Audit Committee denvergov.org/Auditor Timothy M. O'Brien, CPA, - - PowerPoint PPT Presentation

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Audit Committee denvergov.org/Auditor Timothy M. O'Brien, CPA, - - PowerPoint PPT Presentation

Aug 26, 2022 15 likes •487 views

1 Audit Committee denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor 2 Audit Committee Affordable Housing Audit December 2018 Jared Miller, Audit Supervisor Pat Schafer, Audit Supervisor Shaun Wysong, Senior Auditor Chris Wilson,

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Audit Committee

Timothy M. O'Brien, CPA, Auditor

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Audit Committee

Affordable Housing Audit December 2018

Jared Miller, Audit Supervisor Pat Schafer, Audit Supervisor Shaun Wysong, Senior Auditor Chris Wilson, Staff Auditor

Timothy M. O'Brien, CPA, Auditor

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Background

Affordable Housing:

  • Occupants pay no more than 30 percent of their gross

income for housing costs

  • Eligibility for affordable housing programs is based on a

household’s area median income (AMI)

  • Denver’s 2018 AMI for a single‐person household is $63,000

Timothy M. O'Brien, CPA, Auditor

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Inclusionary Housing Ordinance

  • Enacted in 2002 to increase number of low‐ and

moderate‐income housing units

  • 10 percent of units in residential developments of 30
  • r more for‐sale homes must be affordable
  • Developer may also pay a cash‐in‐lieu fee instead

Timothy M. O'Brien, CPA, Auditor

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Timothy M. O'Brien, CPA, Auditor

  • Zones determine

the percentage applied to get the appropriate cash‐in‐lieu fee.

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Background, continued

  • Income Verification – The Office of Economic

Development verifies a homebuyer is within the AMI range and housing payments are affordable.

  • Incentive Payments – Developers may apply for

financial incentives for building affordable units based

  • n neighborhood type.

Timothy M. O'Brien, CPA, Auditor

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Timothy M. O'Brien, CPA, Auditor

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Affordable Housing Permanent Fund Ordinance

  • Approved a dedicated permanent source of funding

for affordable housing in September 2016

  • Consists of two funding sources:
  • Property Tax Revenue Fund
  • Linkage Fee Revenue Fund

Timothy M. O'Brien, CPA, Auditor

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Affordable Housing Fund, continued

Department of Community Planning and Development

  • Responsible for the calculation and collection
  • f linkage fees
  • Responsible for coordinating approvals for

linkage fee exemptions

Timothy M. O'Brien, CPA, Auditor

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Timothy M. O'Brien, CPA, Auditor

Gap‐Financing

Developer Proceeds From Affordable Unit Sales

Total Housing Project Costs Gap Sale Proceeds to Developer

  • Additional tool the Office of

Economic Development uses to build affordable units

  • Financing covers the gap

between the cost to build affordable homes and the restrictively set low sale prices

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Finding 1

The Office of Economic Development’s Lack

  • f Proper Implementation and Enforcement
  • f Regulations Is Not Ensuring Affordability
  • f Housing

Timothy M. O'Brien, CPA, Auditor

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Sub‐Finding 1: Initial Sales Prices

Inaccurate Initial Sale Prices Resulted in Mispricing of Homes

Timothy M. O'Brien, CPA, Auditor

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Timothy M. O'Brien, CPA, Auditor

The Office of Economic Development:

  • Calculates

maximum sale prices for affordable homes

  • Publishes

maximum sale price tables

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Initial Sales Prices, continued

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Initial Sales Prices, continued

OED failed to calculate max sale price table for 2007

  • 51 affordable homes possibly sold for less than they should have

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.1:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls to Ensure Correct Maximum Sale Price Table Is Used Agency Response: Agree Implementation Date: March 31, 2019

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Sub‐Finding 2: Income Eligibility

The Office of Economic Development Is Not Properly Determining Income Eligibility for Prospective Homebuyers of Affordable Homes

Timothy M. O'Brien, CPA, Auditor

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Income Eligibility, continued

Errors in Income Verification Process

  • The Office of Economic Development did not

ensure affordability of housing payments

  • Seven of 23 for‐sale units had housing payments

above 30 percent of owner’s gross income

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.2:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls for Income Verification Agency Response: Agree Implementation Date: Completed

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Sub‐Finding 3: Recording Process

Errors Exist in the Office of Economic Development’s Recording Process

Timothy M. O'Brien, CPA, Auditor

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Recording Process, continued

Memorandum of Acceptance Errors

  • Six improperly categorized
  • Three recorded under misspelled names
  • Five incorrect or no reception numbers

Secondary Liens Could Improve Controls

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.3:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls for Recording Agency Response: Agree Implementation Date: May 31, 2019

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Recommendation 1.4:

Timothy M. O'Brien, CPA, Auditor

Research Use of Secondary Liens Agency Response: Agree Implementation Date: May 31, 2019

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Sub‐Finding 4: Resale Prices

The Office of Economic Development Miscalculated Maximum Resale Prices

Timothy M. O'Brien, CPA, Auditor

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Resale Prices, continued

  • Incorrect and unsupported appraisals
  • Incorrect and unsupported Case/Shiller Index

rates applied

  • Miscalculations in total days of ownership

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.5:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls for Reviewing Resale Prices Agency Response: Agree Implementation Date: March 1, 2019

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Sub‐Finding 5: Cash‐in‐Lieu Payments

The Office of Economic Development Mishandled Cash‐in‐Lieu Payments

Timothy M. O'Brien, CPA, Auditor

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Cash‐in‐Lieu Payments, continued

Two options under Inclusionary Housing Ordinance:

  • 1. Allocate 10 percent of units in development as affordable units

and sell at below‐market rates

OR

  • 2. Pay fee instead of building, called “cash‐in‐lieu fee”

Timothy M. O'Brien, CPA, Auditor

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How a Cash‐In‐Lieu Fee Is Calculated:

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Cash‐in‐Lieu Payments, continued

Timothy M. O'Brien, CPA, Auditor

  • Only two cash‐in‐lieu payments have been made since 2014
  • Both payments were problematic
  • 1. OED used wrong table when determining cash‐in‐lieu
  • Over‐charged developer $35,762
  • 2. This error allowed City to issue building permit AND

certificate of occupancy prior to collecting cash‐in‐lieu.

  • Took City 12 years to collect $1.5 million cash in lieu fee
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Recommendation 1.6:

Timothy M. O'Brien, CPA, Auditor

Rectify Overpayment Received in 2014 from Developer Agency Response: Agree Implementation Date: January 31, 2019

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Sub‐Finding 6: Incomplete Data

The Office of Economic Development Lacks an Accurate and Complete Compliance Database of Affordable Units

Timothy M. O'Brien, CPA, Auditor

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Incomplete Data, continued

Data Inaccuracies Found:

  • 27 units from two developments missing
  • Nine reception dates in place of dates of sale
  • One instance each of:
  • Owner placed in incorrect field,
  • Duplicate owner with incorrect sales price, and
  • Missing sales price

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.7:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls for Data Accuracy Agency Response: Agree Implementation Date: Fourth Quarter 2019

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Sub‐Finding 7: Incentive Payments

The Office of Economic Development Exceeded Incentive Payment Annual Maximum

Timothy M. O'Brien, CPA, Auditor

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Incentive Payments, Continued

  • Incentive to developers for building affordable units under the

Inclusionary Housing Ordinance

  • Sunsetted December 2016
  • $250,000 max can be paid out to any ONE developer per year
  • The Office of Economic Development violated cap and paid out

$318,500 to one developer in 2018

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.8:

Timothy M. O'Brien, CPA, Auditor

Design Internal Controls for Processing of Incentive Payments Agency Response: Agree Implementation Date: Completed

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Sub‐Finding 8: Rental Monitoring

The Office of Economic Development Is Not Monitoring Federally Funded Rental Projects in a Timely Manner

Timothy M. O'Brien, CPA, Auditor

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Rental Monitoring, continued

Code of Federal Regulations: “The participating jurisdiction must review rents for compliance and approve or disapprove them every year.”

Section 92.252(f)(2) of Code of Federal Regulations states that “[t]he participating jurisdiction must review rents for compliance and approve or disapprove them every year.”

Timothy M. O'Brien, CPA, Auditor

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Rental Monitoring, continued

Rent‐Monitoring Issues:

  • No desk review for 10 of 14 HOME‐funded

rental projects for more than a year

Timothy M. O'Brien, CPA, Auditor

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Recommendation 1.9:

Timothy M. O'Brien, CPA, Auditor

Perform Annual Monitoring Agency Response: Agree Implementation Date: June 30, 2019

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Finding 2

The Department of Community Planning and Development’s Process for Assessing Linkage Fees Is Effective but Could Be Improved

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Sub‐Finding 1: Linkage Fees

Incorrectly Approved Linkage Fee Exemptions

  • Examined 54 linkage

fee exemptions

  • Four residential

projects incorrectly received exemptions

Timothy M. O'Brien, CPA, Auditor

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Recommendation 2.1:

Timothy M. O'Brien, CPA, Auditor

Create Overlays for Existing Affordable Housing Plan Boundary within Department’s Mapping Function Agency Response: Agree Implementation Date: February 15, 2019

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Sub‐Finding 2: Application Review

Inconsistent Application of Review Procedures

  • 19 of 54 linkage

fee applications

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Recommendation 2.2:

Timothy M. O'Brien, CPA, Auditor

Conduct Training for Staff Who Process and Input Linkage Fee Applications to Ensure Correct Procedures Are Followed Agency Response: Agree Implementation Date: January 16, 2019

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Audit Committee

Timothy M. O'Brien, CPA, Auditor