CSA
Summary
Read the report at California State Auditor ↗
Department of Housing and
Community Development:
Awards of Housing Bond Funds Have Been Timely and
Complied With the Law, but Monitoring of the Use of Funds
Has Been Inconsistent
September 2007 Report 2007-037
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CALIFORNIA STATE AUDITOR
Elaine M. Howle
State Auditor
Doug Cordiner B u r e a u o f S t a t e A u d i t s
Chief Deputy
555 Capitol Mall, Suite 300 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.bsa.ca.gov
September 12, 2007 2007-037
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As required by the Housing and Safety Code, Division 31, sections 53533 and 53545, the Bureau of State
Audits presents its audit report concerning the first audit in a series on the Housing and Emergency
Shelter Trust Fund acts of 2002 and 2006.
This report concludes that the Department of Housing and Community Development (department)
and the California Finance Housing Agency generally awarded funds in a timely manner and consistent
with the law. However, we noted that the monitoring of awardees performed by the department is
inconsistent. In addition, the department overrode controls over advances put in place for one of the
programs tested. Further, for two of the programs we reviewed, the department had not established
monitoring processes for the completion phase of its agreements with awardees. Strengthening its
oversight in these areas would help the department ensure that awardees have used funds only for
eligible costs and that their activities benefit only targeted populations.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
California State Auditor Report 2007-037 vii
September 2007
Contents
Summary 1
Introduction 3
Audit Results
Awards of Housing Bond Funds Were Timely 9
The Department and the Finance Agency Generally Complied With
Legal Requirements When Awarding Housing Bond Funds 13
Inconsistent Monitoring Efforts Limited the Department’s Ability to
Ensure the Proper Use of Funds 15
Recommendations 20
Appendix
Programs Funded by the Housing and Emergency Shelter Trust
Fund Acts of 2002 and 2006 21
Responses to the Audit
Business, Transportation and Housing Agency—Department of
Housing and Community Development and the California Housing
Finance Agency 25
California State Auditor Report 2007-037
September 2007
Summary
Results in Brief
In November 2002 and 2006, California voters passed the Audit Highlights . . .
Housing and Emergency Shelter Trust Fund acts to provide bonds
(housing bonds) for use in financing affordable housing for low- to Our review revealed that for the Housing
moderate-income Californians. The Department of Housing and and Emergency Shelter Trust Fund Act of
Community Development (department) and the California Housing 2002 (Proposition 46):
Finance Agency (Finance Agency) manage the programs funded by
the housing bonds. »Both the Department of Housing and
Community Development (department)
In awarding housing bond funds, the department and the and California Housing Finance Agency
Finance Agency generally have been timely and consistent with (Finance Agency) generally awarded
the law. Except for fiscal year 2002–03, the first year the housing funds in a timely manner.
bonds became available, the timing and amounts of awards have
approximated or exceeded both entity’s estimates. In addition, both »Both the department and Finance
the department and the Finance Agency established and adhered Agency generally complied with legal
to policies intended to ensure that only eligible applicants receive requirements for making awards;
awards. However, for one of the five programs we tested, the however, the department could not
Emergency Housing and Assistance Program (Emergency Housing provide its rating and ranking tools in
Program), the department could not document its use of rating and some cases for its Emergency Housing
ranking tools for some of the awards we tested. and Assistance Program (Emergency
Housing Program).
The department’s monitoring of entities to whom it awarded
funds (awardees) has been inconsistent. Although the department »Both the department and Finance Agency
generally has controls in place over payments, it overrode those generally used appropriate monitoring
controls for the CalHome Program. The department allowed three procedures during the expenditure phase,
of the 18 awardees tested, or 17 percent of our sample, to receive but the department sometimes overrode
advances greater than the limit set in their standard agreements. controls concerning advance payments
Establishing limits on the amounts advanced to awardees helps for the CalHome Program.
ensure that projects are in fact progressing before all funds are
disbursed and that the State maximizes interest earnings. »The department does not exert adequate
monitoring over the completion phase for
The department could strengthen its ongoing oversight of the two of its programs—Emergency Housing
developers, nonprofit organizations, local governments, and other and CalHome.
entities (sponsors) receiving housing bond funds. For three of the
five programs reviewed, the department’s Multifamily Housing—
General and Joe Serna Jr. Farmworker Housing—General programs
and the Finance Agency’s California Homebuyer’s Downpayment
Assistance Program, monitoring efforts are in place. However, the
department does not currently have processes for conducting site
visits of sponsors or otherwise verifying program compliance during
the period following final payment of funds by the State for its
Emergency Housing and CalHome programs. Thus, the department
cannot always ensure that sponsors have used funds only for eligible
costs or that their activities benefit only targeted populations.
2 California State Auditor Report 2007-037
September 2007
For one of the programs, the department states that it did not want
to establish a costly and burdensome monitoring process and for
the other that an administrative cost cap, staff inexperience, and
a work backlog have limited monitoring activities. However, the
department also indicates that in order to verify sponsor-provided
information, it is in the process of testing monitoring procedures
for the CalHome Program and designing a monitoring process for
the Emergency Housing Program.
Recommendations
The department should implement record-keeping procedures
for the Emergency Housing Program to ensure that applicants who
receive awards have been properly evaluated.
The department should continue its efforts to consistently monitor
sponsors’ use of housing bond funds by doing the following:
• Consider eliminating its process of overriding restrictions on
advances for the CalHome Program.
• Give high priority to finalizing and implementing monitoring
procedures for the CalHome and Emergency Housing programs,
which do not currently have such procedures in place.
• Review its other housing bond programs that were not
specifically evaluated in this initial audit to ensure that
monitoring procedures are in place and operating.
Agency Comments
The department generally agreed with our recommendations and
indicated the steps it would take to implement them within the next
six months.
California State Auditor Report 2007-037 3
September 2007
Introduction
Background
For 20 years, voters and the Legislature have supported numerous
efforts to aid low- to moderate-income and homeless populations in
securing housing and shelter. In the late 1980s and early 1990s, voters
approved the issuance of $600 million in general obligation bonds to
fund state housing programs. After the last of those bond funds were
spent, the Legislature typically appropriated less than $20 million
annually from the State’s General Fund for the programs. However,
in fiscal year 2000–01, the Legislature appropriated more than
$350 million from the General Fund for housing programs. In the
last five years, the Legislature proposed and voters approved nearly
$5 billion in Housing and Emergency Shelter Trust Fund Act bonds
(housing bonds) to continue these efforts.
Housing and Emergency Shelter Trust Fund Act of 2002
Core Program Areas
In November 2002 California voters approved the
Multifamily housing programs: Provide funding
Housing and Emergency Shelter Trust Fund Act of
for constructing or renovating rental housing projects.
2002 (Proposition 46), which provides $2.1 billion
They also fund supportive housing for disabled or
for the development of affordable rental housing,
homeless persons. Funding generally takes the form
emergency shelters, and down payment assistance to of low-interest loans to awardees to partially fund the
low- to moderate-income home buyers. Proposition 46 cost of construction.
currently funds 23 housing programs: 12 programs
Home ownership programs: Encourage home
already established when the bonds were approved and
ownership by offering low-interest loans or grants
11 new programs, nine established in 2002 and two
that help low- to moderate-income Californians meet
established in 2005. The new programs include funds
down payment requirements.
for down payment assistance to low-income first-time
Farmworker housing programs: Provide funding
home buyers and supportive housing aimed at reducing
for the construction or rehabilitation of housing for
homelessness. Proposition 46 allocates specific amounts
agricultural employees and their families. Funds
for the 23 programs, which are administered by either the
support both rental and owner-occupied housing.
Department of Housing and Community Development
(department) or the California Housing Finance Agency Other programs: Provide funding for developing
emergency shelters and transitional housing,
(Finance Agency). Figure 1 on the following page shows
incentives to cities and counties based on the number
Proposition 46 funding by four core program areas, which
of new housing units approved, mortgage insurance
we categorize and describe in the text box, along with
for high-risk home buyers, and the capital and staffing
another core program area added by a later proposition.
needs of local government agencies responsible for
The Appendix provides details on each program
enforcing housing codes.
within the core areas.
Development programs: Promote developments
like parks, water, sewage, transportation, and housing
Many of the laws governing Proposition 46 programs
in existing urban areas and near public transportation.
also restrict administrative costs. These restrictions
(This core program area applies only to funds
generally limit the amount of funding the department
available through the Housing and Emergency Shelter
and the Finance Agency can use for administrative
Trust Fund Act of 2006.)
support costs to between 3 percent and 5 percent of
program allocations.
California State Auditor Report 2007-037
September 2007
Figure 1
Proposition 46 Funding Allocations by Core Program Area
Home ownership programs
$405 million (19%)
Multifamily housing Farmworker housing programs
programs $200 million (10%)
$1.185 billion (56%)
Other programs
$310 million (15%)
Source: Health and Safety Code, Division 31, parts 2 and 3, and the Department of Housing
and Community Development’s Cumulative Proposition 46 Bond Awards Report Through
December 31, 2006.
Note: The funding amounts shown include administrative costs. Proposition 46, the Housing and
Emergency Shelter Trust Fund Act of 2002, requires that actual administrative costs be paid from
the bond funds. In addition, for some programs, the law requires that funds not awarded within a
certain time frame revert to other housing bond programs. The amounts shown represent funding
available as of December 31, 2006, and may not agree with the original funding level for programs
presented in the law.
Housing and Emergency Shelter Trust Fund Act of 2006
In November 2006 California voters approved the Housing and
Emergency Shelter Trust Fund Act of 2006 (Proposition 1C). It
provides nearly $2.9 billion to support the same core program areas
as Proposition 46, plus a fifth core area of development programs,
which focus on infrastructure (see text box on previous page).
Proposition 1C funds 14 housing programs, 10 of which existed
prior to the passage of the proposition. Three of the four new
programs established in 2006 support urban development and
parks, while one is aimed at encouraging cost-saving approaches
to create or preserve affordable housing. However, the Legislature
did not originally clarify the specific uses of the funds for the new
Affordable Housing Innovation Fund; Housing Urban-Suburban-
and-Rural Parks Account; and Regional Planning, Housing, and
Infill Incentive Account. As of early August 2007 the Legislature
was considering several bills that would further define the use
of these funds. Figure 2 shows Proposition 1C funding by core
program area.
California State Auditor Report 2007-037
September 2007
Figure 2
Proposition 1C Funding Allocations by Core Program Area
Multifamily housing programs
$690 million (24%)
Home ownership programs
$525 million (19%)
Development programs
$1.35 billion (47%)
Farmworker housing programs
$135 million (5%)
Other programs
$150 million (5%)
Source: Health and Safety Code, Division 31, parts 2 and 3.
Note: The amounts shown include administrative costs. Proposition 1C, the Housing and
Emergency Shelter Trust Fund Act of 2006, requires that actual administrative costs be paid from
the bond funds.
Department of Housing and Community Development
The department is the State’s principal housing agency. Its mission
is to provide leadership, policies, and programs to expand and
preserve safe and affordable housing opportunities and promote
strong communities. With more than 500 employees and a budget
of about $654 million for fiscal year 2006–07, the department
focuses its efforts through three major divisions—Financial
Assistance, Housing Policy Development, and Codes and
Standards—which account for most of the department’s resources.
The Financial Assistance Division (division) awards the grant and
loan funds available from the housing bonds. The division also
offers technical assistance, promotes economic development, and
manages the department’s portfolio of loans and grants.
Although final responsibility for managing housing bond funds
rests with the department, and it makes all housing bond
disbursements, it directly administers only 19 of the 28 housing
bond programs. For the other nine programs, the department acts
through another state agency responsible for day-to-day program
management or the administering agency is not yet determined.
As of early August 2007, the Legislature was considering bills to
clarify which agency will manage two of the new programs funded
California State Auditor Report 2007-037
September 2007
by Proposition 1C. Further, the department says it is in the process
of establishing an interagency agreement with the Department of
Parks and Recreation to jointly administer one of the four new
Proposition 1C programs: the Housing Urban-Suburban-and-Rural
Parks program. The department also states that it is collaborating
with the California Department of Transportation to
set guidelines for the Transit-Oriented Development
Implementation Program.
Awardees Consist of Two Groups
Sponsors: Local public entities, nonprofit Most programs operated directly by the department
corporations, joint ventures, partnerships, limited provide funding to sponsors (see text box) that
partnerships, trusts, corporations, cooperatives, or construct or manage housing projects. In many
individuals qualified to own, construct, or rehabilitate cases, those sponsors in turn provide services to the
housing developments. beneficiaries targeted by the programs. Typically,
housing bond funds only partially finance projects.
Home buyers: Persons, generally purchasing homes
for the first time and of low- to moderate-income, who As of December 31, 2006, the department reported
receive assistance through housing bond programs. leveraged private capital of more than $3.9 billion
related to about $1.4 billion in awards for the housing
bond programs it directly manages.
California Housing Finance Agency
As the State’s affordable housing bank, the Finance Agency supports
the needs of renters and first-time home buyers by offering
financing and programs that create safe, decent, and affordable
housing opportunities for individuals within specified income
ranges. Under interagency agreements with the department, the
Finance Agency directly manages seven Proposition 46 programs.
In August 2007 the department executed another such agreement
for two programs under Proposition 1C. In addition to the
programs supported by the propositions, the Finance Agency
provides loans to home buyers and sponsors of affordable rental
housing through the sale of tax-exempt and taxable bonds unrelated
to the housing bonds.
With more than 270 employees and a budget of about $37 million
in fiscal year 2006–07, the Finance Agency addresses its
mission through three types of programs: mortgage insurance
programs, home ownership programs, and multifamily
financing programs. Mortgage insurance programs aid first-time
home buyers, low- to moderate-income borrowers, and individuals
who may not qualify for traditional lending programs by providing
primary mortgage insurance at favorable rates.
Home ownership programs aim to provide affordable housing
opportunities by offering mortgages to first-time home buyers with
very low to moderate incomes. Since 1975 the Finance Agency
has helped more than 130,000 Californians purchase first homes
California State Auditor Report 2007-037 7
September 2007
by issuing a total of $12.1 billion in loans. The Finance Agency’s
current portfolio contains more than 37,600 home mortgage
loans valued at a total of $4.2 billion. The Finance Agency does
not lend money directly to borrowers. Rather, private lenders
approved by the Finance Agency verify applicants’ qualifications
and offer mortgage loans. After the Finance Agency reviews closing
documentation and ensures that certain requirements are met,
it purchases the mortgage loans from the lenders and assumes
responsibility for servicing the loans.
Finally, multifamily financing programs make loans to affordable
housing sponsors for new construction and rehabilitation projects.
The goal of these programs is to finance rental housing for very
low- to moderate-income and special-needs households. Since its
inception in 1975, the Finance Agency has made nearly $1.7 billion
in loans for multifamily housing projects, financing 415 projects
and providing more than 33,300 housing units.
Scope and Methodology
The California Health and Safety Code, sections 53533 and 53545,
requires the Bureau of State Audits to conduct periodic audits
of housing bond activities to ensure that housing bond proceeds
are awarded in a manner that is timely and consistent with legal
requirements and that awardees use the funds in compliance with
the law.
To determine whether awards of housing bond funds were
timely, we reviewed the propositions, prior audits, and other
laws to clarify the definition of timely. We also interviewed
department staff to understand the policies and procedures
developed by the department to implement and report on program
activities related to housing bonds, including awarding funds.
Because the law does not define timely, we concluded that the
department’s estimated awards established in 2002 and the Finance
Agency’s estimated awards established in 2003 were the most
appropriate criteria against which to compare actual awards. Using
information from department and Finance Agency awards-tracking
systems, we compared actual awards for each fiscal year from
2002–03 to 2006–07 with department and Finance Agency planned
timetables for awarding funds.
To assess whether the department and the Finance Agency awarded
funds in compliance with applicable statutory requirements, we
selected five programs with significant Proposition 46 awards
and expenditures through December 31, 2006. We tested the
Multifamily Housing Program—General, the Joe Serna Jr.
Farmworker Housing Grant Program—General, the CalHome
California State Auditor Report 2007-037
September 2007
Program, and the capital development portion of the Emergency
Housing and Assistance Program managed by the department.
We also tested the California Homebuyer’s Downpayment
Assistance Program administered by the Finance Agency.
The five programs accounted for 73 percent of awards and
expenditures as of December 31, 2006. We analyzed information
from the award-tracking systems to ensure that the total of all
awards granted by each program did not exceed the allocation
established in the law. Further, based on our review of relevant
laws and regulations, we identified key legal provisions that the
programs must implement when awarding funds. We judgmentally
selected 59 awards (10 percent) from all awards granted by the
four department-administered programs and randomly selected
29 awards from about 17,000 awards granted under the Finance
Agency-administered program. We then tested those awards to
assess whether key legal provisions were met.
To determine whether awardees complied with applicable statutes,
we reviewed program guidelines, policies, and procedures and
interviewed officials to determine how awardees are monitored
throughout the term of their agreements with the department or
the Finance Agency. Using the award samples previously described,
we assessed whether the department and the Finance Agency
implemented processes that would allow them to ensure that
awardees used housing bond funds in compliance with the law.
The U.S. Government Accountability Office whose standards we
follow, requires us to assess the reliability of computer-processed
data. We tested the data from three computer systems that the
department and the Finance Agency use to track information on
awards and expenditures. Based on our review, we found the data to
be sufficiently reliable for the purposes of this audit. The department
converted its awards-tracking system in May 2007. We did not
test the data in the new system as the cut-off for our review was
December 31, 2006. However, we noted that the department lacked
sufficient internal controls over the system conversion and we will
issue a separate management letter discussing this weakness.
Because Proposition 1C was approved by voters in November 2006
and the department made its first awards of funds derived from the
proposition late in fiscal year 2006–07, we did not test the awarding
or use of those funds. However, the five programs we tested under
Proposition 46 will also receive Proposition 1C funds in the future.
Therefore, to the extent the department’s and the Finance Agency’s
processes for awarding bond funds and monitoring their use does
not change, we tested the controls they have in place for awarding
and monitoring the use of funds from both Proposition 46 and
Proposition 1C.
California State Auditor Report 2007-037
September 2007
Audit Results
Awards of Housing Bond Funds Were Timely
The Department of Housing and Community Development
(department) and the California Housing Finance Agency (Finance
Agency) have generally awarded funds from the 2002 Housing
and Emergency Shelter Trust Fund Act bonds (housing bonds) in
a timely manner. However, the department understated awarded
funds by $50.5 million in its report titled Cumulative Proposition 46
Bond Awards Through December 31, 2006 (bond awards report),
which is available to the public. The department explained the
reasons for excluding certain amounts and stated it would clearly
note any exclusions in future reports.
In April 2002 the department prepared an estimated annual
awards schedule (awards schedule) outlining, by fiscal year and
program, the anticipated award of funds made available by the
passage of the Housing and Emergency Shelter Trust Fund Act of
2002 (Proposition 46). Before voters approved the Proposition 46
bonds, the department undertook efforts to determine the needs
of the prospective bond-related programs. That effort helped the
department to develop regulations and guidelines, establish detailed
timelines, and determine staffing needs. With the information it
gained, the department prepared an awards schedule showing the
total authorized funding, support costs, and estimated awards by
program and fiscal year. The department estimated it would make
Proposition 46 bond awards through fiscal year 2008–09. The
department stated that it met with stakeholders to determine what
level of funding they could handle on an annual basis. Based on the
stakeholders’ input, the department spread the awards over several
years to ensure increased competition for the funds and thus
higher-quality projects.
In 2003 the Finance Agency developed a business plan that included
anticipated awards under its Proposition 46 programs. The plan
outlined estimated awards covering the five-year period of fiscal
years 2003–04 through 2007–08. The estimates shown in Figure 3
on the following page combine annual award estimates from the
department’s and the Finance Agency’s plans.
The department and the Finance Agency have generally met and
sometimes exceeded the goals specified in their awards schedules.
As shown in Figure 3, for all complete fiscal years we audited except
the initial year, actual awards exceeded estimated awards. In fiscal
year 2002–03, actual awards fell below estimated awards by about
$61 million.
0 California State Auditor Report 2007-037
September 2007
Figure 3
Proposition 46 Estimated Awards Compared With Actual Awards as of December 31, 2006
Actual awards
$500 Estimated awards
Unaudited actual awards,
January through June 2007
400
300
200
100
0
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09
Fiscal Year
Two factors explain most of the variance in fiscal year 2002–03.
First, the Legislature did not appropriate any funds in this fiscal
year for the Workforce Housing Rewards Program, which explains
$33 million of the variance. Second, the department anticipated
a higher demand for some programs than actually materialized.
The department explained that after interest in the Emergency
Housing and Assistance Program (Emergency Housing Program)
fell short of expectations, it raised the funding limit per project
with the aim of increasing interest in the program. The department
also explained that when demand for the Multifamily Housing
Program—Supportive Housing Projects fell short, it switched to
an over-the-counter funding process allowing sponsors to apply
any time they were ready rather than only on specified dates. The
department says this has resulted in a steady flow of applications for
that program. The second factor accounted for $18 million of the
fiscal year 2002–03 shortfall.
From fiscal years 2003–04 through 2005–06, actual awards
outstripped estimated awards in total by about $146 million, and
actual awards each year exceeded $400 million. According to the
department, it plans to award all Proposition 46 funds under its
direct management by fiscal year 2007–08. The Finance Agency
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Sources: Department of Housing and Community Development’s Proposition 46 awards database and Housing Bonds of 2002 Estimated Annual
Awards schedule; California Housing Finance Agency’s awards database and Five-Year Business Plan for Fiscal Years 2003–04 to 2007–08.
Note: Proposition 46 is the Housing and Emergency Shelter Trust Fund Act of 2002.
California State Auditor Report 2007-037
September 2007
does not plan to award all Proposition 46 funds until fiscal
year 2009–10. This is mainly because significant funds from its
Mortgage Guaranty Insurance Program reverted,1 and the Finance
Agency did not receive legal authority to use these funds for the
Residential Development Loan Program until September 2005.
According to the Finance Agency’s director of legislative affairs,
the proponents of the Mortgage Guaranty Insurance Program
expected market conditions to change, resulting in an increase in
the need for lower cost mortgage insurance products for low- and
moderate-income home buyers. However, the director stated that
market conditions did not change as anticipated, and by mid-2004
private mortgage lenders and mortgage insurers introduced
products that did not require mortgage insurance. As such, demand
for Mortgage Guaranty Insurance Program products was not as
great as originally anticipated, and the funds eventually reverted. In
September 2005 the Legislature made the $75 million in remaining
funds available to the Residential Development Loan Program.
During our review we noted that the department’s bond awards
report understated awards by $50.5 million. To notify the public The department understated
of its progress in awarding Proposition 46 funds, the department awards in the December 31, 2006,
prepares a bond awards report semiannually that it posts to its bond awards report, posted on its
Web site. The December 31, 2006, report excluded $39.8 million in Web site by $50.5 million.
awards for the Joe Serna Jr. Farmworker Housing Grant Program
(Farmworker Housing Program), and the CalHome Program. These
excluded amounts related to projects originally funded by the
State’s General Fund that the Legislature switched to Proposition 46
funds in fiscal year 2003–04. In addition, the bond awards report
excluded $10.7 million set aside for the renovation of state-owned
facilities for migrant farmworkers. When asked why these projects
funded by Proposition 46 were not included in the report, the
department stated that it did not consider them new projects and
believed that including them would mislead readers. Nevertheless,
the department stated that it would disclose the exclusion of those
funds in subsequent bond awards reports. Figure 3 includes the
$50.5 million omitted from the bond awards report.
Compared to $1.6 billion in awards, the department only expended
$632 million in payments to awardees under Proposition 46 as of
December 31, 2006. The department disburses bond funds based
on sponsors’ requests for payment under the terms of their awards.
The department also transfers bond funds to the Finance Agency
based on funding requests related to the programs the Finance
Agency manages. Figure 4 on the following page shows that the
core area of home ownership programs has had the highest amount
of expenditures. The figure also shows that the multifamily housing
1 Reversions relate to the return of the unused portion of an appropriation once it has lapsed.
2 California State Auditor Report 2007-037
September 2007
programs area, though second in total expenditures, has the lowest
ratio of expenditures to awards. This is not surprising given that for
programs under this core area, the department anticipates a two- to
four-year lag between a sponsor’s application and its loan closing,
when the sponsor receives funds from the department.
Figure 4
Proposition 46 Awards Versus Expenditures as of December 31, 2006
$1,000
800
Expended
Awarded
600
400
200
0
Home Multifamily Farmworker Other
ownership housing housing housing
programs programs programs programs
Core Program Areas
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Sources: Department of Housing and Community Development’s Proposition 46 awards database
and Reconciliation of Controller’s Appropriation Balances with Unexpended Balances as of
December 31, 2006; California Housing Finance Agency’s awards database.
Note: Proposition 46 is the Housing and Emergency Shelter Trust Fund Act of 2002.
Similar to planning activities for Proposition 46, for Proposition 1C
the department and Finance Agency prepared estimated awards
schedules in December 2006 and May 2007, respectively. As shown
in Figure 5, these awards schedules estimate that more than half
of awards will be made by the end of fiscal year 2008–09. The
department stated that some of the estimated Proposition 1C
awards are contingent on budget act authorizations. The
largest award total is estimated for fiscal year 2008–09, when
the department and Finance Agency plan for awards totaling
$781 million, or 27 percent of all Proposition 1C funds.
California State Auditor Report 2007-037 3
September 2007
Figure 5
Proposition 1C Estimated Awards by Fiscal Year
$800
700
600
500
400
300
200
100
0
2006–07 2007–08 2008–09 2009–10 2010–11
2011
+
Fiscal Year
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Source: Department of Housing and Community Development’s Housing and Emergency Shelter
Trust Fund Act of 2006 Award Schedule for 2006–07 through 2010–11; California Housing Finance
Agency’s Five-Year Business Plan for Fiscal Years 2007–08 to 2011–12.
Note: Proposition 1C is the Housing and Emergency Shelter Trust Fund Act of 2006.
In early summer 2007 the department announced the first awards
of Proposition 1C funds totaling $166.2 million. The department
stated that all these awards related to fiscal year 2006–07.
The Department and the Finance Agency Generally Complied With
Legal Requirements When Awarding Housing Bond Funds
The department and the Finance Agency generally allocated and
awarded housing bond funds for the intended programs, to the
correct types of sponsors, and for the proper activities. For instance,
the department verified for the CalHome Program that sponsors
were either local governments or nonprofit organizations and
ensured that proposed activities involved low-income homeowners
seeking assistance in home rehabilitation projects or low-income
first-time home buyers needing mortgage assistance. Likewise,
for the Multifamily Housing Program, the department checked
that sponsors had demonstrated the ability to complete affordable
housing projects and that those projects included construction or
rehabilitation of rental housing. Additionally, in determining the
funds available for grants and loans, the department proportionally
distributed statewide costs among the programs and appropriately
earmarked funds for program administration. However, poor
file management in the Emergency Housing Program made it
California State Auditor Report 2007-037
September 2007
impossible for us to verify if the department always used established
selection criteria when awarding funds in fiscal years 2002–03
through 2004–05.
The department ensured that it did not exceed program
allocations set in the law by periodically reviewing administrative
costs and the amounts already awarded as loans and grants. The
department prepared plans estimating the distribution of funds
over a seven-year period for Proposition 46 funds and developed
similar plans for Proposition 1C funds. Both plans
include amounts set aside for administrative support
costs. The department later refined its Proposition 46
Types of Set-Aside Costs
plans to detail set-asides in three areas: statewide
Statewide costs: Expenses incurred by the State costs, administrative support costs, and default
Treasurer’s Office and the State Controller’s Office, reserve costs (see text box). According to the
including bond issuance costs. department’s most recent plans, it estimates using
about $158.3 million (7.5 percent) for Proposition 46
Administrative support costs: Costs associated
set-asides and anticipates using $199.5 million
with the administration and coordination of the
(7 percent) for Proposition 1C set-asides. The
housing bond programs.
set-aside costs reduce the total amount of funding
Default reserve costs: Amounts for unexpected
available for grants and loans.
costs incurred to protect the State’s security interest.
The department will eventually disburse unused
The department and the Finance Agency award housing
reserves on loans and grants.
bond funds through program-specific application review
and approval processes. At the end of the award phase,
they each make a commitment to fund grants or loans.
Generally, for the five programs we reviewed, the department and the
Finance Agency established and adhered to processes for identifying
eligible recipients and properly making awards. For example, for
the CalHome and Emergency Housing programs, the department’s
eligibility determination included verifying nonprofit status and
assessing prior experience with or capacity to perform program
activities. Similarly, the California Homebuyer’s Downpayment
Assistance Program (Downpayment Assistance Program) managed
by the Finance Agency ensured that awardees were first-time home
buyers and that assistance was limited to 3 percent of the
home purchase price, barring special circumstances.
The department also implemented competitive application
processes for programs required to have them. For example, the
Multifamily Housing Program issues notices of funding availability
(notices) as an open call for applications. Following the competitive
process detailed in the notices, the department evaluates
applicants’ ability to proceed with the acquisition, construction, or
rehabilitation of proposed projects and then ranks the applicants.
We found that for this program the department ranked applicants
according to scores, from highest to lowest; eliminated any that did
not meet minimum requirements; and awarded funds in rank order
until the money was exhausted.
California State Auditor Report 2007-037
September 2007
Although the department has award procedures for the Emergency
Housing Program similar to those of the Multifamily Housing
Program, it has not recently employed competitive selection
because demand for funding has not met or exceeded offered
funding since the establishment of Proposition 46. However,
inadequate record keeping made it impossible to verify that
program staff always assessed submissions according to criteria
for applicant capability as set forth in the program notices. These
criteria include minimum standards. For seven of the 19 Emergency
Housing Program awards we reviewed (37 percent), the department
could not provide the ranking and rating tools or project reports
that it uses to document its assessment of applicants. After we
completed our fieldwork, the department provided us with rating
and ranking tools for four of the seven awards. If the department
does not thoroughly assess applicants, it may award funds to
sponsors that are not capable of undertaking or completing
projects. According to the Emergency Housing Program manager,
high turnover in program manager and staff positions and the lack
of policies and procedures regarding file management have made
it difficult to maintain files in good order. He further said that the
program is developing new policies and procedures regarding
file management and intends to implement them soon for future
awards. However, he did not commit to applying these procedures
to current awards.
Inconsistent Monitoring Efforts Limited the Department’s Ability to
Ensure the Proper Use of Funds
The department has not consistently established or followed
procedures for monitoring sponsors’ use of funds and ensuring that
occupants of bond-funded housing meet eligibility requirements
for two of the four housing bond programs under its administration
that we reviewed. As a result, it could not ensure that sponsors
for the CalHome and Emergency Housing programs used funds
in accordance with grant requirements or that the programs only
benefited targeted populations. The department, however, has
monitoring processes in place for the Multifamily
Housing and Farmworker Housing programs.
Phases of Monitoring for
In addition, because of the nature of real estate
Housing Bond Programs
transactions, the Finance Agency can ensure that
borrowers continue to use Downpayment Assistance
Expenditure phase: Period from award
Program funds appropriately. commitment to final state payment to awardee.
Completion phase: Period from final state payment
Regardless of the type of housing assistance provided
to fulfillment of all contract requirements by awardee.
by bond-supported programs, monitoring comprises
two phases: expenditure and completion (see text box).
California State Auditor Report 2007-037
September 2007
The Department and the Finance Agency Generally Undertake
Appropriate Monitoring Procedures During the Expenditure Phase
For the expenditure phase, the department and the Finance Agency
have processes in place to ensure that sponsors and borrowers
meet legal requirements. For example, before closing a loan, the
department requires the sponsor of a Multifamily Housing Program
project to submit a management plan and an initial operating
budget for approval. We found that the department had approved
management plans and obtained operating budgets for all the
projects in our sample that had closed loans.
The length of the expenditure phase varies widely among programs,
depending on the type of assistance provided. For example,
the expenditure phase lasts an average of one and a half months
for the Downpayment Assistance Program, but it can continue for
more than three years for construction projects under the
Multifamily Housing and Farmworker Housing programs. This
phase begins when the department or the Finance Agency commits
to provide funding and ends when an awardee has received all
funds earmarked for an approved loan or grant. The purpose of
monitoring during this phase is to ensure that sponsors exhibit
reasonable progress in meeting their goals and that the department
The purpose of monitoring during only reimburses sponsors for allowed costs. For some programs
the expenditure phase is to ensure we reviewed, verification that sponsors met program criteria was
that sponsors exhibit reasonable performed through document reviews. For example, both the
progress in meeting their goals and Emergency Housing and Farmworker Housing programs require
that the department only reimburses remittance of receipts or invoices and architectural certifications to
sponsors for allowed costs. show evidence of work completed and to document costs requested
for reimbursement. We found that the department received
supporting documents before it disbursed funds to Emergency
Housing and Farmworker Housing sponsors in our samples that
had requested fund distributions.
The Finance Agency uses approved lenders to qualify applicants for
its Downpayment Assistance Program. After the approved lender
closes the loan, the Finance Agency verifies that certain conditions
are met before purchasing and assuming responsibility for servicing
the loan. We found that Downpayment Assistance Program loans
we reviewed met all significant awarding conditions.
Because the CalHome Program awards funds to sponsors who
in turn provide loans to qualified home buyers, its standard
agreement allows a sponsor a 25 percent advance of awarded funds.
The standard agreement states that after the sponsor submits
supporting documents for two-thirds of an advance, the sponsor
can receive an additional 25 percent advance. This policy limits
the State’s risk by requiring sponsors, on an incremental basis, to
certify that they are using bond proceeds for allowed purposes.
California State Auditor Report 2007-037 7
September 2007
This policy also helps to maximize the State’s interest earnings by
retaining funds at the state level. However, we found that for three For three of the 18 CalHome
of the 18 awards tested, 17 percent of our sample, sponsors received Program awards tested, sponsors
advances exceeding 25 percent. Had the department retained the received advances exceeding
funds advanced over the 25 percent threshold for the three awards, the 25 percent limit set in their
we estimate it could have earned $42,000 in interest through standard agreements.
July 2007 based on the effective yield of the State Treasurer’s Office
pooled money account.
Two examples highlight our concern with the department’s
override of its policy on advances. In February 2007 the department
authorized a 100 percent advance of an award on the last day funds
were available for disbursement under an agreement nearly three
years old. The department approved the request based only on
a list of potential home buyers. However, as of August 10, 2007,
the sponsor had submitted documentation to the department
supporting the expenditure of only 7.5 percent of the advanced
funds. In another case, the department authorized a 50 percent
advance in March 2006 based on correspondence from the
sponsor that did not list loans that would be funded by the advance.
However, as of August 10, 2007, the department had no documents
on file supporting expenditure of those funds. When we asked
about its policy regarding advances, the department’s Home and
Homeownership section chief said that it is permissible to be more
flexible than the standard agreement as long as there is no conflict
with laws or regulations. Nevertheless, the facts in each case lead us
to question the wisdom of the department’s overriding what appears
to be a reasonable policy to ensure the delivery of services close to
the time of payment and to maximize the State’s interest earnings.
For Two Programs, the Department Does Not Have Adequate Monitoring
Processes for the Completion Phase
Of the five programs we reviewed—Downpayment Assistance,
Farmworker Housing, and Multifamily Housing—had processes
in place to adequately ensure compliance during the completion
phase. The two remaining programs the department administers—
CalHome and Emergency Housing—had weak or nonexistent
monitoring during the completion phase. Consequently, the
department cannot always be certain that sponsors are using
bond funds to help intended beneficiaries, such as low- to
moderate-income home buyers or homeless individuals.
Monitoring during the completion phase, which extends from when
the department has finished disbursing funds for a loan or grant
to the end of contractual requirements, varies greatly depending
on the type of housing assistance. For the Emergency Housing
Program, the completion phase is less than five years for small
California State Auditor Report 2007-037
September 2007
rehabilitation loans. By contrast, for the Multifamily Housing and
Farmworker Housing programs, the completion phase can last up
to 55 years.
For the Multifamily Housing and Farmworker Housing programs,
the department assigned responsibility for monitoring compliance
with contract terms to the Asset Management and Compliance
Section under its Division of Financial Assistance. A primary goal
of completion phase monitoring is ensuring that occupants of
housing bond-funded projects meet eligibility requirements, which
are typically tied to income but in the case of the Farmworker
Housing Program depend on occupation. Because the expenditure
phase for these programs can last more than three years, only a
few of the projects we tested had received full funding and had
moved into the completion phase. Although none of our selections
had received a site visit, we found that the centralized monitoring
group had scheduled a site visit for one of the closed projects and
that the other two projects were well within the three-year window
for site monitoring.
Because of the nature of real estate transactions and the design of
their loan programs, the Finance Agency does not actively monitor
borrowers during the completion phase. However, as the holder
of liens secured by deeds of trust, the Finance Agency receives
notification of events triggering a loss of eligibility and the need
for loan repayment. For instance, loans from the Downpayment
Assistance Program are subordinate to other mortgages; therefore,
repayment to the Finance Agency is due if any primary mortgage
is paid, refinanced, or assumed. Further, the Finance Agency has
processes for following up on other situations that could lead to
requiring repayment, such as a change in the borrower’s address.
For our test items, we found that the Finance Agency was repaid
whenever a triggering event occurred.
The lack of established monitoring plans for the completion phase of
both the CalHome and Emergency Housing programs is surprising
because both programs have existed for more than seven years.
As of December 31, 2006, the department had awarded a total of
$96.4 million in Proposition 46 funds to 171 sponsors through the
The department had not verified CalHome Program and $127.8 million to 190 sponsors through
sponsors’ claims related to loans the Emergency Housing Program. During the expenditure phase, the
to eligible borrowers for 17 of the CalHome Program receives certifications from sponsors claiming to
18 CalHome Program awards have made loans to eligible borrowers. However, we found that for
we tested, whether through site 17 of the 18 CalHome Program awards we tested, the department
visits or by reviewing original had not verified any of the information provided whether through
documentation, even though the site visits or by reviewing original documentation, even though the
sponsors had received all funds. sponsors had received all funds. For the remaining award, the sponsor
had not yet received any funds. As a result, the department cannot
California State Auditor Report 2007-037
September 2007
be certain that sponsors complied with housing bond requirements
related to occupants’ income limits or their status as first-time
home buyers.
Similarly, for the Emergency Housing Program, we found that
the department had not performed site visits to verify sponsor
activities for any of the awards we tested that were in the completion For the Emergency Housing
phase. Moreover, the program manager said that the program has Program, the department had
not performed any site visits since 2005 and even then it did not not performed site visits to verify
have formal policies and procedures governing the purpose and sponsor activities for any of the
documentation requirements for site visits. Without monitoring awards we tested that were in the
processes for verifying compliance, the department cannot completion phase.
ensure that sponsors use funds in accordance with housing bond
requirements or that the program benefits the intended populations.
When we inquired about the lack of a completion-phase
monitoring process, the department explained that it did not want
to establish a costly and burdensome monitoring process for the
CalHome Program. Nonetheless, the department says it is currently
piloting a monitoring process for this program that proposes to
verify individual files at the sponsor’s location to substantiate
information related to income or first-time home buyer status. The
department stated that it began this process in July 2007 and that
in December 2007 it will assess the level of ongoing monitoring
needed. Additionally, the department stated that the Emergency
Housing Program does not have the resources necessary to
perform monitoring because of the program’s 4 percent cap on
administrative expenses and that it has been further limited by
staff inexperience and a backlog of loan closings. The department,
however, indicated that it plans to build a monitoring system to
ensure that projects continue to serve as homeless shelters for the
duration of their loan terms.
The department stated that program managers provide briefings
to executive staff concerning program outcomes, including
the monitoring of awardees. However, because two of the
four department-administered programs we reviewed had no
monitoring processes in place to verify awardees’ use of funds
during the completion phase, it appears that follow-up on the
implementation of monitoring processes is weak. Thus, other
housing bond programs the department administers that we did not
specifically review in this audit may have similar problems. Without
adequate monitoring, the department cannot be sure that funds
provided under the core program areas it directly administers are
benefiting the intended beneficiaries of the housing bonds.
20 California State Auditor Report 2007-037
September 2007
Recommendations
The department should implement record-keeping procedures
for the Emergency Housing Program to ensure that applicants who
receive awards have been properly evaluated.
The department should continue its efforts to consistently monitor
sponsors’ use of housing bond funds by doing the following:
• Consider eliminating its process of overriding restrictions on
advances for the CalHome Program.
• Give high priority to finalizing and implementing monitoring
procedures for the CalHome and Emergency Housing programs,
which do not currently have such procedures in place.
• Review its other housing bond programs that were not
specifically evaluated in this initial audit to ensure that
monitoring procedures are in place and operating.
We conducted this review under the authority vested in the California State Auditor by Section 8543
et seq. of the California Government Code and according to generally accepted government auditing
standards. We limited our review to those areas specified in the audit scope section of the report.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
Date: September 12, 2007
Staff: Jim Sandberg-Larsen, CPA, CPFO, Project Manager
Mary Camacho, CPA
Angela Dickison
Melissa Arzaga Roye, MPP
California State Auditor Report 2007-037 2
September 2007
Appendix
PRogRAmS FunDeD by tHe HouSIng AnD emeRgenCy
SHelteR tRuSt FunD ACtS oF 2002 AnD 200
Table A on the following pages presents key details of programs
funded by the Housing and Emergency Shelter Trust Fund Act of
2002 (Proposition 46) and the Housing and Emergency Shelter Trust
Fund Act of 2006 (Proposition 1C). The programs are categorized
into five core program areas: multifamily housing programs, home
ownership programs, farmworker housing programs, development
programs, and other programs. For each program, the table lists
the year it was established, a brief description, and the program’s
allocation under each proposition as of December 31, 2006; the
agency directly managing the program is also indicated.
The Department of Housing and Community Development
(department) is responsible for managing all Proposition 46
funds; however, it directly administers 16 of the 23 programs,
and the California Housing Finance Agency (Finance Agency)
manages the other seven programs. For the 14 Proposition 1C
programs, the department is responsible for directly managing
10 programs, and the Finance Agency manages two; the Legislature
still needs to clarify the managing agency for the two remaining
Proposition 1C programs.
22 California State Auditor Report 2007-037
September 2007
A
elbaT
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taht
2002
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California State Auditor Report 2007-037 23
September 2007
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nwoD .noitazinagro tfiorpnon
ro stnemyap
nwod rof desu eb ot
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etanidrobus tnemyap-derrefed
000,003,9
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s’emoh
a fo tnecrep
6 ot pu gnilatot ,stsoc gnisolc
2002
margorP
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700,233,504$
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September 2007
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California State Auditor Report 2007-037 2
September 2007
(Agency response provided as text only.)
Business, Transportation and Housing Agency
980 9th Street, Suite 2450
Sacramento, CA 95814-2719
August 30, 2007
Elaine M. Howle, State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
Attached are responses from the Department of Housing and Community Development (Department) and the
California Housing and Finance Agency (Finance Agency) to your draft audit report, Department of Housing and
Community Development: Awards of Housing Bond Funds Have Been Timely and Complied With the Law, But Monitoring
of the Use of Funds Has Been Inconsistent (#2007-037). Thank you for allowing the Department, the Finance Agency,
and the Business, Transportation and Housing Agency the opportunity to respond to the report.
We appreciate your acknowledgement that the Department and Finance Agency awarded housing bond
funds timely and that they generally complied with legal requirements when awarding housing bond funds.
Moreover, we are pleased that you found no issues with the manner in which the Finance Agency administers
Proposition 46 funds.
As noted in its response, the Department has already begun to make improvements in processes and/or
procedures for which you expressed concern. Your report mentions the monitoring in the CalHome Program
that the Department started last month. In addition, the Department has developed draft procedures for record
filing and maintenance for the Emergency Housing and Assistance Program (EHAP) and expects to finalize them
within two months. Further, a long-term, on-site monitoring procedure for the EHAP is under development and
the Department plans to review, document, and identify any necessary process improvements in its monitoring
procedures for programs not included in your audit. The Department anticipates completing all corrective action
within six months. Specifics of its complete action plan are in its attached letter.
If you need additional information regarding this response, please do not hesitate to contact me, or Michael Tritz,
Deputy Secretary for Audits and Performance Improvement at the Business, Transportation and Housing Agency,
at (916) 324 7517.
Sincerely,
(Signed by: M. M. Berte for)
DALE E. BONNER
Secretary
Attachment
2 California State Auditor Report 2007-037
September 2007
Department of Housing and Community Development
Office of the Director
1800 Third Street, Room 450
Sacramento, CA 95811
August 28, 2007
Dale E. Bonner, Secretary
Business, Transportation and Housing Agency
980 Ninth Street, Suite 2450
Sacramento, CA 95814
Dear Secretary Bonner:
The Department of Housing and Community Development (Department) was pleased to assist the Bureau of State
Audits (Bureau) in its first review of the Proposition 46 and Proposition 1C housing bond programs. The Department
is also pleased that the Bureau has recognized the Department’s successful efforts in promptly awarding housing
bond funds, in-progress loan and grant accountability measures and effective post-completion monitoring
procedures for loans and grants with long-term affordability requirements. Finally, the Department appreciates the
Bureau’s careful review and welcomes the opportunity to make improvements. All improvements are well underway
and will be completed before the Department submits the six-month progress report related to this audit.
The Department’s View and Corrective Action Plans in response to conditions and recommendations included
in the Bureau’s August 24, 2007, draft audit report are as follows:
1. The Bureau of State Audits recommended as follows:
The department should implement record-keeping procedures for the Emergency Housing Program to ensure that
applicants that receive awards have been properly evaluated.
Department’s View and Corrective Action Plan
Draft standardized record filing and maintenance procedures for the Emergency Housing and Assistance
Program-Capital Development (EHAP-CD) have been developed and will be finalized by the end of October 2007.
The procedures will include guidance regarding the location of temporary working files and permanent files. An
EHAP-CD Contract File Stacking Order, now in draft form, will be included as part of the file and will include placing
the threshold criteria score sheet used for rating and ranking in a prominent location in each file. Procedures
will also require the use of checkout cards for all files and staff training on proper maintenance of the files. New
procedures will apply to the most recent awards as well as future awards. In addition, following the implementation
of new procedures, staff will undertake a complete review of the older EHAP-CD bond-funded files to ensure that all
files are complete and uniformly organized. This effort will be completed by February 2008.
2. The Bureau of State Audits recommended as follows:
The department should continue its efforts to consistently monitor sponsors’ use of housing bond funds by doing the following:
• Consider eliminating its process of overriding restrictions on advances for the CalHome Program.
California State Auditor Report 2007-037 27
September 2007
Dale E. Bonner, Secretary
Page 2
• Give high priority to finalizing and implementing monitoring procedures for the CalHome and Emergency
Housing programs, which do not currently have such procedures in place.
• Review its other housing bond programs that were not specifically evaluated in this initial audit to ensure that
monitoring procedures are in place and operating.
Department’s View and Corrective Action Plan
CalHome Advance Process Improvements
The 25 percent limitation on advancing cash to sponsors was established as a guideline in the standard agreement
to aid the Department and local jurisdictions in planning for disbursements. It was not intended to limit the pace
at which grantees could offer loans to eligible borrowers or disburse funds to them when needed to purchase
a home. Where local jurisdictions are short of internal funds to make loans and are experiencing high demands
for home loans, CalHome should continue to provide an adequate advance so the jurisdiction can assist first-time,
lower-income homebuyers to complete home purchases. The Department has found that, in some cases,
25 percent is not sufficient to provide cash flow to support the rate at which loans are being made. In these cases, a
hard and fast limitation on advances could result in missed home purchase opportunities.
Rather than eliminating the option of overriding the 25 percent advance limitation altogether, the Department
intends to establish clear procedures to guide staff in evaluating circumstances in which an advance above the
25 percent limitation may be appropriate as well as documenting the justification received. The cash advance
process is being reviewed and written procedures will be developed by the end of October 2007. Procedures will
ensure that exceptions are allowed only after there is clear documentation that the contractor has a proven history
of making loans on a timely basis (using the Borrower Summaries which are submitted when actual loans have
been made) and it is also determined that the amount requested is reasonable in consideration of the anticipated
loan closing schedule. In all cases where advances have been provided, staff will evaluate actual performance, as
measured by receipt of Borrower Summaries, at 60-day intervals following the advance. Staff will be trained on these
procedures, and documentation will be maintained in each file.
CalHome and EHAP-CD Monitoring
CalHome Monitoring: As the audit recognizes, HCD generally undertakes appropriate monitoring procedures
during the expenditure phase. This is also the case for CalHome. The Recipient is required to submit Program
Guidelines, a Loan Servicing Plan, a Reuse Account Plan, CalHome Loan Documents (note and deed of trust) and, if a
first-time homebuyer, Homebuyer Education Plan. These plans are reviewed by Department staff prior to any release
of funds to make sure they are in compliance with CalHome regulations.
When funds are requested, monitoring is performed using the Borrower Summary form to ensure household
income remains at 80 percent or below of the area median income for the number of members in the household.
The sales price is reviewed, and staff ensures that CalHome is used for gap financing. The loan closing date is
checked to ensure that work was not performed before the Standard Agreement is executed. Quarterly and annual
reports from recipients to verify the balance of the recipients’ grants are compared to Department balances as well
as the units that have been purchased or rehabilitated. The Department tracks the reuse account balances as well as
the number of units the reuse account has helped.
2 California State Auditor Report 2007-037
September 2007
Dale E. Bonner, Secretary
Page 3
While CalHome was designed to require minimal longer-term monitoring, the Department was in the process of
developing an on-site monitoring component during the course of the audit. The process includes a monitoring
checklist to document compliance with housing bond requirements, including those that ensure the program
benefits the intended population. A risk assessment procedure will help focus site reviews where most needed.
The pilot effort began in July 2007. Results will be evaluated in December and procedures finalized by the end of
January 2008.
EHAP-CD Monitoring: As with CalHome, in-progress monitoring during and at completion of the construction phase is
in place for EHAP-CD. The Department receives and reviews documents before funds are disbursed that show evidence
of work completed. In addition to the existing review of semi-annual reports, and monitoring visits that may occur
during project development on an “as needed” basis, the Department is developing an on-site monitoring procedure for
EHAP-CD during the 5- to 10-year period projects remain in operation. This procedure will be implemented no later than
January 2008. Resources for this effort are limited due to the statutory cap on administrative expenditures. However,
long-term on-site monitoring will be performed on a reasonable sample of projects, predicated on risk factors which will
include: the borrowers’ records of compliance in providing required semi-annual reports; the content of those reports;
the value, nature and term of the loans provided; oversight provided by designated local boards, and other potential
risk indicators. Monitoring will focus on the sponsor’s use of funds in accordance with housing bond requirements with
particular attention to ensuring the sponsor’s projects are benefiting the intended population(s) and complying with fair
housing laws. The EHAP-CD annual work plan requires the application and award process to be completed from January
through June, so on-site monitoring will be conducted July through December of each year.
Review of Monitoring Procedures for Bond Programs Not Included in the Initial Audit
The Department welcomes the opportunity to identify additional improvements to its monitoring efforts and will
immediately begin its review of the programs not included in this audit.
In establishing appropriate in-progress and long-term accountability and monitoring processes for the bond
programs, the Department established the strongest processes for those loan and grant programs that make the
largest awards and those which require the grantee or borrower (sponsor) to comply with conditions and provide
continuing public benefits over the longest terms. These include the Multifamily Housing Program and its related
rental housing programs as well as the Joe Serna Jr. Farmworker Housing Grant Program. For these programs, the goal
of the monitoring process is to protect the state’s significant investment, ensure the physical and fiscal stability of
funded projects and ensure that the public benefit is preserved and available to residents over time. The Department is
confident that, with the two exceptions noted above, its monitoring processes for other programs are appropriate for
the varying types of programs and projects funded and the amount of funds invested. Nonetheless, the Department
welcomes the opportunity to review the status of the other housing bond programs to document the status of its
monitoring procedures and identify any necessary process improvements. The Department will report back on the
results of this review, as well as any corrective measures initiated in the six-month progress report related to this audit.
Thank you for your careful review. Should you or your staff have any questions, please do not hesitate to contact me
at 445-4775.
Sincerely,
(Signed by: Lynn L. Jacobs)
Lynn L. Jacobs
Director
California State Auditor Report 2007-037 2
September 2007
California Housing Finance Agency
P.O. Box 4034
Sacramento, CA 95812
August 28, 2007
Mr. Dale Bonner, Secretary
Business Transportation & Housing Agency
980 9th Street, Suite 2450
Sacramento, CA 95814-2719
Re: CALIFORNIA HOUSING FINANCE AGENCY AUDIT OF PROP 46 FUNDS
Dear Secretary Bonner:
The Bureau of State Audits (BSA) has completed its review of the Housing and Emergency Shelter Trust Fund Acts of
2002 (Proposition 46 funds). The California Housing Finance Agency (CalHFA) is pleased to report that there were no
findings or concerns related to the funds administered by CalHFA.
CalHFA employees are extremely dedicated to ensuring these funds are used as efficiently and effectively as
possible. We have such a wonderful mission, and having these funds available has allowed us to maximize other
resources and truly make homeownership a reality for a number of California families.
We wish to thank the BSA for its diligence and thoroughness in completing this audit, in particular,
Jim Sandberg-Larsen, Mary Camacho, Melissa Roye and Angela Dickison were not only courteous, but professional
and efficient in handling their audit responsibilities. I look forward to continuing our successful participation in these
programs. Please contact me at (916) 324-4638 if there are questions regarding this audit.
Sincerely,
(Signed by: Theresa A. Parker)
Theresa A. Parker
Executive Director
30 California State Auditor Report 2007-037
September 2007
cc: Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press