Our review revealed the following for the Housing and Emergency Shelter Trust Fund acts of 2002 and 2006:
In 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 (HCD) and the California Housing Finance Agency (Finance Agency) primarily award, disburse, and monitor the housing bond funds received by various programs.
As of December 2008 HCD and the Finance Agency had awarded nearly all of the November 2002 bond funds to recipients, primarily individuals and local entities that ultimately receive the funds awarded. Additionally, although HCD and the Finance Agency awarded housing bond funds authorized in November 2006 for eight of the 10 programs that are within the scope of this audit in a timely fashion, HCD has not yet issued any awards for the remaining two programs. Because of circumstances surrounding the State's fiscal situation, HCD also experienced delays in disbursing both the 2002 and 2006 bond funds to recipients. However, both HCD and the Finance Agency have established and generally adhered to policies intended to ensure that only eligible applicants receive awards.
For disbursement of the housing bond awards, both agencies generally have processes in place to ensure that recipients meet legal requirements. However, HCD did not always adhere to the controls established for its CalHome Program. For example, it has continued to advance funds to recipients at amounts greater than the limit set in their standard agreements, a practice that we previously reported in September 2007 during our initial audit of these bond programs. In response to that audit, HCD implemented procedures that establish criteria for issuing advances constituting more than 25 percent of the total award. However, HCD did not follow these procedures for two of the 10 recipients we tested that received advances exceeding the limit. Establishing limits on the amounts advanced to recipients helps ensure that projects are, in fact, progressing before all funds are disbursed, and it also allows the State to maximize interest earnings.
In addition, HCD did not always ensure that recipients submitted quarterly status reports for its CalHome Program, as required in its CalHome regulations. HCD uses these reports, in part, to assess the performance of program activities. Also, the Finance Agency did not always ensure that its sponsors, comprising local entities qualified to construct or manage housing developments, had a regulatory agreement in place. These agreements provide assurance that developments being built using funds from the Residential Development Loan Program remain affordable to low and moderate income households.
We reported in 2007 that HCD did not have processes in place for conducting site visits of sponsors or otherwise verifying program compliance during the period following final disbursement of funds by the State for its CalHome Program and Emergency Housing and Assistance Program (Emergency Housing Program). During our current review, we found that HCD has developed monitoring processes for these programs, which were adopted in December 2007 and February 2008, respectively. However, because of state budget difficulties, HCD restricted the amount of travel for performing on site visits beginning in July 2008; thus, it has not met the goals it established for conducting on site visits for these two programs in addition to a third program we identified during our current review-its Multifamily Housing Program-Supportive Housing Program (Supportive Housing Program). In fact, HCD did not perform any on site monitoring reviews for its Supportive Housing and CalHome programs during fiscal year 2008-09. However, HCD did perform on site monitoring for its Emergency Housing Program, focusing on those sponsors it considered a higher risk. We believe focusing review efforts on the higher risk sponsors for the Emergency Housing Program is a reasonable approach that HCD should consider adopting for the other two programs. By not monitoring at least the higher risk sponsors, HCD cannot ensure that sponsors use funds in accordance with housing bond requirements or that the programs are benefiting the intended populations. Moreover, for the on site visits HCD performed for its CalHome Program prior to fiscal year 2008-09, it did not always communicate its findings and concerns to the sponsors in a timely manner. As a result, HCD cannot ensure that sponsors take timely and appropriate corrective action.
Further, we found that HCD continues to lack sufficient internal controls over its information technology system. Specifically, we noted during our September 2007 audit that HCD did not ensure the accuracy and completeness of the data converted into its Consolidated Automated Program Enterprise System (CAPES), which it uses to administer and manage various housing programs. In August 2008 HCD indicated that it expected all converted data would be validated and, where necessary, corrected by April 2009. However, as of September 2009, HCD still had not completed the data validation process, and it indicated that it does not expect to do so until March 2010.
Finally, the Housing and Emergency Shelter Trust Fund Act of 2006 (Proposition 1C) currently does not require the Bureau of State Audits (bureau) to conduct periodic audits of the Transit Oriented Development Implementation Program; the Regional Planning, Housing, and Infill Incentive Account; and the Housing Urban Suburban and Rural Parks Account, which constitute $1.35 billion, or 47 percent of the Proposition 1C funds. For the bureau to perform periodic audits of these three programs, a change in the statute is necessary.
HCD should continue its efforts to monitor recipients of housing bond funds by doing the following:
To ensure that sponsors are using properties for the intended purposes of the Residential Development Loan Program, the Finance Agency should obtain signed copies of recorded regulatory agreements before disbursing funds to them.
To ensure that data maintained in CAPES are accurate and complete, HCD should complete its review of the accuracy of the data transferred to CAPES. HCD should also ensure that its cleanup efforts are thoroughly documented and retained for future reference.
If the Legislature believes that the bureau should perform periodic reviews of the bond programs not currently included in the audit requirements under Proposition 1C, it should propose legislation to require the bureau to do so.
HCD and the Finance Agency agreed with our recommendations and indicated that they are moving forward to implement them.