Audit 401604

Program: Community Development Block Grant (CDBG) Assistance Listing No.: 14.228 Federal Agency: U.S. Department of Housing and Urban Development Pass-Through Agency: State of California Department of Housing and Community Development Federal Award Year: FY 2024-25 Compliance Requirement: Eligibility Questioned Costs: $360,000 Condition: During our test of continuing loan compliance, the County was unable to provide supporting documentation relating to proof of insurance and occupancy for two out of three selected loans. Criteria: Federal requirements applicable to the CDBG program obligate the County to maintain ongoing compliance monitoring for all disbursed loans. This includes verifying that borrowers maintain adequate insurance coverage and that current occupancy is documented throughout the loan term. Cause: The County lacks a formalized system for tracking loan compliance documentation on an ongoing basis. Without structured monitoring procedures, required documentation is not systematically collected, retained, or escalated when borrowers fail to respond. The County Administrative Office sent out letters certified mail to all homeowners requiring proof of insurance and a utility bill. There were very few responses from homeowners during the 2024-25 fiscal year leading to this absence of documentation. Effect: The absence of required monitoring documentation impairs the County's ability to demonstrate adherence to federal grant provisions. If insurance coverage lapses or occupancy requirements are not met and go undetected, the California Department of Housing and Community Development (HCD) or the U.S. Department of Housing and Urban Development (HUD) may determine that the affected loans no longer satisfy program eligibility requirements, potentially resulting in disallowed costs and repayment obligations. Recommendation: The County should take the following steps: 1. Establish a formal compliance tracking log to document the status of required insurance and occupancy certifications for each active loan, updated no less than annually. 2. Develop a written escalation policy that specifies timelines for follow-up outreach to non-responsive borrowers and defines the circumstances under which a Notice of Default will be issued. 3. Implement monthly supervisory review of the compliance tracking log to ensure documentation gaps are identified and resolved on a timely basis, rather than through an annual review cycle alone. Management’s Response: See Corrective Action Plan.

Program: Home Investments Partnerships Program (HOME) Assistance Listing No.: 14.239 Federal Agency: U.S. Department of Housing and Urban Development Pass-Through Agency: State of California Department of Housing and Community Development Federal Award Year: FY 2024-25 Compliance Requirement: Eligibility Questioned Costs: $297,152 Condition: During our test of continuing loan compliance, the County was unable to provide supporting documentation relating to proof of insurance and occupancy for three out of three selected loans. Criteria: Federal requirements applicable to the HOME program obligate the County to maintain ongoing compliance monitoring for all disbursed loans. This includes verifying that borrowers maintain adequate insurance coverage and that current occupancy is documented throughout the loan term Cause: The County lacks a formalized system for tracking loan compliance documentation on an ongoing basis. Without structured monitoring procedures, required documentation is not systematically collected, retained, or escalated when borrowers fail to respond. Similar to the CDBG loans, the County Administrative Office sent out letters certified mail to all homeowners requiring proof of insurance and a utility bill. There were very few responses from homeowners during the 2024-25 fiscal year leading to this absence of documentation. Effect: The absence of required monitoring documentation impairs the County's ability to demonstrate adherence to federal grant provisions. If insurance coverage lapses or occupancy requirements are not met and go undetected, the California Department of Housing and Community Development (HCD) or the U.S. Department of Housing and Urban Development (HUD) may determine that the affected loans no longer satisfy program eligibility requirements, potentially resulting in disallowed costs and repayment obligations. Recommendation: The County should take the following steps: 1. Establish a formal compliance tracking log to document the status of required insurance and occupancy certifications for each active loan, updated no less than annually. 2. Develop a written escalation policy that specifies timelines for follow-up outreach to non-responsive borrowers and defines the circumstances under which a Notice of Default will be issued. 3. Implement monthly supervisory review of the compliance tracking log to ensure documentation gaps are identified and resolved on a timely basis, rather than through an annual review cycle alone. Management’s Response: See Corrective Action Plan