Finding Text
2024-001 – Noncompliance with Continuing Loan Monitoring Requirements
Material Weakness/Noncompliance
Criteria:
The City is a subrecipient of Community Development Block Grant (CDBG) funds from the Los Angeles County Development Authority (LACDA) for the Home Improvement Program. Per the grant agreement with LACDA, the City must regularly monitor loan recipients’ compliance with the loan agreement and program guidelines.
Condition:
The City is not adhering to their established policy to oversee loan compliance requirements and has not retained adequate documentation to demonstrate ongoing adherence to these requirements.
Cause:
The noncompliance is attributed to the City being unfamiliar with the continuing loan compliance requirements specified within the CDBG grant program and LACDA grant agreement.
Effect or potential effect:
The failure to comply with the continuing loan compliance requirements poses significant risks, including:
• Potential mismanagement or misuse of funds by loan recipients.
• Increased likelihood of default or financial instability among borrowers.
• Inaccurate financial reporting and lack of accountability.
• Overall diminished effectiveness and credibility of the CDBG program.
Questioned costs:
No questioned identified.
Context:
We tested 8 out of 37 loans that existed prior to the fiscal year ended June 30, 2024, noting the City did not have sufficient documentation to support continuing loan compliance requirements were met. Through discussions with the City, the City was unaware of the continuing loan compliance requirements per the grant agreement with LACDA.
Recommendation:
To address and rectify this noncompliance issue, it is recommended that the following actions be implemented:
• Provide comprehensive training on monitoring procedures and compliance requirements.
• Review grant policies checklists to ensure thorough and consistent treatment.
• Establish a regular schedule for loan evaluations, document inspections, and follow-up actions.
By taking these corrective measures, the City can ensure it meets the continuing loan monitoring requirements and supports the success and integrity of the Community Block Development program.