SAN FRANCISCO PUBLIC LIBRARY 3 1223 07513 5088 City and County of San Francisco OFFICE OF THE CONTROLLER CITY SERVICES AUDITOR Mission Housing Development Corporation: A Complex Organization That Needs to Improve Its Controls Over Housing and Service Provision and Requires City Monitoring to Preserve the City's Investment DOCUMENTS DEPT. DEC 1 9 2005 SAN FRANCISCO PUBLIC LIBRARY D imber 04043 December 16, 2005 REF 658 159 . Sa5785m San FranciscoPublicLibrary Government Information Center San Francisco Public Library 100 Larkin Street, 5th Floor San Francisco, CA 94102 REFERENCE BOOK Not to be taken from the Library CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER Ed Harrington Controller Monique Zmuda Deputy Controller December 16, 2005 Report Number 04043 Larry Del Carlo President, Mission Housing Development Corporation 474 Valencia Street Suite 280 San Francisco, CA 94103 Dear Mr. Del Carlo, The Controller's Office, City Services Auditor presents its audit report concerning the Mission Housing Development Corporation (MHDC). In summary, the audit objectives MHDC MHDC were to detail the structure of and the City's relationship with and its affiliates, determine the extent ofrecent changes in the organization and their effects on the MHDC agency's provision of services and housing, and determine whether effectively manages its housing assets. The major audit findings include: • Mission Housing is a large and highly complex affordable housing organization with multiple ownership structures, funding streams and compliance requirements for its 36 properties (including 34 existing and 2 under development). It provides approximately 1,000 units ofhousing to over 1,900 tenants with units ranging from single-room occupancy hotels to family housing. Many types oftenant services are MHDC MHDC provided by or by organizations operating in sites (Chapter 1). • The City has invested approximately $19 million in bonds, $17 million in loans, and MHDC $4 million in contracts and grants with in the last five years alone and has a significant investment in the organization and in ensuring that it protects its tenants and assets appropriately (Chapter 1). MHDC • Although it has made recent hires ofnew staff, lacks enough appropriate financial expertise internally and relies heavily on outside consultants, on its property management subsidiary and on its external auditors to perform basic financial, accounting and asset management functions. As a result, the organization has had difficulty with financial compliance and budgeting, and its ability to perform critical asset management functions such as long-term maintenance and liability management is weak (Finding 2-A). MHDC • Critical health, education and other human services are provided in housing units through several nonprofit organizations and by MHDC's own staff. Such services are part of an affordable housing model that helps tenants retain and MHDC stabilize their housing, employment and family lives. receives funding that MHDC is predicated on providing this type of service model. However, does not CityHall • 1 Dr.CarltonB.GoodlettPlace •Room316• SanFranciscoCA94102-4694 FAX415-554-7466 December 16, 2005 Mission Housing Development Corporation Audit Page 2 have comprehensive knowledge ofthe services provided at its own sites and as a result, there are both gaps and overlaps in services to tenants. In addition, the organization is at risk for failing to comply with financing terms that require direct service provision (Finding 3-A). • MHDC's role has changed in the last five years from providing tenant services directly to coordinating for services through other organizations. Since 2000, MHDC withdrew from two City service contracts, failed to win the bidding processes on another, failed to successfully negotiate the terms oftwo contracts, and has also reduced the number of services coordinators that it employs directly. The organization has experienced conflict over this situation and there are differing ideas expressed in its grant applications, mission statements and other documents. MHDC To reduce this conflict and better manage operations, needs to clarify its approach to providing services and reflect it in relevant documents (Finding 3-B). MHDC The overall audit conclusions are that needs to strengthen its financial and asset management capacity by hiring and/or retaining enough skilled staffto manage, report on and plan for all ofits operations and by setting and improving asset management policies MHDC and procedures for itself and its subsidiary. To provide tenant services effectively, should build a comprehensive knowledge of the services and providers on its sites and better track the loan and regulatory requirements of its funding with respect to services. MHDC Finally, should clarify the mission and purpose ofthe organization and ensure that these are consistently used and expressed in grant, contract and loan agreements. Taken together, the audit recommendations are good management practices for affordable housing providers and for City contractors specifically-the Controller's Office will work with City MHDC departments that have financial and contractual relationships with and with the organization itselfto follow-up on these recommendations. Mission Housing Development Corporation's response to the audit is attached as Appendix X We ofthis report. acknowledge the assistance and cooperation provided to the audit staffby MHDC, its consultants and auditors, by City department staff, and by staffof other nonprofit service providers. Respectfully Submitted, TABLE OF CONTENTS Executive Summary 1 Introduction 5 Chapter 1 9 MHDC is a Complex Organization With Many Affordable Housing Properties With Distinct Ownership Types and an Array ofTenant Services Chapter 2 15 MHDC Needs to Increase Its Internal Capacity To Effectively Monitor Its Housing Assets Chapter 3 23 MHDC Needs to Improve its Controls Over Services to Ensure Compliance With Loan and Regulatory Agreements and Also Needs to Establish a Clear and Consistent Purpose Appendix A A-l MHDC Services Available at Sites Appendix B B-l MHDC Schedule of Properties and Ownership Information Appendix C C-l City Contracts and Grants Appendix X Mission Housing Development Corporation's Response to the Audit X-1 Digitized by the Internet Archive 2014 in https://archive.org/details/missionhousingde1620sanf EXECUTIVE SUMMARY FINDINGS AND RECOMMENDATIONS CHAPTER MHDC A COMPLEX ORGANIZATION WITH MANY 1. IS AFFORDABLE HOUSING PROPERTIES WITH DISTINCT OWNERSHIP TYPES AND AN ARRAY OF TENANT SERVICES Mission Housing Development Corporation (MHDC) The chapter details the is a large and complex nonprofit affordable housing properties, the types of development organization that provides an array of ownership, funding housing opportunities and services to low-income San arrangements, property MHDC Francisco residents. owns or actively profiles and tenant services MHDC manages 34 properties and has two additional provided by to properties under development. The organization has demonstrate the complexity approximately 1,000 affordable housing units that ofthe organization and its house more than 1,900 tenants. Properties range from relationships with the City two-or three-unit buildings to single-room occupancy and other parties. (SRO) hotels with dozens of units. Tenants include families with children, seniors, single adults and persons with disabilities. In the last five years alone, the City of San Francisco has MHDC invested in with approximately $17 million in loan funding, $19 million in redevelopment bonds, and over $4 million in grants and contracts for affordable housing development, housing rehabilitation, and tenant services. CHAPTER 2. MHDC NEEDS TO INCREASE ITS INTERNAL CAPACITY TO EFFECTIVELY MONITOR ITS HOUSING ASSETS Finding 2-A. MHDC does The audit found that MHDC relies on its external not effectively monitor its auditors and otherprofessional consultants to perform housing assets due to its critical asset accounting and financial reporting over-dependence on functions because it has lacked sufficient skilled external parties, insufficient accounting and asset-management staff within its information about the organization and also within its wholly-owned condition ofits properties, property management company Caritas Management and a consequently weak Corporation (Caritas) to adequately monitor loan MHDC ability to do strategic asset balances or loan compliance. As a result, did planning and management. not make loan payments for nearly one million dollars in 2004 to the San Francisco Redevelopment MHDC Agency as required in its partnership agreement for one of s affiliate properties. Its lack of comprehensive and timely loan balance, cash flow, and other financial information affects MHDC's ability to make sound planning and operational decisions. Further hampering MHDC's ability to monitor its assets is the lack of complete and MHDC adequate information in monthly reports that are prepared for by Caritas. 1 Without complete information, the organization cannot adequately monitor its assets or plan strategically for cost overruns, maintenance and repairs, or mitigate safety and security concerns. MHDC has not taken an active role to improve this situation by making changes to the agreements with its property management subsidiary that would MHDC better suit its needs as property owner and also lacks policies and procedures for the way it monitors and manages its housing assets. The audit recommends that MHDC hire and/or retain enough skilled finance and asset MHDC management staff to track, analyze, and report on all of its properties. should complete the implementation of recommendations from its external auditors in its 2003 management letter (these recommendations also pertain to strengthening MHDC's financial management staffand its internal controls). MHDC should develop its own set ofpolices and procedures pertaining to asset management and implement changes to the contents of monthly reports from Caritas in a manner that reflects its needs as the asset manager. These improvements could involve changing management agreements for the properties and/or the master agreement between Caritas and MHDC. CHAPTER MHDC NEEDS TO IMPROVE ITS CONTROLS OVER 3. SERVICES TO ENSURE COMPLIANCE WITH LOAN AND REGULATORY AGREEMENTS AND ALSO NEEDS TO ESTABLISH A CLEAR AND CONSISTENT PURPOSE Finding 3-A. MHDC lacks The audit found that MHDC does not have clear and comprehensive comprehensive information that would allow it to knowledge ofall tenant adequately manage the tenant services that are services available at its sites provided at its sites. The service listing attached as and the service Appendix A was constructed by audit staff and requirements outlined in required multiple interviews with MHDC staff and loan and regulatory review of a wide variety of sources that conflicted in agreements. The some cases. There is a lack of clarity about services organization is at risk of on site and between staffs and management's noncompliance with understanding of the roles and responsibilities of financing terms and services coordinators. Where services are provided program regulations. through another community-based organization rather than its own staff, MHDC was similarly unclear about all of the services that are being provided, and in some cases does not have a contract, memorandum ofunderstanding, or other appropriate agreement with the service provider, exposing the organization to unnecessary liability should any incident occur. In addition MHDC to the lack of information regarding services, does not have a comprehensive understanding ofthe service requirements outlined in its regulatory agreements for each of its properties. As a result of these information gaps, some tenant services are not available consistently, and the organization is at risk of not complying with service requirements that are outlined in loan and regulatory agreements. The audit recommends that MHDC create a listing or use the listing developed during the audit process to maintain a centralized database of services that are available at all MHDC A properties. written and centralized listing would facilitate staff and 2 MHDC management's understanding of services provided at its sites, allow to better manage resources, allow services coordinators to collaborate more closely and find ways MHDC ofmaking services available to tenants, and close any gaps in service. also needs to develop a listing ofthe loan and regulatory requirements for service provision for each of its properties. Used in conjunction with the previously mentioned listing of services MHDC available at its properties, would be able to affirmatively ensure compliance with MHDC the service mandates ofregulatory and loan agreements. also needs to updatejob descriptions or other written documentation for services coordinators so that each MHDC MOUs coordinator is clear as to their roles and responsibilities. should enter into or other appropriate agreements with all entities that provide services at their sites. MHDC Finally, should explore the possibility of establishing a nonprofit affiliate that MHDC would manage supportive services at sites in the same structural capacity that Caritas manages MHDC properties. This structure would clarify MHDC's purpose of MHDC being a housing developer, while allowing to continue to provide services at the sites that are required to have those services under its loan terms. MHDC The audit found that MHDC's role as a direct service Finding 3-B. Tenants have provider has decreased in recent years because it pulled still out oftwo City contracts and was not awarded four other services available to them although funding service contracts that it sought to renew. This has meant MHDC for services has a reduction of on-site staff at sites and the MHDC discontinuation of some services, including the SF Food decreased. lacks a clear and consistent Bank at Rich Sorro Commons (multifamily site). Despite MHDC approach to tenant these changes, eight staffare still employed by as services coordinators and provide a wide array of services. services, including coordination of service provision by MHDC outside service providers. Despite this fact, has struggled organizationally with its role as a service provider and with other issues, such as whether or not it includes — moderate-income projects in its purpose grant applications, mission statements, and other documentary sources are not consistent on these issues. The audit recommends that MHDC's Board of Directors and management clarify the mission and purpose of the organization and ensure that all internal reports and documents; the articles ofincorporation; grant, contract, and loan agreements; as well as MHDC external information such as the website, have a consistent purpose and mission. 3 I 4