Finding Text
Program: Continuum of Care
Federal Financial Assistance Listing No.:14.267
Federal Agency: U.S. Department of Housing and Urban Development
Pass-through: Sacramento Steps Forward
Award Year: 2023
Compliance Requirement: Special Tests and Provisions – Reasonable Rental Rates
Grant Award Number: CA0955L9T032108, CA0955L9T032209, CA0143L9T032114, CA0143L9T032215, CA1303L9T032107, CA1303L9T032208
Type of Finding: Material Weakness in Internal Controls Over Compliance and Material Noncompliance
Criteria:
Per 24 CFR section 578.49(b)(1), where grants are used to pay for rent for all or a part of a structure, the rent paid must be reasonable in relation to rents being charged in the area for comparable space. In addition, the rent may not exceed rents currently being charged by the same owner for comparable unassisted space.
Per 24 CFR sections 578.49(b)(2) and 578.51(g) and (j), where grants are used to pay rent for individual housing units, the rent paid must be reasonable in relation to rents being charged for comparable units taking into account relevant features. In addition, the rents may not exceed rents currently being charged by the same owner for comparable unassisted units, and the portion of rents paid with grant funds may not exceed HUD-determined fair market rents. Grant funds in an amount up to one month’s rent may be used to pay the non-recipient landlord for any damages to leased units by homeless participants.
Condition Found:
• As a result of our procedures performed, we noted for 8 out of 17 rental participants tested, the organization could not provide documentation to demonstrate the reasonableness of contract rents being paid for individual housing units in relation to rents being charged for comparable units. This should have included an analysis of rents in the immediate area of the participants housing.
• For 3 out of 41 rental payments tested, we noted the rent paid exceed the HUD-determined fair market rents for the fiscal year.
Cause:
The Organization was applying a method of determining reasonable rents that had been allowable under prior awards, prior to migration of the program's funding to the Continuum of Care program under assistance listing number 14.267.
Effect:
Rent paid to landlords on behalf of participants may have been higher in comparison to other rental properties in a similar area during the period the reasonableness assessment was not completed. Also, rental payments made using grant funds exceeded the HUD-determined fair market rents.
Questioned Costs:
$330 in questioned costs was identified as a result of our procedures.
Context/ Sampling:
• A nonstatistical sample of 17 out of 109 participants was selected to test for rent reasonableness documentation.
• A nonstatistical sample of 41 out of 1,088 rental payments were selected to test compliance over the HUD-determined fair market rents. Our sample was $59,905 in rental payments and the population of rental payments for the year ended December 31, 2023 totaled $2,491,614.94.
Repeat Finding from Prior Years:
Yes, Finding 2022-002
Recommendation:
This is a repeat finding from 2022. It was noted that the Organization implemented procedures in January 2022 to document rent reasonableness checks on a prospective basis, however this was not corrected for the samples tested as part of our audit. We recommend that the Organization continue to implement policies and procedures to ensure compliance with the program’s Special Tests and Provisions – Reasonable Rental Rates requirement.
Views of Responsible Officials:
Management agrees. See separately issued Corrective Action Plan.