Finding Text
Finding 2023-003: Special Tests and Provisions - Reasonable Rental Rates (Significant
Deficiency)
Federal Program: Assistance Listing Number 14.267
Criterion or Specific Requirements: The 2023 Compliance Supplement - 2 CFR Part 200
Appendix XI in relation to ALN 14.267 requires compliance with the reasonable rental rates
provision. In particular, 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 (24 CFR section 578.49(b)(1)). Also, 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 (24 CFR sections 578.49(b)(2) and 578.51(g) and (j)).
Condition: For all units tested, IW could not provide documentation of the verification that the rent
did not exceed rents currently being charged for comparable units taking in account relevant
features.
Questioned Costs: None.
Cause: IW has a policy and procedure in place to find units that have reasonable rental rates, but no
documentation was maintained in the housing program's files that evidences IW is following the
Uniform Guidance and the guidelines in the 2023 Compliance Supplement regarding reasonable
rental rates.
Effect or Potential Effect: Because of the lack of documentation, it was difficult to determine the
acceptability of the manner in which IW establishes rent reasonableness and the rents charged by
the owner for comparable unassisted units. However, we were able to verify by a review of the lease
agreements and publicly available information on rental rates that the contract rents being paid are
comparable to (or less than) those paid for unassisted units, no more than one month’s rent is paid
for tenant damages, and that the portion of rents paid with grant funds do not exceed fair market
rents.
Recommendation: IW should establish internal controls to ensure proper documentation is
maintained as evidence to support that it performed the required verification of rent reasonableness.