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Audit Report

Affordable Housing

The objective of the audit was to examine internal controls over the creation and maintenance of affordable homes through the City’s Affordable Housing Permanent Fund Ordinance, the Inclusionary Housing Ordinance, and City financing to developers. Because the Office of Economic Development is not the only City agency responsible for administering the affordable housing ordinances, our audit also included the Department of Community Planning and Development.

Watch the Audit Committee presentation here (scroll to 55 minute mark).

Denver faces significant challenges when it comes to rising housing costs, which have made access to affordable housing unachievable for many. The audit revealed an immediate need for stronger safeguards and compliance with regulations surrounding Denver’s affordable housing programs. The recommendations from the audit should help the city better ensure affordable housing is made available to those who qualify.

Our audit of the City’s affordable housing programs found the Office of Economic Development does not have sufficient controls to ensure its mission of providing affordable housing in Denver. In addition, while the Department of Community Planning and Development has sufficient controls to ensure developers pay affordable housing fees, we did find some areas for improvement in its assessment of linkage fees and its granting of exemptions from fees.

The Office of Economic Development’s Lack of Proper Implementation and Enforcement of Regulations Is Not Ensuring Affordability of Housing

•The agency incorrectly calculated initial sale and resale prices of affordable homes, resulting in both overpricing and underpricing of homes.
•The agency is not properly determining income eligibility to ensure monthly housing payments are affordable.
•The agency did not accurately collect fees from developers meant to fund affordable housing, and it dispersed incentive payments to developers in excess of annual limits.
•The agency did not monitor federally funded rental projects for compliance in a timely manner.
•There are inaccurate dates in the agency’s compliance spreadsheet and in memoranda of acceptance recorded with the Clerk and Recorder’s Office.

The Department of Community Planning and Development’s Process for Assessing Linkage Fees Is Effective but Could Be Improved

•The department incorrectly approved exemptions to the linkage fee for developments that did not qualify for the exemption.
•Additionally, the department did not consistently follow its internal process manual to document linkage fee exemptions.

1.1 Inclusionary Housing Ordinance Initial Home Sales – The Office of Economic Development’s Chief Housing Officer should design internal controls to ensure maximum sale price tables are calculated annually according to Inclusionary Housing Ordinance rules and that the correct table is used when selling an affordable unit.

Agency Response: Agree, Implementation Date – March 31, 2019

1.2 Design Internal Controls for Income Verification – The Office of Economic Development’s Chief Housing Officer should design internal controls to ensure applicants’ maximum monthly payments are calculated based on household monthly gross income.

Agency Response: Agree, Implementation Date – Completed

 

1.3 Design Internal Controls for Recording – The Office of Economic Development’s Chief Housing Officer should design internal controls so that recorded covenants and memoranda of acceptance are accurate, including incorporating a final review. Additionally, the Housing Officer should coordinate with the Clerk and Recorder’s Office to remediate existing errors.

Agency Response: Agree, Implementation Date – May 31, 2019

 

1.4 Research Use of Secondary Liens – The Office of Economic Development’s Chief Housing Officer should research the feasibility of using secondary liens to prevent improper resales of affordable homes.

Agency Response: Agree, Implementation Date – May 31, 2019

 

1.5 Design Internal Controls for Review – The Office of Economic Development’s Chief Housing Officer should design internal controls to ensure maximum resale pricing calculations are accurate and reviewed before issuing final quotes to prospective home sellers.

Agency Response: Agree, Implementation Date – March 1, 2019

1.6 Cash-in-Lieu Payments – The Office of Economic Development’s Chief Housing Officer should rectify the overpayment the office received in 2014.

Agency Response: Agree, Implementation Date – January 31, 2019

1.7 Design Internal Controls for Data Accuracy – The Office of Economic Development’s Chief Housing Officer should design internal controls to ensure a complete and accurate inventory of affordable units is maintained.

Agency Response: Agree, Implementation Date – Fourth Quarter 2019

1.8 Incentive Payments – The Office of Economic Development’s Chief Housing Officer should design internal controls to ensure future Inclusionary Housing Ordinance incentive payments are processed, accounted for, and disbursed in a timely and accurate manner.

Agency Response: Agree, Implementation Date – Completed

1.9 Perform Annual Monitoring – The Office of Economic Development’s Chief Housing Officer should perform desk reviews on a rolling, annual basis and work toward automating the process to reduce time spent performing reviews.

Agency Response: Agree, Implementation Date – June 30, 2019

2.1 Linkage Fee Exemptions – The Executive Director of the Department of Community Planning and Development should improve the verification process for granting exemptions by creating overlays for every existing affordable housing plan boundary within its mapping function.

Agency Response: Agree, Implementation Date – February 15, 2019

2.2 Linkage Fee Documentation – The Executive Director of the Department of Community Planning and Development should conduct a training for all staff who process and input linkage fee applications to ensure they follow correct procedures.

Agency Response: Agree, Implementation Date – January 16, 2019

Follow-up report

A follow-up report is forthcoming. 

Audit Team: Katja E.V. Freeman, Jared Miller, Patrick Schafer, Shaun Wysong, Chris Wilson