beneficiaries of the HOME Program qualify as low-income households. To do this, they review the following areas:

> Documentation. Verification of income/employment (copy of a letter or statement from the employer stating the applicant's position, income and length of time at job), copies or source letters from providers of other income (such as Social Security, Disability, etc) must be obtained and reviewed to determine annual (gross) income. Income must be documented by verification from third party sources.

. Eligibility is based on anticipated income during the next 12 months.

. A completed application and documentation showing the calculation must also be in the files. Household size should be determined based upon information received from both a written application and a personal interview (if applicable). There should be documentation in the file showing the household size was compared to the HUD income limits (at the time of eligibility review) and that it either met or was below the published limits to be eligible.

. If the household was over income, this should also be documented in the file.

Income Limits

HUD Income Limits are revised annually and are available from the HUD Field Office or on the HUD Web site at http://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/income/index.cfm.

> Timing. Income determinations must be completed before HOME assistance is provided. Income need not be reexamined at the time HOME assistance is actually provided unless more than six months has elapsed since the initial determination. Monitors should compare dates of income eligibility determination to the dates of the financial closing to ensure it meets the six month time period for being considered current.

Occupancy [24 CFR 92.254(b)(2), 24 CFR 508(a)(3)(xi) ]

Monitoring staff must confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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confirm that Recipient staff checked for primary residence at the time of participant application. Specifically, program applications should include

> A signed certification from the homeowner that he or she maintained principal residency for a minimum of 3 consecutive years.

> Confirmation from the rehabilitation inspector that participant on the application lives in the property.

> Utility bills that list the applicant's name.

Monitors also check the written agreement in the project files to ensure ADFA's principal residency requirement are appropriately reflected in the agreement.

Ownership [§92.254(c), 92.508(a)(3)(xi)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Complaints are often the result of lack of understanding about the program or its procedures. To be proactive, Recipients should have materials for applicants that describe the program in easily understandable language. This information should reflect the program design and should clearly outline the benefits and obligations for the applicant. A helpful program guide would have the following types of information:

> Type(s) of subsidy and name of subsidy;

> Typical timing of the project;

> The Recipient's expectations of the homeowner;

> What to expect during the rehabilitation; and

> An explanation of rehabilitation versus remodeling.

Recipients may want to have the applicant sign a copy of the document that explains the process and the steps they'll encounter to avoid a potential scenario of homeowners not being informed.

Recipients should also have conflict/complaint resolution procedures in case of dispute with contractors. Monitors confirm that the procedures:

> Define who is responsible for referring disputes, how notifications will be handled, and who will monitor through to resolution.

> Advise rehabilitation staff to monitor relations between the contractor and homeowner, and to intervene early in disagreements to provide for informal resolution.

> Codify that when disputes cannot be handled informally by staff, they should be resolved in a manner that is prompt and includes an equitable investigation and resolution.

> It is advisable, though not required by HOME, to require the homeowner and contractor to sign an arbitration clause prior to commencement of work. When the dispute cannot be resolved with the assistance of the staff person, third-party conflict resolution should be utilized.

Monitors also verify that the Recipient has disciplinary procedures for poor-performing contractors that:

> Define poor performance and determine through what process poor performance will be identified;

> Identify who will determine whether or not, and when, to take disciplinary action. (Effective programs typically use a system of progressive discipline, including probation, suspension, and debarment for contractors.); and

> Identify actions that would be cause for immediate debarment.

Eligible Properties [24 CFR 92.254(c)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Eligible HOME Costs [§92.206]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

To ensure that HOME funds are used for eligible activities, it is important to monitor and document the construction process. The Recipient should have the following documentation in each project file:

There are several HOME and ADFA requirements concerning loan documentation, repayment and use of loan funds. These areas are discussed below.

Underwriting Procedures

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Occupancy [24 CFR 92.254(b)(2), 24 CFR 508(a)(3)(xi)]

Ongoing monitoring requirements, imposed by ADFA, include requirements that assisted households must maintain principal residency. Appropriate documentation in files for annual reviews include:

> Certified letter sent to the homebuyer;

> Verification of hazard insurance on the property; and/or

> Review of annual tax records.

ADFA imposes restrictions on changes in ownership during the term of the loan. Recipients must document compliance with restrictions.

Ongoing monitoring requirements, imposed by ADFA, include requirement that the property is maintained at Housing Quality Standards.

Ongoing monitoring requirements, imposed by ADFA, include requirements that assisted households must be current real estate tax payments and maintain hazard insurance for post-rehabilitation replacement cost.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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After reviewing the file, monitors determine whether the project is in compliance or not. The monitoring file will be documented to show whether it meets compliance and follow-up action items should be addressed and documented if applicable.

ADFA staff will confirm that the following key documents are available in Recipient files, paying particular attention to any changes in the list of participating households. Recipient must notify ADFA and await ADFA's approval prior to making any changes in participating households.

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Monitors will review the Recipient's marketing procedures/plan, copies of ads or flyers and other materials used in marketing the homebuyer program. Policies will prohibit conflict of interest or bias in the selection process including discrimination or favoritism towards friends or relatives.

Marketing procedures/plans will also ensure that the program is marketed to the full range of potential clients, including those least likely to apply. These procedures will address the following:

> Use of fair housing and affirmative marketing language in advertisements and literature;

> Literature that is understandable to clients, including key information available in other languages; and

> A schedule and plans to ensure that advertising or other outreach efforts reach potential clients at places they frequent.

Recipients will also have policies/procedures for taking and screening applications and selecting homebuyers for participation in the program. Monitors will ensure that the Recipients are selecting homebuyers using one of the following methods:

> First-come, first-served. Monitors will confirm that a date and time were stamped on each application upon receipt.

> Lottery. Monitors will look for a list of applicants in the lottery, the date of the lottery draw, and letters to applicants indicating the outcome of the lottery - both those accepted and rejected.

> Selection criteria. Monitors will confirm that there were pre-established criteria (such as urgency of repairs, needs, and income) and look for documentation of application rankings, in accordance with these criteria. Criteria need to be applied in a manner that is consistent with fair housing laws.

Monitors will also ensure that there is a system in place for written notification to ineligible applicants and applicants who could not be served due to lack of funds.

This section covers the monitoring of participant eligibility including income eligibility, occupancy and ownership related requirements. Monitors review the documentation in the project files to verify that the Recipient is in compliance with the ADFA HOME rules.

Income Eligibility [HOME: §92.203; ADDI: §92.610(c)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Monitoring staff verify that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

Monitoring staff will confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Recipients must also have conflict/complaint resolution procedures in case of dispute with contractors. Monitors will check that the policies/procedures:

> Define who is responsible for referring disputes, how notifications will be handled, and who will monitor through to resolution.

> Advise rehabilitation staff to monitor relations between the contractor and homebuyer, and to intervene early in disagreements to provide for informal resolution.

> Codify that when disputes cannot be handled informally by staff, they will be resolved in a manner that is prompt and includes an equitable investigation and resolution.

> It is advisable, though not required by HOME, to require the homebuyer and contractor to sign an arbitration clause prior to commencement of work. When the dispute cannot be resolved with the assistance of the staff person, third-party conflict resolution will be utilized.

Monitors will also check that the Recipient has disciplinary procedures for poor-performing contractors that:

> Define poor performance and determine through what process poor performance will be identified;

> Identify who will determine whether or not, and when, to take disciplinary action. (Effective programs typically use a system of progressive discipline, including probation, suspension, and debarment for contractors.); and

> Identify actions that would be cause for immediate debarment.

Eligible HOME Costs [HOME: §92.206; ADDI: §92.602(b)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors review the costs that HOME funds paid for in the project. HOME funds can be used to cover the acquisition, and hard and soft costs that are eligible under the program. The table below summarizes eligible hard and soft costs under the HOME Program.

Exhibit 5-1 HOME-Eligible Homebuyer Project Costs

Additional specific cost restrictions imposed by ADFA include:

> Garage Costs: Attached garages may be rehabilitated with HOME funds, in conjunction with rehabilitation of the residential living space. Detached garages may only be rehabilitated with HOME funds if the structure has documented existing health and safety code violations and is performed as part of the rehabilitation of the housing unit. Also, for new construction projects, garages may be constructed if attached to the dwelling unit. Detached garages are permitted only if the structure is required by local ordinance or to accommodate a person with disabilities, and has received prior written approval by ADFA. The reconstruction of a garage without a dwelling unit as part of the project is ineligible.

> Developer fee. ADFA HOME funds may be used to pay a pro rata share of the developer fee based upon percent of HOME funds to development costs. ADFA restricts total developer fee to 15 percent. Additionally, while soft costs include developer fees, developers cannot hire themselves as consultants on their HOME-Funded project and thus earn additional profit and/or fee.

> Marketing costs. For new construction, a marketing plan must be conducted and submitted upfront. If HOME funds are requested for use in providing mortgage subsidies, the marketing plan must include a plan for the use of those HOME-funded mortgage subsidies. The marketing plan must be completed by an ADFA approved market analyst or firm.

> Program and project administrative costs. Program and project administrative costs are limited to 10% of the final allocation amount for the proposed owner-occupied rehabilitation/reconstruction program. Changes in project costs that result in an increase to the project budget do not increase either the administrative or project delivery soft cost amount. On the other hand, a reduction in the project budget will result in a decrease of administrative or project delivery soft costs. Also, ADFA expects that the majority of the 10% allotted to administration and project-related soft costs will be incurred as project-related soft costs. Note that a certification of costs needs to be submitted with all requests for program administration and project-related soft costs.

Monitors confirm that all costs funded by ADFA HOME are eligible. To confirm costs, monitors check IDIS draw records for comparison with local financial records. Costs should be supported by invoices and, possibly, timesheets or cost allocation plans. Where costs are shared across multiple units, the allocation of those costs should be clear from a worksheet or some other statement of cost allocation. It is also important to check that the activity was set up correctly in IDIS, and that the draws match the documentation of eligible costs. For example, administrative and project-related soft costs have to be supported by the following source documentation and maintained on file by the Recipient:

> Detailed bill. A copy of a detailed bill highlighting the costs to be reimbursed. The detailed bill needs to be substantiated by a cancelled check, a copy of the bank statement or other proof of payment. The detailed bill will, at a minimum, include vendor identification, a description of the services received, the quantity (hours, units, etc.), and the price for services received. Handwritten invoices will not be accepted.

> Authorized signature. All invoices require an authorized signature of the Recipient's Executive Director, or their designee. The authorization also needs to include payment approval, verification of satisfactory services, and the relevant month for costs incurred and date.

> Copies of subcontracts, as applicable. A copy of any subcontracts for professional services (i.e., consultants, architects, contractors, etc.) is required to be provided in the initial application outlining the cost of the service rendered and the payment schedule or terms.

If a review of a project's files reveals that ineligible costs were included, monitors require corrective action. The typical correction will require an adjustment to financial records and repayment to the Recipient (if other entity) for any ineligible expenses.

Documentation should be thorough enough so that the monitor can identify how each cost was classified, and verify that it was drawn down under the proper classification.

Cost Reasonableness and Subsidy Layering [HOME: §92.505(a) and §92.250(b); ADDI: §92.616(a)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors look for evidence in the project case file that a cost estimate was completed (for construction projects) or affordability calculation worksheet/HUD or other settlement sheet prior to funding a homebuyer project.

For acquisition projects, the affordability calculation worksheet and/or settlement sheet should demonstrate that only the amount of HOME and/or ADDI funds necessary to make a unit affordable was provided. For construction projects, there should also be evidence in the file that bids were found to be within a reasonable range of the in-house cost estimate. If the costs are not reasonable, there should be some explanation in the file (such as project was re-bid or bids were accepted because homebuyer paid for the cost overage).

ADFA completes a subsidy layering analysis before committing HOME and/or ADDI funds to a homebuyer project that involves another source of public funds (local, state or Federal). Subsidy layering involves a review of project finances to ensure that the Recipient does not invest any more HOME funds than are necessary to provide affordable housing. To facilitate this analysis, HOME Recipients are obligated to contact ADFA as soon as there are any changes in project size/scope, cost or financing sources at any point during the development of the project. Monitors confirm that Recipients were diligently communicating changes to ADFA.

Cost Allocation (Methodology and Calculation) 92.205 and 92.208

Monitoring staff confirm that the following key documents are available in ADFA project files.

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Actual assistance to programs/projects will depend upon the amount of the subsidy determined by cost allocation and subsidy layering analysis. See previous section for a discussion on subsidy layering. Cost allocation reviews are completed by ADFA staff prior to award of ADFA HOME funds. Cost allocation is impacted by any changes in the proportion of HOME-assisted unit to total units in the project, development cost or financing sources. As such, all ADFA Recipients are obligated to contact ADFA as soon as there are any changes in project size/scope, cost or financing sources at any point during the development of the project.

Monitors confirm the various steps in the cost allocation process. For example, before costs can be allocated across units, luxury amenities, off-site infrastructure and other costs that would not be eligible for HOME funding are subtracted from the total development costs to arrive at the HOME eligible development costs. Also, the process of allocating costs for mixed projects with HOME-assisted and non-HOME-assisted units will depend on comparability of units:

> If both the assisted and non-assisted units were comparable in size, features, and number of bedrooms, the HOME-eligible costs should be pro-rated across units. (Since floating units, by definition, must be comparable, costs should always be pro-rated.)

> If the assisted and non-assisted units were not comparable, the actual costs must be determined and allocated unit-by-unit. The specific units identified to "receive" HOME funds must be fixed-that is, designated as HOME-assisted.

For additional guidance on understanding allocating costs in projects with HOME funds, please refer to HUD Notice CPD 98-02

Form of Assistance [HOME: §92.205(b); ADDI: §92.602(c)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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HOME allows virtually any form of financial assistance, or subsidy, to be provided for eligible projects and to eligible beneficiaries. ADFA restricts the forms of assistance that can be used. Monitors confirm that the assistance provided is one of the two forms of financial assistance that can be provided: development and homebuyer loans.

> Development loans. These loans are provided to Recipients for carrying out homebuyer activities. The interest rate on development loans is 1%. The loan (minus the amount provided to the homebuyer as a mortgage subsidy) will be repayable upon the sale and closing of each unit. The Recipient/developer and ADFA will enter into a written agreement that codifies the terms of the loan.

> Homebuyer loans. Also known as mortgage subsidies, these loans allow the homebuyer to afford the cost of the newly developed or rehabilitated single family home. ADFA reviews and approves the type of mortgage subsidy proposed by ADFA HOME Recipients at the time of application submission. Monitors confirm that the Recipient used the approved mortgage subsidies. The interest rate on homebuyer loans should be 0%. Also, the loan should be structured as a forgivable loan with a term that coincides with the ADFA required affordability period (5, 10, or 15 years).

> Examples of mortgage subsidies include:

. Gap financing, downpayment assistance, and closing cost assistance.

. Additionally, mortgage subsidies may be provided to homebuyers as a development activity for acquisition and rehabilitation or new construction.

. Finally, ADFA runs a downpayment assistance only activity that is separate from homebuyer activities described in this chapter.

> When reviewing homebuyer loans, monitors confirm that the assisted homebuyer met the ADFA qualification criteria for a repayable loan:

. Total monthly housing expense may not exceed 33% of monthly gross income. Housing expenses include principal, interest, taxes, insurance and utilities.

. Total monthly debt related expenses -including car loan payments, credit card debt payments-may not exceed 43% of monthly gross income.

. Additionally, recipients must perform a credit inquiry to determine the homebuyer's ability to repay the repayable portion of the HOME Program Loan.

In all cases where HOME Program assistance is provided, the HOME Homebuyer Assistance Agreement, a HOME Promissory Note, Deed Restriction, and HOME Program Subordinate Mortgage will be recorded by ADFA in the local land records as a lien against the property's title. Only ADFA-approved lien documents will be used.

Finally, although, Recipients provide the homebuyer loans directly to the homebuyer, all monthly mortgage payments on repayable loans shall be paid to ADFA.

Property Standards [HOME: §92.251; ADDI: §92.612(b)]

Monitoring staff will confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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To ensure compliance with property standard requirements, local monitors will verify that:

> The Recipient conducted and documented an initial inspection for acquisition will meet local code. For rehabilitation and new construction, inspection forms will be completed that demonstrate the unit met applicable codes. For rehabilitation involving rehabilitation over a two-year period or when a homebuyer is performing the work, health and safety inspection will be completed prior to occupancy and within 6 months of transfer, followed by progress and final inspections within 24 months;

> The Recipient maintains written rehabilitation standards that establish performance standards for HOME-assisted rehabilitation;

> All project files contain work write-ups and cost estimates that are written to meet the written rehabilitation standards, new construction standards, and applicable local or national codes and standards; and

> The inspection documentation demonstrates that the work carried out was done in compliance with the written rehabilitation standards (if applicable) and other required property codes/standards.

For projects involving rehabilitation or new construction, ADFA's inspectors will visit a sample of properties to see if the construction work met the required standards. ADFA's standards for rehabilitation and new construction are listed below..

Standards applicable to both new construction and rehabilitation projects:

> ADFA Construction Performance Manual Sections I and II;

> The International Code Council (ICC);

> All applicable state and local property codes; and

> Zoning ordinances.

Standards applicable to rehabilitation projects only:

> Rehabilitation standards, the method, materials and techniques used in the renovation, remodeling and repair of a unit.

Standards applicable to new construction and reconstruction projects only:

> Arkansas Energy Code;

> Energy Star standards;

> Arkansas Usability Standards in Housing: Guidance Manual for Constructing Inclusive Functional Dwelling (AUSH); and

> ADFA's approved house plans for all single-family reconstruction projects. ADFA's approved plans require a minimum of 1,000 square feet heated and cooled for two bedroom houses and 1,200 square feet heated and cooled for three bedroom structures. Different plans may be permitted provided the plans are comparable to the ADFA plans(s) and are approved by ADFA HOME staff prior to bidding and submission of application for funding.

Additional requirements applicable to new construction and reconstruction projects only:

> Survey of the property is required prior to the start of construction; and

> Permanent utility hook-ups and permanent foundations for replacement of a manufactured unit under reconstruction.

Work Write-ups [24 CFR 92.205, 24 CFR 85.36, 24 CFR 92.251, 24 CFR 92.505(a)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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All projects that involve construction activities require work write-ups or cost estimates. A good work write-up/cost estimate will include:

> A description of the work to be performed that is sufficiently detailed to serve as the basis for obtaining bids from contractors.

> A description of construction items necessary to bring a unit up to code through rehabilitation or build to specifications as for new construction.

> Specifications of the type of repairs, their location and scope, the method and quality of materials to be used. Any special requirements need to be noted.

> Accurate cost estimates that can be used to evaluate bids from contractors and determine whether the cost estimates are reasonable.

The monitor confirm that the work write-up cost estimate was sufficient for the contractors to use to provide bids. This may be evidenced by no change orders or the bids coming in close to the project's original cost estimate (for example, within ten percent).

Inspections [24 CFR 92.205(a), 24 CFR 85.36(f), 24 CFR 92.251(a)(1), 24 CFR 92.508(a)(3)(iv)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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For acquisition only projects, there should be at least one inspection form that demonstrates the unit meets the Recipient's written property standards. Inspections revealing items that need to be addressed necessitate a follow up inspection that confirms the work was completed and the unit meets property standards.

For homebuyer projects that involve rehabilitation or new construction, monitors confirm that three types of inspections are occurring-initial, payment/progress inspections and final inspections.

> Initial Inspection-Monitors verify that staff performed and documented an initial inspection to identify the extent of necessary rehabilitation. Inspection reports will identify conditions within the unit that do not meet applicable property standards or codes. In reviewing the files, monitors confirm that inspections were thorough and that the inspectors have adequate training and experience. Finally, if a project involved acquisition and rehabilitation was going to take up to two years for completion, a health and safety inspection form has to be completed within six months or prior to occupancy, followed by progress and final inspections that document compliance.

> Payment/Progress Inspections-Contractors may make as many payment requests as allowed by the Recipient's program policies/procedures, but cannot be paid until a qualified person inspects the property to verify that work requested for payment is in place and done according to the Recipient's property standards. A small amount (typically 10 percent) should be retained with each progress payment until all work is completed and all contract close-out documentation has been received. Monitors will review project files for documentation of each contractor payment request, the subsequent property inspection, and contractor payment documentation.

> Final Inspection-Final inspection documents need to show that all work specified in the write-up and construction contract is performed properly and that the appropriate property standards and codes are met. If an inspection reveals that additional work is required, a detailed list of the remaining work (a "punch list") needs to be prepared. Monitors verify that final payment to the contractor was not made until all punch list items were completed and re-inspected. Upon satisfactory re-inspection, the Recipient is required to conduct a final inspection. Where building code inspections are required, the building code inspectors' reports or other documentation from the jurisdiction indicating that the work meets codes/standards will be included in the project file.

> Warranty Inspection - A one-year warranty period must be instituted for each contract completed to ensure that the workmanship and materials of the contractor(s) and subcontractor(s) have been sufficient. A final warranty inspection must be conducted by the Recipient and/or ADFA staff eleven months after the initiation of the warranty period to finalize any adjustments needed to correct covered deficiencies. Any such deficiencies shall be noted by the Recipient or architect, if applicable, and provided to the contractor in writing and corrected.

> Ongoing Inspections - Ongoing monitoring requirements, imposed by ADFA, include requirement that the property is maintained at Housing Quality Standards. Recipient is expected to perform annual inspection and provide reports or other evidence that exterior of the property meets minimum Housing Quality Standards (HQS);

Lead-Based Paint Requirements [24 CFR 92.355 and 24 CFR Part 35]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available

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in Recipient files.

Monitors complete the Lead Hazards Monitoring Guidance for Rehabilitation HUD Checklist Exhibits 24-1, 24-2 or 24-3 to ensure the Lead Safe Housing Rule was applied correctly and appropriately to each particular project/case file. Below is a summary of the lead requirements and documentation required (see 24 CFR Part 35 for more details). For all projects involving acquisition and/or acquisition or rehabilitation of pre-1978 units, the files will evidence a copy of the signed lead-based paint notice. In addition, for homebuyer projects, a copy of the seller's disclosure for known lead-based paint hazards will also be included. This disclosure is typically a signed document that accompanies a purchase contract or in closing documents.

For acquisition, documentation of a visual assessment should be in the project files. Monitors may see this as a separate document or as a part of the property inspection form.

For rehabilitation, the "level of assistance" dictates the required type of lead hazard evaluation and reduction. This number is determined by calculating the lesser of the Federal funds per unit or the rehabilitation hard costs per unit (exclusive of the lead hazard evaluation and reduction costs). Depending on the level of assistance, the monitor will confirm that the correct level of lead hazard evaluation and reduction was conducted. The file should also contain a cost allocation work sheet substantiating that determination.

Monitors confirm that the following documentation is in the file:

> If the Level of Assistance was under $5,000,* documentation of a paint test of disturbed surfaces, notice of lead hazard evaluation, evidence of paint repaired by qualified workers who followed safe work practices, clearance and notice of lead hazard reduction activities before re-occupancy.

> If the Level of Assistance was between $5,000-$25,000,* documentation of a risk assessment or an inspection that presumed there was lead-based paint in the home, notice of lead hazard evaluation or presumption, evidence of interim controls or standard treatments by qualified workers who followed safe work practices, clearance and notice of lead hazard reduction activities before re-occupancy.

> If the Level of Assistance over $25,000,* documentation of a risk assessment or an inspection that presumed there was lead-based paint in the home, notice of lead hazard evaluation or presumption, evidence of abatement activities by qualified workers who followed abatement practices, clearance and notice of lead hazard reduction activities before re-occupancy.

If lead hazard reduction activities occurred, the file should contain the results of a clearance test as well as a lead hazard reduction notice.

> The clearance examination report should indicate that the home passed clearance. If not, the unit will have been cleaned and clearance performed again until the unit passed.

> Monitors check the date of the notice to confirm it was distributed to the homebuyer within 15 days of the Recipient receiving the clearance results.

On-site Inspections for Rehabilitation Quality [24 CFR 92.251]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Inspecting construction work for quality and for compliance with property standards requires skills in those areas, but a common sense approach allows monitors to make some basic determinations:

> Are the work items mentioned in the file present on the job? Do they appear to have been completed in a way the monitor would accept in her or his own home?

> Do costs seem reasonable? Are they allowable under HOME?

> What is the homebuyer's evaluation of the work? (Expect that some homebuyers will have continuing expectations that are not realistic.)

Monitors that have questions about work or costs seek the advice of an experienced construction inspector. When visiting homes, monitors are careful not to create or add to problems between homebuyers, owners/sponsors/developers (if applicable) or contractors.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Contractors working under HOME-funded homebuyer programs are selected by the Recipient. The selection process must comply with federal procurement rules regarding competitive bidding and ADFA requirements for bid solicitations:

> Monitors verify that a competitive bidding process was used, including that a public invitation for bids was issued and that an attempt was made to solicit more than one bid. Copies of the mailing list for the project's request for bids, along with a copy of the newspaper the announcement was published in, should be in the file.

> Bids must be reviewed using consistent criteria. The Recipient should have written guidelines for processing and reviewing their bids that comply with the ADFA requirements for screening contractors (bidding and contract award process).

> In cases where contractors were rejected, monitors confirm that the Recipient documented the reasons the contractor was not selected.

Monitors verify that contractors used for HOME funded projects met the minimum requirements:

>Be eligible to work on Federally-funded projects. Eligibility is documented by checking the excluded parties list (http://www.epls.gov/index.html) and establishing that contractor is not on the list before issuing a Federally funded contract. Monitors should check to ensure this verification is occurring. A print out of the page from the website at http://www.epls.gov/index.html stating the contractor is not

I-----------------------:----------------------------1on the excluded parties list at the time of the search.

ht Exc p l ://www P e arti s.go Website x I---------------------------------------------------1 > Have a record of good performance and strong references.

> Show proof of having met bonding and insurance requirements required by the ADFA.

In reviewing project files, monitors verify that all bids were solicited, accepted and reviewed in line with ADFA's requirements. A copy of the winning bid should be found in the project file. Monitors confirm that all firms used in the rehabilitation program perform quality work, are licensed and maintain proper insurance coverage. ADFA requires documentation of the following items in the Recipient's project files:

> Copies of advertisements for bids;

> Proof of publication;

> Bid tabulation worksheets;

> Contractors Arkansas State License;

> General Liability Insurance;

> Builders Risk Insurance; and

> Contractor's ability to obtain a Payment and Performance Bond or Irrevocable Letter of Credit (reconstruction only).

Monitors review the process by which contractors are selected to participate in the program and assess whether the program involves an appropriate number of contractors given its volume. A disproportionately small number of contractors involved in the program can be seen as a possible sign of program performance problems and should be trigger further investigation.

To ensure that HOME funds are used for eligible construction activities, it is important to monitor and document the construction process. The Recipient should have the following documentation in each project file:

> Pre-construction conference report;

> Rehabilitation/construction contract and notice to proceed;

> Change orders;

> Contractor payment requests and inspection documentation;

> Copies of Lead Hazard Evaluation and Reduction Notices and Lead-based Paint Clearance Report (if applicable); and

> Contract close-out.

In reviewing project files, a monitor will ascertain that this documentation is consistent. If the review reveals that total payments to a contractor exceed the amount of the original contract, the file needs to contain approved change orders documenting the additional cost.

Similarly, if any inspection report (or other documentation) reveals items not included in the original write-up, or if specified work was not performed, the file will contain relevant change orders. When expenditures are unaccounted for in project files, monitors determine the nature of the costs above the amount of the construction contract. If HOME funds were used to pay for these costs, they have to be supported as eligible and reasonable costs or be repaid to the HOME account.

Pre-construction Conference [24 CFR 92.505(a) and 24 CFR 85.36(b)(2)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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The pre-construction conference is required by ADFA to enhance program performance by helping to avoid confusion between the owner and the contractor. Monitors will confirm that these conferences are conducted on-site with the owner and the contractor before the execution of any construction contract. The conference documentation should show that the Recipient reviewed the work to be performed and the terms of the contract with both parties. The project field is also required to include a pre-construction conference reports signed by all parties will be placed in the project file.

Construction Contract [24 CFR 92.505(a), 24 CFR 85.20(b)(6), 24 CFR 92.508.(a)(3)(ii)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Prior to the start of the work, a rehabilitation/construction contract is required to be executed and the Recipient has to issue a Notice to Proceed subsequently. Monitors verify that copies of each document are kept in the project file. The work write-up and the contractor's accepted proposal should become a part of the rehabilitation/construction contract. Monitors review the contract to verify that it was properly executed. If so, the notice to proceed is an indicator that all pre-construction tasks have been completed and the project is officially ready to proceed. The notice can be issued at a pre-construction conference or at a later time.

Progress Inspections [24 CFR 92.505(a), 24 CFR 85.36(b)(2)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors verify that progress inspections are conducted to document that the work being done adheres to the construction contract and all applicable codes and standards prior to contractor payment. Monitors should find records of performance and inspections of the construction work in the project file. Inspections should be documented for any of the following situations:

> Payment requests;

> Change orders;

> Client complaints;

> Indications of project delays; or

> Critical points in the rehabilitation/construction such as when certain work is about to be covered by other work (e.g., before drywall covers the electrical, plumbing, framing rough-in, before concrete covers the foundation trench and reinforcing bar).

Monitors confirm that inspections were conducted with the appropriate parties and contractor present and that a proper sign off on the payment request was completed.

Appropriate Approvals

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors verify that the homebuyer, if applicable, agreed that the work was completed on his/her home prior to final payment to the contractor and release of liens. Monitors should be able to locate the homebuyer's signature/approval on the final payment/draw request and on any other final documentation at the end of the project.

Change Orders [24 CFR 92.505(a), 24 CFR 85.20(b)(6), 85.36(f)(1), 24 CFR 92.508.(a)(3)(ii)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Any change in the scope of work or budget for a project have to be documented and approved as a change order before the work is initiated. A change order then becomes a binding part of the construction contract and helps the Recipient ensure the quality of the work.

Recipients should have policies/procedures for handling change orders. When reviewing change orders, monitors confirm that the revised scope of work was necessary to meet applicable codes and standards and that the new costs were eligible and did not exceed subsidy limits. Monitors also confirm that change orders were signed by the appropriate parties (including ADFA as ADFA has to review and approval all change orders).

> If a desk review of the final inspection report (or an on-site inspection) reveals items not included in the original write-up or, if specified work was not performed, the file should contain change order(s).

> In reviewing project files, monitors confirm that documentation is consistent. For example, change order documentation should appear any time a change is made regardless if whether or not the dollar amount of the project changed.

> If the monitoring reveals that total payments to a contractor exceeded the amount of the original contract, the file should contain approved change orders documenting the additional cost.

> When expenditures are unaccounted for in project files, the monitor determines the nature of the costs above the amount of the construction contract. If HOME or ADDI funds were used to pay for these costs, ADFA may determine that the Recipient need to repay those funds.

Lien Releases and Warranty Information [24 CFR 92.505(a) and 24 CFR 85.36(b)(2)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors look for a release of liens signed by all parties in homebuyer files that involve rehabilitation or new construction. In addition, the contractor will provide all warranties or affidavits to the homebuyer at the completion of the project. Original warranty documents will be provided to the homebuyer; however, the Recipient needs to maintain a copy or other documentation in the project files.

There are several HOME and ADFA requirements concerning loan documentation, repayment and use of loan funds. These areas are discussed below.

Underwriting Policies/procedures

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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ADFA establishes specific underwriting practices for development and repayable loans. In particular, to qualify for a development or repayable loan, the homebuyer has to meet the following criteria:

> Total monthly housing expense may not exceed 33% of monthly gross income. Housing expenses include principal, interest, taxes, insurance and utilities.

> Total monthly debt related expenses -including car loan payments, credit card debt payments-may not exceed 43% of monthly gross income.

Recipients must also perform a credit inquiry to determine the homebuyer's ability to repay the repayable portion of the HOME Program Loan.

Loan Approval

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors review the Recipient's loan approval process to determine if it provides adequate information to the homebuyer. When a loan is approved or rejected, homebuyers should receive full information about their status (i.e., approved or not approved) and, if applicable, the terms of the assistance and their payment obligations. At the time the loan documents are executed, the Recipient is required to provide truth-in-lending materials to the borrower and fully explain the owner's rights to cancel the assistance. Loan documents signed by the homebuyers should also be in project/case files.

Loan Documentation [24 CFR 92.205(b)(1), 24 CFR 92.505(a), 24 CFR 85.20(b), 24 CFR 92.508(a)(3)(ii)]

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available in Recipient files.

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Monitors examine program loan documents to make sure that they are consistent, complete, properly executed, properly recorded and reflect all applicable HOME and other Federal requirements. The following documents should be available in the project files for review:

> Deed of trust or note and mortgage (usually filed at the courthouse or county records office; the recorded copy will be returned to the Recipient to be placed in the file);

> Real estate note (copy of promissory note will be in the file, signed and notarized);

> Deed restriction (required for resale only);

> Truth in Lending Disclosure Statement; and

> Right to Cancel or Right of Rescission (applicants have a right to cancel their loans within three days).

In addition, HOME rules require that the homebuyer signs a written agreement that includes the required provisions. ADFA's template written agreement needs to be executed before any HOME funds may be dispersed. Monitors confirm that the Recipient has used ADFA's standard loan agreement and that an executed copy of the agreement is found in all project files.

Monitoring staff confirm that documentation related to each of the key questions in the ADFA checklist is available

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in Recipient files.

While many Recipients operate their HOME-funded homebuyers programs with internal staff and resources, others rely on contractors to administer all or part of the program. Recipients might use contractors to perform marketing activities, identify eligible applicants, provide homebuyer counseling, develop initial work write-ups and cost estimates, manage construction, or serve as the contractor on individual projects.

When the administration of the program is shared between the Recipient and a partner, monitors review written agreements that articulate roles and responsibilities to ensure that all obligations of the ADFA HOME Program are carried out by one of the administering entities. Recipients should be using ADFA's written agreement template for all agreements with contractors/administrators.

Also, monitoring staff will review status reports from HOME staff or Recipients in order to monitor compliance and evaluate performance. ADFA's performance standard is related to expenditure from issuance of the Notice to Proceed. Recipients are required to expend:

> 25% of allocation within 90 days;

> 75% of allocation within 1 year; and

> 100% of allocation within 18 months.

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Ongoing monitoring requirements, imposed by ADFA, include requirements that assisted households must maintain principal residency, real estate tax payments, hazard insurance for post-rehabilitation replacement cost, and the property at Housing Quality Standards.

Appropriate documentation in files for annual reviews should include:

> Evidence that the property is the principal residence of the person assisted with HOME funds (by way of a certified letter sent to the homeowner's address, review of hazard insurance, or tax records);

> Annual inspection reports or other evidence the exterior of the property meets minimum Housing Quality Standards (HQS);

Evidence of annual payment of real estate taxes and homeowners insurance sufficient to cover replacement of the structure. ADFA requires that efforts to obtain copies of homeowner's insurance policies and real estate tax receipts must include a minimum of two letters of request and one personal visit by the recipient or other designee. If these efforts are unsuccessful, ADFA reserves the right to take steps necessary to obtain the documents, up to and including recapture of funds or foreclosure.

If the unit is no longer the principal residence of the homebuyer, the Recipient or developer has two options:

> Ensure the homebuyer reoccupies the unit; or

> Pay back the outstanding total amount of HOME assistance (minus any principal loan payments, if applicable). Note, this may be more than the amount of direct assistance provided to the homebuyer under the recapture mechanism found in the mortgage.

If a property is sold during the period of affordability, monitors confirm that the recapture amount was calculated appropriately. Under the ADFA required recapture mechanism, the unforgivable portion of the amount of direct HOME assistance is due when the property is sold (or title is transferred) during the term of the loan, subject to net proceeds, to protect the HOME investment throughout the term of the loan. Forgiveness terms and net proceeds are defined below:

> ADFA provides a 0% forgivable loan that is forgiven commensurate with the period of affordability. For example, a 10 year period of affordability would be forgiven at 120th a month for each month occupied by the homebuyer.

> Net proceeds are defined by the sales price minus superior loan repayment (other than HOME funds, if applicable) and any seller's closing costs. If net proceeds exceed the amount of HOME assistance, the homebuyer will receive the balance of these proceeds. If net proceeds are less than the amount of HOME assistance, the amount available will be repaid to ADFA and the loan will be considered satisfied.

Compliance Determination based on File Review [24 CFR 92.508(a)(3)]

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After reviewing the file, monitors determine whether the project is in compliance or not. The monitoring file will be documented to show whether it meets compliance and follow-up action items will be addressed and documented if applicable.

Monitors confirm that key project information is documented in the files. This includes basic project data and financing information.

Project Information

Monitors confirm that the following information is available in ADFA project files.

Checklist Questions & Key Documents

In instances where Recipients pass ADFA funds through to rental project owners, monitors confirm that the following key documentation regarding property and activity eligibility are available in ADFA and Recipient project files.

Monitors confirm that the HOME subsidy was properly established and that project documents demonstrate compliance with subsidy limits and layering requirements.

Minimum and Maximum HOME Investment

Monitoring staff verify that the following key documents are available in ADFA project files.

Monitors verify that the following key documents are available in ADFA project files.

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The monitor ensures that the Recipient has recorded the deed restrictions (or covenants) on each property assisted with HOME funds, thus enforcing the HOME income and occupancy requirements for the loan term. Each project file must have a copy of the recorded restrictions, which are independent of the written agreement and other loan documents, including evidence that the restrictions were properly recorded by the local jurisdiction.

Loan Term Restrictions in Written Agreements and Other Legal Instruments

HOME-assisted rental units carry rent and occupancy restrictions for varying lengths of time, depending upon the average amount of HOME funds invested per unit:

Loan term restrictions remain in force regardless of transfer of ownership. At ADFA's discretion, they may be terminated only upon foreclosure or transfer in lieu of foreclosure. However, affordability requirements will continue if, before the foreclosure, the owner of record, or anyone with business or family ties to the owner, obtains an ownership interest in the property or project.

Monitoring staff confirm that the following key documents are available in ADFA and Recipient project files.

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HOME Program funds may be used for certain administrative and development costs as dictated by 24 CFR 92.206 including hard costs, soft costs, relocation costs, bridge loans, project delivery costs, and initial operating deficit reserve. See Exhibit 6-2 below.

Exhibit 6-2 HOME-eligible Rental Housing Costs

ADFA imposes additional restrictions to the list of HOME eligible costs including:

> Developer fee: ADFA HOME funds may be used to pay a pro rata share of the developer fee based upon percent of HOME funds to development costs. The following additional constraints apply to this line item:

. ADFA restricts total developer fee to 15 percent.

. Additionally, while soft costs include developer fees, developers cannot hire themselves as consultants on their HOME-Funded project and thus earn additional profit and/or fee.

> Relocation costs: While relocation costs are eligible, ADFA discourages involving displacement or relocation.

. Prior to application, applicants must contact ADFA if they are planning any development that may involve displacement or relocation.

. In the event relocation is unavoidable, applicants must adhere to the Uniform

Relocation Act. HOME Funds may be used for the cost of permanent or temporary relocation of tenants.

> Bridge loans. ADFA HOME assistance can be used to pay the cost of interim construction loans used to finance the HOME assisted development under the following conditions:

. Costs incurred are HOME eligible costs

. ADFA receives prior notification and approves the use.

> Program and project administrative costs. Program and project administrative costs are limited to 10% of the final allocation amount for the proposed owner-occupied rehabilitation/reconstruction program. Changes in project costs that result in an increase to the project budget do not increase either the administrative or project delivery soft cost amount. On the other hand, a reduction in the project budget will result in a decrease of administrative or project delivery soft costs. Also, ADFA expects that the majority of the 10% allotted to administration and project-related soft costs will be incurred as project-related soft costs. Note that a certification of costs needs to be submitted with all requests for program administration and project-related soft costs.

There are several important financial components/sections of a rental project application that a monitor reviews to confirm that costs were attributed correctly and appropriately to HOME. These components are:

> Sources/Uses of Funds: The statement and supporting documentation should reflect the project development budget and list:

. All proposed sources of funds (both private and public) and the dollar amounts for each respective source, and

. All uses of funds (including acquisition costs, rehabilitation/or construction costs, financing costs and professional fees) associated with the project.

> Certification of Governmental Assistance. A formal certification from the applicant that notes whether or not additional governmental assistance will be provided to the project and, if so, what kind of assistance.

> Project Development Budget. Project development budget is used to determine whether the development costs are necessary and reasonable. The budget should include all costs associated with the development of the project, regardless of the funding sources.

. "Reasonableness" of costs is based on all of the following factors:

> Pro forma. The project pro forma (project income and expense statement) should reflect a reasonable rate of return on equity investment. The pro forma should include achievable rent levels, market vacancies and operating expenses. It should also specify the consequences of tax benefits, if any, and any other assumptions used in calculating the project cash flow. The pro forma should represent, at a minimum, the term of the HOME affordability requirements, or longer if other funding sources require longer affordability terms.

Operating Deficit Reserve

Monitoring staff verify that the following key documents are available in ADFA and Recipient project files.

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HOME funds may be used to cover the cost of funding an initial operating deficit reserve for new construction and rehabilitation projects. This reserve is meant to meet any shortfall in project income during the project rent-up period and cannot exceed 18 months.

The reserve can be used only for project operating expenses, scheduled payments to replacement reserves and debt service. At ADFA's discretion, reserves remaining at the end of the 18-month period may be retained by the owner/developer for reserves. The disposition of any remaining funds at the end of the 18-month period should be determined in the agreement between the developer/owner and ADFA.

The monitor reviews the written agreement to see if an operating deficit reserve fund was allowed and compare it to the project financial statements for the period covering the end of the 18 month period. Financial records are also reviewed to ensure the funds were spent as outlined in the agreement. If funds were returned to ADFA, monitors confirm that the funds were receipted and treated as program income.

Cost Reasonableness [24 CFR 92.505(a); 24 CFR 85.22 and OMB Circular A-87, Attachment A, Section C.2]

Monitors confirm that the following key documents are maintained in ADFA and Recipient project

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files.

The monitor confirms that a cost reasonableness review is maintained in ADFA and Recipient project files. Reasonableness of costs should be based on all of the following factors:

Monitors confirm that key documents are available in ADFA and Recipient project files to demonstrate compliance with property standards such as rehabilitation and construction standards, accessibility requirements, and other property issues such as lead-based paint. Monitors also inspect properties to ensure ongoing property maintenance.

Rehabilitation and Construction Standards

Monitors confirm that the following documents are in ADFA and Recipient project files.

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As with all HOME-assisted properties, rental properties must meet certain written standards. The applicable codes and standards will vary depending upon the type of project (acquisition only, rehabilitation or new construction). Monitors must familiarize themselves with which codes and standards were applicable at the time of project development/completion to ensure that the correct codes and standards are applied to the property through the affordability period.

> Acquisition. If no rehabilitation or construction is planned, the housing acquired must meet state and local housing quality standards and code requirements. If no such standards or codes exist, the property must meet Section 8 HQS.

> Rehabilitation. Housing that is being rehabilitated with HOME funds must meet all applicable ADFA rehabilitation standards, state and local codes and ordinances.

. Written rehabilitation standards. All HOME-assisted rehabilitation projects must meet ADFA's written rehabilitation standards. ADFA's written rehabilitation standards describe the methods and materials to be used when performing rehabilitation. Inspectors also use rehabilitation standards when inspecting completed work.

> New Construction. Housing that is being constructed with ADFA HOME funds must meet all applicable state and local codes, rehabilitation standards and ordinances. For new construction rental projects, the project must meet the IECC as outlined in 24 CFR 92.251(a). Documentation is often in the form of notes from an upfront review of plans and specifications and a final inspection by a staff person or agent of the agency familiar with IECC. Finally, ADFA also requires that newly constructed projects meet Energy Star Qualifications.

Monitors verify that the project file contains documentation of property inspection by a qualified inspector, such as a copy of a final Certificate of Occupancy. At a minimum, documentation must include a certification that the property meets all applicable property standards. If that certification is missing, the owner/developer must supply one. If additional work is required for a certificate, a work list and a specific timeframe must be established to ensure the property is in compliance and up to code during the period of affordability. If more than one year has passed since project completion, no additional HOME funds can be invested in the property, and other resources will have to be obtained for the additional work.

Accessibility Requirements [24 CFR 92.251(a)(3)] and Additional ADFA Design Standards

Monitors confirm that the following key documents are available in ADFA project files. Monitors verify the accessibility of designated units and parking spaces during onsite inspections.

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Section 504 of the Rehabilitation Act of 1973 prohibits discrimination in Federally-assisted programs on the basis of disability. Section 504 imposes requirements to ensure that "qualified individuals with disabilities" have access to programs and activities that receive Federal funds. See Exhibit 6-3 for a summary of the requirements (refer to CPD Notice 00-08 for additional guidance.). Monitors must confirm that rental projects meet the Section 504 requirements for new construction and rehabilitation. A review of the plans and specifications and onsite inspection would be appropriate documentation.

ADFA has additional design standards for assisted rental properties.

> Universal Design Standards. All HOME-assisted rental projects must include the following design criteria in accordance with Arkansas Usability Standards in Housing: Guidance Manual for Constructing Inclusive, Functional Dwellings (AUSH). (The AUSH is available on the internet at the following website address: www.studioaid.org. Under the "Design" link, click on "standards".).

> Multi-Family Housing Minimum Design Standards. Construction of the development must be in accordance with ADFA's "Multi-Family Housing Minimum Design Standards", as well as, all applicable local State and national building codes. Files should include an executed "Multi-Family Housing Minimum Design Standards Checklist" found on ADFA's website www.arkansas.gov/adfa. A certification from the design architect or licensed engineer should confirm that the proposed development will be constructed in:

. Compliance with ADFA's "Multi-Family Housing Minimum Design Standards";

. Compliance with all Federal and State accessibility laws; and

. Compliance with all applicable local, State and national building codes.

> Applicability of minimum design standards to rehabilitation developments: When structural constraints prohibit adherence to ADFA's "Multi-Family Housing Minimum Design Standards," approved waiver request should include the following:

. Certification by the design architect or licensed engineer that the standard concerned cannot be met due to structural constraints;

. Certification by the design architect or licensed engineer that no alternative design can be undertaken to achieve the benefit of the required standard due to structural constraints; and

. Statement by applicant that it will implement any alternative identified by the design architect or licensed engineer.

To confirm compliance with these additional ADFA requirements related to design, monitors review the following:

> Number of handicap-accessible parking spaces and their proximity to accessible units and ramps;

> Design of handicap-accessible units and placement of units. Accessible units must be distributed throughout the sites;

Additionally, in buildings that were ready for first occupancy after March 13, 1991, and have an elevator and four (4) or more units, ADFA staff will verify that:

> There is at least one building entrance on an accessible route;

> Public and common areas are accessible to persons with disabilities;

> Doors and hallways are wide enough to accommodate wheelchairs;

> Light switches, electrical outlets, thermostats, and other environmental controls are in accessible locations;

> Reinforced walls are built in bathrooms for later installation of grab bars; and

> Kitchens and bathrooms are usable by persons in wheelchairs.

Exhibit 6-3 Section 504 Requirements

I Removal of Physical Barriers I

. For new construction of multifamily projects, a minimum of 5 percent of the units in the project (but not less than one unit) must be accessible to individuals with mobility impairments, and an additional two percent of the units (but not less than one unit) must be accessible to individuals with sensory (hearing or vision) impairments.

. The Section 504 definition of substantial rehabilitation multi-family projects includes construction in a project with 15 or more units for which the rehabilitation costs will be 75 percent or more of the replacement cost. In such development, five percent of the units in the project (but not less than one unit) must be accessible to individuals with mobility impairments, and an additional two percent (but not less than one unit) must be accessible to individuals with sensory impairments.

. When rehabilitation less extensive than substantial rehabilitation is undertaken, alterations must, to the maximum extent feasible, make the unit accessible to and usable by individuals with handicaps, until five percent of the units are accessible to people with mobility impairments. Alterations to common spaces must, to the maximum extent feasible, make the project accessible.

. Accessible units must be, to the maximum extent feasible, distributed throughout projects and sites and must be available in a sufficient range of sizes and amenities so as to not limit choice.

. Owners and managers of projects with accessible units must adopt suitable means to assure that information regarding the availability of accessible units reaches eligible individuals with handicaps. They also must take reasonable nondiscriminatory steps to maximize use of such units by eligible individuals.

. When an accessible unit becomes vacant, before offering the unit to a non-handicapped individual, the owner/manager should offer the unit: first, to a current occupant of the project requiring the accessibility feature; and second, to an eligible qualified applicant on the waiting list; requiring the accessibility features.

. The usual standards for ensuring compliance with Section 504 are the Uniform Federal Accessibility Standards (UFAS), although deviations are permitted in specific circumstances.

Inspections [24 CFR 92.251(c)]

Monitors inspect properties to confirm compliance with ongoing property standards.

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During the affordability period, projects are inspected regularly to ensure that they continue to meet or exceed applicable property standards. These inspections are carried out as shown below.

> One (1) to four total units = every three years;

> Five (5) to 25 total units = every two years; and

> Twenty-six (26) or more total units = annually.

A sufficient sample of HOME-assisted units in a multifamily development must be inspected. For projects of up to 5 units, ADFA staff review all units. For projects of more than 5 units, ADFA staff randomly select a minimum of five or 20% of tenant files and units for monitoring. The ADFA monitoring project file must contain documentation of all prior inspections, including any violations of the minimum property standards. Monitors should be alert to prior violations of property standards any time they go on site.

ADFA staff use the HUD Inspection Checklist when conducting inspections of the units. During Compliance Monitoring visits, ADFA staff inspect the following:

> Condition of grounds, parking lot, ramps, office, laundry and maintenance areas, and exterior buildings;

> Breezeways or walkways;

> Condition of interior and exterior stairs, rails, and common halls;

> Exterior door locks, window locks, and door frames;

> Condition of carpets, flooring, windows, blinds, and screens, caulking, walls, and ceilings in all rooms;

> Light fixtures, ceiling fans, switch plates, etc.

> Conditions that may pose electrical hazards;

> Condition of kitchen sinks, faucets, areas under sinks, stoves, exhaust fans, refrigerators, etc.;

> Smoke detectors (must be operational);

> Bathroom sinks, toilets, tubs or showers;

> Adequacy and safety of heating and cooling units;

> Peeling, chipping or deteriorating paint in structures built before 1978;

> Overall condition of the unit; and

> General health and safety issues.

ADFA reserves the right to request additional information, if applicable.

Owners or managers are required to make immediate corrective measures for items that endanger general health and safety. All corrective actions and replacement materials must equal or exceed minimum property standards. Generally, owners or managers are allowed up to sixty (60) days to correct other deficiencies. ADFA may permit additional time for corrective measures when circumstances warrant the additional time (e.g. weather conditions or circumstances beyond owner's control). ADFA, in its sole discretion, may schedule additional follow-up visits.

Lead Based Paint [24 CFR 92.355]

Monitors confirm that the following key documents are available in ADFA and Recipient project files.

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Monitors confirm that the Lead Safe Housing Rule was applied correctly and appropriately to each particular project/case file. Below is a summary of the lead requirements and documentation required. (See 24 CFR Part 35 for more details.)

Lead-based paint regulations require that all occupants in units constructed before 1978 receive a disclosure notice and pamphlet describing lead-based paint hazards. Unit occupants must receive a disclosure form from the landlord or property manager noting any known presence of lead-based paint. The landlord or property manager must keep a copy of the disclosure notice in each tenant's file. The tenant must sign this notice before the unit is occupied.

The "level of assistance" dictates the required type of lead hazard evaluation and reduction. This number is determined by calculating the lesser of the Federal funds per unit or the rehabilitation hard costs per unit (exclusive of the lead hazard evaluation and reduction costs). Depending on the level of assistance, the monitor needs to ensure the correct level of lead hazard evaluation and reduction was conducted. The file should contain a cost allocation work sheet substantiating that determination.

Lead-based paint requirements depend on whether the assistance involves rehabilitation or not. For an owner acquiring a standard property or acquiring a property that requires less than $5,000 per unit of rehabilitation work, 24 CFR Subpart K applies and a visual assessment must be performed. If deteriorated paint is observed, then:

> The area must be stabilized using qualified workers and safe work practices;

> The property must pass a clearance examination before tenants may occupy the units; and

> The file should contain a copy of the visual assessment report, disclosure notice, clearance report, and lead hazard reduction notice.

If paint conditions appear satisfactory, no additional work is required. The file should contain a copy of the visual assessment report and disclosure notice.

For an owner acquiring a property that requires more than $5,000 per unit of rehabilitation work, 24 CFR Subpart J applies and a risk assessment must be performed. If lead hazard conditions are found in the property, lead hazard reduction work must be completed by certified workers as indicated in the risk assessment plan. Furthermore, if the cost of rehabilitation is between $5,000 and $25,000 per unit, interim controls of lead hazards must be completed. If the rehabilitation is more than $25,000 per unit, abatement of lead hazards must be completed. In all cases:

> The property must pass a clearance examination before tenants may occupy the units; and

> The file should contain a copy of the risk assessment report, disclosure notice, clearance report, and lead hazard reduction notice.

If the property is free of lead hazardous conditions, no additional lead hazard reduction work or safe practices are required, but the file should contain a copy of the risk assessment report and disclosure notice.

The property owner must incorporate ongoing lead-based paint maintenance activities into regular building operations. For HOME rental properties, these include:

> Regular maintenance and evaluation of the lead hazard reduction work must be performed. The owner is responsible for:

. A visual inspection of lead-based paint annually and at unit turnover;

. Repair of all unstable paint; and

. Repair of encapsulated or enclosed areas that are damaged.

> Owners should request, in writing, that the occupants of rental units monitor lead-based paint surfaces and inform the owner of potential lead hazards. A copy of this request should be documented in the tenant's file.

To ensure that HOME funds are used for eligible activities, it is important to monitor and document the construction process. The following types of documentation should be located in each project file:

Monitoring staff review at least 20 percent, but no less than 5 HOME tenant files and units for all HOME-assisted projects. In addition to on-site reviews, monitoring staff review the occupancy related reports generated from online entries. Owners or managers MUST utilize ADFA's computer system and update tenant files no later than the 15th day of the month following any tenant related changes such as move-ins, re-certifications, transfers, or move-outs.

Monitoring confirm that the following key documents are available in ADFA and Recipient project files.

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Site and neighborhood standards only apply to new construction of rental projects. If applicable, monitors confirm that a site and neighborhood standards review was conducted for each rental project prior to approval of funding. Site and neighborhood related documentations include:

> Adequacy of site;

> Project and location furthers compliance with fair housing laws;

> Site is not in an area of minority concentration or racially mixed area, but if it is in a minority concentration area--the project will not increase significantly the property of minorities; or there is sufficient comparable opportunities exist outside area for minorities based on analysis of HUD-assisted housing, or it is necessary to meet overriding housing need that cannot otherwise be met integral to preservation strategy or integral to revitalization area strategy.

> Promote greater choice of housing opportunities and avoids undue concentration of assisted persons.

> Neighborhood is not seriously detrimental to family life.

Neighborhood is comparably accessible to broad range of services and facilities.

> Travel and access to jobs is not excessive.

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All HOME funded rental projects with five or more HOME-assisted units must have an affirmative marketing plan to ensure the project is marketed to those persons least likely to apply. Monitoring must ensure that affirmative marketing requirements and procedures include the following elements:

> Methods for informing the public, and potential tenants about fair housing laws and ADFA's policies;

> A description of what owners will do to affirmatively market housing assisted with HOME funds, and maintenance of records that document the actions taken in this marketing effort;

> A description of what owners will do to inform persons not likely to apply for housing without special outreach, and maintenance of records that document the actions taken in this marketing effort; and

> A description of how efforts will be assessed and what corrective actions will be taken where requirements are not met, and maintenance of records that document an assessment of the effectiveness of the marketing effort.

To determine compliance with the above listed elements, ADFA monitoring staff review the following:

> Recipient's methods for informing the public or potential tenants about fair housing laws. ADFA will look for the posting of the Equal Housing Opportunity symbol on all advertising and exterior property signs;

> Availability of Equal Housing Opportunity information, and visibility of the Equal Housing Opportunity symbol on correspondence, exterior property sign, and in office where tenant applications are taken;

> Data on the extent to which each racial and ethnic group and single-headed households (by gender of household head) have applied for, participated in, or benefited from, any program or activity funded in whole or in part with HOME funds;

> Affirmative Fair Housing Marketing Plan (HUD form 935.2); and

> Evidence of compliance with Section 3 Policy (ensure that employment and other economic opportunities generated by Federal financial assistance for housing and community development programs be directed, to the greatest extent feasible, toward low- and very-low income persons, particularly those who are Recipients of government assistance for housing).

Monitoring staff confirm that the following key documents are available in ADFA and Recipient project files.

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HOME Program funded activities are subject to the environmental review requirements at 24 CFR Part 58. Monitors look for an Environmental Review Record (ERR) for the rental project and confirm that it contains all required environmental documentation. Further guidance is available through both HUD Notice CPD 01-11 (www.hud.gov/offices/cpd/lawsregs/notices/2001/01-11 .pdf), and HOMEfires Vol. 4, No. 2 (www.hud.gov/offices/cpd/affordablehousing/library/homefires/volumes/vol4no2.cfm).

Monitoring staff confirm that the following key documents are available in ADFA and Recipient project files.

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HOME monitors confirm documentation of compliance with Davis-Bacon and the Contract Work Hours and Safety Standards Acts for every construction contract that contains 12 or more units assisted with HOME funds triggers the requirements. Documentation related materials that should be in ADFA and Recipient project files include Davis-Bacon wage determination, contract language, site interviews and payroll monitoring. Note that when applicable, requirements apply to the whole project, not just the HOME-assisted units.

On a program-level basis, monitors confirm that the Recipient has adopted labor policies and applies them to the hiring and employment practices.

The most important project-specific questions that monitoring staff investigate include:

> Was the correct determination made concerning the applicability of Davis-Bacon to the project?

> Does documentation in the project file indicate that:

. There are 12 or more HOME-assisted units in the construction contract, thereby "triggering" Davis-Bacon?

. HOME funds were used only to assist homebuyers in acquiring single-family housing, in which case Davis-Bacon does not apply? (This applies only if there was not an advance agreement with the owner or developer of the housing that HOME funds would be used to assist the homebuyers.)

> Were all pre-construction requirements met?

> Were conferences with contractors & subcontractors inexperienced with labor requirements documented?

> Were proper and current wage decisions from the HUD Labor Relations Field Office staff, or other approved source, documented in the project file?

> Was the standard, required language and wage decision included in all bid documents, contracts, and subcontracts?

> Were there sufficient documentation of periodic on-site visits including interviews of a variety of workers and confirmation that required posters were located on site?

> Were payroll forms submitted and reviewed, were problems noted and resolved, and were documents kept in the project file?

Monitoring staff review at least 20 percent but no less than 5 HOME tenant files and units for all HOME-assisted projects for the following checklist questions.

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Monitors review the Subrecipient's marketing procedures/plan, copies of advertisements or flyers and other materials used in marketing the TBRA program. Policies must prohibit conflict of interest or bias in the selection process including discrimination or favoritism towards friends or relatives.

Marketing procedures/plans should also ensure that the program is marketed to the full range of potential applicants, including those least likely to apply. These procedures should address the following:

> Literature that is understandable to applicants, including key information available in other languages; and

> A schedule and advertising plan to ensure that outreach efforts reach potential applicants and reflect a wide marketing effort.

Additionally, as part of the Fair Housing element of monitoring marketing -related documents, ADFA staff members review the following:

> Subrecipient's methods for informing the public or potential tenants about fair housing laws. Monitors look for the posting of the Equal Housing Opportunity symbol or language on all advertising;;

> Availability of Equal Housing Opportunity information, and visibility of the Equal Housing Opportunity symbol on correspondence, exterior property sign, and in office where tenant applications are taken;

> Data on the extent to which each racial and ethnic group and single-headed households (by gender of household head) have applied for, participated in, or benefitted from, any program or activity funded in whole or in part with HOME funds;

> Records demonstrating actions taken to meet the requirements of Section 3 of the Housing Development Act of 1968, as amended (12 U.S.C. 1701u). The purpose of Section 3 is to ensure that the employment and other economic opportunities generated by Federal financial assistance or housing and community development programs be directed toward low and very low income persons, particularly those who were Subrecipients of government assistance for housing.

> Affirmative Fair Housing Marketing Plan (HUD form 935.2).

> Waiting lists and sign-in sheets. Tenant selection criteria identify how applicants are being accepted (first-come, first-served, lottery, etc.) and how applicants will be selected off the waiting list, including when it is acceptable to skip down the list for the next appropriate applicant. This is very important when preferences have been established for participation, which is fairly common in TBRA programs. Monitors review how applicants are selected, and if preferences are a part of the program, monitors confirm that the rules for tenant selection are followed by reviewing waiting lists.

Monitors verify that there is a system in place for written notification to ineligible applicants or those who could not be served due to lack of funds. Monitors review several files of denied applicants to confirm that procedures for determining eligibility were followed correctly.

Type of Assistance [§92.209]

ADFA Compliance staff must share the results of all on-site reviews in both an internal monitoring report as well as a monitoring letter sent to the Recipient

Monitoring Report

ADFA Compliance staff members must prepare a monitoring report for internal/ADFA use. This written review will include copies of all applicable completed checklists and other necessary documentation to support conclusions. This report is recorded online and staff must notify the Compliance Manager when the report is complete. The report must be completed within 30 calendar days of the on-site visit. The Compliance Manager may review and finalize the report if a monitoring visit uncovered an unusual number of noncompliance items or if the Recipient fails to respond to previous correspondence from ADFA staff.

IVIonitoring Letter

Compliance staff must also draft a monitoring letter to the Recipient providing results of the monitoring visit using the appropriate ADFA template. The letter lists areas for improvement. Effective monitoring letters are written in a clear manner and contain certain common elements. Each monitoring letter will:

> Provide Recipient or project name and address.

> Include names of ADFA staff and Recipient staff who participated in the on-site visit.

> Explain what program or project elements the monitor examined (e.g., by program year, HOME regulations, or other federal requirements).

> Describe all conclusions about areas of good performance, noncompliance, or poor performance.

> Include the reasons underlying all conclusions, particularly for concerns and findings. The regulatory or statutory basis for any findings must be cited. A well written finding can help the Recipient learn how to bring the project into compliance.

> Present observations, concerns and findings in a constructive tone and format. Deficiencies should be placed in the context of the Recipient's overall performance, recognizing areas of improvement and good performance.

> For all conclusions, specify if a concern or finding requires the Recipient to take corrective actions such as making modifications to a specific unit or creating policies and procedures to ensure compliance for future projects.

> Establish deadlines for response or completion of corrective action. An appropriate time frame is 30 to 90 days depending on the scope of the problem. Some findings, particularly safety hazards (such as an inoperative smoke alarm or nonworking toilets) must be corrected immediately. The report should clearly state the consequences if findings are not corrected. The description of required corrective actions should identify specific steps that the Recipient must take to correct identified deficiencies. Opportunities and resources for technical assistance should be provided when appropriate.

> Identify the documentation required to demonstrate that corrective actions have been completed. This might include photos of completed work, inspection forms signed by the inspector indicating work items have been completed, or signatures of a property owner verifying the receipt of additional services. The monitoring letter may also state that corrective actions will be reviewed during future monitoring visits.

The monitoring report letter will be sent to the Recipient with a copy sent to the Compliance Manager. The monitoring letter must be issued by the monitor within 30 calendar days of completing the on-site review.

Obviously with good performance, there is little, if any, immediate action that needs to be taken. ADFA has systems in place to ensure that good performance and consistent compliance are recognized and can be shared with other organizations or projects.

When Recipients exhibit good performance, ADFA gives positive feedback during the exit conference. Many Recipients are mission driven organizations, so it is important to recognize their good work.

Any comments on good performance are also included in the monitoring letter sent after a monitoring visit. Specific references to what the Recipient is doing well should be mentioned. The following are examples of typical areas of good performance that can be noted in monitoring letters:

Sometimes, monitoring findings reveal that Recipients are not meeting HOME and/or ADFA requirements. When this occurs, intervention to ensure corrective actions occur may be necessary. Intervention ranges widely from administering technical assistance to terminating a Recipient's status for the current year. Generally, the least severe form of intervention is used first with more severe forms reserved for unresponsive or uncooperative Recipients.

When Recipients exhibit noncompliance or poor performance, ADFA provides constructive feedback during the exit conference, as discussed in Chapter 1 of this manual. Noncompliance or poor performance should be addressed immediately so the Recipient can make appropriate staff and/or procedural changes and get back into compliance as soon as possible.

Any comments on poor performance are included in the monitoring letter sent after a monitoring visit. Specific areas of noncompliance and poor performance are referenced as either a concern or a finding. "Findings" are based upon violations of statute or regulations while "concerns" are not necessarily based on either, but could lead to a finding if not addressed.

Findings should clearly state the following:

> The condition describes what was wrong or what the problem was.

> The criteria cite the regulatory or statutory requirements that were not met.

> The cause explains why the condition occurred.

> The effect describes what happened because of the condition.

> The corrective action identifies the action(s) needed to resolve the problem and should include the time frame by which the participant is to respond to the finding.

Corrective Actions

ADFA is consistent in its use of corrective actions. Organizations and programs/projects with similar compliance issues receive similar treatment. This section provides a list of common corrective actions, ranging from the simplest to the more punitive. Remember that all corrective actions must be consistent with the Recipient's HOME written agreement.

> Change in Procedures/Forms/Written Agreements. It is common to require the Recipient to change its program procedures and forms to address the area of noncompliance. Within the corrective action, the monitor will clearly explain what is incorrect about the Recipient's procedures and/or forms, and offer or review new language. Alternatively, ADFA can offer new procedures and forms it has already developed and mandate their use. Finally, HOME written agreements may need to be amended by the Recipient if they contain incorrect regulatory information, the wrong period of affordability, or enforcement is unclear or does not meet the program requirements (e.g., recapture provision is incorrect).

> Require Training and/or Technical Assistance. ADFA can require additional HOME Program training (such as the State certification training) and/or technical assistance. While ADFA does provide some training opportunities, local HUD Field Offices also have technical assistance funds available through providers, including those who specialize in working with CHDOs. ADFA also has staff who periodically provide technical assistance based on information from monitoring visits as well as from staff members who see a need for one-on-one assistance.

> Suggest Additional Staff or Change in Staff. Sometimes Recipients provide the skilled staff appropriate to administer a HOME program or implement a HOME-assisted project; however, there might be cases where a skilled staff person is not available, the Recipient lacks funding to hire a skilled staff person, and/or staff is available but is doing different tasks for the organization. Regardless, ADFA can require Recipients to increase staff capacity and/or change staff.

> Returning Funds. In the most serious noncompliance situations, ADFA may need to take more severe approaches to get the project to perform or comply. These steps may include restricting the Recipient's payment requests, disallowing Recipient expenses, requiring repayment for ineligible or improper expenses already incurred, or imposing probationary status.

> Funding Sanctions. If, after going through the previous intervention steps, the organization or project is still not in compliance, ADFA may temporarily suspend the Recipient; deny renewal of the Recipient for the next program year; terminate the Recipient's activity for the current program year; and/or initiate legal action.

ADFA may choose to establish a tracking system, such as a Monitoring Findings Database, to collect information concerning the Compliance staff's monitoring efforts. The database might include:

Tracking of monitoring results may be helpful to:

. Target the focus of future compliance monitoring;

. Prioritize the training needs for staff and Recipients;

. Evaluate the success of current procedures and policy guidance; and

. Establish a record of past performance to be utilized during funding decisions.

> Data on all monitoring conducted. Monitoring data on both internal and external reviews might include responsible staff and the dates of reviews;

> Findings and concerns tracked by Recipient. This serves to establish a record of past performance. This data can be used in risk assessments and to target training and technical assistance;

> Language used for findings, concerns, and corrective actions. Sample language helps staff to draft consistent monitoring letters/reports;

> Data on findings and concerns by program type. This data will allow staff to evaluate the overall program operations and recognize common compliance issues. It may be useful in evaluating the effectiveness of funding applications, program guidance, and the overall program design.

> Tracking of monitoring actions. The database can track the issuance of monitoring reports, receipt of responses Recipients, and the current status of all findings. This will assist the Compliance Manager to monitor staffs completion of work assignments and will guide ADFA in taking additional steps for Recipients who fail to respond within prescribed timelines.

Based upon the severity of the noncompliance and/or poor performance and the type of corrective action, the monitor will determine if additional follow-up is needed. The following are the typical options for follow-up:

> Make a telephone call or hold a conference call with Recipient Staff;

> Send a second letter;

> Conduct a second on-site visit;

> Report unresolved issues to HOME program staff and recommend suspension of current application review (all unresolved issues must be satisfied before application will be considered); and

> Provide a close out letter.

When a Recipient responds to a finding, ADFA Compliance staff must review the response and determine if the required corrective actions have been completed. These reviews will be completed within 15 days of receiving the response.

Once Compliance staff determines that an organization has successfully completed all required corrective actions, documentation that the monitoring findings have been corrected is placed in the HOME monitoring file for that entity. Compliance staff must also send a letter stating that the monitoring findings have been closed.

Telephone Call

If the due date for corrective action is not met, Compliance staff members first make telephone contact and document all such calls. Monitors should give Recipients the benefit of the doubt and assume that either the letter was lost or corrective actions are in progress. However, in some cases, it may be apparent that a Recipient is experiencing capacity and/or organizational issues that hinder the appropriate level of follow up. Compliance staff will discuss all continuing compliance issues with the Compliance Manager.

In serious situations where there is no response to telephone calls or letters, a conference call between ADFA and Recipient staff might achieve the best results. Typically in this conversation it is important to review the report as a group, answer any questions on how to respond to corrective actions, and remind them of their contractual responsibilities outlined in the HOME written agreement.

Follow-Up Letter

If Compliance staff determines that the response is not satisfactory or there was no response, ADFA will send a follow-up letter specifying the additional actions that are required, the date for completing these actions, and the consequences of continued unsatisfactory efforts to correct the problems.

Once the second letter has been sent to the organization, the following steps are followed:

> Step 1: If a Recipient fails to meet a due date for corrective action, Compliance staff first contacts the Recipient by telephone. All calls should be documented (see section above). ADFA Compliance staff members use a calendar as a "tickler system" to ensure appropriate follow up telephone calls are executed.

In the event the Recipient is making good-faith efforts to implement corrective actions, but is unable to complete the required actions by the original due date, an extension may be given to allow additional time to complete the necessary corrective actions. However, any extension will also involve its own due date to ensure appropriate follow up by Compliance staff.

> Step 2: If a Recipient has not responded within a specified period of time, Compliance staff members next send a written letter requesting the Recipient to advise ADFA of the steps that have been taken to implement required corrective actions. The letter also advises the Recipient of possible consequences of failure to take corrective action.

> Step 3: Once a Recipient's response has been received, Compliance staff members review the response and determine if the Recipient has successfully completed the required corrective actions. ADFA will ensure its procedures and the monitoring letter specify a targeted date for completion of these reviews (within 15 days of receiving the Recipient's response) and issue a close out letter.

> Step 4: If Compliance staff members determine that the Recipient's response is not satisfactory, a follow-up letter must be sent to the Recipient which specifies the additional actions that are required and the date for completing these actions. At this point an on-site visit (see section below) is more appropriate.

Follow-Up Monitoring Visit(s)

Based on the number of issues identified during the initial visit, ADFA Compliance staff may decide to conduct an additional on-site visit to verify the completion of corrective actions or the implementation of new procedures. ADFA might apply additional conditions to require the recipient to notify Compliance and/or Program staff at a particular milestone during their next project to allow ADFA to return to provide technical assistance.

The same process that was followed to set up the initial on-site monitoring visit is used for a follow-up monitoring visit, including the following steps:

> Provide date of on-site visit in monitoring letter or send a separate notification letter as appropriate.

> Develop an agenda for the on-site meeting and provide to Recipient staff.

> Send a close out letter or if corrective actions have not been handled, a second letter notifying the Recipient of its deadline for compliance.

Close Out Letter

Once Compliance staff determines that an organization has successfully completed all required corrective actions, a close out letter (using the appropriate template) must be issued to the Recipient that documents the monitoring findings have been corrected. A copy of the close out letter must be placed in the HOME monitoring file for that Recipient.

ADFA may assist Recipients by providing monitoring checklists, file documentation standards, and income calculation worksheets. ADFA ensures that Recipients have access to its HOME Program Operations Manual and its HOME Compliance Monitoring Policies and Procedures Manual by posting them on ADFA's website.

Many compliance issues are not from a lack of intent but from a lack of a systematic approach. If Recipients fail to develop their own systems, ADFA may be able to improve compliance by providing standardized systems. For example, for a Recipient with a history of problems with income documentation, ADFA can mandate the use of a standardized income calculation worksheet.

ADFA might also issue guidance memos or make alterations to program guidelines to provide additional support for compliance areas. Compliance issues may change over time as staff changes, technical issues change, or attention to the details of a particular compliance area declines over time. ADFA will continue to evaluate common compliance issues and work with staff and Recipients to determine the appropriate responses.

Training and Technical Assistance

Training and technical assistance can enhance a Recipient's knowledge of effective program administration. There are three approaches ADFA uses that focus on enhancing performance and reducing common problems among Recipients:

Orientation Sessions

> Held at the beginning of a funding cycle or prior to applications.

> Provides a forum for discussing basic requirements and procedures, and to discuss expectations about performance.

Training

> Aimed at larger audiences.

> Provides sufficient technical detail necessary for Recipients to understand and implement program requirements (such as the ADFA HOME certification training course currently offered).

> Wll be scheduled throughout the year, and enhances performance and long-term capacity of Recipients.

Technical Assistance

> Typically provided in a one-on-one or small group setting on-site.

> Designed to correct a specific weakness, or to improve the quality or performance of a specific program or project already underway.

> Might be timed to allow ADFA Program or Compliance staff to work with Recipients during critical stages in a project implementation.

ADFA may face difficult decisions when reviewing applications for future HOME funds. Monitoring results provide information on past performance and the Recipients' ongoing capacity to carry out an activity or project, which can be used to rank HOME applications.

> Poor performers will not continue to receive funding. Poor performing Recipients reapplying for funds will have their applications suspended until all noncompliance issues are resolved.

> Good performers should be rewarded. If Recipient proposals match ADFA goals and needs, Recipients with a good past monitoring performance should have their scores increased in comparison to poor performers.

> Recipients with past compliance issues may be provided funding on a conditional basis including on-going monitoring, the establishment and monitoring of project milestones to track performance, or the condition of bringing on additional staff to supply the needed capacity.

ADFA may also use monitoring outcomes to reflect program funding and creation of new programs. For example, if a CHDO is having problems spending its funds in a timely manner, yet has strong capacity and systems in place, there may be a deeper problem with matching the needs of the community and the services offered. If the community really needs affordable rental housing and all the housing providers are offering first-time homebuyer programs, then even the best run programs will fail. Therefore, it is important for ADFA to use monitoring outcomes to assess program success for consideration of design changes and creation and planning of new programs.

[Management Company Letterhead]

RENTAL APPLICATION

The information collected below will be used to determine if you qualify as a tenant. It will not be disclosed without your consent except to your employer(s) for verification of income and employment and to financial institutions for verification of assets, and as required and permitted by law. You do not have to provide the information, but if you do not, your application may be delayed or rejected.

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INSTRUCTIONS FOR COMPLETING TENANT INCOME CERTIFICATION

This form is to be completed by the owner or an authorized representative.

Check the appropriate box for Initial Certification (move-in), Recertification (annual recertification), or Other. If Other, designate the purpose of the recertification (i.e., a unit transfer, a change in household composition, or other state-required recertification).

List all occupants of the unit. State each household member s relationship to the head of household by using one of the following coded definitions: