A popular COVID-19 rental assistance program mistakenly paid out at least $625,000 and perhaps as much as $4.4 million, the Colorado Office of the State Auditor said in a report released Monday.
The state Division of Housing used the Property Owner Preservation program to make rent payments to landlords whose tenants had lost jobs or experienced reduced income in the pandemic. But some payments were duplicates, others covered rent before the pandemic and still others covered ineligible fees, such as late charges by the landlord.
The Division of Housing “could have made about 1,200 additional payments through the POP program if these erroneous payments had not occurred,” the audit report said. It concluded the department probably paid out somewhere in the middle of the range, or about $2.39 million in error, or about 5% of the nearly $47.13 million in rent paid to 1,600 property owners between July 2020 and June.
The auditor’s office said that it has 90% confidence that “the Division paid at least $625,000, but not more than $4.40 million, in error.”
Wendy Hawthorne, the state’s Deputy Director of Housing, said in an email Monday that the housing division has already implemented many suggestions and doesn’t question the Office of the State Auditor’s methodology.
“DOH takes OSA’s findings seriously,” Hawthorne said. “… At the same time, we are proud of the POP program which was a new and unique rental assistance program.”
The report however also pointed out that the housing department didn’t alert nearly half of the tenants that their rents had been paid, which could have brought more attention to landlords who were not in compliance. Landlords were not supposed to evict tenants if the state paid rent. After learning of the errors auditors discovered, the Division of Housing notified 11,000 renters.
POP was funded by Colorado’s legislature and federal CARES Act money. It was one of three programs overseen by the state Division of Housing, which is part of the Department of Local Affairs.
Due to changes in federal COVID funding for renter relief, the state in June switched to the Emergency Rental Assistance Program, which has faced issues of its own.
Landlords praised the POP program because they could apply online each month on behalf of all qualified tenants. Individual renters, meanwhile, had to be vetted by local community programs and also get landlord approval for each payment — and some landlords didn’t want to participate.
Last year, Drew Hamrick, general counsel and senior vice president of government affairs for the Apartment Association of Metro Denver, called it a godsend for landlords trying to collect rent from tenants hit by hard times.
At first, “there were a lot of questions and concerns about how the program is going to work, how many strings are going to be attached, is the red tape going to be difficult to deal with. (But) none of those things have come to pass. Our members widely used the program,” Hamrick said in December.
What auditors found
Issues identified by the state auditor’s office were similar to other audits of state programs that ramped up quickly at the start of the pandemic. Last spring, the state auditor said the Department of Labor and Employment kept inadequate records when hundreds of thousands of Coloradans suddenly filed for first-time unemployment.
For the landlord program, auditors looked at 60 payments out of 23,179 made in the POP program between July 2020 and March. The goal was to determine if payments were accurate based on the program requirements. Of the random 60 cases, auditors found the biggest problems were:
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- Four overpayments blamed on Division of Housing staff who entered a landlord’s information into the spreadsheet twice, so they were paid twice, or paid a landlord who’d already been paid previously
- Five payments included a total of $565 to cover ineligible fees, like late fees, legal fees and fees on returned payments due to insufficient funds
- One payment of $424 to cover rent before the pandemic started
- One payment that was $50 more than the landlord requested
- Another payment mistakenly was paid to a unit with no tenant
The auditor’s office acknowledged that POP and other rental-assistance programs were set up quickly but chastised the Division of Housing for insufficient guidance to staff on applicant eligibility and a lack of a review process.
“When the division does not ensure that it pays out the correct amount of rental assistance to applicants, it means that the funds are not being used for their intended purpose and it reduces the amount of funds available for other applicants who are in need of assistance,” the report said.
According to the report, the Division of Housing has addressed most of the problems and is in the process of fixing them. It asked for overpaid rent to be returned by February 2022, and will work with the Colorado Attorney General’s Office to pursue those who don’t respond to a third notice.
“Within this sample of $522,058 in payments OSA identified overpayments of $13,397,” Hawthorne said. “DOH agrees with OSA’s assessment of these overpayments and is working with property owners on repayment of any overpaid funds.”
The housing division is also using artificial intelligence to automatically review “up to 25 different fees” charged to tenants as staff review applications for the newer renter relief programs, the report said. A human will validate unusual fees.
The division will also provide an email notice to tenants whose landlords receive payments. Tenants who apply to the new ERAP program can now log into their account and see when their rent is paid.
But before that was possible, about 80 complaints came into the Division of Housing that property owners weren’t complying with the program, which included prohibiting the start of eviction proceedings for the months rent was paid by the state.
Without that notice — which was sent as late as 315 days after payments were approved for 11,000 tenants last spring — some renters may have faced threats of eviction even though that was not allowed in the POP program.
“If the tenant notification letters were provided for the months between January and May 2021, the division may have received more allegations,” the report concluded.
Hawthorne, with the housing division, said that she didn’t believe mailing out the notices late impacted renters.
“Mailing letters to the tenants was designed as a method of fraud protection,” she said, “however, throughout the POP program, this did not result in any cases that were determined to be fraud.”
She added that the newer ERAP system “has many more systems in place to prevent duplicate payments or overpayments than the POP program did and we will implement the additional suggestions made by OSA,” she said.
This story was clarified on Oct. 26, 2021 to note that the Division of Housing uses artificial intelligence to review fees, not determine them. The agency also sent notices to 11,000 renters after learning of the omission from the audit, and not from learning of the audit.