City of AnaheimLocal Government

Finding 2025 001: Other – Inaccurate reporting on the Schedule of Expenditures of Federal Awards Federal Program Name: Drinking Water State Revolving Fund ALN Number: 66.468 Federal Agency: Environmental Protection Agency Federal Award Number: D2402000 Federal Grant Award Year: 2025 Pass Through Entity: California State Water Resources Control Board Repeat Finding: This is not a repeat finding. Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample. Criteria Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200) section 303 requires the recipient of federal funds to establish and maintain effective internal control over the federal award that provides reasonable assurance that the non federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Within 2 CFR 200.502 Basis for determining Federal awards expended (a) Determining Federal awards expended. The determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity related to the Federal award pertains to events that require the non Federal entity to comply with Federal statutes, regulations, and the terms and conditions of Federal awards, such as: (1) Expenditure/expense transactions associated with grants, cooperative agreements, cost reimbursement contracts under the FAR, compacts with Indian Tribes, and direct appropriations; (2) The disbursement of funds to subrecipients; (3) The use of loan proceeds under loan and loan guarantee programs; (4) The receipt of property (including surplus property); (5) The receipt or use of program income; (6) The distribution or use of food commodities; (7) The disbursement of amounts entitling the non Federal entity to an interest subsidy; and (8) The period when insurance is in force. Additionally, 2 CFR 200.510 Financial Statements. Schedule of expenditures of Federal awards. The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee’s financial statements. The schedule must include the total Federal awards expended as determined in accordance with § 200.502. The auditee may choose to provide information requested by Federal agencies or pass through entities to make the schedule easier to use. For example, when a Federal program has multiple Federal award years, the auditee may separately list the amount of Federal awards expended for each year of a Federal award. The schedule must: (1) List individual Federal programs by Federal agency using the applicable Assistance Listing number(s). For a cluster of programs, the non Federal entity must provide the cluster name, a list of individual Federal programs within the cluster, and provide the Federal agency name and the applicable Assistance Listing number(s). Condition The City’s Utilities Department did not timely identify and report a federally funded program and its related expenditures to the Finance Department. The failure was identified when the Utilities Department received a $10 million reimbursement from the California State Water Resources Control Board and communicated this to the Finance Department on March 4, 2026. The underlying agreement was executed on April 30, 2025, indicating a significant lapse in internal controls for monitoring federal funds. Cause There was no documented or formal continuity process to ensure consistent identification and monitoring of federal grants during periods of employee turnover. Effect As a result of management’s failure to identify and report all federal programs, the SEFA was incomplete as originally prepared. An adjustment to the SEFA was required to include the program and its related expenditures. Due to the late adjustment to the SEFA, the program was identified as a major program and subjected to major program compliance testing. The insufficient controls could have led to the SEFA being materially misstated. Questioned Costs None noted. Recommendation We recommend the City develop and implement a formal, documented continuity process that outlines the procedures for identifying, tracking, and monitoring all federal grants. Views of Responsible Officials The City concurs with the finding. Once this issue was identified, management communicated the importance of timely reporting of all federal awards to applicable divisions and began developing enhanced procedures to strengthen internal controls. Management is committed to strengthening internal controls and improving coordination and communication between different divisions in Utilities to ensure appropriate oversight of federal grant activities. All Divisions within the Utilities Department will be required to submit grant information for inclusion in the inventory to Utilities Accounting. This will require that pre-award and post-award notification be made to Utilities Accounting. Utilities Accounting will review to ensure proper fund set-up, cross reference to expenditure and revenue accounts. Utilities Accounting will maintain an “audit-ready” file for each grant containing the Notice of Award and other financial reports. Lastly, Utilities Accounting will periodically review City Council meeting minutes to help identify newly accepted grants that might not have been communicated to Utilities Accounting. Utilities Accounting will provide grant listing and documents to City Finance on an annual basis.

Federal Program Name: Housing Choice Vouchers Program ALN Number: 14.871 Federal Agency: Department of Housing and Urban Development Federal Award Number: CA104VO/CA104AF Federal Grant Award Year: 2023 2025 Pass Through Entity: None Repeat Finding: This is not a repeat finding. Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample. Criteria Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards(2 CFR 200) section.303 requires the recipient of federal funds to establish and maintain effective internal control over the federal award that provides reasonable assurance that the non federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Further, 2 CFR 200.502 requires Determining Federal awards expended. The determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs. Generally, the activity related to the Federal award pertains to events that require the non Federal entity to comply with Federal statutes, regulations, and the terms and conditions of Federal awards. Condition We tested a sample of 40 participants who were no longer eligible for the program to ensure they received no payments after their eligibility ended and identified one participant where the City failed to make one timely HAP payment in the amount of $1,795 during the period of eligibility. While the participant did not receive payments after their eligibility ended, the payment during their period of eligibility was missed by the City, leading to an understatement of expenditures on the Schedule of Federal Expenditures (SEFA). Cause The cause was an omission during the manual data entry of the payment adjustment, combined with a review process that did not include a reconciliation of the total number of adjustments processed against the number of adjustments requested. Effect The error resulted in an underpayment of $1,795 to the participant and on the SEFA for fiscal year 2025. The City’s controls were not operating effectively to ensure HAP payments were paid out when required and as a result, the City was not in compliance with HAP guidelines. Questioned Costs None noted. Recommendation We recommend updating the HAP payment adjustment procedure to include a mandatory reconciliation step where the total dollar amount of approved adjustments is balanced against the total dollar amount in the final payment file before it is processed. Views of Responsible Officials The City concurs with the finding. The error was driven by two primary factors: 1) the current software lacks the functionality to automate all HAP adjustments, necessitating high volume manual data entry; and 2) during a period of employee turnover, new management personnel were reviewing these complex manual adjustments while still in their training phase. For immediate corrective action, the Anaheim Housing Authority (AHA) has implemented a procedure by providing refresher training to all Housing Specialists to enter HAP adjustments immediately and review them before submitting. Managers will receive a reminder to check that all appropriate HAP adjustments have been made for all terminations. As permanent corrective action, the AHA has determined that the current software is no longer sufficient for operational needs. The AHA is currently in the process of putting together a Request for Proposal (RFP) to procure a modern housing management system. A mandatory requirement of the new system is the automation of payment adjustments. This will eliminate the need for manual data entry, thereby removing human error.

Federal Program Name: Housing Choice Vouchers Program ALN Number: 14.871 Federal Agency: Department of Housing and Urban Development Federal Award Number: CA104VO/CA104AF Federal Grant Award Year: 2023 2024 Pass Through Entity: None Repeat Finding: This is not a repeat finding. Statistically Valid Sample: The sample was not intended to be, and was not, a statistically valid sample. Criteria 24 Code of Federal Regulations (CFR) Part 982, Section 8 Tenant - Based Assistance Housing Choice Voucher Program. Section 405 PHA unit inspection – (b) Periodic Inspections. The PHA must inspect the unit at least biennially during assisted occupancy to ensure that the unit continues to meet the HQS, except that a small rural PHA, as defined in § 902.101 of this title, must inspect a unit once every three years during assisted occupancy to ensure that the unit continues to meet the HQS. Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200) section 303 requires the recipient of federal funds to establish and maintain effective internal control over the federal award that provides reasonable assurance that the non federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition Management identified seven participants who received rental assistance during the year and confirmed their units were inspected outside of the required biennially timeframe. Cause There was management turnover within the City’s Housing Authority (Housing Authority) during the fiscal year, which led to gaps in oversight and continuity of program administration. In addition, the Housing Authority outsourced a portion of their unit inspections to a third party vendor, and the vendor did not appropriately schedule and complete periodic inspections within the required biennial timeframe. Furthermore, the Housing Authority did not have internal controls designed to detect noncompliance with inspection timing requirements. Specifically, management lacked formal procedures to track inspection due dates, monitor vendor performance, or identify overdue inspections on a timely basis. As a result, late inspections were not identified or corrected in a timely manner. Effect Failure to conduct timely inspections increases the risk that assisted units may not comply with Housing Quality Standards. Continued noncompliance could expose the City to administrative sanctions, questioned costs, or repayment of federal funds. Questioned Costs None noted. Recommendation We recommend that the Housing Authority design and implement internal controls to ensure Housing Choice Voucher unit inspections are completed within required timeframes, including establishing a centralized inspection tracking mechanism that identifies inspection due dates and inspection status, assigning responsibility to a designated staff member or supervisor to review inspection timeliness at least monthly, and implementing documented oversight procedures for third party vendors such as required periodic reporting and management review. In addition, the Housing Authority should document inspection policies and procedures and cross train staff to ensure inspection deadlines are monitored and noncompliance is identified and corrected timely, particularly during periods of management turnover. Views of Responsible Officials The Anaheim Housing Authority (AHA) participates in an agreement with three other PHAs in Orange County to allow participants to move within the four jurisdictions without using portability. Each PHA conducts inspections within its jurisdiction. The initial PHA must send a request to the host PHA to conduct these inspections. During the course of this fiscal year, there were several batches of inspection requests sent to mobility partner PHAs that were lost by those agencies and had to be resubmitted. This caused the inspections to be conducted late. The AHA has internal controls to prevent late inspections. There are reports of upcoming inspections, as well as reports of mobility inspections that have been sent to partners. These reports are reviewed regularly, approximately twice per month, by the HQS supervisor and the Information Systems team. The former and current supervisors of the HQS unit confirm that they were aware there were lost inspections based on their internal review of these reports, which prompted them to be resent to the mobility partner. Unfortunately, the partners that lost the inspections were experiencing turnover in management and long-term staff which seemed to drive this unusual occurrence. This had not previously been a problem, and a review of current reports shows this is no longer a problem. Going forward, the AHA will ensure mobility inspections are conducted on time despite any potential staffing issues at their partner agencies. If it appears that inspections are not being addressed, the AHA will obtain permission to conduct inspections in the partner jurisdiction.

Finding 2023 001 – Special Tests and Provisions – HQS Enforcement Federal Program: Housing Choice Voucher Program (HCVP) ALN Number: 14.871 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2020 Grant Number: CA104VO/CA104AF Pass Through Entity: None Criteria: 24 CFR 985.3 – Indicators, HUD verification methods and ratings. (f) HQS enforcement. (1) This indicator shows whether, following each HQS inspection of a unit under contract where the unit fails to meet HQS, any cited life threatening HQS deficiencies are corrected within 24 hours from the inspection and all other cited HQS deficiencies are corrected within no more than 30 calendar days from the inspection or any PHA approved extension. In addition, if HQS deficiencies are not corrected timely, the indicator shows whether the PHA stops (abates) housing assistance payments beginning no later than the first of the month following the specified correction period or terminates the HAP contract or, for family caused defects, takes prompt and vigorous action to enforce the family obligations. (24 CFR 982.404) Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over HQS enforcement requirements, we selected a sample of 40 failed HQS inspections out of a population of 569 failed HQS inspections. We noted that for two samples the City did not stop housing assistance payments (HAP) as required per the above criteria. The City made payments of $1,972 that were not in compliance with the above requirements. Cause and Effect: The City’s controls are not operating effectively to ensure that HAP is abated beginning no later than the first of the month following the specified correction period or terminates the HAP contract or, for family caused defects, takes prompt and vigorous action to enforce the family obligations. As a result, the City was not in compliance with HAP guidelines. Questioned Costs: The City made payments of $1,972 that were not in compliance with the requirements. Isolated or Systemic: Systematic Whether the Sampling was a Statistically Valid Sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: No Recommendation: We recommend that the City strengthen their processes and controls in place to comply with HQS enforcement requirements.

Finding 2022-001 ? Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2016 Grant number: M-16-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Homeownership assistance HOME amount per-unit Minimum period of affordability in years Under $15,000- 5 $15,000 to $40,000- 10 Over $40,000- 15 Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City?s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.

Finding 2022-001 – Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2015 Grant number: M-15-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City’s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management’s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.

Finding 2022-002 – Allowable Costs/Costs Principles and Period of Performance Federal Program: Coronavirus State and Local Fiscal Recovery Funds ALN Number: 21.027 Federal Agency: United States Department of the Treasury Federal Award Year: 2022 Grant number: CAPP-PN-2022-05, CA 3010001, and 256399-01 Pass-Through Entity: State of California, Department of Community Services & Development and State Water Resources Control Board Criteria: The State of California (the State) passed through funding to the City of Anaheim (the City) for the California Arrearage Payment Program for electric customers (CAPP) and the California Water and Wastewater Arrearage Payment Program (CWWAPP). Both CAPP and CWWAPP have a provision that required the City to allocate payments to the customer accounts within 60 days of receiving payment from the State. Specifically, per section B, Program Requirements, of the California Water and Wastewater arrearage payment program guidelines, there is a requirement that notes “Water systems that participate in the program must allocate payments as bill credits to customer accounts within 60 days of receiving payment .” Per CAPP Program Notice No. 2022-01, there is a requirement that notes “Within 60 days of receiving CAPP funds, a utility applicant shall issue CAPP assistance benefits to customers as bill credits and include a statement that the credits are a result of California’s CAPP funding.” Additionally, both CAPP and CWWAPP provided for the funds to be utilized for customers arrearages accrued during the COVID-19 pandemic bill relief period of March 4, 2020 through June 15, 2021 net of any late fees which are to be waived. CWWAPP provisions are included in Section B Program Requirements and Appendix A, Section 1, Eligibility of the California Water and Wastewater arrearage payment program guidelines. For CAPP the eligibility determinations are included in the 2022 CAPP Frequently Asked Questions. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure federal expenditures are allowable and adhere to the required period of performance. Condition and Context: The City made two disbursements under the CWAPP program for water customers on March 2, 2022 and June 21, 2022. The water funds were received by the City on January 25, 2022. The second disbursement made by the City on June 21, 2022 in the amount of approximately $102,000 was not within the 60-day requirement. The CAPP funds were received by the City on December 16, 2021. The City disbursed the CAPP funds on February 25, 2022 in the amount of approximately $4.7 million which was past the 60-day requirement. Additionally, we selected a sample of 60 customers totaling approximately $53,000 stratified between electric, water, and wastewater services and noted 3 of the samples where the City had credited the customer accounts in amounts that exceeded the eligible amounts billed during the period net of subsequent payments and adjustments from March 4, 2020 to June 15, 2021. Two of the three exceptions were residential water customers with a combined over award of $40.89 and one exception was for a commercial electric customer with an over award of $14.60. Cause and Effect: In discussing the 60-day disbursement condition with the City, management stated the focus was on disbursing the funds correctly. For the CAPP funds, the holidays impacted the disbursement timeline. For the CWWAPP funds, the first disbursement did not utilize all the funds. Therefore, management prepared a second disbursement to utilize the funds provided by the State which was 87 days outside the 60-day requirement. All three customer account over awards included partial cash payments and/or adjustments subsequent to management’s initial determination of delinquent account balances eligible for bill credits as defined by the grant guidance, but prior to the credit application date. The timing of the initial credit balance determinations versus the posting of ongoing adjustments could create differences in the allowable credit balances. The City’s manual review process of the adjustments did not identify the discrepancies. Questioned Costs: $55.49 Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: No Recommendation: We recommend the City enhance their internal controls to include a timeline that would comply with the grant requirements. In the event, such timelines can not be adhered to, the City should work with the grantor for a time extension. For accounts with multiple adjustments, a more detailed review of the accounts should be performed if adjustments or cash payments are made subsequent to the City’s credit amount determination. Management’s Response: Management agrees with this finding. In order to ensure adherence to the stipulated 60-day window for credit applications, we have initiated immediate testing of bill notices upon receipt of CWWAPP disbursement checks. Simultaneously, a secondary query has been implemented to validate consistency between the initial query and the present data. To mitigate the risk of over awarding eligible customers, a final query will be conducted prior to disbursement to confirm the accuracy of the awarded amounts for each eligible account.

Finding 2022-001 ? Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2016 Grant number: M-16-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Homeownership assistance HOME amount per-unit Minimum period of affordability in years Under $15,000- 5 $15,000 to $40,000- 10 Over $40,000- 15 Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City?s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.

Finding 2022-001 – Eligibility Federal Program: Home Investment Partnership Program (HOME) ALN Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2015 Grant number: M-15-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place nor were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City’s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 17 loans totaling $1,137,405 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes. Finding 2021-001. Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management’s Response: During fiscal year 2022, the Department underwent a reorganization as the City Council approved the establishment of two separate departments, Housing & Community Development and Economic Development. In April 2022, the Department contracted with Keyser Marston and Associates to train newly hired staff to assist the Department with Loan portfolio monitoring and to ensure on-going compliance. In addition, the Department will be implementing new procedures through a program called Neighborly to facilitate and streamline the process for all outstanding loans. The Neighborly program will assist with loan tracking, communicating with loan participants and obtaining annual compliance certifications. The Department will be focusing its resources to ensure on-going compliance and plans to close this finding in fiscal year 2023.

Finding 2022-002 – Allowable Costs/Costs Principles and Period of Performance Federal Program: Coronavirus State and Local Fiscal Recovery Funds ALN Number: 21.027 Federal Agency: United States Department of the Treasury Federal Award Year: 2022 Grant number: CAPP-PN-2022-05, CA 3010001, and 256399-01 Pass-Through Entity: State of California, Department of Community Services & Development and State Water Resources Control Board Criteria: The State of California (the State) passed through funding to the City of Anaheim (the City) for the California Arrearage Payment Program for electric customers (CAPP) and the California Water and Wastewater Arrearage Payment Program (CWWAPP). Both CAPP and CWWAPP have a provision that required the City to allocate payments to the customer accounts within 60 days of receiving payment from the State. Specifically, per section B, Program Requirements, of the California Water and Wastewater arrearage payment program guidelines, there is a requirement that notes “Water systems that participate in the program must allocate payments as bill credits to customer accounts within 60 days of receiving payment .” Per CAPP Program Notice No. 2022-01, there is a requirement that notes “Within 60 days of receiving CAPP funds, a utility applicant shall issue CAPP assistance benefits to customers as bill credits and include a statement that the credits are a result of California’s CAPP funding.” Additionally, both CAPP and CWWAPP provided for the funds to be utilized for customers arrearages accrued during the COVID-19 pandemic bill relief period of March 4, 2020 through June 15, 2021 net of any late fees which are to be waived. CWWAPP provisions are included in Section B Program Requirements and Appendix A, Section 1, Eligibility of the California Water and Wastewater arrearage payment program guidelines. For CAPP the eligibility determinations are included in the 2022 CAPP Frequently Asked Questions. Additionally, 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure federal expenditures are allowable and adhere to the required period of performance. Condition and Context: The City made two disbursements under the CWAPP program for water customers on March 2, 2022 and June 21, 2022. The water funds were received by the City on January 25, 2022. The second disbursement made by the City on June 21, 2022 in the amount of approximately $102,000 was not within the 60-day requirement. The CAPP funds were received by the City on December 16, 2021. The City disbursed the CAPP funds on February 25, 2022 in the amount of approximately $4.7 million which was past the 60-day requirement. Additionally, we selected a sample of 60 customers totaling approximately $53,000 stratified between electric, water, and wastewater services and noted 3 of the samples where the City had credited the customer accounts in amounts that exceeded the eligible amounts billed during the period net of subsequent payments and adjustments from March 4, 2020 to June 15, 2021. Two of the three exceptions were residential water customers with a combined over award of $40.89 and one exception was for a commercial electric customer with an over award of $14.60. Cause and Effect: In discussing the 60-day disbursement condition with the City, management stated the focus was on disbursing the funds correctly. For the CAPP funds, the holidays impacted the disbursement timeline. For the CWWAPP funds, the first disbursement did not utilize all the funds. Therefore, management prepared a second disbursement to utilize the funds provided by the State which was 87 days outside the 60-day requirement. All three customer account over awards included partial cash payments and/or adjustments subsequent to management’s initial determination of delinquent account balances eligible for bill credits as defined by the grant guidance, but prior to the credit application date. The timing of the initial credit balance determinations versus the posting of ongoing adjustments could create differences in the allowable credit balances. The City’s manual review process of the adjustments did not identify the discrepancies. Questioned Costs: $55.49 Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: No Recommendation: We recommend the City enhance their internal controls to include a timeline that would comply with the grant requirements. In the event, such timelines can not be adhered to, the City should work with the grantor for a time extension. For accounts with multiple adjustments, a more detailed review of the accounts should be performed if adjustments or cash payments are made subsequent to the City’s credit amount determination. Management’s Response: Management agrees with this finding. In order to ensure adherence to the stipulated 60-day window for credit applications, we have initiated immediate testing of bill notices upon receipt of CWWAPP disbursement checks. Simultaneously, a secondary query has been implemented to validate consistency between the initial query and the present data. To mitigate the risk of over awarding eligible customers, a final query will be conducted prior to disbursement to confirm the accuracy of the awarded amounts for each eligible account.

Finding 2021-001 ? EligibilityFederal Program: Home Investment Partnership Program (HOME)ALN Number: 14.239Federal Agency: Department of Housing and Urban DevelopmentFederal Award Year: 2015Grant number: M-15-MC060502Pass-Through Entity: NoneCriteria: 24 CFR92.254 Qualification as affordable housing: Homeownership.(a) Acquisition with or without rehabilitation. Housing that is for acquisition bya family must meet the affordability requirements of this paragraph.(3) The housing must be acquired by a homebuyer whose family qualifiesas a low-income family, and the housing must be the principalresidence of the family throughout the period described in paragraph(a)(4) of this section.(4) Periods of affordability. The HOME-assisted housing must meet theaffordability requirements for not less than the applicable periodspecified in the following table, beginning after project completion.Homeownership assistanceHOME amount per-unitMinimum period of affordabilityin yearsUnder $15,000 5$15,000 to $40,000 10Over $40,000 15Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), UniformAdministrative Requirements, Cost Principles, and Audit Requirements forHHS Awards, section 75.303 also states that nonfederal entities must establishand maintain effective internal control over the federal award that providesreasonable assurance that the nonfederal entity is managing the federal awardin compliance with federal statutes, regulations and the terms and conditionsof the federal award.Condition and Context: During our testwork over continuing eligibility requirements for loan recipientsof the program, we noted that the City did not have sufficient controls in placenor were adequate records maintained to verify that the property was theprincipal residence of the homebuyer during the period of affordabilitydescribed above.Cause and Effect: The City?s process and controls are not designed with enough precision toensure that loan recipients continued to meet the primary residencerequirements within the period of affordability. As a result, the City was unableto verify that the homebuyer met the eligibility requirements during the periodof affordability.Questioned Costs: 20 loans totaling $1,609,934 were identified as noncompliant. These loansrepresented 100% of the population of loans outstanding within theaffordability period.Isolated or Systemic: SystematicWhether the samplingwas a statisticallyvalid sample: This sample was not intended to be, and was not, a statistically valid sample.Repeat Finding: Yes. Finding 2020-001.Recommendation: We recommend that the City further refine the design of the internal controlsthat will ensure that the eligibility requirements for outstanding loans during theperiod of affordability are performed.Management?s Response: During fiscal year 2021, the City continued to make progress in satisfying thecompliance requirements by mailing confirmation letters to several loanrecipients. Unfortunately, due to the challenges imposed by COVID-19 andlimited staffing, the City was unable to perform follow-up procedures when theletters were not returned or begin correspondence with the remaining loanrecipients. Therefore, the Department added new staffing resources inApril 2022 to assist with the Department Loan portfolio monitoring to ensureon-going compliance.

Finding 2020-001 ? Eligibility Federal Program: Home Investment Partnership Program (HOME) CFDA Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2015 Grant number: M-15-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. Homeownership assistance HOME amount per-unit Minimum period of affordability (see schedule of findings and questioned costs for table) Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have sufficient controls in place or were adequate records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City?s process and controls are not designed with enough precision to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 22 loans totaling $1,796,236 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: Yes, Finding 2019-001 Recommendation: We recommend that the City further refine the design of the internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: We agree with the finding and to prevent similar errors from occurring in the future, the City has updated its established policies and procedures to ensure the ongoing compliance requirements are being monitored.

Federal Program: Home Investment Partnership Program (HOME) CFDA Number: 14.239 Federal Agency: Department of Housing and Urban Development Federal Award Year: 2013 Grant number: M-13-MC060502 Pass-Through Entity: None Criteria: 24 CFR92.254 Qualification as affordable housing: Homeownership. (a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph. (3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. (4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after project completion. See Schedule of Findings and Questioned Costs for table. Title 45 US Code of Federal Regulations Part 75 (45 CFR part 75), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards, section 75.303 also states that nonfederal entities must establish and maintain effective internal control over the federal award that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. Condition and Context: During our testwork over continuing eligibility requirements for loan recipients of the program, we noted that the City did not have controls in place nor were records maintained to verify that the property was the principal residence of the homebuyer during the period of affordability described above. Cause and Effect: The City does not have a process or controls in place to ensure that loan recipients continued to meet the primary residence requirements within the period of affordability. As a result, the City was unable to verify that the homebuyer met the eligibility requirements during the period of affordability. Questioned Costs: 27 loans totaling $2,902,261 were identified as noncompliant. These loans represented 100% of the population of loans outstanding within the affordability period. Isolated or Systemic: Systematic Whether the sampling was a statistically valid sample: This sample was not intended to be, and was not, a statistically valid sample. Repeat Finding: No Recommendation: We recommend that the City design and implement internal controls that will ensure that the eligibility requirements for outstanding loans during the period of affordability are performed. Management?s Response: We agree with the finding and to prevent similar errors from occurring in the future, the City has established controls and procedures to verify that the ongoing compliance requirements are being monitored.