Finding Text
2025-004 Special Tests and Provisions - Rent Reasonableness U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Material Weakness in Internal Control over Compliance Criteria: 2 CFR 578.51(g) requires that rents charged under the Continuum of Care Program not exceed rents currently being charged by the same owner for comparable unassisted units. Internal controls should be in place to document compliance with this requirement. Condition: Internal controls are not adequately designed or implemented to ensure compliance with rent reasonableness requirements under the Continuum of Care Program, specifically that rents charged do not exceed amounts charged by the same owner for comparable unassisted units. Cause: Agate Housing and Services, Inc. does not currently require formal documentation to be maintained in tenant files demonstrating that rents charged were compared to rents for comparable unassisted units owned by the same landlord. Effect: The consideration and documentation of rent comparisons are critical to ensure rents charged are not in excess of those charged by the same owner for comparable unassisted units. Without documented support, there is an increased risk of noncompliance and potential fraud or mismanagement related to the disbursement of Federal funds. Context: During the audit, documentation was requested to demonstrate that rents charged by the same owner for comparable unassisted units were considered during the initial rent determination process. Based on discussions with management and staff, this comparison is performed through conversations with property owners; however, no documentation is maintained in tenant files to evidence that this compliance requirement was validated. Known Questioned Costs: None. In all cases reviewed, the total rent charged was consistent with rents for comparable units within the same geographic area. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. implement internal controls requiring program staff to validate compliance with rent reasonableness requirements and maintain adequate documentation to support final rent determinations. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over the verification of landlords.