Finding 1156352 (2024-003)

2024-003 The City did not have adequate internal controls and did not comply with federal Housing Quality Standard requirements. Assistance Listing Number and Title: 14.239 – Home Investment Partnerships Program, 14.239 – COVID-19 Home Investment Partnerships Program Federal Grantor Name: U.S. Department of Housing and Urban Development Federal Award/Contract Number: COVID-19 M21-MP530200, M20-MC530200, M21-MC530200, M23-MC530200, M24-MC530200 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The Seattle Office of Housing administers the federal HOME Investment Partnerships Program (HOME) and spent $12,309,190 during fiscal year 2024. One of the main objectives of HOME is to expand the supply of decent and affordable housing, particularly for low and very low-income households. The program supports construction, acquisition or rehabilitation of affordable housing units and creates rental and home ownership opportunities. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Description of Condition Federal regulations require the City to perform regular onsite inspections of housing projects funded by the program to ensure compliance with property standards to determine if they meet federal Housing Quality Standards (HQS) requirements, and maintain inspection documentation to demonstrate compliance. For any deficiencies identified during the inspection, the City may accept third-party documentation, such as work orders, or perform re-inspections to verify that deficiencies are corrected. Our audit found the City’s internal controls were ineffective for ensuring compliance with the program’s HQS requirements. Although the City had internal controls for performing inspections and requiring owners to correct HQS deficiencies within 30 calendar days of notification of failed inspections, these procedures did not ensure the City completed annual inspections or perform re-inspections for corrections, as HOME requires. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff responsible for conducting HQS inspections did not understand and follow established policies and procedures for completing inspection forms, and did not know they were required to conduct re-inspections of properties that required repairs, or retain support showing repairs were made. Effect of Condition Using nonstatistical sampling, we tested nine tenant files requiring HQS inspections. Our testing found the City inspected all nine units, but did not have a complete inspection report for one of the inspections and did not perform a re-inspection of repairs for one of the units. Without on-time inspections, the City cannot demonstrate that its housing units met HQS inspection requirements and that they were being consistently maintained in a safe and sanitary manner. Additionally, because the City did not follow up on HQS deficiencies within the required correction period, it cannot demonstrate that the housing units met HQS requirements. Recommendation We recommend the City strengthen internal controls to ensure it complies with HQS requirements. Specifically, the City should retain documentation to demonstrate it completed inspections and ensure it performs follow-up inspections if repairs or corrections are needed. City’s Response The City acknowledges that it did not close out or document the HQS deficiencies discovered as part of this audit. In recognition of continued growth of the OH housing portfolio, including HOME Program assisted projects, and OH’s capacity to maintain its inspection compliance, OH is in process of contracting with a third-party vendor to complete its annual inspections, including HOME inspections for 2025. The contractor will inspect HUD’s NSPIRE level. With this additional support, OH anticipates it will have the capacity to see that corrections have been completed and documented consistent with the HOME program requirements. Auditor’s Remarks We appreciate the City’s commitment to resolving this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 24 CFR Part 92, Home Investment Partnerships Program, section 251 Property standards and inspections, describes the requirements for auditees to conduct on-site progress and final inspections of construction to ensure that work is done in accordance with the applicable codes, the construction contract, and construction documents.