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

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, Staff Auditor denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

3 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

4 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 or more for‐sale homes must be affordable  Developer may also pay a cash‐in‐lieu fee instead denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

5 • Zones determine the percentage applied to get the appropriate cash‐in‐lieu fee. denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

6 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 on neighborhood type. denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

7 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

8 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

9 Affordable Housing Fund, continued Department of Community Planning and Development • Responsible for the calculation and collection of linkage fees • Responsible for coordinating approvals for linkage fee exemptions denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

Gap‐Financing 10 • Additional tool the Office of Gap Economic Development uses to build affordable units Total Housing Sale • Financing covers the gap Project Costs Developer Proceeds Proceeds between the cost to build to From affordable homes and the Developer Affordable Unit restrictively set low sale Sales prices denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

11 11 Finding 1 The Office of Economic Development’s Lack of Proper Implementation and Enforcement of Regulations Is Not Ensuring Affordability of Housing denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

12 12 Sub‐Finding 1: Initial Sales Prices Inaccurate Initial Sale Prices Resulted in Mispricing of Homes denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

The Office of 13 Economic Development: • Calculates maximum sale prices for affordable homes • Publishes maximum sale price tables denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

14 14 Initial Sales Prices, continued denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

15 15 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 denvergov.org/Auditor

16 Recommendation 1.1: Design Internal Controls to Ensure Correct Maximum Sale Price Table Is Used Agency Response: Agree Implementation Date: March 31, 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

17 17 Sub‐Finding 2: Income Eligibility The Office of Economic Development Is Not Properly Determining Income Eligibility for Prospective Homebuyers of Affordable Homes denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

18 18 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

19 Recommendation 1.2: Design Internal Controls for Income Verification Agency Response: Agree Implementation Date: Completed denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

20 20 Sub‐Finding 3: Recording Process Errors Exist in the Office of Economic Development’s Recording Process denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

21 21 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

22 Recommendation 1.3: Design Internal Controls for Recording Agency Response: Agree Implementation Date: May 31, 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

23 Recommendation 1.4: Research Use of Secondary Liens Agency Response: Agree Implementation Date: May 31, 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

24 24 Sub‐Finding 4: Resale Prices The Office of Economic Development Miscalculated Maximum Resale Prices denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

25 25 Resale Prices, continued • Incorrect and unsupported appraisals • Incorrect and unsupported Case/Shiller Index rates applied • Miscalculations in total days of ownership denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

26 Recommendation 1.5: Design Internal Controls for Reviewing Resale Prices Agency Response: Agree Implementation Date: March 1, 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

27 27 Sub‐Finding 5: Cash‐in‐Lieu Payments The Office of Economic Development Mishandled Cash‐in‐Lieu Payments denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

28 28 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” denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

How a Cash‐In‐Lieu Fee Is Calculated: 29 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

30 30 Cash‐in‐Lieu Payments, continued • 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

31 Recommendation 1.6: Rectify Overpayment Received in 2014 from Developer Agency Response: Agree Implementation Date: January 31, 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

32 32 Sub‐Finding 6: Incomplete Data The Office of Economic Development Lacks an Accurate and Complete Compliance Database of Affordable Units denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

33 33 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

34 Recommendation 1.7: Design Internal Controls for Data Accuracy Agency Response: Agree Implementation Date: Fourth Quarter 2019 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

35 35 Sub‐Finding 7: Incentive Payments The Office of Economic Development Exceeded Incentive Payment Annual Maximum denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

36 36 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 denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

37 Recommendation 1.8: Design Internal Controls for Processing of Incentive Payments Agency Response: Agree Implementation Date: Completed denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

38 38 Sub‐Finding 8: Rental Monitoring The Office of Economic Development Is Not Monitoring Federally Funded Rental Projects in a Timely Manner denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor

39 39 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.” denvergov.org/Auditor Timothy M. O'Brien, CPA, Auditor