Finding 66 (2022-001)

Federal agency: US Department of Housing and Urban Development Federal program title: Community Development Block Grant Federal Assistance Listing Number: 14.228 Pass-Through Agency: State Department of Housing and Community Development Award Period: July 1, 2021 – June 30, 2022 Type of Finding: Material Weakness in Internal Control over Compliance, Material Noncompliance Criteria: Grant compliance requires that Community Development Block Grant loans be monitored for compliance with the loan provisions on a regular basis. Such loan requirements are required to ensure CDBG loan funds are used in accordance with all program requirements. The requirements are noted in the OMB 24 CFR 570.483 and 570.490. Condition: During our test of the outstanding loans for continuing compliance, we noted the County did not have adequate documentation to support monitoring of program loans to ensure compliance with loan provisions for 12 of the loans. These 12 loans were investigated by the County, and it was discovered that residents had not responded to the Annual Residency Verification or provided Proof of Occupancy. The County was not able to start the foreclosure procedures to recover the receivable and the loans remained on the receivable listing. Questioned costs: $276,471 Context: CDBG loans must be monitored annually to ensure recipients are still living in the residence covered by the loan. CLA haphazardly selected 29 loans of a population of 241 CDBG loans to test continuing compliance and found that 12 of those loans did not have adequate documentation to show continued monitoring occurred. Cause: Due to lack of staffing at the time of monitoring, the County was unable to perform foreclosure filing procedures in a timely manner after realizing loans were not in compliance and failed to remove them from the receivables listing. Effect: Not following through on continual monitoring requirements could result in noncompliance with program requirements and could potentially cause an overstatement of program loan receivables reported by the County. After inquiry with the department, we believe there are no more loans that are affected by this control. Repeat Finding: Repeat finding, 2021-001. Recommendation: CLA recommends the County develop procedures to ensure that outstanding loan continuing compliance is documented and followed per the CDBG grant loan provision and that staffing allows for timely procedures. CLA also recommends the Community and Economic Development Planning Division include a compliance check box in the receivables listing sent to the Auditor-Controller’s office to document the compliance status of the loans. Views of responsible officials: There is no disagreement with the audit finding.