Report 2018-037 All Recommendation Responses

Report 2018-037: California Department of Housing and Community Development: Its Oversight of Housing Bond Funds Remains Inconsistent (Release Date: September 2018)

Recommendation for Legislative Action

Given HCD's long-standing history of inadequate monitoring for some of its programs and the additional funds HCD could receive for CalHome under the November 2018 ballot measure, the Legislature should require HCD to disclose information about such monitoring in its annual report, which it should submit to the Assembly Committee on Housing and Community Development and the Senate Committee on Transportation and Housing. The report should identify all of the awards that HCD monitors for the CalHome and BEGIN programs and should include performance metrics such as the amount of funds awarded but not disbursed to recipients and therefore not issued to potential homeowners. The Legislature should also require HCD to disclose in its annual report—at a minimum—the following information for all awards that HCD is responsible for monitoring in the CalHome and BEGIN programs:

- The amount of the original awards to recipients, the portions not yet disbursed to recipients, and an estimate of how many individuals could benefit from the remaining balance.

- Any extensions HCD granted to the standard agreement and the number of and reason for those extensions.

- The total balance of all recipients' CalHome and BEGIN reuse accounts, detailing the loan repayments recipients are required to reissue for program purposes and an estimate of how many households could benefit from the balance.

- A section describing HCD's monitoring efforts, including the collection of performance reports and the results of the risk assessments and on-site monitoring.

Description of Legislative Action

AB 795 (Patterson, 2021) would have required HCD to include in its annual reports specified information relating to the two programs, including the amount of the original awards to recipients, the portions not yet disbursed to recipients, and an estimate of how many individuals could benefit from the remaining balance. This bill died in the Assembly.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Proposed But Not Enacted

AB 795 (Patterson, 2021) died in the Assembly.

Description of Legislative Action

AB 795 (Patterson, 2021) would require HCD to include in its annual reports specified information relating to grant-based programs administered by HCD, including the amount of the original awards to recipients, the portions not yet disbursed to recipients, and an estimate of how many individuals could benefit from the remaining balance. This bill is pending in the Assembly Housing and Community Development Committee.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Introduced

Description of Legislative Action

As of September 20, 2020, the Legislature has not taken any new action to address this specific recommendation.

AB 195 (Patterson) would have required HCD to take certain actions by January 1, 2021, with respect to monitoring its housing bond programs, including developing, and begin implementing, a plan for performing onsite visits of CalHome Program recipients. This bill was substantially amended to address a different subject and was not enacted.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

AB 195 (Patterson) would require HCD to take certain actions by January 1, 2021, with respect to monitoring its housing bond programs, including developing, and begin implementing, a plan for performing onsite visits of CalHome Program recipients. As of June 2019, this bill is pending action in the Senate Housing Committee.

California State Auditor's Assessment of 1-Year Status: Legislation Proposed But Not Enacted

Description of Legislative Action

Assembly Bill 195 (Patterson) was introduced on January 10, 2019, and would require the Department of Housing and Community Development (HCD) to include in its annual legislative report the following information for each grant-based program administered by HCD:

a) The amount of the original awards to recipients, the portions not yet disbursed to recipients, and an estimate of how many individuals could benefit from the remaining balance.

b) Any extensions the department granted to the standard agreement and the number of, and reason for, those extensions.

c) The total balance of all recipients' reuse accounts, detailing the loan payments recipients are required to reissue for program purposes and an estimate of how many households could benefit from the balance.

d) A description of the department's monitoring efforts, including the collection of performance reports and the results of the risk assessments and on-site monitoring.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation for Legislative Action

The Legislature should require the Business, Consumer Services and Housing Agency to monitor HCD's efforts and to submit a report annually to the Legislature demonstrating that HCD is continuing to implement our recommendations.

Description of Legislative Action

AB 795 (Patterson, 2021) would have, until January 1, 2025, required the Business, Consumer Services, and Housing Agency to monitor HCD's efforts, including the collection of performance reports and the results of the risk assessments and on-site monitoring and to annually report to the Legislature before December 31 each year. In January 2022, this bill was substantially amended to remove this requirement, and the bill subsequently died in the Assembly.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Proposed But Not Enacted

AB 795 (Patterson, 2021) died in the Assembly.

Description of Legislative Action

AB 795 (Patterson, 2021) would, until January 1, 2025, require the Business, Consumer Services, and Housing Agency to monitor HCD's efforts, including the collection of performance reports and the results of the risk assessments and on-site monitoring, and to annually report to the Legislature before December 31 each year. This bill is pending in the Assembly Housing and Community Development Committee.

California State Auditor's Assessment of Annual Follow-Up Status: Legislation Introduced

Description of Legislative Action

As of September 20, 2020, the Legislature has not taken any new action to address this specific recommendation.

AB 195 would have required the Business, Consumer Services and Housing Agency to monitor HCD's efforts, including the collection of performance reports, and, until January 1, 2024, to annually report to the Legislature. This bill was not enacted.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

AB 195 would require the Business, Consumer Services and Housing Agency to monitor HCD's efforts, including the collection of performance reports, and, until January 1, 2024, to annually report to the Legislature. This bill is pending in the Senate.

California State Auditor's Assessment of 1-Year Status: Legislation Proposed But Not Enacted

Description of Legislative Action

AB 195 would require the Business, Consumer Services and Housing Agency to monitor HCD's efforts, including the collection of performance reports, and, until January 1, 2024, to annually report to the Legislature on these efforts.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #3 To: Housing and Community Development, Department of

To ensure that it appropriately monitors CalHome as required by statute, regulation, and program guidelines, HCD should, by January 1, 2019, develop an annual plan for its CalHome on-site visits, which should be based on its risk assessments. The risk assessments should consider, among other things, which recipients have not submitted required performance reports.

60-Day Agency Response

HCD has prepared an annual plan for onsite visits based on risk assessment.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #4 To: Housing and Community Development, Department of

To ensure that it appropriately monitors CalHome as required by statute, regulation, and program guidelines, HCD should perform the on-site visits it proposes in its annual plan.

1-Year Agency Response

All risk assessments have been completed as of June 13, 2019.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

HCD provided a list of on-site visits it completed. It provided evidence showing two examples of on-site visits it had performed.

6-Month Agency Response

All site visits identified in the risk assessment have been scheduled, and are on track for completion by 5/7/19.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD has initiated onsite visits and is on track to complete monitoring visits identified in annual plan by end of June 30 2019.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: Housing and Community Development, Department of

To ensure that it appropriately monitors CalHome as required by statute, regulation, and program guidelines, HCD should immediately collect all required reports and follow up with recipients to obtain missing reports. Staff should withhold fund disbursements from recipients that have not submitted required reports. If the submitted reports reveal a problematic trend, such as a recipient not disbursing funds, HCD should take appropriate corrective action with the recipient.

Annual Follow-Up Agency Response From September 2021

The department is in the process of collecting required reports for the 2020-2021 annual report year, which ended on 7/31/2021. Approximately 72% of the required reports have been received so far. On 8/30/2021, any contractors who have not submitted their required reports will receive a 30-day delinquent notice. Any contractor who officially receives the 30-day delinquent notice will be in jeopardy of losing their eligibility to apply for future funding rounds. In addition, contractors who are non-compliant with current reporting requirements will face the potential of having future disbursement requests withheld. With these additional control measures in place to prevent future delinquency in required reporting, the department considers this item fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

HCD provided us with a screenshot of the tracking system it uses to track the required reports and an example of the 30-Day Delinquent Notice that it sends to recipients who are out of compliance. As of November 2021, the tracking system screenshot shows that HCD has collected all required reports in the last collection cycle. To the extent that HCD continues to collect required reports and take appropriate correction action with the recipient, it will implement our recommendation.

Annual Follow-Up Agency Response From September 2020

The CalHome program has received 100% of past due Reuse Reports (for 2018/2019 and 2019/2020) and 91.3% (for 2018/2019) 86.7% (for 2019/2020 ) of past due Annual Reports as of 6/30/2020 . Please note that Annual Reports for 2019/2020 are still in the process of being collected. HCD has implemented a policy in the 2019 and 2020 CalHome General NOFAs, that makes up to date reporting a threshold requirement to apply for funds. Grantees who have not submitted reports in the last two years on their most recent award will be ineligible to apply for additional funding. The following applicants were disqualified at threshold for not submitting their reports by the deadline in the 2019 NOFA: Self Help Enterprises, City of Sanger, Habitat for Humanity Silicon Valley, Habitat for Humanity/Silicon Valley Sequoia Grove Townhomes, Habitat for Humanity/Silicon Valley South Jackson. HCD is working to obtain a legal opinion from our in-house counsel on whether or not funding disbursements can be withheld due to past due reporting.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

Management Memo 18-01 was sent to grantees in 2018, indicating that negative points would be assessed to grantees applying for HCD program funds, if they had outstanding program compliance reports for current grants. The newly revised CalHome guidelines make program reporting compliance a threshold requirement. Grantees who have outstanding compliance reports are ineligible to receive future funding under the new guidelines. In addition, applicants that submit reports just prior to application are still subject to negative points pursuant to the management memo.

California State Auditor's Assessment of 1-Year Status: Pending

HCD's revised CalHome guidelines state that failure to submit outstanding reports from previous CalHome grants to HCD will make recipients ineligible for a CalHome award. However, the revised guidelines do not state that staff should withhold fund disbursements from recipients that have not submitted required reports, which would be more effective and include recipients that will not apply for another CalHome award. Further, HCD did not provide evidence to show that it collected all required reports and followed up with recipients to obtain missing reports.

6-Month Agency Response

HCD continues to engage in outreach efforts for Reuse and Annual Report submittals. The following statistics reflect collection rates as of 2/6/19: CalHome Reuse Reports received 73% (as of 02/06/19) CalHome Annual Reports received 62% (as of 02/06/19) Additional outreach will be done for remaining non-compliant jurisdictions, with a compliance deadline of 4/30/19. An alternate compliance policy is being developed to address compliance issues in declared disaster areas, and remedy through appropriate due date revisions. Non-compliant grantees will be ineligible for future funding.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD has updated policies and procedures regarding fund disbursement. HCD is actively calling grantees to collect current contract reports and annual reuse reports and is at approximately 69% submittal rate for reuse reports and 65% for annual reports. Continued weekly outreach is occurring to increase submittal rate. Review of the reports is ongoing to determine corrective actions that may need to be taken.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #6 To: Housing and Community Development, Department of

To ensure that it appropriately monitors CalHome as required by statute, regulation, and program guidelines, HCD should immediately stop providing extensions to standard agreements to recipients if those extensions would cause HCD to not spend the full award within the 36-month term and therefore violate its regulations.

60-Day Agency Response

As of November 1, 2018, 5 active contracts remain and policies have been adopted to stop extensions on current and future contracts.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

To the extent HCD follows its new policy, it will address our recommendation.

Recommendation #7 To: Housing and Community Development, Department of

To ensure that HCD appropriately monitors BEGIN as required by statute, regulations, and program guidelines, HCD should immediately collect and review all required reports, and it should follow up with recipients to obtain any missing reports. If the reports reveal a problematic trend, such as a recipient not disbursing funds, HCD should take appropriate corrective action with the recipient.

1-Year Agency Response

Since outreach efforts began, a total of 69% of the outstanding reports have been received, as of July 2019. Current efforts are being focused on pursuing the collection of any required reports for the 2019 FY. The BEGIN program has no active funding and will have no future funding rounds. Therefore there is no mechanism to restrict future funding for this program to grantees that are non-compliant with reporting. See the attached write up detailing the efforts HCD has made to collect outstanding 2017/2018 FY compliance reports, and the measures that the department has taken to prevent similar issues in the CalHome program moving forward.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

If HCD continues to collect required reports and follow up with recipients to obtain missing reports, it will implement our recommendation.

6-Month Agency Response

HCD continues to engage in outreach efforts for Reuse and Annual Report submittals. The following statistics reflect collection rates as of 2/6/19: BEGIN Reuse Reports 66% received (as of 02/06/19). Additional outreach will be done for remaining non-compliant jurisdictions, with a compliance deadline of 3/29/19. An alternate compliance policy is being developed to address compliance issues in declared disaster areas, and remedy through appropriate due date revisions. Non-compliant grantees will be ineligible for future funding.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD is actively calling grantees to collect annual reuse reports and is at approximately 60% submittal rate for reuse reports. Review of the reports is ongoing to determine corrective actions that may need to be taken.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #8 To: Housing and Community Development, Department of

To ensure that the IIG program award funds benefit the target population, HCD should develop and use a tool by December 1, 2018, to track which awards are monitored by local jurisdictions or by other HCD programs and which are not monitored at all. HCD should then immediately obtain monitoring reports from the local jurisdictions and other HCD programs to verify monitoring and review the results of such monitoring. HCD should follow up on any noted deficiencies. Further, HCD should, by January 1, 2019, develop a plan to perform on-site visits for those recipients that do not receive adequate monitoring from another source, and it should perform the planned on-site monitoring.

Annual Follow-Up Agency Response From September 2021

HCD has identified which IIG projects are monitored by a local jurisdiction, TCAC or HCD's Asset Management and Compliance Branch (under other HCD programs). HCD requested TCAC provide a copy of the most recent compliance monitoring reports for all 92 projects with TCAC regulatory agreements. All of the reports have been received, saved to the project folder, and logged into the CAPES database. There are only seven projects that have closed permanent financing and are in operation which do not receive adequate monitoring form another source. HCD has scheduled desk monitorings for these seven projects, in lieu of site visits due to the COVID-19 state of emergency. HCD will resume physical site inspections once the travel ban has been lifted. All IIG projects with other HCD funding will continue to be monitored through the lead loan program for the term of the regulatory agreement with desk and site monitorings logged in CAPES. HCD considers this corrective action plan to be fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

HCD provided us with spreadsheets showing the tracking of IIG awards that are monitored by the Tax Credit Allocation Committee and whether it obtained the corresponding monitoring reports. HCD also provided us with a spreadsheet showing which projects it would perform a review on in the future. To the extent that HCD continues to track IIG projects, obtain monitoring reports, and perform monitoring of projects not monitored by another entity, it will fully implement our recommendation.

Annual Follow-Up Agency Response From September 2020

After further review, it's been determined that more projects received TCAC awards than previously determined. 92 of the 100 projects that have closed permanent financing and are in operation have TCAC regulatory agreements recorded against the properties. HCD has a long-standing MOU with TCAC to receive copies of their monitoring and inspection reports for projects that have HCD funding. AMC Fiscal staff will continue to be in communication with TCAC to request copies of the TCAC monitoring reports to verify their monitoring activities, and will maintain records in the CAPES database. Four other projects have HCD funding and already are being monitored for the term of the regulatory agreement. This will satisfy HCD's long term IIG monitoring requirements. With the exception of four projects, there will be no need for further communication with the 11 jurisdictions previously contacted. Due to current travel restrictions related to the COVID state of emergency, Asset Management Staff are transitioning to desk montiorings vs. on-site monitorings. Staff will be priorizing these four projects for completion of a desk monitoring by end of the calendar year.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

HCD has developed an MOU, for execution with local jurisdictions, to memorialize roles and responsibilities to ensure sufficient monitoring and reporting for the 55-year affordability period. HCD has made contact will all 11 local jurisdictions. Several of the jurisdictions have expressed hesitancy to enter into a formal MOU for monitoring, but are agreeable to a more informal arrangement for providing this information on an on-going basis. HCD is reviewing alternate agreement options, including having jurisdictions provide HCD a letter indicating their intent to submit continued monitoring reports. Due to staffing capacity issues, the four projects previously identified as having no state, or local monitoring have been moved to the departments Phase II monitoring schedule. The site visits will be completed by 10/31/19.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

"A tracking tool has been developed and is being utilized to determine the monitoring status of the current IIG project portfolio. HCD determined that out of 100 closed IIG projects, only four do not have state or local monitoring. The monitoring plan for these projects moving forward is that the Asset Management and Compliance (AMC) unit has added these projects to the monitoring schedule to ensure adequate on-site monitoring and project compliance. Site visits will be scheduled for these projects by 3/31/2019, and site visits conducted by 6/30/2019.

During HCD's initial outreach efforts to obtain monitoring information from local jurisdictions, it became evident that a formal agreement to memorialize the roles and responsibilities of HCD and the local jurisdictions will need to be developed and implemented in order to ensure sufficient monitoring for the 55-year affordability period. HCD is in discussion with its Legal Affairs Division (LAD) to obtain guidance on structuring Memorandum of Understandings (MOUs) with local jurisdictions for monitoring current IIG projects. This process is scheduled for completion by 3/31/2019.

In order to address potential monitoring needs of future IIG projects, HCD is working with LAD on strengthening standard agreement language to require that grantees/local jurisdictions provide monitoring reports on an on-going basis. "

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD has developed a CAPES-generated report, which is the IIG Program Tracking Tool, and is collecting reports from both state and local jurisdictions/non-state funded projects. HCD has updated IIG processes and procedures to review reports and address deficiencies. HCD has reviewed all state funded monitoring reports for compliance and finds no concerns. Currently only four awards are funded solely through the IIG program. HCD is also communicating with 11 non-state entities to collect reports and review. HCD will develop monitoring plan by January 1, 2019 and if needed commence monitoring in 1st quarter 2019.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: Housing and Community Development, Department of

To ensure that single-family farmworker housing program recipients continue to qualify for housing, HCD should implement policies and procedures by December 1, 2018, to ensure that the information the recipients provide in the self-certification letters is accurate and complete by requiring that they include documentation as proof. HCD should also follow up to ensure that it receives responses to its annual compliance letters from all recipients.

60-Day Agency Response

HCD has updated its policies and procedures based on the recommendations. HCD has developed a tool to track homeowner responses, compliance, need for follow-up or referral to compliance resolution process. As of November 1, 2018, homeowner response rate is 70%. By January 31, 2019, any non compliant homeowner responses will be referred to the compliance resolution process.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #10 To: Housing and Community Development, Department of

To ensure that it maximizes the benefit of the funds it has invested in CAPES's development and to support its ongoing efforts to improve CAPES's usability, HCD should, by January 1, 2019, perform an assessment of those programs that do not fully use CAPES.

6-Month Agency Response

The assessment is 100% complete. A tracking tool is being developed to assist in understanding the assessment, by outlining which fields are currently used by which units, and identifying the need for training in areas where units are not fully utilizing CAPES modules. Further analysis and refinement of the tracking tool was completed 3/15/19.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The assessment is 50% complete. Information from each section indicating which data fields are currently used in CAPES to manage programs and undertake functions is complete. Data will next be analyzed against program requirements to determine gaps.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #11 To: Housing and Community Development, Department of

To ensure that it maximizes the benefit of the funds it has invested in CAPES's development and to support its ongoing efforts to improve CAPES's usability, HCD should, by January 1, 2019, determine to what extent the programs could be using CAPES at its current level of development to capture information.

Annual Follow-Up Agency Response From September 2020

A decision has been made to phase out the CAPES system and implement a new program management system. HCD has transitioned two of our federal programs to the new eCivis grants management system, in order to meet federal program management and reporting standards. The pilot rounds of funding for these programs through the eCivis system will be reviewed to see if this could be a path forward for the management of our other loan and grant programs.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

Initially the department added the items identified as a result of the CAPES utilization assessment to the IT system enhancement list to be prioritized pending a final decision on the continued use of the CAPES system. The department has now decided to replace CAPES in phases to be implemented over the next few years, and will implement only the necessary enhancements to maintain CAPES through the replacement period. The enhancement list will need to be re-analyzed, by 12/31/19, to determine which enhancements, if any, meet this short term necessity test.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The assessment is 100% complete. IT has collected all tracking spreadsheets currently utilized outside of CAPES. The purpose of each spreadsheet has been identified by IT. CAPES support unit, in coordination with IT, has incorporated the functions of the spreadsheets into a consolidated tracking spreadsheet, known as the CAPES system pain points tracker. The system issues identified on the pain points list have been categorized as follows: training, need for system enhancement, system defect/bug, business process issue, or other. Issues categorized as other are currently being researched to determine if they could be resolved by system enhancement, or if they are outside of the system capacity. Issues identified as enhancements are being prioritized and added to the system enhancement list, and the pain points list is being refined.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The assessment is 50% complete. Uses of spreadsheets outside of CAPES have been identified and are being analyzed as to what extent functionality exists in CAPES or should be built through enhancements. From this an enhancement list will be generated and prioritized.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #12 To: Housing and Community Development, Department of

To ensure that it maximizes the benefit of the funds it has invested in CAPES's development and to support its ongoing efforts to improve CAPES's usability, HCD should, by January 1, 2019, formally direct staff working on those programs to enter data into CAPES and then use those data to manage the contracts and staff workloads associated with the programs.

60-Day Agency Response

Formal direction to all DFA management has been provided. In addition, HCD has updated the user guide and mandatory training is scheduled for each section. Bi-weekly operational meetings have been initiated and CAPES data is being utilized to inform management. Each quarter, additional reports will be incorporated into the meetings for discussion and enhancement of ongoing management oversite and monitoring of programs.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #13 To: Housing and Community Development, Department of

To ensure that it maximizes the benefit of the funds it has invested in CAPES's development and to support its ongoing efforts to improve CAPES's usability, HCD should, by January 1, 2019, develop a remediation plan to augment CAPES in the specific ways required by any HCD programs that are currently unable to use the system for their operational needs. Concurrent with the remediation plan, HCD should develop realistic project management plans, including project milestones, for completing the necessary system upgrades.

1-Year Agency Response

HCD has reviewed and revised the data remediation plan (attached), based on the decision to to replace CAPES over the next few years.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

If HCD follows through with its remediation plan for CAPES, it will implement our recommendation.

6-Month Agency Response

Data remediation plan has been completed and is being implemented. A hard copy of the remediation plan will be provided.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

HCD provided a data remediation plan. However, HCD states that with the assistance of an outside consultant, the department is currently in the process of evaluating the divisions' programmatic and business needs against the CAPES system capacity to inform a cost-benefit analysis and associated final recommendations on the feasibility of continuing to maintain the CAPES system or procuring an off-the-shelf enterprise system. We will review an update from HCD in its next response on whether it will continue to use CAPES and if so, how it will follow through on implementing its remediation plan.

60-Day Agency Response

HCD will create a project plan with project milestones to augment CAPES to meet department needs and ensure that all data in CAPES is accurate and complete. The following tasks will be included: - Sessions will be conducted to identify and document issues (defects, missing functionality, and data issues, etc.)

- Analysis will be conducted to categorize and organize issues discovered in these sessions. Root cause analysis of the issues will be reviewed to determine if issues are known issues, known requests for enhancements, training issues, process issues, or user errors, etc.

- In depth meetings designed to drill down into each of the issues that require CAPES changes will be conducted to identify the requirements and determine levels of effort.

- Staff will prioritize these issues.

- Identify issues will be assigned to sprints based on priority in order to develop a project plan to address all issues across multiple sprints.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #14 To: Housing and Community Development, Department of

To ensure that it maximizes the benefit of the funds it has invested in CAPES's development and to support its ongoing efforts to improve CAPES's usability, HCD should, by January 1, 2019, develop a documented process to ensure that all data in CAPES are accurate and complete. This process should include all phases of contract management, including monitoring. HCD should implement a routine periodic review of this process and update the process as necessary.

Annual Follow-Up Agency Response From September 2022

California Department of Housing and Community Development (HCD) hired Deloitte US to improve usability of CAPES financial data, including contracts. Deloitte US's scope included mapping back-end data in CAPES, reconciling historical contractual financial agreements in CAPES to CALSTARS and Financial Information System for California (FI$Cal), and creating Standard Operating Procedures going forward for reconciliation between CAPES and FI$Cal (the current state accounting system). Deloitte US transitioned monthly reconciliation to HCD staff in July 2021. Moving forward HCD staff will be maintaining reconciliations on a monthly basis.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

HCD provided documentation of its process for performing a monthly reconciliation of data in the CAPES system and an example of its reconciliation report for one month. To the extent that HCD performs these processes in the future, it will address our recommendation.

Annual Follow-Up Agency Response From September 2021

California Department of Housing and Community Development (HCD) hired Deloitte US to improve usability of CAPES financial data, including contracts. Deloitte US's scope included mapping back-end data in CAPES, reconciling historical contractual financial agreements in CAPES to CALSTARS and Financial Information System for California (FI$Cal), and creating Standard Operating Procedures going forward for reconciliation between CAPES and FI$Cal (the current state accounting system). Deloitte US transitioned monthly reconciliation to HCD staff in July 2021. Moving forward HCD staff will be maintaining reconciliations on a monthly basis.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From September 2020

HCD has entered into a financial consulting service contract to develop and improve upon processes to reconcile financial data in CAPES. This service contract will be used to implement best practices and develop financial tools and procedures to streamline complex budgetary controls, including bond management, loan management, and monitoring and controlling administrative expenditures to maintain compliance with statutorily authorized administrative caps. This service contract will assist in addressing the CSA findings.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

HCD has reviewed and revised the data integrity plan, based on the currently expected continued use of the CAPES system as the new Grants Management System (GMS) is piloted on a limited basis.

California State Auditor's Assessment of 1-Year Status: Pending

Based on HCD's remediation plan, existing system data needs to be cleaned up while transitioning to the new system and may required the procurement of a contractor to assist. It also states that HCD program managers estimate the CAPES data cleanup effort could take approximately three to five years and cost approximately $2 million. We will review an update from HCD in its next response on these efforts.

6-Month Agency Response

Data integrity plan has been completed and is being implemented. A hard copy of the integrity plan will be provided.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

HCD provided a CAPES data integrity plan. However, the plan does not include a process for implementing a routine periodic review of ensuring that all data in CAPES is accurate and complete.

60-Day Agency Response

HCD is developing a documented approach to initial and ongoing data integrity/internal controls to be finalized by January 2019, and will include actionable steps to address immediate data integrity issues, inform development of necessary system upgrades, and conduct ongoing regular review of operation reports, and training.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #15 To: Housing and Community Development, Department of

In conjunction with the planning efforts outlined above and to ensure that it can most efficiently manage its limited resources related to IT, HCD should develop a cost-benefit analysis by March 1, 2019, that addresses the costs of continuing to maintain and enhance CAPES in the long term versus the acquisition and maintenance costs of an off-the-shelf database product. At a minimum, it should include the following:

- All costs associated with CAPES's enhancement, support, and future maintenance.

- A documented methodology, including all assumptions, and thorough documentation of the sources for the underlying data.

1-Year Agency Response

After careful review, and in conjunction with our consultant, HCD has determined that it is not feasible with regards to cost and resources, to continue with the assessment and cost-benefit analysis of the CAPES system. HCD has decided to implement a phased replacement of the CAPES system. The department is piloting the use of a new Grants Management System (GMS) for the CDBG program to gauge the feasibility of converting the programs remaining in CAPES to the new GMS system. This approach is outlined in the attached decision document. In addition, the consultant is developing a CAPES replacement plan.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

HCD has procured a consultant to assist with mapping current business needs as it relates to the CAPES system. It is anticipated that the business mapping will be completed within four months (6/30/19). This assessment will inform the development of the cost-benefit analysis, which is scheduled for anticipated completion by 9/30/19.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD will develop a cost-benefit analysis by March 1, 2019, that addresses the costs of continuing to maintain and enhance CAPES in the long term versus the acquisition and maintenance costs of an off-the-shelf database product. The HCD will estimate the level of effort both in staffing and technology costs required to modify CAPES to a sustainable state. This includes upgrade of existing database and application software to conform to current security and application standards. The HCD will also scope the costs of essential high-level enhancements to CAPES. Additionally, the HCD will obtain up front and maintenance cost estimates for one or more off-the-shelf technologies that will accommodate the identified high-level functionality.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #16 To: Housing and Community Development, Department of

To ensure that it is able to meet its administrative monitoring obligations and that it uses housing bond funds in compliance with state law, regulations, and program guidelines, HCD should develop a long-term plan by January 1, 2019, for how it will avoid exceeding the administrative cost limits of those programs in the most immediate danger of overage and for how it will address instances when it has exceeded administrative cost limits. The plan should identify the programs at risk of exceeding the limit; the actions HCD will take for each program to gain efficiencies; its plan for moving staff between programs; a request for more money or legislative changes such as modifying the statutory limit on administrative spending, if necessary; and an evaluation of the consequences of not fulfilling its monitoring obligations.

Annual Follow-Up Agency Response From October 2023

HCD believes that the steps described on the last response addresses the CSA Recommendations. HCD followed up with CSA regarding why they believed our response was not considered fully implemented, but upon further discussion HCD does not believes the additional suggested steps are applicable to the established process and procedures established by DOF. On an annual basis California Department of Housing and Community Development (HCD) uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs. HCD has not exceeded the 5% statutory administrative cap; therefore, HCD believes the steps laid out in the last response are sufficient.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

HCD provided its financial management report, which shows the current status of spending compared to administrative costs limits. However, as we state in our report, HCD has exceeded administrative spending limits for at least two of its programs. We stand by our recommendation that HCD should provide documentation of a plan for how it will address instances when it exceeded the administrative costs limits, such as requesting more funding or considering another option.

Annual Follow-Up Agency Response From September 2022

On an annual basis California Department of Housing and Community Development (HCD) uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs that will be charged to given bond programs. On a monthly basis HCD management reviews a Financial Management Report (FMR) that tracks administrative caps to total program allotments. The FMR allows HCD to identify program administrative costs that are near the statutory cap. Currently Chapter 4(5) of Prop 46 is closest to hitting the administrative cap but HCD has not exceeded the Chapter 4(5) cap. To ensure HCD does not go over the cap of Chapter (4)5 HCD has submitted budget revisions to align the administrative appropriation with the 5% statutory administrative cap. HCD will continue to project administrative costs in the BBA and monitor the budgets using the FMR over the next twenty years to ensure no administrative caps are exceeded. Besides using budget revisions as controls HCD uses HR PeopleSoft to control labor expenditures and can deactivate spending against identified appropriations. HCD will be able to fulfill monitoring requirements associated with Chapter 4(5) by using other sources of funding.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

HCD provided its financial management report, which shows the current status of spending compared to administrative costs limits. However, as we state in our report, HCD has exceeded administrative spending limits for at least two of its programs. HCD did not provide documentation of a plan for how it will address instances when it exceeded the administrative costs limits, such as requesting more funding or considering another option.

Annual Follow-Up Agency Response From September 2021

On an annual basis California Department of Housing and Community Development (HCD) uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs that will be charged to given bond programs. On a monthly basis HCD management reviews a Financial Management Report (FMR) that tracks administrative caps to total program allotments. The FMR allows HCD to identify program administrative costs that are near the statutory cap. Currently Chapter 4(5) of Prop 46 is closest to hitting the administrative cap but HCD has not exceeded the Chapter 4(5) cap. To ensure HCD does not go over the cap of Chapter (4)5 HCD has submitted budget revisions to align the administrative appropriation with the 5% statutory administrative cap. HCD will continue to project administrative costs in the BBA and monitor the budgets using the FMR over the next twenty years to ensure no administrative caps are exceeded. Besides using budget revisions as controls HCD uses HR PeopleSoft to control labor expenditures and can deactivate spending against identified appropriations. HCD will be able to fulfill monitoring requirements associated with Chapter 4(5) by using other sources of funding.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From September 2020

HCD has entered into a financial consulting service contract to develop and improve upon processes to reconcile financial data in CAPES. This service contract will be used to implement best practices and develop financial tools and procedures to streamline complex budgetary controls, including bond management, loan management, and monitoring and controlling administrative expenditures to maintain compliance with statutorily authorized administrative caps. This service contract will assist in addressing the CSA findings.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

HCD has developed a tool which tracks the projected administrative set aside need for each program. This tool will be reviewed on a quarterly basis with the Budgets unit, and updated bi-annually in conjunction with the staffing needs associated with long-term monitoring identified in the staff management tool (SMT). The projections show that HCD will fall within the statutory spending limit for ongoing programs, assuming that 5% of disencumbrances are available for administrative expenses.

California State Auditor's Assessment of 1-Year Status: Pending

As we state in our report, HCD has exceeded administrative spending limits for at least two of its programs. HCD did not provide documentation of a plan for how it will address instances when it exceeded the administrative costs limits, such as requesting more funding, or considering another option.

6-Month Agency Response

HCD has reviewed allowable administrative costs, current administrative set asides and projected workload associated with future program monitoring, and developed a tracking tool to assist in quarterly review of the actual expenditures. The attached risk assessment is the basis for on-going discussions with departmental leadership on programs in danger of exceeding or currently in excess of the administrative limits, and the development of solutions to resolve or mitigate these issues. A hard copy of the risk assessment will be provided

California State Auditor's Assessment of 6-Month Status: Pending

Although HCD identified the programs that already exceeded the limit or are at risk of exceeding the limit, HCD did not provide a plan for how it will cover the costs, whether it will need to request more funding, or another option.

60-Day Agency Response

HCD will update its long-term plan and include the following actions:

- Review of the set aside for administrative costs to determine consistency with statutes and regulations. These limits are not in the Proposition 46 and 1C bond statutes, but rather in the statutes for many of HCD programs.

- Review the amounts set aside for Proposition 46 and 1C bond programs and determine whether they are consistent with these statutory limits

- Identify workload associated with administering and monitoring awards

- Calculate staffing requirements and cost of positions

- Estimate total costs to administer bond programs, including monitoring responsibilities. Annually prepare expenditure plans, which are consistent with long-term administrative plan.

- On a quarterly basis, monitor actual expenditures by program for consistency with the expenditure plans.

- The Budget Office, in conjunction with the Division of Financial Assistance (DFA) management, will monitor expenditure projections on a quarterly basis to ensure resources are sufficient for program activities and requirements.

- The Budget Office and DFA will present any identified variation from the plan or other challenges, as well as suggested resolutions to departmental leadership. The initial review will identify any programs where HCD is at risk of exceeding allowable administrative costs, along with options to address the risk.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #17 To: Housing and Community Development, Department of

To ensure that it complies with state law, prudently uses administrative funding, and promotes transparency, HCD should obtain a legal opinion on whether it can use CalHome funding to monitor BEGIN awards. If it cannot, it should cease doing so.

60-Day Agency Response

The Department requested a legal opinion from its Legal Affairs division. Although the use of funds could be justified, HCD will cease using CalHOME funding to monitor remaining BEGIN grants. Resources to address monitoring will be addressed in Department's administrative plan.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #18 To: Housing and Community Development, Department of

To ensure that it complies with state law, prudently uses administrative funding, and promotes transparency, HCD should calculate and retain only funds equal to its actual administrative costs in instances when it does not disburse awarded funds to a recipient and subsequently grants the funds to another recipient.

Annual Follow-Up Agency Response From October 2023

HCD believes that the steps described on the last response addresses the CSA Recommendations. As mentioned prior. HCD created the FMR which tracks bond program appropriations by administrative and local assistance budget, encumbrance, and actual expenditures. That process has identified errors in erroneously revised budgets that conflicted with bond program administrative caps. and HCD has resolved the administrative cap issue HCD processed budget revisions to comply with state law as mentioned in the prior responses. Therefore, HCD believes the current process timely addresses CSA's concerns and additional procedures would not be necessary to materially improve the process.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

HCD previously provided us with an example of its Financial Management Report, which shows the actual amount used compared to the administrative limits. HCD also provided a budget letter that discusses how to make budget adjustments. However, neither the Financial Management Report nor the budget letter makes clear how HCD should calculate and retain only funds equal to its actual administrative costs in instances when it does not disburse awarded funds to a recipient and subsequently grants the funds to another recipient.

Annual Follow-Up Agency Response From September 2022

To address administrative cap issues California Department of Housing and Community Development (HCD) has taken two steps which involve creating a Financial Management Report (FMR) to identify bond program local assistance and administrative appropriations and submitting budget revisions to realign local assistance and administrative appropriations with applicable bond administrative caps. HCD created the FMR which tracks bond program appropriations by administrative and local assistance budget, encumbrance, and actual expenditures. HCD found that certain programs had erroneously revised budgets that conflicted with bond program administrative caps. To resolve the administrative cap issue HCD processed budget revisions to comply with state law.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

HCD provided us with an example of its Financial Management Report, which shows the actual amount used compared to the administrative limits. HCD also provided a budget letter that discusses how to make budget adjustments. However, neither the Financial Management Report nor the budget letter makes clear how HCD should calculate and retain only funds equal to its actual administrative costs in instances when it does not disburse awarded funds to a recipient and subsequently grants the funds to another recipient.

Annual Follow-Up Agency Response From September 2021

To address administrative cap issues California Department of Housing and Community Development (HCD) has taken two steps which involve creating a Financial Management Report (FMR) to identify bond program local assistance and administrative appropriations and submitting budget revisions to realign local assistance and administrative appropriations with applicable bond administrative caps. HCD created the FMR which tracks bond program appropriations by administrative and local assistance budget, encumbrance, and actual expenditures. HCD found that certain programs had erroneously revised budgets that conflicted with bond program administrative caps. To resolve the administrative cap issue HCD processed budget revisions to comply with state law.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From September 2020

HCD has entered into a financial consulting service contract to develop and improve upon processes to reconcile financial data in CAPES. This service contract will be used to implement best practices and develop financial tools and procedures to streamline complex budgetary controls, including bond management, loan management, and monitoring and controlling administrative expenditures to maintain compliance with statutorily authorized administrative caps. This service contract will assist in addressing the CSA findings.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The PeopleSoft system has been implemented by the Department, however, upon further review of the current PeopleSoft system, it has become clear that this tool still does not give the Department the capacity to adequately track actual administrative spending. Disencumbrances can occur various times in the project's life and may be partial, such that monitoring continues, making estimation of costs associated with disencumbrances equally difficult. HCD believes that 5% is an appropriate percentage of administration funding to take on the re-award of disencumbered funds.

California State Auditor's Assessment of 1-Year Status: Pending

As we state in our report, we believe that it is unnecessary for HCD to retain the full 5 percent for administering the original award because its only costs should have been for making the award and for any limited monitoring it performed. If HCD only retains the actual costs for administering the original award, taking 5 percent for re-awarding funds should be appropriate.

6-Month Agency Response

HCD is in the process of implementing a new software system (PeopleSoft) which will allow for more accurate tracking of program administrative cost. This system is scheduled to be fully implemented by 5/15/19.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Consistent with the plan described in the response to Recommendation 3A, HCD will calculate allowable administrative costs. The Budget Office, in conjunction with DFA management, will ensure that staff costs are allocated to the bond programs based on actual time worked by employees on the programs. HCD is in the process of improving its time accounting system, which will help provide more accurate accounting.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #19 To: Housing and Community Development, Department of

To ensure that it does not exceed administrative cost restrictions and that it maximizes the funds intended to address target populations' housing needs, HCD should estimate when it will run out of administrative funds for any specific program, document its projection methodology, and provide underlying data and support for its estimates. The projections should include, but not be limited to, actual staff time spent on the program, the number of awards being monitored, and the length of monitoring. Staff should provide these projections and methodologies to management for review and approval by December 1, 2018, and then at least biannually thereafter.

Annual Follow-Up Agency Response From October 2023

HCD believes that the steps described on the last response addresses the CSA Recommendations. On an annual basis California Department of Housing and Community Development (HCD) forecasts expenditures against available appropriations and uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs that will be charged to given bond programs. HCD followed up with CSA regarding why they believed our response was not considered fully implemented, but upon further discussion HCD does not believes the additional suggested steps are applicable to the established process and procedures established by DOF.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

HCD provided a budget letter related to adjusting the budget and appropriations. However, the budget letter does not specify that projections should include considerations such as actual staff time spent on the program, the number of awards being monitored, or the length of monitoring. Further, HCD did not provide us with projections for when it estimates that it will run out of administrative funds for any specific program.

Annual Follow-Up Agency Response From September 2022

On an annual basis California Department of Housing and Community Development (HCD) forecasts expenditures against available appropriations and uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs that will be charged to given bond programs.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

HCD provided a budget letter related to adjusting the budget and appropriations. However, the budget letter does not specify that projections should include considerations such as actual staff time spent on the program, the number of awards being monitored, or the length of monitoring. Further, HCD did not provide us with projections for when it estimates that it will run out of administrative funds for any specific program.

Annual Follow-Up Agency Response From September 2021

On an annual basis California Department of Housing and Community Development (HCD) forecasts expenditures against available appropriations and uses the Baseline Bond Adjustment (BBA) drill to Department of Finance (DOF) to plan and document administrative costs that will be charged to given bond programs.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From September 2020

HCD has entered into a financial consulting service contract to develop and improve upon processes to reconcile financial data in CAPES. This service contract will be used to implement best practices and develop financial tools and procedures to streamline complex budgetary controls, including bond management, loan management, and monitoring and controlling administrative expenditures to maintain compliance with statutorily authorized administrative caps. This service contract will assist in addressing the CSA findings.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

HCD has developed a tool which tracks the projected administrative set aside need for each program. This tool will be reviewed on a quarterly basis with the Budgets unit, and updated bi-annually in conjunction with the staffing needs associated with long-term monitoring identified in the staff management tool (SMT).

California State Auditor's Assessment of 1-Year Status: Pending

HCD did not provide evidence to show that it documents its projection methodology or provide underlying data and support for its estimates.

6-Month Agency Response

HCD has developed a tool which tracks the projected administrative set aside need for each program. This tool will be reviewed on a quarterly basis with the Budgets unit and updated bi-annually in conjunction with the staffing needs associated with long-term monitoring identified in the staff management tool (SMT).

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD will include within the plan developed, in the response to Recommendation 3A, the long-term plan and projection of how long the administrative set aside will last for each bond-funded program. Staff and other administrative costs will be tracked quarterly, and the long-term estimate updated bi-annually.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-037

Agency responses received are posted verbatim.