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HomeMy WebLinkAboutAudit Reports - Public - Revitilization Compliance and Performance Assessment - 2/23/2024 FINAL REPORT City of Glendale REVITILIZATION COMPLIANCE AND PERFORMANCE ASSESSMENT Febuary 23, 2024 Moss Adams LLP 999 Third Avenue, Suite 2800 Seattle, WA 98104 (206) 302-6500 Revitalization Compliance and Performance Assessment Report FOR INTERNAL USE OF CITY OF GLENDALE ONLY Table of Contents Executive Summary 1 A. Objectives 1 B. Conclusions 1 C. Commendations 2 Detailed Report 3 A. Introduction 3 B. Background 3 C. Scope and Methodology 3 Findings and Recommendations 5 Process Improvement Recommendation 11 Appendix: Definitions of Assessment Finding Rankings 12 Revitalization Compliance and Performance Assessment Report | 1 FOR INTERNAL USE OF CITY OF GLENDALE ONLY EXECUTIVE SUMMARY Moss Adams LLP (Moss Adams) was contracted by the City of Glendale (the City) to perform a compliance and performance assessment related to the City’s Home Rehabilitation Program. This assessment was designed to assess the economy and effectiveness of the City’s home repair recruitment and loan management processes in addressing organizational goals while facilitating consistent compliance with regulatory requirements. We analyzed loan portfolio information, program goal documents, program outreach material, and accomplishments data. Additionally, we interviewed a selection of individuals involved in the City’s Home Rehabilitation Program and reviewed relevant documents from the City including selected peer program materials. This engagement was performed in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants. Accordingly, we provide no opinion, attestation, or other form of assurance with respect to our work or the information upon which our work is based. This report was developed based on information gained from our interviews and analyses of sample documentation. The procedures we performed do not constitute an examination in accordance with generally accepted auditing standards or attestation standards. Based on the priorities of the City’s Community Revitalization Division, three objectives were included in the scope of the assessment related to the City’s Home Rehabilitation Program. The objectives were to assess the extent to which:  Participant loans are managed in a manner that balances the cost of upkeep with the likelihood of repayment  Participant loan management practices are aligned with key regulatory requirements and program goals  Participant recruitment (outreach) and selection practices were aligned with key regulatory requirements and program goals The procedures and testing performed identified two areas that warrant improvement. These are highlighted in the table that follows. FINDINGS AND RECOMMENDATIONS Medium Risk Finding 1 Finding The City lacks reliable, accessible data related to historical rates of repayment and forgiveness on its Rehabilitation Program loans. A lack of reliable, accessible data limits the City’s ability to make decisions regarding aged, outstanding rehabilitation loans. Recommendation The historical loan dataset should be cleaned and reconcile the population of all loans to the population of currently outstanding loans. Once reliable data is achieved, it should be analyzed to develop a recommendation Revitalization Compliance and Performance Assessment Report | 2 FOR INTERNAL USE OF CITY OF GLENDALE ONLY FINDINGS AND RECOMMENDATIONS regarding the potential write-off, recharacterization, or restructuring of aged, outstanding loans. Low Risk Finding 2 Finding The City lacks accessible, detailed, readily available program data related to the homeowners and populations served in its Residential Rehabilitation Program. Recommendation Clean up and centralize data related to historical Residential Rehabilitation Programs. Consider analyzing historical data for program participation by age, disability status, geographic location, and other relevant criteria. Consider utilizing the resulting data to evaluate whether future program strategy should be refined in the areas of program goals, selection, prioritization, and outreach based on historical program data and trends. Although the focus of this compliance and performance assessment was to identify areas of potential noncompliance with the City’s Home Rehabilitation Program and find opportunities for improvement, it is important to note the areas that were operating well. The City’s Revitalization Division should be commended for the following accomplishments:  New Process for Loan Management: We observed that the City had implemented new practices to improve consistency in loan terms. All residential rehabilitation projects are now funded by providing the homeowner a 10-year forgivable/principal reduction loan.  Participant Selection and Prioritization Process: During our analysis of regulatory requirements, we found that participant selection and prioritization processes were aligned with those regulatory requirements that were specifically reviewed during this assessment. Additionally, throughout our analysis of a sample of the participant selection and prioritization processes, we did not identify any deviations from regulatory requirements. We would like to thank City staff and management for their time and efforts in assisting with this project. Revitalization Compliance and Performance Assessment Report | 3 FOR INTERNAL USE OF CITY OF GLENDALE ONLY DETAILED REPORT Moss Adams was contracted by the City to perform a compliance and performance assessment over the City’s Revitalization Program. We assessed the economy and effectiveness of the City’s home repair recruitment and loan management processes in addressing organizational goals while facilitating consistent compliance with regulatory compliance. This assessment was performed as part of the FY 2022 Annual Audit Plan developed by the City’s Independent Internal Audit Program (IIAP). Our compliance assessment was performed between June and October 2023. Please refer to the appendix for definitions of assessment finding rankings. Through the City of Glendale’s Community Development Office and specifically within the Community Revitalization Division, the Community Development Block Grant (CDBG) Program funds several programs to support the City’s Home Rehabilitation Program. These funds are awarded from the US Department of Housing and Urban Development (HUD) to address needs such as infrastructure, economic development projects, public facilities installation, community centers, housing rehabilitation, public services, clearance/acquisition, microenterprise assistance, code enforcement, homeowner assistance, and more. As a recipient of federal funds, the program is subject to several federal regulations and statutory requirements for the proper use and management of federal funding. Based on the priorities of the City’s Community Revitalization Division, three objectives were included in the scope of the assessment related to the City’s Rehabilitation Program. The objectives were to assess the extent to which:  Participant loans are managed in a manner that balances the cost of upkeep with the likelihood of repayment  Participant loan management practices are aligned with key regulatory requirements and program goals  Participant recruitment (outreach) and selection practices were aligned with key regulatory requirements and program goals To obtain an understanding of specific processes and controls, and the City’s Home Rehabilitation program overall, we conducted interviews with personnel from the Community Revitalization Division. We performed the following detailed testing and analysis procedures:  Loan Recipient Processes: We researched best practices, among other similar government programs, related to loan participant selection processes, including selection documentation and loan file maintenance. We compared best practices identified to the City's current practices and assessed for any opportunities for improvement. In addition, we researched HUD regulatory requirements related to loan application and recipient documentation and compared them to the City's current practices to identify any potential opportunities where non-compliance could occur. Finally, we compared current program practices to the over-arching program goals to identify potential misalignment. Revitalization Compliance and Performance Assessment Report | 4 FOR INTERNAL USE OF CITY OF GLENDALE ONLY  Revitalization Program Loan Management Processes: We researched best practices and regulatory requirements related to loan management for similar government programs (regulatory requirements for this specific funding source) and compared them to current practices. Additionally, we assessed the extent to which current loan management practices align with these practices, with an emphasis on identifying whether loan forgiveness is common, how long organizations wait before forgiving loans, and how they consider likelihood of repayment in recruitment efforts. ○ We attempted to assess the cost of upkeep of all existing loans both in terms of payments to outside groups and internal staff time, as well as the likelihood of loan repayment over time by analyzing data within the Outstanding Loans and the All-Loans spreadsheets.  Outreach of CDBG-funded Services: We researched best practices and regulatory requirements related to outreach for similar government programs (regulatory requirements for this specific funding source) and compared them to current practices. Additionally, we assessed the extent to which current recruitment practices align with these practices. We also compared the extent to which program goals align with program practices to identify potential misalignment. Revitalization Compliance and Performance Assessment Report | 5 FOR INTERNAL USE OF CITY OF GLENDALE ONLY FINDINGS AND RECOMMENDATIONS 1. Finding The City lacks reliable, accessible data related to historical rates of repayment and forgiveness on its Rehabilitation Program loans. A lack of reliable, accessible data limits the City’s ability to make decisions regarding aged, outstanding rehabilitation loans. Recommendations The historical loan dataset should be cleaned and reconcile the population of all loans to the population of currently outstanding loans. Once reliable data is achieved, it should be analyzed to develop a recommendation regarding the potential write-off, recharacterization, or restructuring of aged, outstanding loans. Condition: The City’s current listing of outstanding residential rehabilitation loans date back to 1981, with no documented policy around when or whether to write off aged loans. While new loans are structured as 10-year deferred, forgivable loans, prior loans are maintained in perpetuity relative to their initial structure. The City’s Home Rehabilitation Program does not have a process or policy regarding the forgiveness of loans that were not initially structured as forgivable. Of the $5.4M outstanding loan portfolio, $272k of receivables (30 of 167 outstanding loans as of June 2023) related to loans opened in 1993 or earlier. The average balance of these 30+ year old loans is $9k. It costs an average of $100 per year in loan servicing fees to carry each outstanding loan. We were unable to form conclusions related to probability of loan repayment by loan age, as we were unable to reconcile the population of all historical loans to the population of current, outstanding loans. We identified discrepancies between the spreadsheet listing all historical rehabilitation loans (“All Loans” spreadsheet) received from the City and the spreadsheet of outstanding loans as maintained by loan servicer CRF (“CRF data”). For example, the total outstanding loans per CRF data was 167 loans and $5.5M, whereas total outstanding loans per the All Loans spreadsheet was 199 loans and $10.7M. In comparing the two lists, we identified the following:  93 (of 199) loans listed at a different amount in the CRF data as compared to the All Loans spreadsheet.  23 (of 199) loans where date of maturity was different in the CRF data as compared to the All Loans spreadsheet.  24 loans in the CRF data that were either not found or not able to be matched to loans on the All Loans spreadsheet. Criteria: HUD-funded jurisdictions may choose to customize their loan product, including terms and interest rates, to meet the individual needs of borrowers. HOME-program-specific guidance indicates that there should be a designated process for loan forgiveness. Recordkeeping requirements under HOME include the requirement that written agreements be retained for five years after the agreement terminates. For all HUD programs (including HOME and CDBG), jurisdictions must establish and Revitalization Compliance and Performance Assessment Report | 6 FOR INTERNAL USE OF CITY OF GLENDALE ONLY maintain sufficient records to document that program requirements have been met. Further, recordkeeping is critical to successful management of program activities and historical data plays a key role in decision making. Cause: Loans have moved between various loan servicing companies. Historical (paid, closed, or forgiven) loan data is housed in an Excel spreadsheet, which is understood in depth by one employee in the Community Revitalization Division. Currently, there is no documented procedure regarding the maintenance of this data or addressing how historical housing rehabilitation program loans should be addressed. Effect: The perpetual maintenance of aged loans does not contribute to the achievement of program goals articulated in the City’s FY 23-24 Annual Action Plan, such as access to affordable housing or enhanced livability, particularly for loans that are not expected to generate program income. It is difficult to make recommendations and decisions related to these aged loans without well-formatted, accessible, and reliable loan data. There is a risk, particularly with loans closed more than seven years ago (outside the loan servicer period of document retention), that historical (closed/paid/forgiven) loan data is not reliable. Without a reliable and complete dataset of historical (closed/paid/forgiven) loan data, it is difficult for the City to make policy decisions regarding aged, outstanding loans or decisions impacting the loan program going forward. Recommendations We recommend that the City clean up the historical loan dataset and reconcile the population of all loans to the population of currently outstanding loans. The data should be formatted in such a way that it can be easily pivoted and analyzed. Key data attributes for a population of all historical loans should include:  Loan number  Loan type  Open date  Maturity date  Original principal  Current outstanding principal  Interest rate  Interest accrued  Interest paid  Status (outstanding, forgiven, paid, closed/other)  Date of loan forgiveness/closure (if applicable) Once the data is in a form that can be easily analyzed, consider using historical rates of loan repayment and levels of program income by loan age and loan type to develop a recommendation regarding the potential write-off, recharacterization, or restructuring of aged, outstanding loans. Additionally, the City should develop and implement a policy/procedure for loan forgiveness, articulating the circumstances under which loans that were not structured to be forgiven may be Revitalization Compliance and Performance Assessment Report | 7 FOR INTERNAL USE OF CITY OF GLENDALE ONLY restructured to be forgiven. The policy should address criteria for decision-making, including timeframes, loan recipient, loan amount, and other factors that may impact loan forgiveness decisions, and the policy should be aligned with program goals. Due to the potential for part of the loan servicing workload to be absorbed by City staff during 2023, there is increased benefit to developing recommended policies regarding the forgiveness of aged, previously unforgiveable loans as continuing to carry these aged loans may heighten workload for City staff without increasing probable program income. MANAGEMENT RESPONSE Management Agreement Concur Owner Revitalization Administrator and Supervisors Target Completion Date June 30, 2024 Action Plan See action plan described in finding 2. 2. Finding The City lacks accessible, detailed, readily available program data related to the homeowners and populations served in its Residential Rehabilitation Program. Recommendations Clean up and centralize data related to historical Residential Rehabilitation Programs. Consider analyzing historical data for program participation by age, disability status, geographic location, and other relevant criteria. Consider utilizing the resulting data to evaluate whether future program strategy should be refined in the areas of program goals, selection, prioritization, and outreach based on historical program data and trends. Condition: Due to a lack of a centralized database for historical residential rehabilitation project data, the City lacks accessible, detailed, readily available data related to the homeowners served in its Residential Rehabilitation Program. A lack of accessible, readily available historical data limits the City’s ability to analyze past performance in order to make decisions regarding program goals, priorities, and outreach activities going forward. While data related to historical rehabilitations does exist and appears to be complete for the purpose of HUD-required reporting at the summary level, this data is currently housed in a number of unlinked spreadsheets. The City’s current residential rehabilitation goals, as articulated within its Consolidated Plan and Annual Action Plans, are general rather than specific. While the plans mention greater need among certain populations (seniors, those with disabilities, those residing in zip codes 85301 and 85302), there is not currently a prioritization of these populations within the applicant selection process, which is a first-come, first-served selection process. Because there is not easily accessible, detailed data related to the populations currently served by the program, it is difficult to determine whether program Revitalization Compliance and Performance Assessment Report | 8 FOR INTERNAL USE OF CITY OF GLENDALE ONLY strategy has been successful at reaching those most in need or whether program strategy should be adjusted. In addition, we identified inconsistencies with the articulation of program goals and performance against goals related to the residential rehabilitation program, as articulated in the FY20-24 Consolidated Plan, rearticulated within each subsequent Annual Action Plan, and evaluated within the annual Consolidated Annual Performance and Evaluation Report (CAPER). For example, we noted:  FY20-24 Consolidated Plan total units goal of either 350 or 353 units, and a corresponding FY20-21 CAPER goal of either 353 or 435 units.  Annual unit goal of either 85 or 81 units within the FY21-22 Annual Action Plan.  Annual goal of either 85 or 11 units within the FY22-23 Annual Action Plan.  Annual unit goal of either 85 or 100 units in the FY23-24 Annual Action Plan. Criteria: For all HUD programs (including HOME and CDBG), jurisdictions must establish and maintain sufficient records to document that program requirements have been met. Recordkeeping is critical to successful management of program activities and historical data plays a key role in decision-making. Cause: Residential Rehabilitation Program data is housed in various spreadsheets, and required HUD reporting is completed in a decentralized manner, by requesting and compiling data points from various sources rather than querying one centralized database or data repository. The City has been working on migrating data into an Oracle database, but there have been delays within this process. Effect: Without accessible program data, it is difficult to carry out performance measurement and management for the program. Without centralized, easy-to-query program achievement data, it is difficult to draw conclusions related to past program performance or set program strategy going forward. It is difficult to identify underserved populations within the program and to plan robust, targeted outreach to these populations and/or to community partners who interact with these populations. It is also difficult to report consistently on progress against program goals. Recommendations The City should clean up and centralize data related to historical residential rehabilitation projects. Consider analyzing historical data for program participation by age, disability status, geographic location, and other relevant criteria. Also consider refining future program strategy in the areas of:  Program goals  Selection  Prioritization  Outreach based on historical program data and trends Per HUD guidance, jurisdictions should think about the following in relationship to recordkeeping systems: Revitalization Compliance and Performance Assessment Report | 9 FOR INTERNAL USE OF CITY OF GLENDALE ONLY  Is there a clearly defined process for acquiring, organizing, storing, retrieving, and reporting information about HOME- and CDBG-funded activities?  How can the documentation and reporting systems be strengthened to meet HUD requirements?  Who is responsible for the majority of record keeping and reporting tasks, and are they properly trained and supported?  How can standardized procedures and the removal of duplicative records streamline the record keeping and reporting process?  What types of records and reports could be automated (i.e., computerized) that are not now? Complete and accessible records and reports will serve to inform leadership on past program performance against program goals and to inform future program strategy and program goals. Program activities should be designed to meet program goals. Program goals and objectives should be monitored and assessed in order to inform appropriate internal control changes and process improvements over time. Program objectives and their relationship to program design need to be clearly established in the jurisdiction’s Consolidated Plan. Per HUD, any preference with regards to participants should be described in the jurisdiction’s Consolidated Plan. While many jurisdictions elect to keep their Consolidated Plan goals general rather than specific to allow for program flexibility throughout the Consolidated Plan 5-year period, some jurisdictions elect to prioritize certain populations through selection criteria. Per HUD, selection of homeowners to participate can occur through one of the following:  First-come, first-served  Lottery  Using selection criteria (ranking applications) Populations with selection priority among peer jurisdictions analyzed include:  Households with seniors aged 62 and up  Households with disabled persons  Households with veterans  Households of very low income (e.g., less than 60% AMI)  Homeowners who have lived in their home for a longer period of time (e.g., greater than 15 years)  Homeowners in certain council districts (e.g., number of participants per district assigned based on equity criteria)  Households in a neighborhood with more than 60% renter households Participant prioritization can inform outreach and advertising strategy related to the program. If a rehabilitation program is not targeted to a specific population within the City, marketing need not be targeted, but should ensure information is widely distributed. If the program will target specific populations, those populations should be clearly defined, and marketing should be highly targeted. Some methods of advertisement and outreach noted among peer jurisdictions analyzed were the following:  Postcards Revitalization Compliance and Performance Assessment Report | 10 FOR INTERNAL USE OF CITY OF GLENDALE ONLY  Press releases  YouTube videos  News features (e.g., City mayor visits a past program participant)  Yard signs  Targeted informational meetings at libraries and recreational centers  Past program participant testimonials  Email  Social media  Neighborhood associations MANAGEMENT RESPONSE Management Agreement Concur Owner Revitalization Administrator and Supervisors Target Completion Date June 30, 2024 Action Plan The Revitalization team has recognized that accurate and reliable data is crucial for success. However, the limited availability of loan forgiveness and repayment data, as well as the lack of effective maintenance of demographic information of past program participants, has been a challenge. To address this issue, the Division is taking proactive steps to ensure the accuracy and consistency of loans with the terms and conditions of the original loan contracts. The Division is partnering with a new service provider to transfer its loan portfolio and has requested that the service provider assist with cleaning up the portfolio and ensuring data reliability. Additionally, the staff will attempt to identify program participants' age, race, disability status, and other relevant data during the time of this transfer. The Division is also implementing an internal software system to store this information in the future. In the meantime, the Division will update its policies and procedures and identify a single source for retaining this data internally. The Revitalization Administrator and Supervisors, with the help of their team, anticipate completing this transfer and data clean-up by the end of the fiscal year. Once the data has been reviewed and confirmed to be reliable, the Division will begin its internal assessment of potential write-offs and recharacterization or restructuring of aged and outdated loans. This proactive approach will ensure that the Division can effectively assess and manage its portfolio, leading to better outcomes for all program participants. Revitalization Compliance and Performance Assessment Report | 11 FOR INTERNAL USE OF CITY OF GLENDALE ONLY PROCESS IMPROVEMENT RECOMMENDATION Category Process Improvement Recommendation 1 Policies and Procedures Although we were not able to review any policies and procedures related to the Home Rehabilitation Program, the Community Revitalization Division mentioned that they are working to finalize policies and procedures related to City processes for the program. It’s recommended that the Community Revitalization Division develop an administrative policy, plan, and procedure for its Home Rehabilitation Program describing, at a minimum, the following:  The objectives for the program  Program oversight  Who on staff is responsible for accomplishing which tasks  The method and criteria for screening and selecting applicants  If a waiting list will be used, how it will be administered  Available forms of assistance and criteria for determining the types of assistance offered to various households  A flowchart of key activities to be undertaken and an anticipated timeline for accomplishing these tasks Revitalization Compliance and Performance Assessment Report | 12 FOR INTERNAL USE OF CITY OF GLENDALE ONLY APPENDIX: DEFINITIONS OF ASSESSMENT FINDING RANKINGS We utilized the City IIAP’s risk rankings, presented below, and assigned rankings based on our professional judgment. A qualitative assessment of high, medium, or low helps to prioritize implementation of corrective action as shown in the following table. HIGH Critical control deficiencies that expose the City to a high degree of combined risks. Recommendations from high-risk findings should be implemented immediately (preferably within three months) to address areas with the most significant impact or highest likelihood of loss, misappropriation, or damage related to the City assets. MEDIUM Represents less than critical deficiencies that expose the City to a moderate degree of combined risks. Recommendations arising from medium risk findings should be implemented in a timely manner (preferably within six months), to address moderate risks and strengthen or enhance efficiency in internal controls on areas with moderate impact and likelihood of exposure. LOW Represents low risk or control deficiencies and the exposure is not likely to expose the City and its assets to significant losses. However, they should be addressed to improve efficiency and effectiveness of operations. Recommendations arising from low-risk findings should be implemented within 12 months.