Finding 569670 — 2024-001

Finding Number: 2024-001 Finding Title : Internal Controls and Compliance over Eligibility for Multifamily Housing Projects Compliance Requirement(s): Eligibility Classification: Material Weakness Programs: Home Investment Partnerships Program ALN #: 14.239 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development Federal Award Numbers: M20-MC060518, M21-MP060518, M21-MC060518, M22-MC060518, M23-MC060518 Federal Award Year: 2020, 2021, 2022, 2023 Criteria or specific requirement (including statutory, regulatory, or other citation) 24 CFR92.252 Qualification as affordable housing: Rental housing - (e) Periods of affordability. The HOME-assisted units must meet the affordability requirements for not less than the applicable period, 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 agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer 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 preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure to preserve affordability. (3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business 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's repayment obligation under § 92.503(b). (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 must re-examine each tenant's annual income in accordance with one of the options in § 92.203 selected by the participating jurisdiction. An owner of a multifamily project with an affordability period of ten years or more who re-examines tenant's annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must examine the income of each tenant, in accordance with § 92.203(b)(1)(i), every sixth year of the affordability period, except that, for units that receive Federal or State project-based rental subsidy, the owner must accept the income determination pursuant to § 92.203(a)(1). 24 CFR 92.203 Income determinations - (b) Required Documentation for Annual Income Calculations (1) For families who are tenants in HOME-assisted housing and not receiving HOME tenant-based rental assistance, the participating jurisdiction must initially determine annual income using the method in paragraph (b)(1)(i) of this section. For subsequent income determinations during the period of affordability, the participating jurisdiction may use any one of the following methods in accordance with §92.252(h): (i) Examine at least two months of source documents evidencing annual income (e.g., wage statement, interest statement, and unemployment compensation statement) for the family. (ii) Obtain from the family a written statement of the amount of the family's annual income and family size, along with a certification that the information is complete and accurate. The certification must state that the family will provide source documents upon request. (iii) Obtain a written statement from the administrator of a government program under which the family receives benefits, and which examines each year the annual income of the family. The statement must indicate the tenant's family size and state the amount of the family's annual income; or alternatively, the statement must indicate the current dollar limit for very low- or low-income families for the family size of the tenant and state that the tenant's annual income does not exceed this limit. 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 nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition The City was unable to collect documents from the property manager to ensure that individuals who occupied HOME assisted units were eligible tenants for four of the eight properties selected for testing from a population of seventy-four properties. The four properties for which documents could not be collected included a total of forty-two units, all related to the same development group. The City was unable to obtain the necessary documentation from the development groups property manager to verify household income for each tenant. As a result, it could not determine compliance with income eligibility, maximum rent limits, or minimum set-aside requirements for units designated for eligible individuals. Cause The City’s attempts to contact the development group for these properties have been unsuccessful, the city was therefore unable to obtain the required documents to assess each family's income which is needed for determining income eligibility, compliance with maximum rent requirements or minimum set-aside requirements for units designated for eligible individuals. The City has made continued attempts to contact the development group, though they have not yet been successful in obtaining the information. Effect or potential effect The lack of information available from the development group has meant the City is without the information needed to evaluate the properties and their related tenants for compliance with HUD eligibility criteria. Questioned costs None Context The City had eighteen outstanding loans with this development group for Multi Family Construction projects as of the fiscal year end, carrying a balance of $9.5m. This represents 12% of the 154 HOME Loans and their related $79.3m outstanding balances. Identification as a repeat finding if applicable 2023-002 Recommendation We recommend the City continue its attempts to obtain the necessary documents from the developer and exercising its rights to enforce compliance through the terms of its contractual arrangement when necessary. Additionally, we recommend the City enhance policies and/or procedure for addressing unresponsiveness among developers to establish a structure for clear communication, expectations, an escalation process, and consistent documentation requirements. Views of responsible officials and planned corrective actions The City continues to monitor HOME-assisted units to ensure eligibility with income requirements. Since the last audit period, the developer has not yet complied with multiple requests from the City to provide missing documentation; however, City staff continues outreach and has communicated shortcomings with said developer on the dates mentioned in FY 23 corrective action plan and also July 2, 2024, July 16, 2024, July 18, 2024, September 3, 2024, September 10, 2024, September 11, 2024, September 18, 2024, October 30, 2024, November 4, 2024, and December 2, 2024. The City informed the developer that continued non-compliance will result in escalation to the City Attorney, and escalation is currently underway. The City has updated procedures to add layers of review and increase frequency of communication with developers to ensure timely submission and efforts to obtain necessary documents. The City is confident that these measures will demonstrate compliance with eligibility requirements and resolve the auditor’s concerns.

ALN	Program Name	Expenditures
14.871	Section 8 Housing Choice Vouchers	$120.21M
14.871	Covid-19 Section 8 Housing Choice Vouchers	$10.23M
10.557	Wic Special Supplemental Nutrition Program for Women, Infants, and Children	$4.78M
97.036	Disaster Grants - Public Assistance (presidentially Declared Disasters)	$4.71M
15.916	Outdoor Recreation Acquisition, Development and Planning	$3.25M
14.218	Community Development Block Grants/entitlement Grants	$3.09M
14.239	Covid-19 Home Investment Partnerships Program	$2.69M
14.267	Continuum of Care Program	$2.64M
93.391	Covid-19 Activities to Support State, Tribal, Local and Territorial (stlt) Health Department Response to Public Health Or Healthcare Crises	$2.49M
14.228	Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii	$2.24M
93.967	Centers for Disease Control and Prevention Collaboration with Academia to Strengthen Public Health	$2.18M
21.027	Covid-19 Coronavirus State and Local Fiscal Recovery Funds	$1.40M
14.905	Lead Hazard Reduction Demonstration Grant Program	$1.38M
97.083	Staffing for Adequate Fire and Emergency Response (safer)	$1.12M
93.086	Healthy Marriage Promotion and Responsible Fatherhood Grants	$999,999
97.056	Port Security Grant Program	$932,765
10.561	State Administrative Matching Grants for the Supplemental Nutrition Assistance Program	$854,633
93.069	Public Health Emergency Preparedness	$665,205
21.023	Covid-19 Emergency Rental Assistance Program	$507,069
16.838	Comprehensive Opioid, Stimulant, and Other Substances Use Program	$490,848
93.917	Hiv Care Formula Grants	$484,663
14.239	Home Investment Partnerships Program	$451,935
14.896	Family Self-Sufficiency Program	$432,780
93.268	Immunization Cooperative Agreements	$432,307
93.197	Childhood Lead Poisoning Prevention Projects, State and Local Childhood Lead Poisoning Prevention and Surveillance of Blood Lead Levels in Children	$429,620
93.354	Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response	$410,894
20.608	Minimum Penalties for Repeat Offenders for Driving While Intoxicated	$383,791
97.039	Hazard Mitigation Grant	$382,753
17.278	Wioa Dislocated Worker Formula Grants	$350,555
97.067	Homeland Security Grant Program	$300,000
93.914	Hiv Emergency Relief Project Grants	$289,938
20.600	State and Community Highway Safety	$284,300
93.779	Centers for Medicare and Medicaid Services (cms) Research, Demonstrations and Evaluations	$256,377
93.116	Project Grants and Cooperative Agreements for Tuberculosis Control Programs	$231,566
20.616	National Priority Safety Programs	$218,597
93.994	Maternal and Child Health Services Block Grant to the States	$210,338
20.823	Port Infrastructure Development Program	$188,954
11.307	Economic Adjustment Assistance	$182,968
93.323	Epidemiology and Laboratory Capacity for Infectious Diseases (elc)	$178,614
93.778	Medical Assistance Program	$176,132
14.218	Covid-19 Community Development Block Grants/entitlement Grants	$158,157
17.258	Wioa Adult Program	$158,086
14.231	Covid-19 Emergency Solutions Grant Program	$152,789
20.106	Covid-19 Airport Improvement Program	$150,326
10.559	Summer Food Service Program for Children	$140,895
17.277	Wioa National Dislocated Worker Grants / Wia National Emergency Grants	$126,319
15.514	Reclamation States Emergency Drought Relief	$122,865
16.835	Body Worn Camera Policy and Implementation	$115,530
14.241	Housing Opportunities for Persons with Aids	$102,582
66.472	Beach Monitoring and Notification Program Implementation Grants	$100,392
14.895	Jobs-Plus Pilot Initiative	$100,000
93.078	Strengthening Emergency Care Delivery in the United States Healthcare System Through Health Information and Promotion	$100,000
97.042	Emergency Management Performance Grants	$96,606
93.070	Environmental Public Health and Emergency Response	$93,505
17.259	Wioa Youth Activities	$92,985
93.354	Covid-19 Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response	$90,945
93.421	Strengthening Public Health Systems and Services Through National Partnerships to Improve and Protect the Nations Health	$80,000
14.231	Emergency Solutions Grant Program	$78,943
14.251	Economic Development Initiative, Community Project Funding, and Miscellaneous Grants	$78,176
93.318	Protecting and Improving Health Globally: Building and Strengthening Public Health Impact, Systems, Capacity and Security	$76,544
20.106	Airport Improvement Program	$73,897
93.558	Temporary Assistance for Needy Families	$71,000
14.900	Lead Hazard Reduction Grant Program	$65,146
93.977	Sexually Transmitted Diseases (std) Prevention and Control Grants	$60,794
10.727	Inflation Reduction Act Urban & Community Forestry Program	$53,135
16.710	Public Safety Partnership and Community Policing Grants	$49,436
15.507	Watersmart (sustain and Manage Americas Resources for Tomorrow)	$44,081
93.421	Covid-19 Strengthening Public Health Systems and Services Through National Partnerships to Improve and Protect the Nations Health	$28,826
14.913	Healthy Homes Production Program	$17,399
93.940	Hiv Prevention Activities Health Department Based	$9,832
16.738	Edward Byrne Memorial Justice Assistance Grant Program	$6,578
20.205	Covid-19 Highway Planning and Construction	$5,130
20.205	Highway Planning and Construction	$558

Finding 569670 (2024-001)

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