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Audit of the Massachusetts Housing Finance Agency Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the Massachusetts Housing Finance Agency.

Table of Contents

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Massachusetts Housing Finance Agency (MassHousing) for the period July 1, 2018 through June 30, 2020.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in this report.

Objective

Conclusion

  1. Before financing a loan commitment for an affordable housing project, does MassHousing ensure that 20% of the units in the project are for people and families with low incomes in accordance with Section 5(g)(1) of Chapter 708 of the Acts and Resolves of 1966?

Yes

  1. Does MassHousing monitor the management companies responsible for oversight of the projects it finances to ensure that affordability restrictions are sustained as required by its “Asset Management Review Policy”?

Yes; see Other Matters

 

To achieve our objectives, we gained an understanding of MassHousing’s internal control environment related to the objectives by reviewing applicable agency policies and procedures, as well as conducting inquiries with MassHousing staff members and management. We evaluated the design, and tested the operating effectiveness, of internal controls used by MassHousing to approve loan commitments for affordable housing projects.

To obtain sufficient, appropriate audit evidence to address our audit objectives, we conducted the following procedures.

Financing Loan Commitments

To determine whether MassHousing, before financing a loan commitment for any affordable housing project, ensured that 20% of the units in the project were for people and families with low incomes, we identified the total population of 42 MassHousing-financed affordable housing projects that were approved during the audit period. We selected a random, nonstatistical sample of 10 of the 42 projects. We reviewed the loan commitment proposals, the disposition agreements or residential compliance agreements (whichever was applicable4), the commitment letters, and the board of directors’ meeting minutes for these 10 projects to determine whether the board approved them and whether 20% of the units in each project were set aside for people and families with low incomes.

Monitoring of Management Companies

To determine whether MassHousing monitored the management companies responsible for oversight of the projects it financed to ensure that affordability restrictions were sustained, we interviewed MassHousing staff members and management and reviewed MassHousing’s “Asset Management Review Policy.” We received a list of all 497 asset management reviews (AMRs) completed during our audit period and selected a random, nonstatistical sample of 40 reviews. Our sample of 40 reviews included 29 AMRs and 11 management and occupancy reviews (MORs).

We reviewed all 29 AMR reports to determine whether (1) the asset manager signed to attest that s/he conducted the AMR, (2) the portfolio manager signed to attest that s/he reviewed the AMR, (3) the affordability restrictions were documented in Section III of the AMR report, and (4) the rents charged to tenants (as noted on the rent roll5) were in line with the affordability restrictions in Section III of the AMR report. Because of state restrictions related to the coronavirus pandemic, site visits by the asset manager were suspended as of March 10, 2020. Four of the AMR reports in our sample were filed after March 10, 2020 (two in March, one in May, and one in June), so the asset manager could not review the related rent rolls. We did not consider these exceptions, since MassHousing did perform all other monitoring activities.

We reviewed all 11 MOR reports to determine whether (1) the asset manager signed to attest that s/he conducted the MOR, (2) the portfolio manager signed to attest that s/he reviewed the MOR, (3) the affordability restrictions were documented in Section III of the MOR report, and (4) the tenant file worksheets demonstrated that tenant rents were in line with the affordability restrictions in Section III of the MOR report.

Whenever sampling was used, we applied a nonstatistical approach, and as a result, we did not project our results to the entire populations.

Data Reliability

To determine the reliability of the list of 383 MassHousing-financed multifamily rental properties from the audit period (provided to us by MassHousing), we interviewed members of MassHousing’s management who were responsible for the source data and reconciled the list to Schedule 2 of MassHousing’s audited financial statements6 for fiscal years 2018, 2019, and 2020. Based on the procedures performed, we determined that the population of MassHousing-financed multifamily rental properties that we obtained from MassHousing was sufficiently reliable for the purposes of this audit.

To determine the reliability of the list of 42 MassHousing-financed multifamily rental property closings with commitment letters from the audit period (provided to us by MassHousing), we recomputed the list. To do this, we requested and received a list of all MassHousing commitments and closings that occurred from 2017 through the end of our audit period. We filtered the list to include only closings that occurred during our audit period and removed any duplicates. We compared this list to our total population of 383 projects and excluded all projects that were not multifamily housing. Finally, we compared this list to the list of 42 MassHousing-financed multifamily rental property closings with commitment letters from the audit period and noted agreement. Based on these procedures, we determined that the list of closings with commitment letters that we obtained from MassHousing was sufficiently reliable for the purposes of this audit.

To determine the reliability of the list of AMRs of MassHousing projects (provided to us by MassHousing), we interviewed agency officials who were knowledgeable about the data and inspected the list for missing data, hidden rows or columns, or worksheets containing data. We filtered the list to identify only AMRs of MassHousing-financed multifamily rental properties during the audit period. Based on the procedures conducted, we determined that the list of AMRs we obtained from MassHousing was sufficiently reliable for the purposes of this audit.

4.    A residential compliance agreement is substituted for the disposition agreement when tax-exempt obligations are used to finance the project.

5.    This is a list of rental units in each development and the rent charged for each unit.

6.    This schedule supports the annual financial statements. It details all of MassHousing’s mortgage loan accounts receivable.

Date published: December 20, 2021
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