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California Department of Housing and Community Development
Its Oversight of Housing Bond Funds Remains Inconsistent

Report Number: 2018-037

September 20, 2018 2018-037

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As required by the Health and Safety Code sections 53533 and 53545, the California State Auditor presents its fifth audit in a series concerning the Housing and Emergency Shelter Trust Fund Acts of 2002 and 2006. This report concludes that the California Department of Housing and Community Development's (HCD) oversight of housing bond funds remains inconsistent and that HCD has failed to follow through on half of our recommendations from previous reports. We found problems related to how HCD is monitoring some bond programs, whether its housing bond database can perform key functions, and how it is ensuring that it does not exceed administrative spending limits.

Although HCD generally performed adequate monitoring of the four loan-based multifamily housing programs we reviewed, it has inadequately monitored some of its grant programs. Specifically, we found continuing problems with HCD's oversight of two of its grant-based programs, totaling more than $610 million of housing bond funds, which we also noted in our previous housing bond audit reports. For these two programs, HCD has failed to obtain half of the required performance reports detailing how the recipients are using the money to help target populations, and it also failed for one of those programs to perform on-site visits to verify whether those recipients, such as local governments, are providing assistance only to those who qualify.

In addition, despite years of continued development, HCD cannot effectively use its centralized database system to monitor program work for all of its housing bond programs, as intended. As a result, HCD management is limited in its ability to verify that staff are receiving and monitoring required reporting documents in certain programs and cannot always assure the public that the bond funds are reaching the recipients intended in state law.

Moreover, HCD risks exceeding some statutory administrative spending limits. According to HCD, it has exceeded the 5 percent statutory administrative spending limit for at least two of its programs and estimates it will exceed the limit in another before it can fully complete its monitoring obligations. By exceeding those limits, HCD could potentially violate state law and may be unable to monitor recipients as required. Further, HCD management lacks a long-term plan for addressing its administrative spending overages.

Respectfully submitted,

State Auditor

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