Report 2007-037 Summary - September 2007
Department of Housing and Community Development:
Awards of Housing Bond Funds Have Been Timely and Complied With the Law, but Monitoring of the Use of Funds Has Been Inconsistent
Our review revealed that for the Housing and Emergency Shelter Trust Fund Act of 2002 (Proposition 46):
- Both the Department of Housing and Community Development (department) and California Housing Finance Agency (Finance Agency) generally awarded funds in a timely manner.
- Both the department and Finance Agency generally complied with legal requirements for making awards; however, the department could not provide its rating and ranking tools in some cases for its Emergency Housing and Assistance Program (Emergency Housing Program).
- Both the department and Finance Agency generally used appropriate monitoring procedures during the expenditure phase, but the department sometimes overrode controls concerning advance payments for the CalHome Program.
- The department does not exert adequate monitoring over the completion phase for two of its programs—Emergency Housing and CalHome.
RESULTS IN BRIEF
In November 2002 and 2006, California voters passed the Housing and Emergency Shelter Trust Fund acts to provide bonds (housing bonds) for use in financing affordable housing for low- to moderate income Californians. The Department of Housing and Community Development (department) and the California Housing Finance Agency (Finance Agency) manage the programs funded by the housing bonds.
In awarding housing bond funds, the department and the Finance Agency generally have been timely and consistent with the law. Except for fiscal year 2002-03, the first year the housing bonds became available, the timing and amounts of awards have approximated or exceeded both entity's estimates. In addition, both the department and the Finance Agency established and adhered to policies intended to ensure that only eligible applicants receive awards. However, for one of the five programs we tested, the Emergency Housing and Assistance Program (Emergency Housing Program), the department could not document its use of rating and ranking tools for some of the awards we tested.
The department's monitoring of entities to whom it awarded funds (awardees) has been inconsistent. Although the department generally has controls in place over payments, it overrode those controls for the CalHome Program. The department allowed three of the 18 awardees tested, or 17 percent of our sample, to receive advances greater than the limit set in their standard agreements. Establishing limits on the amounts advanced to awardees helps ensure that projects are in fact progressing before all funds are disbursed and that the State maximizes interest earnings.
The department could strengthen its ongoing oversight of the developers, nonprofit organizations, local governments, and other entities (sponsors) receiving housing bond funds. For three of the five programs reviewed, the department's Multifamily Housing—General and Joe Serna Jr. Farmworker Housing—General programs and the Finance Agency's California Homebuyer's Downpayment Assistance Program, monitoring efforts are in place. However, the department does not currently have processes for conducting site visits of sponsors or otherwise verifying program compliance during the period following final payment of funds by the State for its Emergency Housing and CalHome programs. Thus, the department cannot always ensure that sponsors have used funds only for eligible costs or that their activities benefit only targeted populations.
For one of the programs, the department states that it did not want to establish a costly and burdensome monitoring process and for the other that an administrative cost cap, staff inexperience, and a work backlog have limited monitoring activities. However, the department also indicates that in order to verify sponsor-provided information, it is in the process of testing monitoring procedures for the CalHome Program and designing a monitoring process for the Emergency Housing Program.
The department should implement record-keeping procedures for the Emergency Housing Program to ensure that applicants who receive awards have been properly evaluated.
The department should continue its efforts to consistently monitor sponsors' use of housing bond funds by doing the following:
- Consider eliminating its process of overriding restrictions on advances for the CalHome Program.
- Give high priority to finalizing and implementing monitoring procedures for the CalHome and Emergency Housing programs, which do not currently have such procedures in place.
- Review its other housing bond programs that were not specifically evaluated in this initial audit to ensure that monitoring procedures are in place and operating.
The department generally agreed with our recommendations and indicated the steps it would take to implement them within the next six months.