In abstract
A crucial new federal audit calls out California for doing too little to forestall fraudulent spending of homelessness funds. Practically $320 million was in danger.
California put a whole bunch of tens of millions of homelessness {dollars} in danger due to its “disorganized” and “chaotic” anti-fraud insurance policies, based on a crucial federal audit launched at the moment.
The audit analyzed California’s Division of Housing and Group Growth, which oversees the state’s homelessness packages. It gave the California company its lowest doable rating, discovering that it lacked ample insurance policies to forestall, detect and reply to fraud. Consequently, the audit discovered, the state company didn’t correctly shield $319.5 million in federal homelessness funds, which have been distributed in the course of the COVID-19 pandemic, from the opportunity of misuse.
The audit didn’t uncover any new cases of fraud.
“Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government,” Inspector Common Rae Oliver Davis, with the U.S. Division of Housing and City Growth, mentioned in a information launch. “Enhancing its robust antifraud program will help the California Department of Housing and Community Development ensure that its pandemic grant funds, and future homelessness assistance funds, are safeguarded from fraud.”
With the arrival of the COVID-19 pandemic in 2020, the federal authorities poured $4 billion into its Emergency Options Grant program, which was supposed to assist individuals scuffling with homelessness. California’s share of that pot was $319.5 million — a 2,505% enhance from its typical annual allotment. With that massive inflow of cash additionally got here an elevated danger that unhealthy actors would try to make use of these funds for nefarious functions. However California didn’t adequately step up its anti-fraud measures, based on the federal housing division.
In a response, the state housing division mentioned it’s going to take steps to implement the feds’ suggestions and enhance its anti-fraud measures.
“HCD is committed to a systematic and comprehensive approach to the management of risks, including fraud risk, as an integral part of its strategy formulation and implementation,” Director Gustavo Velasquez wrote in a letter to the federal housing division.
The audit discovered California didn’t prioritize fraud prevention in its administration of homelessness funds. The state didn’t carry out common fraud danger assessments, develop a plan to determine and swiftly tackle potential fraud, or have a course of in place to judge the effectiveness of its anti-fraud insurance policies, based on the audit. These failures run counter to finest practices the federal housing division expects all recipients of federal homelessness funds to observe.
“Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government.”
Rae Oliver Davis, inspector normal, U.S. Division of Housing and City Growth
When the state did uncover alleged fraud, it dropped the ball in its response, based on the audit. In March 2022, the state housing division discovered an area regulation enforcement company was investigating potential fraud and misuse of Emergency Options Grant funding. The state company didn’t report that allegation within the correct channels as a result of, partially, officers nervous doing so may create a publicity danger, based on the audit. The company lastly reported the incident practically a yr and a half later — and solely after federal auditors began asking questions, based on the audit.
Neither the feds nor the state housing division offered extra particulars about that alleged fraud earlier than publication.
The audit’s outcomes weren’t shocking to Sen. Dave Cortesea Democrat from Santa Clara County who lately backed a separate audit of the state’s homelessness packages. That audit, which got here out final month, discovered the state fails to trace what it’s spending on homelessness, and which packages are working.
The newer federal audit appears to underscore a broader lack of accountability within the homelessness sector, he mentioned.
“The biggest reason of all that it’s frustrating is these are public sector dollars, they’re tax payer dollars,” Cortese mentioned. “It’s disrespectful to the taxpayers to say, ‘Gee, we don’t really know what happened here to your money.’”
Assemblymember Josh Hoovera Republican from Folsom who co-authored the request for the sooner statewide audit, agreed.
“Once again, California is failing to meet the mark on homelessness,” he mentioned in an emailed assertion. “If we truly want to solve homelessness, we have to start by holding our own bureaucracies accountable.”
Regardless of discovering a number of holes within the California company’s anti-fraud practices, the feds offered no proof that fraud really was rampant within the company. Apart from the March 2022 case, the federal housing division stopped in need of calling out any particular cases of suspected fraud. However that might come later: The feds lately launched a second audit wanting into improper funds of Emergency Options Grants, which may embrace fraud. That report is predicted a while subsequent yr.
The federal housing division is also auditing the businesses that administered Emergency Options Grants in Honolulu and New York Metropolis. These outcomes haven’t but been printed.
Fraud allegations have already surfaced in different packages overseen by California’s housing division. Earlier this yr, the state company sued a Los Angeles developer that acquired $114 million to develop homeless housing via the state’s Homekey program.
Although the vast majority of the COVID-era Emergency Options Grant funds have been distributed, California’s lack of fraud protections may proceed to place future packages in jeopardy, the auditors wrote.
