Finding 1206287 (2025-004)

Program: Home Investments Partnerships Program (HOME) Assistance Listing No.: 14.239 Federal Agency: U.S. Department of Housing and Urban Development Pass-Through Agency: State of California Department of Housing and Community Development Federal Award Year: FY 2024-25 Compliance Requirement: Eligibility Questioned Costs: $405,084 Condition: During our test of continuing loan compliance, the County was unable to provide supporting documentation relating to proof of insurance and occupancy for six out of sixteen selected loans. Criteria: Federal requirements applicable to the HOME program obligate the County to maintain ongoing compliance monitoring for all disbursed loans. This includes verifying that borrowers maintain adequate insurance coverage and that current occupancy is documented throughout the loan term. Cause: The County’s system for tracking loan compliance documentation on an annual basis is outdated and has resulted in a lack of structural procedures sufficient to ensure that when borrowers fail to respond, follow up is done in a timely manner to ensure compliance with program requirements. Effect: The absence of required monitoring documentation impairs the County's ability to demonstrate adherence to federal grant provisions. If insurance coverage lapses or occupancy requirements are not met and go undetected, the California Department of Housing and Community Development (HCD) or the U.S. Department of Housing and Urban Development (HUD) may determine that the affected loans no longer satisfy program eligibility requirements, potentially resulting in disallowed costs and repayment obligations. Recommendation: The County should take the following steps: 1. Establish a formal compliance tracking log to document the status of required insurance and occupancy certifications for each active loan, updated no less than annually. 2. Develop a written escalation policy that specifies timelines for follow-up outreach to non-responsive borrowers and defines the circumstances under which a Notice of Default will be issued. 3. Implement monthly supervisory review of the compliance tracking log to ensure documentation gaps are identified and resolved on a timely basis, rather than through an annual review cycle alone. Management’s Response: See Corrective Action Plan