Finding Number: 2023-003
Program: HOME Investment Partnerships Program (HOME)
ALN #: 14.239
Pass-through entity: NA – Direct Award
Federal Agency: Department of Housing and Urban Development
Federal Award Numbers: M14-MC060518, M15-MC060518, M16-MC060518, M17-MC060518, M18-MC060518, M19-MC060518, M21-MC060518, and M22-MC060518
Federal Award Year: 11/18/2015–09/01/2023, 01/19/2017–09/01/2024, 09/22/2017–09/01/2025, 09/12/2018–09/01/2026, 09/04/2019–09/01/2027, 08/19/2021–09/01/2029, and 11/09/2022–09/01/2030
Compliance Requirement: Special Tests- Housing Quality Standards
Criteria
During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing 1 to 4 units, (b) every two years for projects containing 5 to 25 units, and (c) every year for projects containing 26 or more units. The participating jurisdiction must perform on-site inspections of rental housing occupied by tenants receiving HOME/HOME-ARP-assisted tenant-based rental assistance to determine compliance with housing quality
standards (24 CFR sections 92.209(i), 92.251(f), and 92.504(d)).
Additionally, per 24 CFR 92.504(d)(1)(D), inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected.
Additionally, 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 housing quality standards are appropriately performed and documented.
Conditions Found
The City failed to complete inspections on the required number of HOME-assisted units and within the time period required. During our testwork we noted that 4 of the 11 property selections had less than 20% of the units inspected. Additionally, we noted that 5 of the 11 inspections did not occur within the required one-, two-, or three-year time period since the previous inspection date.
The City maintains a log that indicates the property, address, minimum number of inspections required, number of units, the responsible monitor, and if the inspection passed or failed. However, the log is unable to detect that at least 20% of HOME-assisted units per project are selected for inspection. The log calculates a minimum of 15% of HOME units inspected per property/project. Additionally, per HUD regulations, the City must make a statistical sample of HOME-assisted units within a project. The log is not indicative of a statistical sample. Lastly, the log does not track all HOME projects, thus, the City is not able to demonstrate its compliance with the frequency of inspection of all sites.
Cause
Due to staffing constraints and the number of required inspections, the City was not able to inspect at least 20% of the units within all projects and within the required time. Further, the City’s log is not designed to include all the required elements for frequency and number of inspections.
Effect
Not inspecting the proper number of units and within the correct time period could cause the City to be non-compliant with HUD requirements.
Questioned Costs
Not applicable
Repeat finding
A similar finding was not reported in the prior year.
Statistical sampling
The sample was not intended to be, and was not, a statistically valid sample.
Recommendation
We recommend the City update the internal tracker to ensure that 20% of HOME units are inspected, inspections are based on a statistical sample, and that all inspections occur within the required time.
Additionally, the City should track all projects to ensure they are in compliance with all HOME-assisted projects.
Views of Responsible Officials
The Community Development Department has faced challenges in meeting its inspection goals, primarily due to resource limitations, staff redeployment and the impact of COVID-19. It is taking steps to address these issues by forming an in-house inspection team and adopting elements from HUD’s yet-to-be-released NSPIRE system. For example, three full-time positions have been filled as of May 2024 to assist with the Housing Quality Standards (HQS) efforts.
While HUD guidelines have stated an acceptable rate of 15-20% in their own HQS guidelines, the City set its goal at 20%. Therefore, it is important to note that this finding is not indicative of a failure to meet the regulatory standard, but rather to meet an internal one. Furthermore, the testing shows that the standard was met when the universe of projects and inspections is examined. The Community Development Department aimed to complete 20% of inspections and achieved a completion rate of 19.65% during the fiscal year under audit. The City maintains that the intent of the regulation was met through this standard and this finding has been issued, because the inspections were uneven across individual projects. This can be attributed to resource limitations, reliance on the Housing Authority’s inspection system, and COVID-19 delays, which led to significant backlogs from prior years when access was limited.
The Community Development Department is now taking more systematic, proactive measures to improve the inspection process, particularly through filled vacancies, in-house inspections conducted by department staff, and an active log indicating inspection targets. As a result, during the current fiscal year, there has been a smoother, more data-driven, systematic approach to meeting HQS requirements, as evidenced by the substantial decrease in backlog. The Department is on track to ensure that every project will meet an inspection target that meets the NSPIRE standards (as currently drafted).
Response to Views of Responsible Officials
As noted in the criteria section above, 24 CFR 92.504(d)(1)(D) states, inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through a document published in the Federal Register. For projects with one to four HOME-assisted units, a participating jurisdiction must inspect all of the HOME-assisted units and all inspectable areas for each building with HOME-assisted units. However, per the HUD 2013 final rule, not less than 20% of the units can be inspected.
Therefore, 20% of units are required to be inspected at each property. The 20% is not calculated based on total number of loans or HOME assisted units at the City, as indicated in Management’s response.
Additionally, the City was unable to demonstrate that inspections were based on a statistically valid sample.