Finding 33373 (2022-002)

2022-002 The County had inadequate internal controls for ensuring compliance with the Housing Quality Standards inspection requirements of its Home Investment Partnerships Program. "See Schedule of Federal Award Findings and Questioned Costs for chart/table" Description of Condition During fiscal year 2022, the County spent $3,010,680 under the Home Investment Partnerships Program (HOME Program). The objectives of the HOME Program include: (1) Expanding the supply of decent and affordable housing, particularly housing for people with low-and very low-incomes (2) Strengthening the abilities of state and local governments to design and implement strategies for achieving adequate supplies of decent, affordable housing (3) Providing financial and technical assistance to participating jurisdictions, including the development of model programs for affordable low-income housing (4) Extending and strengthening partnerships among all levels of government and the private sector, including for-profit and nonprofit organizations, in the production and operation of affordable housing Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. During the period of affordability (i.e., the period for which the nonfederal entity must maintain subsidized housing) for HOME-assisted rental housing, the participating jurisdiction must perform on-site inspections to determine compliance with property standards and verify the information submitted by the owners. These inspections must be completed no less than: ? Every three years for projects containing one to four units ? Every two years for projects containing five to 25 units ? Every year for projects containing 26 or more units However, in response to the COVID-19 pandemic, the U.S. Department of Housing and Urban Development (HUD) issued a waiver of Housing Quality Standards (HQS) inspections. The waiver period spanned from April 10, 2020, to December 31, 2021, and required on-site inspections to resume within 180 days of the end of the waiver period. Our audit found the County did not have adequate internal controls for ensuring compliance with the HOME Program?s HQS requirement to resume on-site inspections when the HUD waiver expired. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The County was operating under COVID-19 pandemic protocols during the audit period. The state and County rescinded the emergency order on October 31, 2022, and the federal government rescinded the emergency declaration on May 11, 2023. Therefore, during the period under audit, grant administrators were operating with limited in-person contact, and they determined that HQS inspections should be delayed until fiscal year 2023 when all levels of emergency orders were lifted. Effect of Condition The County did not conduct any HQS inspections during fiscal year 2022. As such, the County could not demonstrate that the HOME Program properties it was managing met HQS inspection requirements and were being maintained in a decent, safe and sanitary manner. Recommendation We recommend the County strengthen internal controls to ensure its HOME Program properties meet HQS compliance requirements. Specifically, the County should ensure it performs HQS inspections within the prescribed timeframe. County?s Response The County disagrees that there were inadequate controls. The County has had and does have procedures for conducting physical inspections in conformance with statutory and regulatory guidance and maintains a database for tracking inspections due and completed. Those procedures were suspended as a direct result of the COVID-19 pandemic and associated federal, state, and local directives and guidance. The County has been fully aware of the institution of U.S. Department of Housing and Urban Development (HUD) waiver of the requirement to conduct physical inspections of HOME units as well as their notification that inspections should be resumed. The County communicated with HUD regarding the suspension of HOME inspections during the public health emergency and continuing COVID-19 protocols that impacted the timing for resuming inspections. The County planned for the resumption of inspections and updated those plans based on the COVID-19 emergency and protocols at the federal, state, and local levels which did not align with the end of the HUD waiver nationally. The County and state COVID-19 health emergency did not end until October 31, 2022 and the federal COVID-19 National Public Health emergency did not end until May 11, 2023. The County planned for safely resuming physical inspections at the end of the federal emergency declaration taking into consideration the risk for County staff, agency staff, and tenants to best address the regulatory requirements during this global pandemic. The County communicated with the HUD Seattle Field Office on the planned resumption of HOME unit inspections. In addition to communications with HUD, the information was included in the HUD Consolidated Annual Performance and Evaluation Report (CAPER). The CAPER provides annual reporting on performance, including the HOME Program. HUD approved the 2021 (July 2021 ? June 2022) CAPER which indicated the County did not perform inspections during this timeframe due to the COVID 19 pandemic. The 2022 CAPER (July 2022 -June 2023) is currently in the public comment phase to be submitted in September 2023. It includes an update on inspections consistent with the information provided to HUD that the County was still under COVID 19 protocols during almost all of that timeframe and planned to resume inspections in 2023 as was to be included in the 2022 CAPER in conformance with HUD guidance. The County resumed HOME inspections in June 2023 utilizing our standard protocols and controls. Auditor?s Remarks We appreciate the County?s assistance throughout our audit and its planned corrective action to resolving this matter. We performed our audit in accordance with requirements from the Federal agency, the U.S. Department of Housing and Urban Development, which required physical inspections to resume 180 days after December 31, 2021. We reaffirm our finding and will review the condition during our next 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. Memorandum from the U.S. Department of Housing and Urban Development, Additional Revision, and Extension of December 2020 and April 2020 Memorandum ? Availability of Waivers and Suspensions of the HOME Program Requirements in Response to COVID-19 Pandemic. Title 24 CFR Part 92, Home Investment Partnerships Program, section 92.504(d)(1)(iii), Annual inspections, describes the tenant-based rental assistance program requirements for annual inspections. Title 24 CFR Part 92, Home Investment Partnerships Program, sections 92.209(i), 92.251(f), and 92.504(d), Housing Quality Inspection requirements, describe the program specific requirements for performing on-site inspections and determining compliance with quality standards.