Auditor General Flags Oversight Shortfalls at Arizona Department of Housing; Committee Continues Sunset Review with Revisions

The Senate Regulatory Affairs and Government Efficiency Committee heard two reports from the Arizona Auditor General on the Arizona Department of Housing and then voted to continue the department’s sunset review with revisions.

Auditor General staff presented two linked reviews: a performance audit of the department’s oversight of selected housing programs and a sunset review of the department’s operations. The audit found multiple oversight deficiencies affecting special‑needs and emergency shelter projects, including missed site inspections, incomplete or missing grantee reports, lack of required risk assessments and approval of payments lacking adequate documentation.

Auditor General staff described a case illustrating the findings: a June 2023 complaint about the Old Concho Community Assistance Center, a grantee providing housing and supportive services in Apache and Navajo counties. The office reported that Old Concho received nearly $1,900,000 between 2021 and 2023; a December 2023 monitoring review found health and safety problems at participant housing — including rodent infestations and cracked walls — and documented misuse or inadequate documentation of grant funds, such as a $2,000 payment to an executive staff member. The Auditor General said the department had not conducted an annually required monitoring review of that grantee since 2019.

Across a sample of grantees the audit team reviewed, the office said the department had not performed required site inspections for several projects since early 2021 and had approved 22 of 29 payment requests totaling more than $8,100,000 without adequate supporting documentation. The audit also identified more than $7,800,000 in unsupported emergency shelter expenses, more than $190,000 in unsupported housing assistance costs and more than $88,000 in unsupported administrative and supportive services costs; auditors also noted a small number of payments later determined to be unallowable.

The Auditor General recommended the department develop and implement a written plan to adopt key oversight practices consistent with federal and state requirements. Those practices include conducting site inspections, verifying that payment requests are supported and allowable before reimbursements, ensuring grantees submit required reports, performing risk assessments and providing staff training on oversight policies and practices. The office also recommended reviewing payments since 2021 to identify unallowable expenses and recover funds where appropriate. The Auditor General said it will begin formal follow‑up work on the audit in March 2025.

Director Joan Servais, representing the Arizona Department of Housing (ADOH), said the department accepted most of the recommendations and described steps already underway: implementing a tracking system for corrective actions, hiring a business strategist to coordinate implementation, updating wire transfer and conflict‑of‑interest procedures and beginning review of prior payments to identify recoverable amounts. Servais said the department has submitted an insurance claim after a September 2023 wire‑transfer fraud incident that led to a $2,000,000 diversion; the amount was recovered through the state insurance program, and the nonprofit grantee’s award was reduced by the insurance deductible.

Committee members pressed for specifics and timelines. Senators asked about staff turnover and training in the special needs division, how the department is implementing site inspections and whether prior payment reviews had begun. Servais said the department had accepted the recommendations, had started a review of payments made from 2021 to 2023 and was implementing SMART goals and other process changes; she said the department had implemented annual conflict‑of‑interest reporting and would provide annual financial management training for staff handling wires.

Public testimony included two housing sector speakers who urged continuation of the department: Nicole Newhouse, executive director of the Arizona Housing Coalition, and Heather Lafferty of Ulysses Development Group. Both described the department as a necessary statewide partner in producing low‑income and workforce housing and emphasized the importance of preserving the agency while addressing audit recommendations.

After discussion, the vice chair moved that the committee recommend continuation of the Department of Housing with revisions. The motion passed on a voice vote; no roll‑call tally appears in the transcript. Auditor General staff said they will follow up starting March 2025 to verify implementation of recommendations.