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State Controller Betty T. Yee published her team’s review of the Housing and Community Development’s (HCD) State Rental Assistance Program (SRAP) – an analysis HCD proactively contracted with the State Controller’s Office (SCO) to perform to help the agency identify internal control improvements that would strengthen oversight of the program.
SRAP is the state program formed in California to administer and oversee distribution of funds from the federal Emergency Rental Assistance Program (ERAP) – along with state rent and utility relief – with the aim of helping vulnerable households weather the financial impacts of COVID-19 shutdowns and avoid eviction. HCD contracted with a third-party administrator, or “fiscal agent,” to process applications and distribute funds. Launched in March 2021, SRAP has disbursed approximately $4.27 billion in rent and utility assistance to more than 340,000 households.
Through its review, SCO identified approximately $18.1 million in potentially fraudulent SRAP applications during the period of July 1, 2021, through December 31, 2021. A total of $7 million of the potentially fraudulent payments had been disbursed, and $11.1 million could have been disbursed had SCO not identified the potential fraud. The SCO review also details internal controls and process improvement recommendations as of June 30, 2021. HCD’s response to the report indicates the agency has taken quick action to improve oversight and has made significant process changes.
“I applaud HCD for taking this proactive step to strengthen oversight, and for working to implement improvements as deficiencies were identified,” said Controller Yee, the state’s chief fiscal officer. “As more state departments turn to fiscal agents to quickly implement payment programs, it is critical these vendors are held to the same internal control standards as the departments, to ensure accountability and compliance and to avoid fraud and abuse of public funds.”
SCO’s internal control findings during the early stages of the SRAP implementation included:
- HCD did not establish adequate control procedures regarding landlord and tenant documentation requirements necessary to mitigate the risk of fraud and misuse of funds.
- HCD’s vendor, HORNE, lacked adequate controls over the application review process, resulting in overpayments and underpayments.
- HORNE did not consistently request death match verifications before approving applications for payment.
- HCD’s vendor modified and processed pay files without HCD’s approval of the adjustments.
- HCD did not ensure that its vendor implemented corrective actions for all errors and issues identified by SCO and HCD.
- HCD should continue current monitoring procedures and increase on-site monitoring based on a risk assessment of “Option B” jurisdictions – those which elected to administer their own ERAP and SRAP allocations – to ensure compliance with executed standard agreements and program guidelines.
With a commitment to government transparency and accountability, Controller Yee and her Audits team have identified more than $7.25 billion in waste, fraud, and abuse of public funds since January 2015.
