Finding 1227773 (2025-005)

Material Weakness Repeat Finding
Requirement
N
Questioned Costs
-
Year
2025
Accepted
2026-08-25
Audit: 409753
Organization: City of Merced (CA)
Auditor: EIDE BAILLY LLP

AI Summary

  • Core Issue: The City lacks formal monitoring procedures for ensuring compliance with Housing Quality Standards (HQS) in the HOME Investment Partnerships Program.
  • Impacted Requirements: Compliance with the 2025 OMB Compliance Supplement, which mandates inspections and monitoring of assisted units to meet HQS.
  • Recommended Follow-Up: The City should create and implement written policies for monitoring HQS compliance, including inspection schedules and documentation practices.

Finding Text

Program: HOME Investment Partnerships Program Federal Financial Assistance Listing Number: 14.239 Federal Grantor: U.S. Department of Housing and Urban Development Award Number and Year: M16-MC060227; M17-MC060227; M20-MC060227; M21-MC060227; M23-MC060227; M24-MC060227 Compliance Requirement: Special Tests and Provisions – HQS Enforcement Type of Finding: Material Weakness in Internal Control over Compliance and Material Non-Compliance Criteria: The 2025 OMB Compliance Supplement requires that participating jurisdictions administering the HOME Investment Partnerships Program establish and implement procedures to ensure compliance with Housing Quality Standards (HQS). This includes performing initial and periodic inspections of assisted units and maintaining adequate monitoring procedures to ensure that all properties meet HQS requirements throughout the affordability period. Condition: During our audit procedures, we noted that the City had not established formal monitoring procedures as of fiscal year 2025 to ensure compliance with Housing Quality Standards (HQS) requirements across all projects under the HOME program. Based on inquiry with program personnel, the City indicated that it is currently working with a consultant to develop and implement appropriate monitoring procedures. Cause: The City has not yet developed and implemented formal policies and procedures for monitoring Housing Quality Standards compliance across all applicable HOME-funded projects. Effect: The absence of established monitoring procedures increases the risk that properties may not meet Housing Quality Standards requirements and that noncompliance may not be identified or corrected in a timely manner. Questioned Costs: No questioned costs were identified as a result of our procedures. Context/Sampling: Our procedures included inquiry of program personnel and review of the City’s documented policies and procedures related to HQS monitoring. No sampling was performed. Repeat Finding from Prior Year: No. Recommendation: The City should develop and implement formal written policies and procedures for monitoring compliance with Housing Quality Standards across all HOME-funded projects. These procedures should include requirements for initial and periodic inspections, documentation standards, and timely follow-up on identified deficiencies. Views of Responsible Officials and Planned Corrective Action: Management agrees. See separately issued Corrective Action Plan.

Corrective Action Plan

Program: HOME Investment Partnerships Program Federal Financial Assistance Listing Number: 14.239 Federal Grantor: U.S. Department of Housing and Urban Development Award Number and Year: M16-MC060227; M17-MC060227; M20-MC060227; M21-MC060227; M23- MC060227; M24-MC060227 Compliance Requirement: Special Tests and Provisions – HQS Enforcement Management’s Response: We concur. Views of Responsible Officials and Corrective Action: The City’s Housing Division are aware of HUD’s requirement to have written policies and procedures in place for each HUD formula grant funding source (CDBG & HOME), including environmental reviews, financial management, uniform relocation assistance, and lead paint abatement. The barriers to carrying out rental housing monitoring activities have largely been centered around: 1) lack of sufficient number of staff to perform all job tasks, including training and monitoring and, 2) insufficient training information and opportunities on the subject of rental housing monitoring, including how to properly calculate restricted rent amounts and tenant income. As part of the Five-Year Consolidated Plan implementation creation and adoption of Policies and Procedures to perform this work was identified. Name of Responsible Person: Director of Development Services – currently vacant Housing Program Supervisor - Kimberly Nutt Projected Implementation Date: The consultant assisting the City has prepared a Draft of the Policies and Procedures which are currently being reviewed. We anticipate final approval and implementation by end of January 2027.

Categories

Special Tests & Provisions Subrecipient Monitoring Material Weakness Internal Control / Segregation of Duties

Other Findings in this Audit

  • 1227762 2025-004
    Material Weakness Repeat
  • 1227763 2025-004
    Material Weakness Repeat
  • 1227764 2025-004
    Material Weakness Repeat
  • 1227765 2025-004
    Material Weakness Repeat
  • 1227766 2025-004
    Material Weakness Repeat
  • 1227767 2025-004
    Material Weakness Repeat
  • 1227768 2025-005
    Material Weakness Repeat
  • 1227769 2025-005
    Material Weakness Repeat
  • 1227770 2025-005
    Material Weakness Repeat
  • 1227771 2025-005
    Material Weakness Repeat
  • 1227772 2025-005
    Material Weakness Repeat
  • 1227774 2025-006
    Material Weakness Repeat
  • 1227775 2025-006
    Material Weakness Repeat
  • 1227776 2025-006
    Material Weakness Repeat
  • 1227777 2025-006
    Material Weakness Repeat
  • 1227778 2025-006
    Material Weakness Repeat
  • 1227779 2025-006
    Material Weakness Repeat
  • 1227780 2025-004
    Material Weakness Repeat
  • 1227781 2025-004
    Material Weakness Repeat
  • 1227782 2025-004
    Material Weakness Repeat
  • 1227783 2025-007
    Material Weakness Repeat
  • 1227784 2025-007
    Material Weakness Repeat
  • 1227785 2025-007
    Material Weakness Repeat
  • 1227786 2025-008
    Material Weakness Repeat
  • 1227787 2025-008
    Material Weakness Repeat
  • 1227788 2025-008
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
20.106 COVID-19 AIRPORT IMPROVEMENT PROGRAM, INFRASTRUCTURE INVESTMENT AND JOBS ACT PROGRAMS, AND COVID-19 AIRPORTS PROGRAMS $11.32M
97.083 STAFFING FOR ADEQUATE FIRE AND EMERGENCY RESPONSE (SAFER) $2.61M
21.027 COVID - 19 CORONAVIRUS STATE AND LOCAL FISCAL RECOVERY FUNDS $1.72M
97.044 ASSISTANCE TO FIREFIGHTERS GRANT $87,406
20.600 STATE AND COMMUNITY HIGHWAY SAFETY $83,831
14.239 HOME INVESTMENT PARTNERSHIPS PROGRAM $45,056
14.218 COMMUNITY DEVELOPMENT BLOCK GRANTS/ENTITLEMENT GRANTS $33,569
16.607 BULLETPROOF VEST PARTNERSHIP PROGRAM $7,749
20.205 HIGHWAY PLANNING AND CONSTRUCTION $3,251