Finding 449756 (2022-001)

Finding 2022-001 ? EligibilityFederal Program: Home Investment Partnership Program (HOME)ALN Number: 14.239Federal Agency: Department of Housing and Urban DevelopmentFederal Award Year: 2018Grant number: M-18-MC-06-0518Pass-Through Entity: NoneCriteria24 CFR92.252 Qualification as affordable housing: Rental housing.(e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not lessthan the applicable period specified in the following table, beginning after project completion.(1) The affordability requirements:(i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment,or the transfer of ownership;(ii) Must be imposed by a deed restriction, a covenant running with the land, an agreementrestricting the use of the property, or other mechanisms approved by HUD and must give theparticipating jurisdiction the right to require specific performance (except that the participatingjurisdiction may provide that the affordability restrictions may terminate upon foreclosure ortransfer in lieu of foreclosure); and(iii) Must be recorded in accordance with State recordation laws.(2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptiverights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserveaffordability.(3) The affordability restrictions shall be revived according to the original terms if, during the originalaffordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or anyentity that includes the former owner or those with whom the former owner has or had family orbusiness ties, obtains an ownership interest in the project or property.(4) The termination of the restrictions on the project does not terminate the participating jurisdiction?srepayment obligation under ? 92.503(b).Minimum periodof affordabilityRental housing activity in yearsRehabilitation or acquisition of existing housing per unit amount ofHOME funds: Under $15,000 515,000 to $40,000 10Over $40,000 or rehabilitation involving refinancing 15New construction or acquisition of newly constructed housing 20(h) Tenant income. The income of each tenant must be determined initially in accordance with ?92.203(a)(1)(i). In addition, each year during the period of affordability the project owner mustre-examine each tenant?s annual income in accordance with one of the options in ? 92.203 selected bythe participating jurisdiction.24 CFR92.203 Income determinations.(a) The HOME program has income targeting requirements for the HOME program and for HOMEprojects. Therefore, the participating jurisdiction must determine each family is income eligible bydetermining the family?s annual income.(1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-basedrental assistance, the participating jurisdiction must initially determine annual income using themethod in paragraph (a)(1)(i) of this section. For subsequent income determinations during theperiod of affordability, the participating jurisdiction may use any one of the following methods inaccordance with ? 92.252(h):(ii) Obtain from the family a written statement of the amount of the family?s annual income andfamily size, along with a certification that the information is complete and accurate. Thecertification must state that the family will provide source documents upon request.Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements,Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederalentities must establish and maintain effective internal control over the federal award that providesreasonable assurance that the nonfederal entity is managing the federal award in compliance with federalstatutes, regulations and the terms and conditions of the federal award.Condition and ContextDuring our testwork over continuing eligibility requirements for loan recipients of the program, we noted thatthe City did not have sufficient controls in place for the program, nor were adequate records maintained toverify that the tenant income was verified during the period of affordability.Cause and EffectDuring the period under audit, the City experienced turnover with the staff members responsible forcontinuing compliance requirement monitoring. As a result of this turnover, the City was unable to providethe necessary documentation. City management was aware that documentation was not available prior tothe audit, however, management was not able to recreate all documentation necessary for the audit. As aresult, the City was unable to verify that the loans continued to meet the eligibility requirements during theperiod of affordability.Questioned CostsFifteen loans totaling $9,380,325 were identified as noncompliant. Our sample consisted of 25 loanbalances which represents 26% of the total loan balance. Ten loans in our sample totaling $9,056,580 weredetermined to be compliant.Isolated or SystemicSystematicWhether the sampling was a statistically valid sampleThis sample was not intended to be, and was not, a statistically valid sample.Repeat FindingNoRecommendationWe recommend that the City further refine the design of the internal controls that will ensure thatdocumentation is maintained in a location accessible to multiple employees and that all relevantdocumentation is retained when there is employee turnover.Management?s ResponseThe Development Services Department?s storage options for data changed rapidly during the quick shift toremote work during the COVID-19 pandemic. As a result, there was a gap in understanding andcomprehension of data storage and capabilities, which resulted in the loss of documentation during staffturnover. The eligibility requirements and monitoring for HOME loan recipients were met and managementis working on securing all documentation that was lost. As of this writing, 13 of the 15 non-compliantsamples have been secured and communication has been sent to retrieve the remaining two from thedevelopers. Internal controls for documentation will be strengthened by filling two vacancies. Until thosevacancies are filled, a staff member has been reassigned to review monitoring files for the loan portfolio toensure that the monitoring files are saved locally in the Housing and Neighborhood Services Bureau?spermanent files, and maintained on computer servers as well as in the cloud. When the two vacancies arefilled, it will be the procedure to save backups of documents to local servers. Additionally, access to thesefiles will be granted to the Bureau?s management team and multiple monitoring staff to prevent the futureloss of data.