Finding 1236675 (2025-001)

2025-001 The City did not have adequate internal controls and did not comply with federal Housing Quality Standard requirements. Assistance Listing Number and Title: 14.239 – Home Investment Partnerships Program, 14.239 – COVID-19 Home Investment Partnerships Program Federal Grantor Name: U.S Department of Housing and Urban Development Federal Award/Contract Number: COVID-19 M21-MP530200, M20-MC530200, M21-MC530200, M22-MC530200, M23-MC530200, M24-MC530200, M25-MC530200 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2024-003 Background The Seattle Office of Housing administers the federal HOME Investment Partnerships Program (HOME) and spent $9,860,752 during fiscal year 2025. One of the main objectives of HOME is to expand the supply of decent and affordable housing, particularly for low- and very low-income households. The program supports construction, acquisition or rehabilitation of affordable housing units and creates rental and home ownership opportunities. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Description of Condition Federal regulations require the City to perform regular onsite inspections of housing projects funded by the program to ensure compliance with property standards to determine if they meet federal Housing Quality Standards (HQS) requirements, and maintain inspection documentation to demonstrate compliance. The City must also have procedures to ensure property owners take timely corrective and remedial actions to address identified deficiencies. Property owners must correct identified health and safety deficiencies immediately (within 24 hours), and according to City policy, evidence of those corrections must be provided within 72 hours. Our audit found the City’s internal controls were ineffective for ensuring compliance with the program’s HQS requirements. Although the City had internal controls for performing inspections and requiring owners to correct HQS deficiencies, these procedures did not ensure that health and safety deficiencies were corrected immediately, as required by the HOME program and City policy. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff responsible for conducting HQS inspections reached out to the two property owners requesting that they make corrections to identified deficiencies. However, the property owners never responded with evidence of corrections to health and safety deficiencies and the City did not continue to follow up as required. Effect of Condition Using nonstatistical sampling, we tested nine property files requiring HQS inspections. For two of these inspections, the City did not obtain timely evidence that identified health and safety deficiencies had been corrected. Without documentation showing that deficiencies were corrected, the City cannot demonstrate that the affected housing units met HQS requirements or that they were consistently maintained in a safe and sanitary condition. Recommendation We recommend the City strengthen internal controls to ensure it complies with HQS requirements. Specifically, the City should establish procedures for ensuring that property owners correct identified health and safety deficiencies immediately as required. City's Response To resolve the specific deficiencies identified in the audit, the Office of Housing (OH) will first request documentation from each property owner by 9/18/2026 showing that the identified health and safety deficiencies have been corrected. OH will obtain and retain this documentation in the property files. OH will then evaluate the documentation received to determine the current compliance status of each deficiency and to identify which items are confirmed corrected and which require further verification. Regardless of the documentation received, OH will complete an on-site reinspection of the affected properties who did not respond, in October 2026 to verify and document their current condition. OH has engaged a qualified third-party housing inspection consultant to perform these reinspections, and OH will address any deficiencies identified in accordance with applicable HOME requirements. As a lasting internal control, OH will adopt a written follow-up and escalation procedure for health and safety deficiencies. Under this procedure, OH will confirm that property owners correct health and safety deficiencies immediately (within 24 hours) and provide evidence of correction within 72 hours, consistent with HOME requirements and City policy. When an owner does not provide evidence within the required timeframe, the matter will be escalated to OH management for enforcement action under the applicable HOME agreement, and the deficiency will remain open and actively tracked until OH has verified and documented its correction. The Asset Management Division Manager is responsible for implementing and maintaining this procedure, as well as overseeing the follow-up with the inspectors to reinspect within a timeline approved by HUD. Auditor's Remarks We appreciate the City’s commitment to resolving this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 24 CFR Part 92, Home Investment Partnerships Program, section 251 Property standards and inspections, describes the requirements for participating jurisdictions to conduct on-site progress and final inspections of housing.