Audit Report - Multifamily 9% Housing Tax Credit Application and Awards processes
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¾¾¾¾¾December 11, 2007 To the Audit Committee and Governing Board of the Texas Department of Housing and Community Affairs Re: Internal Audit Report on the 9% Competitive Housing Tax Credit Program – Compliance Review of the Application and Award Processes The Internal Audit Division has completed its audit on the application and award processes for the Department’s 9% Competitive Housing Tax Credit Program. Generally, the application and award functions of the 9% Competitive Housing Tax Credit Program ensure that applications meet the criteria for awards and that awards are given to the most competitive applications in each region. Errors that should have resulted in deficiencies were identified in five of the seven application files tested, however, we did not identify any applications that should not have been awarded tax credits since the deficiencies could have been corrected. We noted opportunities for the Department to strengthen the application and award processes by: ensuring two complete, independent reviews of each application, confirming that responses to administrative deficiencies are complete and correct, linking or referencing the responses to the original documents to facilitate the application review process, ensuring that all Qualified Allocation Plan and Rules (QAP) requirements are captured on the review sheets used in assessing the applications, and posting all of the required application log ...
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| Publié par | Unje |
| Nombre de lectures | 39 |
| Langue | English |
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December 11, 2007 To the Audit Committee and Governing Board of the Texas Department of Housing and Community Affairs Re: Internal Audit Report on the 9% Competitive Housing Tax Credit Program Compliance Review of the Application and Award Processes The Internal Audit Division has completed its audit on the application and award processes for the Department’s 9% Competitive Housing Tax Credit Program. Generally, the application and award functions of the 9% Competitive Housing Tax Credit Program ensure that applications meet the criteria for awards and that awards are given to the most competitive applications in each region. Errors that should have resulted in deficiencies were identified in five of the seven application files tested, however, we did not identify any applications that should not have been awarded tax credits since the deficiencies could have been corrected. We noted opportunities for the Department to strengthen the application and award processes by: ¾ ensuring two complete, independent reviews of each application, ¾ confirming that responses to administrative deficiencies are complete and correct, ¾ linking or referencing the responses to the original documents to facilitate the application review process, ¾ ensuring that all Qualified Allocation Plan and Rules (QAP) requirements are captured on the review sheets used in assessing the applications, and ¾ posting all of the required application log information and the scoring sheets on the Department’s web site as required by the Texas Government Code. In addition, the Department should require the applicant to notify the Department if the applicant, development owner, developer, guarantor, or any other related party is subject to any criminal proceedings during the course of the tax credit cycle, and should maintain documentation of this information in the application file. Management is in agreement with the report’s findings and recommendations. Sincerely, Assigned to this audit: Greg Magness, CIA, CGAP Sandra Hoffman, CGAP Sandra Q. Donoho, MPA, CISA, CIA, CFE Colleen Bauer Director of Internal Audit cc: Mr. Michael Gerber, Executive Director Ms. Brooke Boston, Deputy Executive Director for Programs Ms. Robbye Meyer, Director of Multifamily Finance Production
CONTENTS
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Detailed Results Chapter 1 The Application Review Process Does Not Always Identify Problems that Could Disqualify Applications ...............................................................3 Chapter 2 Tax Credit Files Lack the Organization and Referencing Needed to Ensure Deficiencies Are Consistently Noted and Addressed.......................6 Chapter 3 Not All Information Required by Statue is Reviewed or Posted to the Department’s Web Site............................................................................8 Chapter 4 Commitment Review Sheets Need Improvement........................................................11 Appendices Appendix A Objectives, Scope, Methodology and Other ................................................................13 Appendix B Background ..................................................................................................................17
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Executive Summary Overall Conclusion The Multifamily Finance Production Division ensures that the application and award processes for the 9% Competitive Housing Tax Credit Program are adequately conducted and appropriately documented. This results in applications which meet the criteria for awards and ensures that the awards are given to the most competitive applications in each region. Errors that should have resulted in deficiencies were identified in the first seven application files tested, however, we did not identify any applications that should not have been awarded tax credits since the deficiencies could have been corrected. We noted additional opportunities to strengthen the application and award processes. Key Points • Two complete, independent reviews should be performed on each application. At least one error was identified in five of the seven files tested that should have resulted in an administrative deficiency notice. (Chapter 1-A) The Department should require the applicant to notify the Department if the • applicant, development owner, developer, guarantor, or any of their related parties is subject to any criminal proceedings during the course of the tax credit cycle. The Department should retain documentation of this information in the application file. Two individuals were indicted after submitting an application and the required certification, but their developments were still recommended to receive awards for tax credits. This information was not documented in the application files. (Chapter 1-B) • The Department should improve the organization and structure of the application files in order to increase the likelihood that errors in the files will be identified and corrected. Department staff does not adequately organize or reference documents in the application files. In addition, the applicant’s responses to deficiencies are not linked to the original documents within the application file. (Chapter 2-A) The Department should ensure the information submitted to resolve deficiencies • is complete and correct. In three instances, administrative deficiencies were resolved, but the information used to clear the deficiency could not be found in the file. In four other instances, the response was insufficient to address the original deficiency, yet the deficiency was cleared. (Chapter 2-B) An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 1
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program • The Department should ensure the application review sheets include all of the Qualified Allocation Plan and Rules (QAP) requirements. There were twenty-six QAP requirements not included in the selection, threshold, and Quantified Community Participation (QCP) review sheets used during the application review process. (Chapter 3-A) • The Department should post the application log information and scoring sheets as required by the Texas Government Code. The Department does not post an application log, as defined in statute, to their website. However, the information required by statute as part of the log is posted, but should be more clearly identified. In addition, scoring sheets providing details of the application score are not posted as required by the Texas Government Code. (Chapter 3-B) • The Department does a good job of ensuring the information maintained in the Multifamily Finance Production database is complete and accurate, and the information provided to the Board correctly represents the information in the database. (Chapter 4) • The Department should ensure all documentation required by the QAP is included in the commitment notice checklist, and that reviewers check to see that all required documentation is received. Some of the requirements listed in the QAP are not included in the commitment review sheet. (Chapter 4-A) Summary of Management’s Response Management agrees with the audit findings and recommendations, and has committed to having all of the audit recommendations implemented by the end of the 2008 tax credit cycle.
An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024
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An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Detailed Results Chapter 1 The Application Review Process Does Not Always Identify Problems that Could Disqualify Applications During the eligibility, scoring, and threshold processes, the Multifamily Finance Production Division (Division) determines which developments are recommended to receive tax credits based on the selection and threshold criteria outlined in the The 9% Competitive Housin Qualified Allocation Plan and Rules (QAP). Tax Credit Program The recommendations are presented to the The Housing Tax Credit program was created in 1986 to provide credits against federal income taxes Department’s Governing Board (Board), for owners of qualified low-income rental housing who are responsible for awarding the tax developments. The Texas Department of Housing credits. and Community Affairs (Department) is given the authority to make housing tax credit allocations for the State of Texas. Forty-four tax credit applications were selected for testing in order to determine if: The purpose of the program is to: • • all of the required documentation administer tax credits to encourage the development and preservation of was present in the file, appropriate types of rental housing for • reviews were completed as required households that have difficulty finding • the application was scored correctly,, suitable, affordable rental housing in the private marketplace; • maximize the number of suitable, b • rtehve iewdeerfsi cwieenrcei rees solnveotded d y the affordable residential rental units across , an the state; • any deficiencies were overlooked • prevent losses to the state's supply of the revi roce suitable, affordable residential rental units during ew p ss. by enabling the rehabilitation of rental housing or by providing other preventive When testing identified errors in the first financial support; and seven files tested, additional file testing was • provide for the participation of for-profit organizations while encouraging the adipspcliocnattiinoune df. ilEersr osrsh oiduledn tifhiaevde inr efisvuel eodf thie participation of nonprofit organizations in t n the acquisition, development, and deficiencies requiring correction by the operation of suitable residential rental applicant and could have resulted in units. termination of the application if the (See Appendix B for additional background deficiencies were not resolved. information.) In addition, there were two individuals who were indicted during the application process, yet their developments were recommended for tax credit awards because the indictments occurred after the application was submitted. All related parties to the applicant are required to certify at the time of their application that they are not currently under indictment, debarred or suspended. However, there is no requirement that the applicant or related parties notify the department of any legal action that occurs from the time the certification has been signed to the time the awards are approved. An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 3
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program During the application review period, staff conducts a process called “data scrubbing. This process includes a review of the information in the Multifamily Finance Production database, to determine if the most current application information is included in the database. The database is corrected when errors are identified, or when updated information is provided by the applicant. We compared information in the application files to the information in the application data form and determined that the Department’s “data scrubbing process is adequate to ensure that the information in the database is complete and accurate. Chapter1-A: Errors Were Identified in Applications that Should Have Resulted in Deficiency Notices At least one error was identified in five of the seven applications tested that should have resulted in an administrative deficiency notice and may have resulted in the application being disqualified, depending on the response to the deficiency. This indicates a lack of adequate review of the application files. However, auditors did not identify any applications that should not have been awarded tax credits because the deficiencies we found could have been corrected. The most serious deficiency overlooked by Division staff involved a cost certification made by an architect who is listed on the development’s organizational chart. The QAP §49.9(h)(6)(G) requires that the certifying architect or engineer must be a third-party. This should have been documented as a deficiency, and if not corrected within seven business days, the application should have been terminated. Other examples of deficiencies overlooked include incomplete forms, financing amounts on the application not matching source documents, and other missing information such as no second contact, inaccurate square footage, and incomplete financing narratives. Some review sheets show both reviewers signing-off on a section as completed, but a deficiency was found; others show both reviewers listing the item as ‘not applicable’ when it was determined during the course of our audit that the section applied to the application, however, we did not note any deficiencies for these items. Recommendation Two independent reviews should be completed on each application. To help facilitate this process, reviewers should have separate checklists, so the second reviewer is not influenced by the first reviewer’s assessment. After two independent reviews have taken place, the two reviewers should meet and discuss any discrepancies between their reviews. An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 4
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Management’s Response Staff will implement the audit recommendation and conduct independent reviews. Target date for completion March 31, 2008 Chapter 1-B: Individuals Under Indictment Were Recommended for Tax Credit Awards As required by program rules, individuals involved with an application must certify that they are not subject to any pending criminal charges. However, two individuals were indicted after submitting an application and the required certification, but the development they were involved with was still recommended to receive an award. The Department does not require the applicant to disclose any indictments the related parties of the application may be under from the time of their certification to the time awards are made by the Board. In one instance, the charges brought against the individual were dropped, and the development was awarded a forward commitment from the 2008 credit ceiling. In the second case, the person under indictment was removed from the development and the development was awarded a forward commitment from the 2008 credit ceiling; however, the name of the individual under indictment still appeared on the forward commitment letter. This individual did not sign the forward commitment. Recommendation The Department should revise its certification requirement to include a requirement that the applicant should notify the Department if the applicant, development owner, developer, guarantor, or any of their related parties is subject to any criminal proceedings during the course of the tax credit cycle. The notification may not disqualify the development for an award; however, the information should be presented to the Board for their consideration prior to the issuing of awards. The Department should retain documentation of this information in the application file. Management’s Response Staff will implement the audit recommendation and include this requirement in the Uniform Application and the application review forms. Target date for completion January 31, 2008 An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 5
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Chapter 2 Tax Credit Files Lack the Organization and Referencing Needed to Ensure Deficiencies Are Consistently Noted and Addressed As application files are reviewed, deficiencies in the information are noted, and administrative deficiency notices are sent to the first and second contact listed on the application informing them additional or revised information is needed. When the response to the notice is received, the notice and the response are kept together in the file, but this information is not referenced or linked to the original information it is intended to supplement or replace. The reviewer decides if the response is sufficient to address each of the deficiencies noted, or if additional information is needed. In some instances, it may take several requests for the applicant’s staff to return enough information to address all of the deficiencies noted by the reviewer. This makes it very difficult to determine what information is the most current and to easily locate it in the file. In addition, it increases the risk that information is lost during the process or that the deficiency responses are insufficient. Chapter 2-A: A Lack of File Organization Results in Inconsistent Applicant Information Department staff is not organizing or referencing documents in the application files which makes it difficult to find the most recent documentation, or to determine if documents have been removed. The applicant’s responses to deficiencies are not linked or referenced to the original documents within the application file. This results in incomplete documents being accepted simply because they address the deficiency, while other required information on the original document may be omitted from the revised version. All updated documents are required to stand on their own. This issue is further complicated when subsequent deficiencies are found on the new document and yet another document must be submitted to provide the required information. Department staff removes documents from the application files without noting when they removed the documents or where they are now located. For example, support and opposition letters are removed from the application file as they are received, and filed together awaiting a separate review. The lack of staff documentation regarding when and where the documents have been removed results in the appearance that documents are missing or were never provided. There were also instances noted where Real Estate Analysis staff removed copies of the financial statements from the application files, but failed to note they had removed them. An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 6
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program This resulted in the appearance that the documents were never provided by the applicant. In addition, one current forward commitment file could not be located. Recommendation The Department should: • highlight and flag information used as support for items within the various checklists. Cross-referencing checklist items to where the information is located in the application file may help in this process, • develop a system by which deficiency responses can be easily linked or referenced to the original document, • develop a chronology sheet to document changes to the file, requests made of the applicant, or other information not readily apparent in the file, • include time and date stamps on all documents received, and • consider the use of software, like the TeamMate Audit Management System, that can be used to automate and link documents for ease of review. Management’s Response Staff will implement the audit recommendations and create a system to track deficiencies and changes to the application. Target date for completion March 31, 2008 Chapter 2-B: Deficiency Responses Do Not Always Contain All of the Required Information When a response to an administrative deficiency notice is received, the reviewer who issued the notice reviews the documents and determines if the response is adequate. If the reviewer determines the response is adequate they write an “R on the checklist to indicate the deficiency was resolved. In three instances, the checklist indicated the deficiency was resolved, but the updated information or documentation could not be found in the file. In four other instances, the response was insufficient to address the original deficiency, yet the review sheet was marked as “resolved. Recommendation The Department should ensure the information submitted to resolve deficiencies is complete and correct, and is linked to the part of the application file where the deficiency was noted, so subsequent reviewers can easily locate the new information. An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 7
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program Management’s Response Staff will implement the audit recommendation and create a system to document deficiencies and changes. Target date for completion March 31, 2008 Chapter 3 Not All Information Required by Statue is Reviewed or Posted to the Department’s Web Site In order to evaluate the application files, the Department relies on review sheets to ensure that all of the QAP requirements are considered during the application review process. The selection, threshold, Quantifiable Community Participation (QCP) letter, and non-QCP letter review sheets were compared to the QAP in order to determine if all of the QAP requirements are captured on the review sheets and considered during the review process. There were twenty-six QAP requirements that were found to be missing from the review sheets. The Government Code requires the Department to post an application log on the Department’s web site and specifies the information that should be included. However, there is not an “application log posted by the Department as defined by statute. Although most of the required information is posted in various reports, some information is missing. Chapter 3-A: Review Sheets Do Not Capture All QAP Requirements There were twenty-six QAP requirements not included in the selection, threshold, and QCP review sheets used during the application review process. Information missing from the review sheets could result in an application that does not meet all the requirements of the QAP being recommended for an award. Examples of QAP requirements missing from the review sheets include: ¾ The QAP requires that, “The commitment of funds (an application alone will not suffice) must already have been received from the third-party funding source, but this is not reviewed on the selection review sheet to determine if the funds have already been received. ¾ The QAP requires the applicant to provide a unit floor plan for each type of unit showing special accessibility and energy features; however, the review sheet only requires the reviewer to ensure unit floor plans are submitted for each unit type and that the net rentable area matches Vol. 1 Tab 2.
An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 8
An Internal Audit Report on the 9% Competitive Housing Tax Credit Program ¾ The QAP states that all services must exist, or if under construction must be at least 50% complete, by the date the application is submitted, but there is no indication on the review sheet that this is considered. ¾ The QAP requires entities that have not been formed and entities that have been formed recently but have no assets, liabilities, or net worth to submit a statement with their application to this effect, but this requirement is not listed on the review sheet. Recommendation The Department should ensure that the application review sheets include all of the QAP requirements. Management’s Response Staff will implement the audit recommendation and ensure all requirements of the QAP are included in the application materials as well as the review materials. Target date for completion March 31, 2008 Chapter 3-B: Application Log Does Not Meet All Statutory Requirements While the Department posts most of the required application and award information on its website within various reports, there is no application log, as defined in statute, posted to the website. In addition, some of the information required by statute is not posted to the Department’s website. Items required as part of the application log that are not posted to the website include: names of the related parties to the applicant, the score of the application in each scoring category adopted by the Department under the QAP, any decision made by the Department or Board regarding the application, the names of persons making these decisions, including the person scoring and underwriting the application, and a dated record and summary of any contact between the Department staff, the Board, and the applicant or related parties. In addition, scoring sheets providing details of the application score are not posted as required by the Texas Government Code §2306.6717 (2). A log of all application scores is posted (application scoring log); however, this log only contains summary information, and does not contain details as required by statute. Texas Government Code §2306.6717 (a) (2) states, “Subject to §2306.67041, the department shall make the following items available on the department’s website: before An Internal Audit Report on the Multifamily Finance Production Application and Award Process December 2007 TDHCA Internal Audit Division Report # 07-1024 Page 9
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