Subrecipient Monitoring and Special Tests: Housing Quality Standards Federal Department – U.S. Department of Housing and Urban Development Federal Award Identification Number and Year: M17-DC170213 and 2017 M18-DC170213 and 2018 M21-DC170213 and 2021 M22-DC170213 and 2022 Home Investment Partnerships Program (HOME), Federal Assistance Listing #14.239 County Department – Department of Planning and Development (DPD) Finding 2025 – 001 CRITERIA Subrecipient Monitoring 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart D—Post Federal Award Requirements Standards for Financial and Program Management, Section 200.303 Internal controls states, “the recipient and subrecipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Section 200.332. Requirements for pass-through entities, requires that “A pass-through entity must: (c) Evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring described in paragraph (f) of this section. When evaluating a subrecipient's risk, a pass-through entity should consider the following: (1) The subrecipient's prior experience with the same or similar subawards; (2) The results of previous audits. This includes considering whether or not the subrecipient receives a Single Audit in accordance with subpart F and the extent to which the same or similar subawards have been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of any Federal agency monitoring (for example, if the subrecipient also receives Federal awards directly from the Federal agency)... (e) Monitor the activities of a subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a pass-through entity must:(1) Review financial and performance reports. (2) Ensure that the subrecipient takes corrective action on all significant developments that negatively affect the subaward. Significant developments include Single Audit findings related to the subaward, other audit findings, site visits, and written notifications from a subrecipient of adverse conditions which will impact their ability to meet the milestones or the objectives of a subaward. When significant developments negatively impact the subaward, a subrecipient must provide the pass-through entity with information on their plan for corrective action and any assistance needed to resolve the situation. (3) Issue a management decision for audit findings pertaining only to the Federal award provided to the subrecipient from the pass-through entity as required by § 200.521.(4) Resolve audit findings specifically related to the subaward…. (g)Verify that a subrecipient is audited as required by subpart F of this part. (h) Consider whether the results of a subrecipient's audit, site visits, or other monitoring necessitate adjustments to the pass-through entity's records. (i) Consider taking enforcement action against noncompliant subrecipients as described in § 200.339 and in program regulations. DPD’s HOME Program Policies and Procedures Manual (updated January 2025), Monitoring Section (pages 114 to 129), under the Annual Monitoring Plan/Schedule Update, states the plan should identify the participating jurisdiction (PJ) monitoring goals and strategies, highlighting areas to which staff should pay special attention during the monitoring year. A specific schedule detailing annual, bi-annual, and tri-annual monitoring visits as required by HUD must be developed and maintained. To assure that adequate records are kept regarding each property and its compliance status, the monitor should establish a monitoring file for each property. The basic items in the file should include written agreement, written tenant selection criteria, property and unit inspections and results, etc. Also, HOME Program Compliance should conduct a risk assessment of its portfolio of the PJ’s HOME projects so that the highest risk projects can be identified and monitored first. In addition, HOME Program Compliance must conduct a desk review of all properties in the monitoring workload each year, as well as on-site reviews periodically, ranging from annually to every 3 years based on the number of units in property (i.e. 26 or more units require an annual review). Special Tests: Housing Quality Standards Per 24 CFR Section 92.209(i), Tenant-based rental assistance: Eligible costs and requirements, Housing Standards, states “The participating jurisdiction must require the housing occupied by a family receiving tenant-based rental assistance under this section to meet the participating jurisdiction's property standards under § 92.251. Initially and annually thereafter, the participating jurisdiction must determine the housing complies with its property standards and is decent, safe, sanitary, and in good repair in accordance with § 92.251(f). During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME assisted rental housing, the PJ must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners no less than (a) every three years for projects containing one to four units, (b) every two years for projects containing five to 25 units, and (c) every year for projects containing 26 or more units. CONDITION During the current audit period, the Cook County Department of Planning and Development (DPD) did not provide sufficient evidence to document annual monitoring performed, as well as performed the required inspections to ensure property standards were met, as required by Federal regulations and its internal policies. CAUSE Based on discussions with management, the cause of the findings occurred as a result of post pandemic allocations to the County which included several housing related fundings and initiatives, including Emergency Rental Assistance I & II (ERA I& II), Homeless Sheltering, Homeless and Transitional Sheltering Physical Site Acquisition and Development, HOME ARPA (HUD Allocation), and HOME, CDBG CV development delays that challenged the Housing teams provision of services and compliance requirement. While HUD had extended post pandemic compliance moratoriums into fiscal year 2024, Housing team hiring, training and implementation of compliance activities were unable to activate fully in the subject fiscal year to meet compliance. Additionally, for subrecipient monitoring of the HOME program, costs paid to developers were misclassified as subrecipient expenditures. The HOME program does not have contracts with subrecipients. EFFECT Failure to adequately monitor the activities and performance of subrecipients (and developers) could result in Federal awards being used for unauthorized purposes and DPD’s inability to adequately perform required risk assessments. Failure to perform the required inspections to ensure property standards were met is a violation of Federal regulations. QUESTIONED COSTS None. CONTEXT Subrecipient Monitoring During the current audit period, we noted a total of thirty-seven (37) projects were included on the Program Year 2024 (Fiscal Year 2025) HOME monitoring rental portfolio schedule provided, which required annual monitoring per DPD’s internal policies. Of the 37 projects, we noted three projects had some monitoring conducted during the period, which included some review of tenant files (for income verification/eligibility) and limited physical inspections of HOME units. No additional documentation was provided to verify compliance with federal regulations and the HOME Program Policies and Procedures Manual which required annual monitoring of each project (property). In addition, we noted approximately $7.3 million was reported on the SEFA as pass-through to two subrecipients under the program for the fiscal year ended November 30, 2025. Based on further discussions, DPD noted that these subrecipients are the two title companies used to pay the developers under the HOME program in accordance with its escrow agreement(s). We also reviewed a sample of these payments noting the supporting documentation referenced the developers as subrecipients. No documentation was provided to support compliance with subrecipient monitoring as required by 2 CFR Part 200.332. Special Tests: Housing Quality Standards We were provided with the same 37 projects reviewed under subrecipient monitoring to verify that DPD performed the required inspections to ensure that property standards were met. Based on our review, we noted the list included projects with HOME assisted units ranging from one (1) to 99 units, which would have required inspections every one to three years. However, the listing provided did not identify those units on which housing quality inspections were due. In addition, of the 37 projects, we were provided with documentary evidence to support only one (1) project whereby the required unit inspection reports were completed. IDENTIFICATION OF REPEATED FINDINGS None. RECOMMENDATION We recommend DPD ensure procedures should be in place to ensure adequate documentation is maintained to support the evaluation of each subrecipient’s risk of noncompliance, as required by Federal regulations and internal policies. Also, documentation should be maintained to support that required inspections are performed to ensure that property standards are met, including identification of those units on which housing quality inspections are due, in accordance with 24 CFR 92.251(f). VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS The County agrees with the finding and recommendation. The County’s corrective action plan is on pages 42-43.