Finding Text
Federal Agencies: Department of Housing and Urban Development
Federal Assistance Listing Numbers: 14.267
Program: Continuum of Care Program
Award/Pass-Through Entity Identifying Numbers: CA0802L9D012012, CA0802L9D012113, CA1348L9D012006, CA1348L9D012107, CA1510L9D012005, CA1510L9D012106, CA1883L9D012001, CA1883L9D012102, HHI-22-26, HHI-23-13
Criteria: The Uniform Guidance in 2 CFR §200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award.
Per 24 CFR §578.49(b)(1), “Where grants are used to pay for rent for all or a part of a structure or structures, 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 §§578.49(b)(2) and 578.51(g), “When 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 the location, size, type, quality, amenities, facilities, and management services. In addition, the rents may not exceed rents currently being charged for comparable units, and the rent paid may not exceed HUD-determined fair market rents.” “HUD will only provide rental assistance for a unit if the rent is reasonable. The recipient or subrecipient must determine whether the rent charged for the unit receiving rental assistance is reasonable in relation to rents being charged for comparable unassisted units, taking into account the location, size, type, quality, amenities, facilities, and management and maintenance of each unit. Reasonable rent must not exceed rents currently being charged by the same owner for comparable unassisted units.”
Condition: For 26 out of 60 rental payments tested, a comparable unit analysis was not completed for updated HUD Fair Market Rate’s (FMR) or lease modifications subsequent to move in. These amounts are excluded from questioned costs as it is not known if any rents were paid over the amount considered reasonable. For 16 out of the 60 rental payments tested, rent charges were unsupported by underlying leases, rent reasonableness forms, or rent charges were in excess of FMR, without appropriate waivers.
Cause: The Village did not appropriately retain or produce documentation that rent reasonableness was checked prior to move-in or at changes to lease terms in accordance with its policies. Additionally, not all supporting documentation for changes to terms were obtained or retained.
Effect or Potential Effect: Insufficient retention or creation of rent reasonableness forms and supporting documentation resulted in rent reasonableness controls not operating effectively to appropriately identify rental amounts for the Village’s clients in need of rental assistance. The Village could incorrectly charge expenditures to the federal program as a result.
Questioned Costs:
Known Questioned Costs: $9,720
Likely Questioned Costs: $261,268
Context: This is a condition identified per review of the Village’s compliance with specified requirements not using a statistically valid sample. Questioned costs were calculated as the amounts paid above FMR or unsupported. Total costs subject to rent reasonableness were $2,125,224.
Identification as a Repeat Finding: 2021-011.
Recommendation: We recommend that the Village enforce existing policies and procedures and implement additional policies and procedures for maintaining and monitoring rental reasonableness documentation to ensure compliance with HUD-determined fair market rents requirements.
Views of Responsible Officials: Management agrees with the finding. Management is in the process of enhancing and enforcing existing policies and procedures as well as performing a comprehensive tenant record review.