Finding Text
Criteria: HUD’s Continuum of Care program (ALN 14.267) requires that rental assistance payments comply with rent reasonableness requirements in accordance with 24 CFR § 578.49. Rent reasonableness must be determined and documented prior to execution of the lease and before assistance is provided, and must be based on accurate lease terms, unit characteristics, and comparable market data. Additionally, participant income used in determining rent contributions must be calculated in accordance with 24 CFR § 5.609 and 24 CFR § 5.611. In accordance with 2 CFR § 200.303, organizations are required to establish and maintain effective internal controls over compliance to ensure that rent determinations are accurate, properly supported, and performed in a timely manner. Conditions: Our testing of 18 tenant files identified deficiencies in the timeliness and accuracy of rent reasonableness determinations. Specifically, in 4 instances, rent reasonableness calculations were performed after lease execution, and in 5 instances, the calculations were based on incorrect lease amounts. These results indicate that controls over the timeliness and accuracy of rent reasonableness determinations are not consistently operating effectively. Cause and Effect: This condition appears to be due to inadequate internal controls and monitoring procedures to ensure that rent reasonableness determinations are completed prior to lease execution and that lease terms are verified for accuracy before performing the analysis. We identified a significant deficiency in internal control over compliance related to rent reasonableness determinations. The lack of timely and accurate determinations increases the risk that the program could approve rents that exceed market rates, resulting in potential noncompliance with program requirements and inefficient use of program funds. No questioned costs were identified as a result of this condition. Recommendations: We recommend management implement formal procedures requiring that rent reasonableness determinations are completed and documented prior to lease execution and approval of assistance. Management should establish standardized checklists or workflows to ensure rent reasonableness is performed as a required step before assistance is authorized. Additionally, staff should be trained on these procedures and the importance of timely compliance. A secondary review process should be implemented to verify lease terms, unit data, and calculation accuracy. Periodic supervisory reviews should also be conducted to ensure compliance with documentation and timing requirements.