IN SUMMARY:
A brand new federal audit criticizes California for doing too little to forestall fraudulent spending of homeless funds. Practically $320 million was in danger.
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California put a whole lot of thousands and thousands of {dollars} of homeless individuals’s cash in danger due to its “disorganized” and “chaotic” anti-fraud insurance policies, in keeping with a Vital federal audit revealed right now.
The audit seemed on the California Division of Housing and Group Growth, which oversees the state’s homeless applications. It gave the California company the bottom potential rating, discovering that it lacked ample insurance policies to forestall, detect and reply to fraud. In consequence, the audit discovered, the state company didn’t adequately defend $319.5 million in federal homeless funding, which was distributed throughout the COVID-19 pandemic, from the potential of misuse.
The audit didn’t uncover any new circumstances of fraud.
“Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government,” Inspector Common Rae Oliver Davis of the U.S. Division of Housing and City Growth stated in a information launch. “Enhancing its robust anti-fraud program will help the California Department of Housing and Community Development ensure that its pandemic grant funds and future homeless assistance funds are protected 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 aimed to assist individuals scuffling with homelessness. California’s share of that fund was $319.5 million, a 2,505% improve over its typical annual allocation. With that vast inflow of cash additionally got here a heightened danger that dangerous actors would attempt to use these funds for nefarious functions. However California didn’t adequately step up its anti-fraud measures, in keeping with the federal housing division.
In response, the state housing division stated it should take steps to implement the feds’ suggestions and enhance its anti-fraud measures.
“HCD is committed to a systematic and comprehensive approach to risk management, including fraud risk, as an integral part of the formulation and implementation of its strategy,” Director Gustavo Velasquez wrote in a letter to the federal housing division.
The audit discovered that California didn’t prioritize fraud prevention in its administration of homeless funding. In line with the audit, the state didn’t conduct common fraud danger assessments, develop a plan to shortly determine and tackle potential fraud, and implement a course of to judge the effectiveness of its anti-fraud insurance policies. These failures go in opposition to finest practices that the federal housing division expects all recipients of federal homeless funding to observe.
“Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government.”
Rae Oliver Davis, Inspector Common, U.S. Division of Housing and City Growth
When the state found alleged fraud, it botched its response, in keeping with the audit. In March 2022, the state housing division found {that a} native legislation enforcement company was investigating potential fraud and misuse of Emergency Options Grant funds. The state company didn’t report that allegation by the correct channels as a result of, partly, officers had been involved that doing so might create a publicity danger, in keeping with the audit. The company lastly reported the incident practically a yr and a half later — and solely after federal auditors started asking questions, in keeping with the audit.
Neither the feds nor the state housing division offered extra particulars concerning the alleged fraud earlier than publication.
The audit outcomes didn’t shock the Senator Dave Cortesea Santa Clara County Democrat who not too long ago backed a separate audit of state homeless applications. That audit, which got here to gentle final month, discovered that the state doesn’t observe what it spends on homeless individuals and which applications are working.
The brand new federal audit seems to underscore a broader lack of accountability within the homeless sector, he stated.
“The main reason this is frustrating is that these are public sector dollars, these are taxpayer dollars,” Cortese stated. “It’s disrespectful to taxpayers to say, ‘Wow, we really don’t know what happened here with your money.’”
The assemblyman Josh Hoovera Folsom Republican who co-authored the request for the earlier state audit, agreed.
“Once again, California is failing to meet its goal on homelessness,” he stated 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 was truly rampant on the company. Other than the March 2022 case, the federal housing division stopped in need of reporting any particular cases of suspected fraud. However that might come later: The feds not too long ago launched a second audit to analyze improper funds for emergency reduction grants, which might embrace fraud. That report is predicted subsequent yr.
The federal housing division can also be auditing companies that administered emergency options grants in Honolulu and New York Metropolis. These outcomes haven’t but been launched.
Allegations of fraud have already surfaced in different applications overseen by the California housing division. Earlier this yr, the state company sued a Los Angeles developer which obtained $114 million to develop housing for homeless individuals by the state’s Homekey program.
Whereas most COVID-era Emergency Options Grant funds have been distributed, California’s lack of fraud protections might proceed to jeopardize future applications, auditors wrote.
