Audit 71328

Finding 2022-001 ? Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2016 Grant number: M-16-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Homeownership assistance HOME amount per-unit Minimum period of affordability in years Under $15,000- 5 $15,000 to $40,000- 10 Over $40,000- 15 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. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City?s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.

Finding 2022-001 ? Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2016 Grant number: M-16-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Homeownership assistance HOME amount per-unit Minimum period of affordability in years Under $15,000- 5 $15,000 to $40,000- 10 Over $40,000- 15 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. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City?s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.