Finding Number: 2025-001 Finding Title : Internal Controls and Compliance over Eligibility for Multifamily Housing Projects Compliance Requirement(s): Eligibility Classification: Material Weakness Programs: HOME Investment Partnerships Program (HOME) ALN #: 14.239 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M20-MC060518, M21-MP060518, M21-MC060518, M22-MC060518, M23-MC060518 Federal Award Year: 2020, 2021, 2022, 2023, 2024 Criteria or specific requirement (including statutory, regulatory, or other citation) 24 CFR92.252 Qualification as affordable housing: Rental housing (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, beginning after project completion. (1) The affordability requirements: (i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership. (ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and (iii) Must be recorded in accordance with State recordation laws. (2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property. (4) The termination of the restrictions on the project does not terminate the participating jurisdiction's repayment obligation under § 92.503(b). (h) Tenant income. The income of each tenant must be determined initially in accordance with § 92.203(a)(1)(i). In addition, each year during the period of affordability the project owner must re-examine each tenant's annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant's annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to § 92.203(a)(1) 24 CFR 92.203 Income determinations - (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with §92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family's annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits, and which examines each year the annual income of the family. The statement must indicate the tenant's family size and state the amount of the family's annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low- income families for the family size of the tenant and state that the tenant's annual income does not exceed this limit. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition The City was unable to obtain documentation from the property manager to confirm that occupants of HOME-assisted units were qualified tenants for eighteen properties, which had a combined outstanding loan balance of $9.3 million as of fiscal year-end. These properties comprised a total of one hundred and fifty-four units, all associated with the same development group. The City could not secure the required records from the property manager to verify household income for each tenant. Consequently, compliance with income eligibility criteria, maximum rent thresholds, and minimum set-aside obligations for units designated for eligible individuals could not be determined. Cause The City’s has been unable to obtain required documents from the developer/owner, including required documents to determine each family's income which is needed for determining income eligibility, compliance with maximum rent requirements or minimum set-aside requirements for units designated for eligible individuals. Effect or potential effect The developer/owner’s withholding of required documents has meant the City is without the information needed to evaluate the properties and their related tenants for compliance with HUD eligibility criteria. Questioned costs None Context The City had eighteen outstanding loans with this development group for Multi Family Construction projects as of the fiscal year end, carrying a balance of $9.3 million. This represents 12% of the 154 HOME Loans and their related $79.5 million outstanding balances. On August 29th, 2025 the City of Long Beach initiated legal action against the developer/owner in Los Angeles County Superior Court. The action concerns Borrower's breach of loan agreements with the City regarding real property for which the City seeks foreclosure and is ongoing as of the issuance of this report. Identification as a repeat finding if applicable 2024-001 Recommendation We recommend the City continue its attempts to obtain the necessary documents from the development group and exercising its rights to enforce compliance through the terms of its contractual arrangement when necessary. Additionally, we recommend the City enhance policies and/or procedure for addressing unresponsiveness among developers to establish a structure for clear communication, expectations, an escalation process, and consistent documentation requirements. Views of responsible officials and planned corrective actions The City has exercised its rights to enforce compliance with the terms of its contractual arrangement for this standalone developer/owner, which has resulted in the highest levels of legal action. Through its established monitoring and review procedures, City staff identified documents submitted by the developer that appeared to be inaccurate or falsified. This discovery prompted a multi-year investigation and subsequent litigation, undertaken in direct collaboration and response to instructions as directed by HUD. Throughout this period, the City’s investigative and litigation activities have not been historically viewed as compliance concerns, particularly given their necessity in preserving the integrity of the legal process. At every stage, the City has acted consistently with HUD’s directives and the requirements of the applicable contractual framework. During the multi‑year investigation, HUD expressly instructed the City to continue normal program operations to avoid alerting the developer and to maintain the integrity of the ongoing inquiry. The City respectfully asserts that the audit finding is inconsistent with HUD’s guidance and the historical practices necessary to ensure effective enforcement. Since the initial identification of the finding, the City has taken all reasonable corrective actions within its authority to address the issue and mitigate associated risks. These actions include following established monitoring procedures to ensure compliance with HOME program requirements, making repeated documented requests for tenant eligibility records from the developer/owner, and escalating efforts through the City Attorney. This issue is isolated to one developer/owner and sampling for other developers/owners has not identified similar concerns. The City has been transparent about the ongoing litigation involving the standalone developer/owner responsible for maintaining the records and remains committed in resolving this matter and in pursuing additional actions available once the legal proceedings have been concluded. Furthermore, the City contends that the conditions described in 2 CFR 200.511(b)(3) apply and support dismissal of the finding, and therefore no further corrective action should be warranted. The City has not received any directives from the federal awarding agency requiring corrective measures beyond those already implemented. The continued reporting of the finding conflicts with necessary historical practice and reflects the unresolved status of litigation as directed by HUD, and not a failure by the City to take appropriate corrective action.
Finding Number: 2025-002 Finding Title: Internal Controls and Compliance over the Timeliness of Housing Choice Voucher Participant Re-examination and Recertification Compliance Requirement(s): Eligibility, Special Tests – Housing Assistance Payment, Reporting, Allowed and Unallowed Costs Classification: Material Weakness Programs: Section 8 Housing Choice Vouchers (HCV) ALN #: 14.871 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year Federal Award Year: 2025 Criteria or specific requirement (including statutory, regulatory, or other citation) Allowable Costs Principles ; Activities Allowed and Unallowed; Eligibility (§ 982.201 Eligibility and targeting) (1) The annual income (gross income) of an applicant family is used both for determination of income-eligibility under paragraph (b)(1) of this section and for targeting under paragraph (b)(2)(i) of this section. In determining annual income of an applicant family that includes a person with disabilities, the determination must include the disallowance of increase in annual income as provided in 24 CFR 5.617, if applicable. (2) The applicable income limit for issuance of a voucher when a family is selected for the program is the highest income limit (for the family size) for areas in the PHA jurisdiction. The applicable income limit for admission to the program is the income limit for the area where the family is initially assisted in the program. At admission, the family may only use the voucher to rent a unit in an area where the family is income eligible. The PHA must examine family income and composition at least once every 12 months and adjust the tenant rent and housing assistance payment as necessary using the documentation. The Department of Housing and Urban Development (HUD) has provided a grace period of 2 months before they are reported as late. § 5.657 Section 8 project-based assistance programs: Reexamination of family income and composition. (a) Applicability. This section states requirements for reexamination of family income and composition in the Section 8 project-based assistance programs, except for the moderate rehabilitation and the project based voucher programs. (b) Regular reexamination. The owner must conduct a reexamination and redetermination of family income and composition at least annually. (c) Interim reexaminations. (1) Generally. A family may request an interim reexamination of family income because of any changes since the last examination. The owner must conduct any interim reexamination within a reasonable time after the family request or when the owner becomes aware of an increase in family adjusted income under paragraph (c)(3) of this section. What qualifies as a “reasonable time” may vary based on the amount of time it takes to verify information, but such time generally should not exceed 30 days from the date a family reports changes in income to an owner. (2) Decreases in the family's annual adjusted income. The owner may decline to conduct an interim reexamination of family income if the owner estimates that the family's adjusted income will decrease by an amount that is less than ten percent of the family's annual adjusted income (or a lower amount established by HUD through notice), or such lower threshold established by the owner. (3) Increases in the family's annual adjusted income. The owner must conduct an interim reexamination of family income when the owner becomes aware that the family's adjusted income (as defined in § 5.611) has changed by an amount that the owner estimates will result in an increase of ten percent or more in annual adjusted income or such other amount established by HUD through notice, except. (i) The owner may not consider any increase in the earned income of the family when estimating or calculating whether the family's adjusted income has increased, unless the family has previously received an interim reduction under paragraph (c)(1) of this section during the certification period; and(ii) The owner may choose not to conduct an interim reexamination in the last three months of a certification period. (4) Policies on reporting changes in family income or composition. The owner must adopt policies consistent with this paragraph (c), prescribing when and under what conditions the family must report a change in family income or composition. (5) Effective date of rent changes. (i) If the family has reported a change in family income or composition in a timely manner according to the owner's policies, the owner must provide the family with 30 days advance notice of any rent increase, and such rent increase will be effective the first day of the month beginning after the end of that 30-day notice period. Rent decreases will be effective on the first day of the first month after the date of the actual change leading to the interim reexamination of family income. (ii) If the family has failed to report a change in family income or composition in a timely manner according to the owner's policies, owners must implement any resulting rent increases retroactively to the first of the month following the date of the change leading to the interim reexamination of family income. Any resulting rent decrease must be implemented no later than the first rent period following completion of the reexamination. However, rent decreases may be applied retroactively at the discretion of the owner, in accordance with the owner's conditions as established in written policy, and subject to paragraph (c)(5)(iii) of this section. (iii) A retroactive rent decrease may not be applied by the owner prior to the later of the first of the month following: (A) The date of the change leading to the interim reexamination of family income; or (B) The effective date of the family's most recent previous interim or annual reexamination (or initial examination if that was the family's last examination). Housing Authority of the City of Long Beach HCV Admin Plan Failure to Provide Consent [24 CFR §982.552(b)(3)] PHAs must terminate assistance if any family member fails to sign and submit any consent form that is required for a reexamination. See Chapter 7 for a complete discussion of consent requirements. 12-II.F. TERMINATION NOTICE HUD regulations require PHAs to provide written notice of termination of assistance to a family only when the family is entitled to an Informal Hearing. However, since the family’s HAP Contract and lease will also terminate when the family’s assistance terminates, it is a good business practice to provide written notification to both owner and family any time assistance will terminate, whether voluntarily or involuntarily. PHA Policy Whenever a family’s assistance will be terminated, the PHA will send a written notice of termination to the family and to the owner. The PHA will also send a form HUD-5382 and form HUD-5380 to the family with the termination notice. The notice will state the date on which the termination will become effective. This date generally will be at least 30 calendar days following the date of the termination notice, but exceptions will be made whenever HUD rules, other PHA policies, or the circumstances surrounding the termination require. Housing Assistance Payments (e) Effective date of reexamination. (1) The PHA must adopt policies consistent with this section prescribing how to determine the effective date of a change in the housing assistance payment resulting from an interim redetermination. (2) At the effective date of a regular or interim reexamination, the PHA must make appropriate adjustments in the housing assistance payment in accordance with § 982.505. (f) Accuracy of family income data. The PHA must establish procedures that are appropriate and necessary to assure that income data provided by applicant or participant families is complete and accurate. The PHA will not be considered out of compliance with the requirements in this section solely due to de minimis errors in calculating family income but is still obligated to correct errors once the PHA becomes aware of the errors. A de minimis error is an error where the PHA determination of family income deviates from the correct income determination by no more than $30 per month in monthly adjusted income ($360 in annual adjusted income). § 982.552 PHA denial or termination of assistance for family. (b) Requirement to deny admission or terminate assistance. (3) The PHA must deny admission to the program for an applicant, or terminate program assistance for a participant, if any member of the family fails to sign and submit consent forms for obtaining information in accordance with part 5, subparts B and F of this title. Reporting (24CFR982.516(d)) Family reporting of change. The PHA must adopt policies consistent with this section prescribing when and under what conditions the family must report a change in family income or composition.. 24 CFR Part 908 and 24 CFR section 982.158 The HUD-50058, Family Report (OMB No. 2577- 0083) is required to be submitted by the PHA electronically to HUD each time the PHA completes an issuance, admission, annual reexamination, interim reexamination, portability move-in, expiration, or other change of unit for a family. The PHA must also submit the Family Report when a family ends participation in the program or moves out of the PHA’s jurisdiction under portability. 2 CFR 200 SUBPART D – POST FEDERAL AWARD REQUIREMENTS 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition For 35 of 60 participants tested, the annual re-examination of eligible participants or redetermine family income on an annual basis (12 months). Of these 35 eligible participants noted as not completed in the annual period, 4 were completed within the 2-month grace period, before HUD considers the re-examination late for its purposes. The remaining 31 participants were not subject to reexamination until after 14 months. For one additional participant, the documentation needed to complete the income reexamination was not received by the established deadline. HACLB notified the participant in November 2024 of a March 2025 due date, and on April 22, 2025 issued a request for additional documentation, indicating the information was needed by May 9, 2025. After the documentation was not received, there was an extended gap before further follow-up occurred, and HACLB issued a notice regarding the participant's assistance in March 2026. As a result, the annual reexamination was not completed within the required period. Cause The cause of the late reexaminations was due to the volume of participants within the HCV program in relation to the resources available at HACLB to administer the program. Effect or potential effect Failure to review participant eligibility annually may result in noncompliance with HUD regulations. Furthermore, this lapse can allocate program resources to ineligible participants, leading to unallowable costs. When delays occur in the re-examination process and subsequent adjustments require decreased payments, the housing authority may inadvertently make overpayments during the intervening period. Questioned costs Known questioned costs of $29,566; likely questioned costs of $1,128,681. Questioned costs were determined from a sample of 60 participants during fiscal year 2025. For each sampled participant whose reexamination was completed after its required date and who required a HAP (Housing Assistance Payment) reduction upon reexamination, the difference between the two payment amounts, with applicable program safe harbors incorporated, was multiplied by the number of months the reexamination extended beyond its required date, aggregating to known questioned costs of $29,566. The population used in the projection was then bifurcated, isolating late reexaminations resulting in 1,363 of the 7,226 reexaminations due during the year (18.86%) being identified as completed after their required date. Total HAP payments for the year were multiplied by the percentage of late re-examinations and then by the error rate found in late re-examinations during our testing to project likely questioned costs of approximately $1,128,681, an effective error rate of 0.86% for the programs total HAP. Context HACLB has 75 employees who are responsible for the administration of the programs over 7,800 participants, or over 100 re-examinations per employee. Identification as a repeat finding if applicable 2024-003 Recommendation We recommend the City continue with its plan to address delays in the recertification processes through steps taken to address resource constraints. Views of responsible officials and planned corrective actions The Housing Authority of the City of Long Beach (HACLB) acknowledges the finding regarding the untimely completion of annual reexaminations and recognizes the importance of completing annual recertifications within HUD-required timeframes to ensure program compliance and the accurate administration of housing assistance. The delays identified during the audit period occurred while HACLB was addressing a significant backlog of overdue annual reexaminations that had accumulated over several years due to extended vacancies in critical Housing Specialist positions. Recruitment and hiring efforts took longer than anticipated, resulting in staffing levels that were insufficient to address both ongoing workload demands and the existing backlog. HACLB agrees that certain annual reexaminations were completed beyond HUD’s timeliness requirements and has implemented corrective actions to address the backlog and strengthen compliance. To strengthen program operations, HACLB has hired and trained additional Housing Specialists, implemented the MRI housing management system to improve workflow tracking and case management, enhanced supervisory oversight of overdue annual reexaminations, and continued utilizing contracted support services to assist with processing pending cases. HACLB is also developing a Request for Proposals (RFP) to procure additional specialized support services to further reduce the remaining backlog and help ensure ongoing compliance with HUD timeliness requirements. As a result of these efforts, HACLB has made substantial progress in reducing the backlog, improving operational efficiency, and strengthening internal controls over the tracking and completion of annual reexaminations. Historically, findings related to untimely annual reexaminations have generally been addressed as compliance and performance deficiencies rather than as questioned costs. While the audit identified $29,596 in known questioned costs within the sample, the extrapolated questioned costs are not equivalent to actual overpayments during the year. The sampled questioned costs represent only those delayed annual reexaminations that resulted in a reduction in HAP assistance. Delayed annual reexaminations may also result in no change in assistance, an increase in assistance, or adjustments that are mitigated by applicable HUD requirements. The extrapolation assumes that all delayed annual reexaminations produce overpayments at the same rate observed in the sample, which may not accurately represent program-wide experience. Furthermore, the projection assumes that the reduced HAP amount determined during the eventual annual reexamination would have applied throughout the entire period of delay. However, participant income and household composition frequently change over time. The annual reexamination reflects eligibility at a specific point in time and does not necessarily establish that the same reduced subsidy would have been applicable during each month of the delayed period. HACLB recognizes the importance of timely annual reexaminations and remains committed to maintaining full compliance with HUD requirements.
Finding Number: 2025-003 Finding Title: Internal Controls over Compliance of Reinspection’s to Enforce Housing Quality Standards Compliance Requirement(s): Special Tests – Housing Quality Standards Enforcement Classification: Material Weakness Programs: Section 8 Housing Choice Vouchers ALN #: 14.871 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year Federal Award Year: 2025 Criteria or specific requirement (including statutory, regulatory, or other citation Part 982—Section 8 Tenant-Based Assistance: Housing Choice Voucher Program 24 CFR 982.54(d)(21) Procedural guidelines and performance standards for conducting required HQS inspections, including: (d) The PHA Administrative Plan must cover all the PHA's local policies for administration of the program, including the PHA's policies on the following subjects (see 24 CFR 983.10 for a list of subjects specific to the project-based voucher (PBV) program that also must be included in the Administrative Plan of a PHA that operates a PBV program): (i) Any deficiency that the Public Housing Authority (PHA) has adopted as a life-threatening deficiency that is not a HUD-required life-threatening deficiency (ii) For PHAs that adopt the initial inspection non-life-threatening deficiency option: a. The PHA's policy on whether the provision will apply to all initial inspections or a portion of initial inspections. b. The PHA's policy on whether the provision will be applied to only some inspections and how the units will be selected. c. The PHA's policy on using withheld HAP funds to repay an owner once the unit is in compliance with HQS. (iii) For PHAs that adopt the alternative inspection provision: a. The PHA's policy on how it will apply the provision to initial and periodic inspections. b. The specific alternative inspection method used by the PHA. c. The specific properties or types of properties where the alternative inspection method will be employed. d. For initial inspections, the maximum amount of time the PHA will withhold HAP if the owner does not correct the HQS deficiencies within the cure period, and the period of time after which the PHA will terminate the HAP contract for the owner's failure to correct the deficiencies, which may not exceed 180 days from the effective date of the HAP contract. (iv) The PHA's policy on charging a reinspection fee to owners. 24 CFR 982.54(d)(22) The PHA's policy on withholding HAP for units that do not meet HQS (see § 982.404(d)(1)) 24 CFR 982.406(e)(5) The PHA may commence housing assistance payments to the owner and make housing assistance payments retroactive to the effective date of the HAP contract only after the unit passes the PHA's HQS inspection. If the unit does not pass the HQS inspection, the PHA may not make housing assistance payments to the owner until all the deficiencies have been corrected. If a deficiency is life- threatening, the owner must correct the deficiency within 24 hours of notification from the PHA. For other deficiencies, the owner must correct the deficiency within no more than 30 calendar days (or any PHA- approved extension) of notification from the PHA. If the owner corrects the deficiencies within the required cure period, the PHA makes the housing assistance payments retroactive to the effective date of the HAP contract. PHA Policy 8-Ii.F. Inspection Results And Reinspection’s For Units Under Hap Contract The City of Long Beach PHA Admin Plan requires that each deficiency is identified in the NPSIRE standards as either life-threatening, severe, moderate, or low. Further indicating that units under HAP contract, must correct for life-threatening deficiencies within 24 hours after notice has been provided and all others must be corrected within 30 days (or a PHA-approved extension) after notice has been provided. Life-threatening deficiencies require notifying both parties by telephone or email immediately while Severe or moderate deficiencies will be provided through a written notification within five business days of the inspection. Both will include specifying who is responsible for correcting the violation and the time frame within which the failure must be corrected. If low deficiencies are identified, these deficiencies will only be noted for informational purposes. The notice will inform the party which caused the deficiencies, whether owner or family, that if life-threatening conditions are not corrected within 24 hours, and non-life-threatening conditions are not corrected within the specified time frame (or any PHA-approved extension), the owner’s HAP will be abated in accordance with PHA policy (Section 8-II.G.) or the family’s assistance will be terminated in accordance with PHA policy (Chapter 12). 2 CFR 200 Subpart D – Post Federal Award Requirements 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition The PHA lacked adequate internal controls to ensure the timely reinspection of all initial inspections required for housing quality standards enforcement. Of the 40 sampled cases, 3 re-inspections did not occur as mandated. Consequently, the re-inspections were not conducted within the timeframes established by PHA policy, which aligns with federal requirements. According to policy, a 30-day period for reinspection begins after notification of inspection results, which must be sent within five days of the initial inspection completion, totaling 35 days resulting in noncompliance with PHA policy 8-II.F and 24 CFR 982.406(e)(5). Testing identified that 2 out of 40 units were classified as Life-Threatening conditions under PHA policy, mandating correction within 24 hours. Despite this requirement, the reinspections conducted exceeded the stipulated 24-hour correction and verification period. Additionally, 1 unit which failed inspections November 14, 2024 and November 15, 2024 were subject to attempts from the PHA to reinspect the unit. After 3 attempts in December 2024 and January 2025 the PHA did not issue the Notice of Intended Action Enforcement of Family Obligation timely in March 2025. The unit is still going through the informal hearing process. Cause The delayed reinspection’s and mistakenly closed inspection were due to constraints on resources and a change in the system utilized by HACLB to administer the program during the year. For the inspections classified as life-threatening, the categorization within the system was incorrect due to mistakes during the data entry process. Effect or potential effect The PHA did not perform necessary procedures to enforce owner and/or family obligations to correct deficiencies, which if unresolved, could lead to abated housing assistance payments and impact the quality of housing for tenants. Questioned costs None Context A sample of 40 required re-inspections related to housing quality standards enforcements over failed initial inspections were tested. These failed inspections, which require items to be corrected before being subjected to re-inspection by the PHA until eventually cleared. 1 re-inspection did not occur and remained open as of the time of this audit. This item related to a failed inspection which occurred in January 2025 is over 15 months past its required re-inspection date. The time period for this initial failed inspection occurred shortly after their implementation of enhanced reinspection scheduling process in December 2024, using its MRI housing software to automatically schedule re-inspections within the 30-day remediation period. The new system has lead to reduced instances of late or missed re-inspections in our testing when compared to the prior year. Identification as a repeat finding if applicable 2024-005 Recommendation In alignment with steps already take by HACLB to strengthen compliance and reduce instances of delayed re-inspections, we recommend HACLB continue refining their controls over the timeliness and completeness of its the housing quality standard enforcement scheduling and monitoring. Continuing with its previous corrective actions in this area, HACLB should enhance staff procedures over the monitoring of the system and related scheduling reports to ensure that every required re-inspection is scheduled and has taken place in compliance with program requirements. Views of responsible officials and planned corrective actions HACLB recognizes the importance of conducting timely re-inspections to ensure compliance with HUD National Standards for the Physical Inspections of Real Estate (NSPIRE) enforcement requirements, formerly known as Housing Quality Standards (HQS). HACLB has reviewed the circumstances surrounding the single delayed reinspection, although attempts were made to reinspect the unit, and has evaluated opportunities to strengthen internal controls over reinspection scheduling and monitoring. Beginning in December 2024, HACLB implemented enhancements to its MRI housing management system to strengthen oversight of inspection enforcement activities by scheduling re-inspections in advance of the required 30-day correction period, reducing the risk of missed or delayed re-inspections. To further strengthen internal controls, HACLB centralized the process for non-compliance. Inspection staff will regularly review open enforcement cases and reports to identify and promptly address any overdue or pending re-inspections. HACLB will also continue providing staff guidance and training regarding re-inspection scheduling, case monitoring, and NSPIRE enforcement requirements. These measures are intended to improve accountability, strengthen monitoring controls, and reduce the risk of missed or delayed re-inspections. HACLB remains committed to continuous improvement and maintaining compliance with HUD requirements governing enforcement.
Finding Number: 2025-004 Finding Title: Internal Controls Over Participants Reexaminations Compliance Requirement(s): Eligibility, Special Tests – HAP Payment Classification: Significant Deficiency Programs: Section 8 Housing Choice Vouchers ALN #: 14.871 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year Federal Award Year: 2025 Criteria or specific requirement (including statutory, regulatory, or other citation 24 CFR 985.1 Purpose and applicability. PHA's quality control sample means an annual sample of files or records drawn in an unbiased manner and reviewed by an PHA supervisor (or by another qualified person other than the person who performed the original work) to determine if the work documented in the files or records conforms to program requirements. The minimum size of the PHA's quality control sample is as follows: Universe Minimum number of files or records to be sampled 50 or less 5. 51-600 5 plus 1 for each 50 (or part of 50) over 50. 601-2000 16 plus 1 for each 100 (or part of 100) over 600. Over 2000 30 plus 1 for each 200 (or part of 200) over 2000. Where the universe is: the number of admissions in the last year for each of the two quality control samples under the SEMAP indicator at § 985.3(a) Selection from the Waiting List; the number of families assisted for the SEMAP indicators at § 985.3(b) Reasonable Rent, and 985.3(c) Determination of Adjusted Income; the number of units under HAP contract during the last completed PHA fiscal year for the SEMAP indicator at § 985.3(e) HQS Quality Control Inspections; and the number of failed HQS inspections in the last year for the SEMAP indicator at § 985.3(f) HQS Enforcement. § 985.3 Indicators, HUD verification methods and ratings (b) Reasonable rent. (1) This indicator shows whether the PHA has and implements a reasonable written method to determine and document for each unit leased that the rent to owner is reasonable based on current rents for comparable unassisted units: At the time of initial leasing; if there is any increase in the rent to owner; at the HAP contract anniversary if there is a 10 percent decrease in the published fair market rent (FMR) in effect 60 days before the HAP contract anniversary. The PHA's method must take into consideration the location, size, type, quality and age of the units, and the amenities, housing services, and maintenance and utilities provided by the owners in determining comparability and the reasonable rent. (24 CFR 982.4, 24 CFR 982.54(d)(15), 982.158(f)(7), 982.507, and 983.303) (2) HUD verification method: The IA annual audit report covering the PHA fiscal year entered on the SEMAP certification and on-site confirmatory review if performed. (3) Rating: (i) The PHA's SEMAP certification states that: (A) The PHA has a reasonable written method to determine reasonable rent which considers location, size, type, quality and age of the units and the amenities, housing services, and maintenance and utilities provided by the owners; and (B) Based on the PHA's quality control sample of tenant files, the PHA follows its written method to determine reasonable rent and has documented its determination that the rent to owner is reasonable in accordance with §§ 982.507 and 983.303 of this chapter, as applicable for at least 98 percent of units sampled at the time of initial leasing, if there is any increase in the rent to owner, and at the HAP contract anniversary if there is a 10 percent decrease in the published FMR in effect 60 days before the HAP contract anniversary. 20 points. (ii) The PHA's SEMAP certification includes the statements in paragraph (b)(3)(i) of this section, except that the PHA documents its determination of reasonable rent for only 80 to 97 percent of units sampled at initial leasing, if there is any increase in the rent to owner, and at the HAP contract anniversary if there is a 10 percent decrease in the published FMR in effect 60 days before the HAP contract anniversary. 15 points. (iii) The PHA's SEMAP certification does not support the statements in either paragraph (b)(3)(i) or (b)(3)(ii) of this section. 0 points. (c) Determination of adjusted income. (1) This indicator shows whether, at the time of admission and annual reexamination, the PHA verifies and correctly determines adjusted annual income for each assisted family and, where the family is responsible for utilities under the lease, the PHA uses the appropriate utility allowances for the unit leased in determining the gross rent. (24 CFR part 5, subpart F and 24 CFR 982.516) (2) HUD verification method: The IA annual audit report covering the PHA fiscal year entered on the SEMAP certification and on-site confirmatory review if performed. (3) Rating: (i) The PHA's SEMAP certification states that, based on the PHA's quality control sample of tenant files, for at least 90 percent of families: (A) The PHA obtains third party verification, as appropriate, of reported family annual income, the value of assets, expenses related to deductions from annual income, and other factors that affect the determination of adjusted income, and uses the verified information in determining adjusted income, and/or documents tenant files to show why third party verification was not available; (B) The PHA properly attributes and calculates allowances for any medical, child care, and/or disability assistance expenses; and (C) The PHA uses the appropriate utility allowances to determine gross rent for the unit leased. 20 points. (ii) The PHA's SEMAP certification includes the statements in paragraph (c)(3)(i) of this section, except that the PHA obtains and uses independent verification of income, properly attributes allowances, and uses the appropriate utility allowances for only 80 to 89 percent of families. 15 points. (iii) The PHA's SEMAP certification does not support the statements in either paragraph (c)(3)(i) or (c)(3)(ii) of this section. 0 points. CFR 200 SUBPART D – POST FEDERAL AWARD REQUIREMENTS 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition HACLB utilizes quality control samples from their SEMAP certification process over files documenting selections from the waiting list and income determinations to ensure compliance with requirements for HAP payments. HUD sets requirements for the minimum number of samples required for these indicators with instructions on the universe (population) to sample from and minimum samples based on that universe. HACLB utilized an incorrect universe for their sampling of the universe for determinations of adjusted income. As a result, quality control samples did not meet minimum requirements set by HUD for SEMAP. Cause HACLB calculated the minimum required quality control sample size for SEMAP Indicator 3 using the universe of rent reasonableness determinations, rather than the number of families assisted, which is the relevant population under SEMAP guidelines. Consequently, the sample-size calculation did not reflect the appropriate population. Effect or potential effect Insufficient controls over the reexamination process could lead to ineligible participants in the program, housing assistance payments that are either incorrect or to ineligible participants, and inaccurate reporting to HUD. Questioned costs None Context It was noted that HACLB calculated the minimum required quality control sample size for SEMAP Indicator 3 based on the universe of rent reasonableness determinations, rather than utilizing the number of families assisted as specified by SEMAP guidelines. As a result, the sample-size calculation did not accurately reflect the appropriate population. During the audit period, HACLB provided assistance to 7,309 families. According to SEMAP quality control sample size requirements, the minimum sample size for Indicator 3 should have been 57 files. However, HACLB used a universe of 2,665 rent reasonableness determinations and subsequently selected 34 files for review. Despite employing an incorrect population for the sample-size calculation, the files reviewed were ultimately drawn from the correct population of assisted families. Identification as a repeat finding if applicable 2024-007 Recommendation We recommend HACLB update policies and procedures to align the selection of quality control samples with federal requirements accordance with federal requirements. Views of responsible officials and planned corrective actions HACLB acknowledges the finding regarding the methodology used to calculate the SEMAP Indicator 3 sample size. To address this finding, HACLB reviewed HUD's SEMAP sampling requirements and will update its sample size worksheet to ensure future quality control sample sizes are calculated using the appropriate population in accordance with federal requirements. Staff responsible for SEMAP reporting and quality control reviews will receive additional guidance, training, and stay updated with regulations to ensure compliance.