Arizona House of Representatives Committee on Commerce Meeting Minutes and Presentations

Summary

Minutes and attachments of the Arizona House of Representatives Committee on Commerce regular meeting of Tuesday, January 14, 2025, in the Fifty-seventh Legislature, First Regular Session, chaired by Representative Weninger. The committee, acting as Committee of Reference, conducted sunset reviews of the Arizona Department of Insurance and Financial Institutions and the Arizona Department of Housing. Attachments include the agenda, the request-to-speak report, the attendance record and presentations by the Office of the Auditor General and both departments. The Auditor General slides report findings on enforcement consistency, conflict-of-interest compliance and monitoring of ATA Fund monies, and a Department of Housing slide describes a $2 million fraudulent wire transfer after a grantee was hacked. Roll call votes record 10-0-0-0 for continuation with revisions of both departments.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

ARIZONA HOUSE OF REPRESENTATIVES
Fifty-seventh Legislature - First Regular Session

COMMITTEE ON COMMERCE

Report of Regular Meeting
Tuesday, January 14, 2025
House Hearing Room 4 -- 2:00 P.M.

Convened 2:07 P.M.
Adjourned 5:10 P.M.

Members Present

Representative Aguilar
Representative Blackman
Representative Cavero
Representative Connolly
Representative Diaz

Representative Hendrix
Representative Villegas
Representative Wilmeth
Representative Way, Vice-Chairman
Representative Weninger, Chairman

Agenda
Original Agenda — Attachment 1

Request to Speak
Report — Attachment 2

Committee Attendance
Report — Attachment 3

Members Absent

MINUTES RECEIVED
CHIEF CLERK'S OFFICE

1/17/29

Presentations

Name Organization Attachments (Handouts)
Liam VanPelt Arizona Auditor General +

Barbara Richardson Arizona Department of Insurance and = 5

Financial Institutions

Cassie DeCocq and Arizona Auditor General 7

Marc Owen

Joan Serviss Arizona Department of Housing 8

Committee Action

Recommendation Action Vote Attachments
Continuation with Arizona Department of Insurance 10-0-0-0 6

Revisions and Financial Institutions

Continuation with Arizona Department of Housing 10-0-0-0 9

Revisions

Muy Nelyey ,

Abby Selygy, Committgé/Secretary
January 17, 2025

(Original attachments on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov)

COMMITTEE ON COMMERCE
January 14, 2025
Gner* 220] em”
Adjrns $210 Pr

REVISED - 1/14/25 REVISED - 1/14/25 REVISED - 1/14/25

ARIZONA HOUSE OF REPRESENTATIVES
Fifty-seventh Legislature - First Regular Session

REGULAR MEETING AGENDA

COMMITTEE ON COMMERCE

DATE Tuesday, January 14, 2025 ROOM HHR4 (Note Room TIME 2:00 P.M.

Change)

Members of the public may access a livestream of the meeting here:
https://www.azleg.gov/videoplayer/?clientID=6361162879&eventID=2025011009

Members:
Representative Aguilar Representative Diaz Representative Wilmeth
Representative Blackman Representative Hendrix Representative Way, Vice-Chairman
Representative Cavero Representative Villegas Representative Weninger, Chairman

Representative Connolly

1. Acting as the Commerce Committee of Reference

2. Sunset Review of the Arizona Department of Insurance and Financial Institutions

Presentation by the Office of the Auditor General

Presentation by the Department of Insurance and Financial Institutions
Public Testimony

Discussion and Recommendation

3. Sunset Review of the Arizona Department of Housing

RA
01082025
01/14/2025

Presentation by the Office of the Auditor General
Presentation by the Department of Housing
Public Testimony

Discussion and Recommendation

eople with disabilities may request reasonable accommodations such as interpreters, alternative formats, or
assistance with physical accessibility. If you require accommodations, please contact the Chief Clerk's Office at

(602) 926-3032 or through Arizona Relay Service 7-1-1.

Page 1 of 1 ATTACHMENT |
Information Registered on the Request to Speak System

House Commerce (1/14/2025)

2, Sunset Review of the Arizona Department of Insurance and

Financial Institutions

Support:
Don Isaacson, STATE FARM INSURANCE COMPANIES; Kerry L. Hayden, Progressive Insurance, UNITED SERVICES
AUTOMOBILE ASSN (USAA); Marie Isaacson, IMAGINE LEARNING; Marc Osborn, Kutak Rock LLP

Oppose:

Xenia Orona, representing self

All Comments:

Don Isaacson, STATE FARM INSURANCE COMPANIES: In support of extending DIFI for 8 years.; Marc Osborn, Kutak
Rock LLP: | represent insurers in all industry categories. We support extending the agency for 8 years. Stability
with our regulatory agency is important.; Xenia Orona, Self: Maricopa County is facing record evictions and Arizona
is experiencing deep housing instability and many newly homeless families. Closing the Department of Housing's
operations during this crisis would be like firing the fire department during a fire

3, Sunset Review of the Arizona Department of Housing

Support:

Jessica Raymond, representing self; Nicole Newhouse, representing self; Ruthee Goldkorn, representing self;
Brandy Petrone, Keys To Change (Formerly HSC, Inc.); Mike Huckins, GREATER PHOENIX CHAMBER OF COMMERCE;
Julie Rees, TOHONO O'odham KI:KI ASSOCIATION; Robert Dalager, Dominium; Marie Isaacson, STATE FARM
INSURANCE COMPANIES; Ana Roscetti, VITALYST HEALTH FOUNDATION; Thomas Dunn, MANUFACTURED
HOUSING INDUSTRY OF AZ

All Comments:

Nicole Newhouse, Self: Representing the Arizona Housing Coalition; Brandy Petrone, Keys To Change (Formerly
HSC, Inc.): Keys to Change supports continuing the AZ Department of Housing. Please support its continuation.;
Mike Huckins, GREATER PHOENIX CHAMBER OF COMMERCE: Support the Department and their affordable
housing efforts.; Julie Rees, TOHONO O'odham KI:KI ASSOCIATION: Please continue ADOH for a minimum of 8
years.; Robert Dalager, Dominium: Support; Marie Isaacson, STATE FARM INSURANCE COMPANIES: In support of
extending DIFI for 8 years.; Ana Roscetti, VITALYST HEALTH FOUNDATION: Vitalyst supports the continuation of the
Arizona Department of Housing. They are vital in coordinating federal funding for affordable housing solutions for
Arizona and overseeing federal resources and allocation to local communities.

ATTACHMENT Z.
ARIZONA STATE LEGISLATURE

Fifty-seventh Legislature - First Regular Session

COMMITTEE ATTENDANCE RECORD

COMMITTEE ON COMMERCE
CHAIRMAN: Jeff Weninger VICE-CHAIRMAN: _ Michael Way
DATE 01/14/25 125 125 {25 125
CONVENED 2-07pm m m m m
RECESSED
RECONVENED
ADJOURNED S:lopm
MEMBERS
Aguilar JY
Blackman ral
Cavero re
Connolly a
Diaz re
Hendrix yf
Villegas we
Wilmeth in
Way, Vice-Chairman a
Weninger, Chairman vA

V Present --- Absent exc Excused

ATTACHMENT 3
Arizona Department of Insurance and
Financial Institutions

Performance Audit and Sunset Review

Presenter: Liam VanPelt
Date: January 14, 2025

ARIZONA

AuditorGeneral

Making a Positive Difference

ATTACHMENT uy

Presentation overview

¢ Background information
¢ Problems identified

¢ Why the problems matter

¢ What led to the problems

¢ Key recommendations

ARIZONA

AuditorGeneral

Making a Positive Difference

Background

¢ Established in 2020 by consolidating Department of
Financial Institutions, Automobile Theft Authority, and
Department of Insurance

¢ Barbara Richardson oversees the Department

¢ Auditor General conducted previous sunset reviews of:
o Department of Insurance in 2019

o Department of Financial Institutions in 2013

ARIZONA

AuditorGeneral

Making a Positive Difference

Key statutory responsibilities

Regulating the insurance industry

Regulating financial institutions
o Banks and credit unions

o Financial service professionals and/or business entities, such
as collection agencies, mortgage brokers, and loan originators

Distributing Arizona Automobile Theft Authority (ATA)
Fund monies to combat auto theft

ARIZONA

AuditorGeneral

Making a Positive Difference

Department has taken steps to fulfill

some statutory objectives

¢ Issued insurance producer licenses we reviewed to
qualified applicants within time frames required by rule

¢ Followed State of Arizona Accounting Manual policies
and procedures for purchasing and travel card
transactions we reviewed

ARIZONA

AuditorGeneral

Making a Positive Difference

Problems identified

Department:

- Did not consistently consider licensee history or
determine if violations were corrected which are
recommended practices

- Lacked documentation explaining how it
determined some enforcement actions

ARIZONA

AuditorGeneral

Making a Positive Difference

Department did not consistently consider

and document licensees’ history

Violations

Complaint history

Documented
enforcement history

Documented
aggravating factors

Residential appraiser Bail bond agent

Unethical conduct Deceptive practices
5 14 individual license

60 business license
Complaint 1: letter of concern 4
Complaint 2: disciplinary letter

~
repeat violations

ARIZONA

AuditorGeneral

Making a Positive Difference

¢ Inconsistent enforcement action and follow up to
ensure violations are corrected increases risk of future

violations and public harm

¢ Documenting how it determines enforcement actions:

o May indicate if enforcement actions sufficiently deter future
violations that could harm consumers

o Reduces the risk of treating licensees unequally and
allegations of unequal treatment

ARIZONA

AuditorGeneral

Making a Positive Difference

What led to this problem

Department lacks written guidance for taking consistent
enforcement actions for most licensees

| Auditor Genera!

Making a Positive Difference
Key recommendations

Develop and implement policies and procedures consistent
with recommended practices for all license types, including:

¢ Agraduated and equitable system of enforcement actions
¢ Requirements to consider licensee history

¢ Documentation of how it determined enforcement actions

ARIZONA

AuditorGeneral

Making a Positive Difference

Problem identified

Department did not comply with some State conflict-of-
interest requirements or fully align its conflict-of-interest
processes with recommended practices

ARIZONA

AuditorGeneral

Making a Positive Difference

Department did not comply with some

conflict-of-interest requirements

¢ Similar to our 2019 audit, disclosure form did not
address all statutorily required disclosures

¢ Board members did not fully disclose substantial
interests in Department’s official public records

¢ Department's special disclosure file did not contain all
disclosures of a substantial interest as required by
statute

ARIZONA

AuditorGeneral

Making a Positive Difference

Department's noncompliance with some conflict-of-
interest requirements:

¢ Increases the risk that employees and board/committee
members did not disclose substantial interests that might
influence or affect their official conduct

¢ May undermine the Department's integrity and erode
public trust

ARIZONA

AuditorGeneral

Making a Positive Difference

Key recommendation

Department should revise and implement its conflict-of-
interest policies and procedures, including its disclosure
form, to align with all State requirements and
recommended practices

ARIZONA

AuditorGeneral

Making a Positive Difference

Department did not sufficiently monitor

recipients’ use of ATA Fund monies

¢ Did not ensure Arizona Vehicle Theft Task Force used
monies on authorized expenses

o $4.5 million appropriated in fiscal year 2023

o Must be used to pay 75% of employee salaries and expenses

¢ Did not ensure grant monies for an awarded grant we
reviewed were used for intended purposes related to
reducing automobile theft

ARIZONA
§ AuditorGeneral

Making a Positive Difference
Key recommendations

Department should ensure ATA Fund monies are used
for authorized purposes, including:

¢ Collecting information from DPS demonstrating Task
Force monies are used for authorized expenses

¢ Requiring staff ensure accuracy of vertical prosecution
grant expenditure information, and implement a
supervisory review process

ARIZONA

AuditorGeneral

Making a Positive Difference

Additional recommendations

Department should:

¢ Continue to prioritize, assign, and investigate all high-
priority fraud referrals

¢ To help investigate and resolve insurance complaints
within its time frame goals, revise its procedures to
include steps for investigators and supervisors to
monitor the timeliness of open complaints

ARIZONA

AuditorGeneral

Making a Positive Difference

Arizona Department of
Insurance and Financial Institutions
(DIFI)

Presentation to the House Commerce COR
Tuesday, January 14, 2025

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

ATTACHMENT 5
DIFI’s Mission & Vision

Our mission is to protect consumers, provide certainty on regulatory
matters, and perform with efficiency and integrity as good stewards of
taxpayer resources.

Our vision is toward safe, innovative, competitive and readily
available financial and insurance products and services with minimal
regulatory and taxpayer burdens.

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Agency Overview

¢ DIFl was formed effective July 1, 2020, when the Department of Financial Institutions and
the Arizona Automobile Theft Authority were consolidated into the Department of Insurance.

¢ DIFI’s duties include:

O

0 O 0 0 30> 2=2

Licensing individuals and companies operating in the insurance and financial services industries
Ensuring the financial solvency of licensed business entities

Facilitating compliance with Arizona’s insurance and financial services laws

Resolving consumer complaints against licensees

Collecting taxes and assessments that support state government operations

Investigating insurance fraud against licensed insurance companies

Combatting auto theft through public outreach, and funding for law enforcement and prosecutors
Encouraging competition, innovation, and economic development

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

DIFI FTEs FY24 Consumers Assisted
Appropriated - 159.4 17,257

At-a-Gla nce Filled - 147 (includes verified complaints)

Licencees CY 24 Rate/Form Filings AATA FY24 Grants

Rate Filings - 1,503 $5.880.000

> 406,000 Individuals

Form Filings - 2,236
> 37,000 Businesses

(excludes ad and rule filings) (14 total grants)

AZ CY23 Written Premium
$50,964,803,000

(admitted carriers)

Financial Exams FY24 Premium Taxes

Insurance: 33 (CY24) $820,435,100

Financial Inst: 602 (C/FY24)

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Agency Highlights

Over
$19,170,000 in
consumer
recoveries for
FY24

Closed 3,965
consumer
complaints in
FY24

Arizona is #7
nationally and
#12 globally by
number of
captive insurers

Established 3
industry-led
advisory groups
inCY24

In CYs 23-24:

26% captive
insurers

1.7% admitted
carriers

Resiliency and
Mitigation
Council
established in
December 2024

Improved
consumer
resources for
homeowners
insurance

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Auditor General Recommendations

¢ To date, the Department has Implementation Progress
implemented 24 of the 32
recommendations from the Auditor
General, with 8 still in progress.

¢ DIFI expects nearly all
recommendations to be fully
implemented by March 2025.

@ Implemented @ Implementation in Progress

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Finding 1: Enforcement Actions

¢ InDecember 2024, DIFI’s Enforcement Division adopted
revised policies for reviewing proposed administrative actions
that requires documentation of all factors considered and:

o Establishes a graduated 4-level system to determine the severity of
violations

o Uses ascoring matrix to document how enforcement actions are
determined

o Encourages the use of corrective action plans or other measures to

monitor compliance
ARIZOANA

DEPARTMENT OF INSURANCE

& FINANCIAL INSTITUTIONS
Finding 2: Conflict of Interest Requirements

¢ As of December 2024, DIFI revised its conflict of interest policies for
staff and board/committee members to comprehensively address all
potential conflict of interest issues, including:

o Requiring all board/committee members to annually and before each
meeting as necessary disclose any substantial interests

o Filing all conflict of interest forms within the Department’s HR Unit, which will
be responsible for tracking and ensuring completion of such forms

o Requiring review of all Independent Review Organization transmittal forms to
ensure that there are no conflicts of interest with the reviewer

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Sunset Factor 2: the Departmeni’s effectiveness and

efficiency in fulfilling its key statutory objectives and purposes.

Licensing:

o Adopted new policies for collection agency licensing, requiring submittals of credit reports and
verification of fictitious name report submissions.

o Updated the fee waiver form and will require submittal of federal tax returns.

¢ AATA:
o Worked with DPS to receive monthly financial reports to ensure that 75% of Vehicle Theft Task
Force grant monies are used for personnel costs.
o Currently revising policies for grant compliance reviews and public meetings.

¢ Long-Term Care (LTC):
o Revised policies and procedures for LTC rate filings, including higher utilization of contract
actuaries. HB 2054: Agency bill to further alleviate the LTC filing backlog.
o Developed a plan to review and update 45 policies the state has in place for security of IT system,
of which 18 are currently being updated.

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Sunset Factor 6: the extent to which the Department timely

investigated and resolved complaints that are within its jurisdiction.

¢ As of December 2024, DIFI’s Market Regulation and Consumer Services
Division revised its standard of work and retrained consumer
representatives to ensure complaints are resolved timely, including:

o Requiring early follow-up communications with non-responsive respondents
o Documenting reasons for delay in cases that may take longer than 80 days to resolve
o Generating regular case reports for supervisors to proactively identify delayed cases

o Strengthening quality review processes to ensure accurate data entry

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

Questions?

ARIZONA

DEPARTMENT OF INSURANCE
& FINANCIAL INSTITUTIONS

ARIZONA HOUSE OF REPRESENTATIVES
Fifty-seventh Legislature - First Regular Session

ROLL CALL VOTE
COMMITTEE ON Commerce BILL NO. _ DEPT. OF
INSURANCE &
FINANCIAL
DATE January 14, 2025 MOTION: _Conhnccslin, wf
PASS AYE NAY PRESENT | ABSENT
Aguilar “i
Blackman wt
Cavero ~
Connolly ot
Diaz A
Hendrix rs
Villegas rail
Wilmeth ~*~
Way, Vice-Chairman wi
Weninger, Chairman
}o e) O OQ
4
APPROVED: CO TEE a ia

~ NjEFF WENINGER, Chairman
MICHAEL WAY, Vice-Chairman

ATTACHMENT. 6
Arizona Department of Housing
Performance Audit and Sunset Review

Presenters: Cassie DeCocq and Marc Owen
Date: January 14, 2025

ARIZONA

AuditorGeneral

Making a Positive Difference

ATTACHMENT 7]

Arizona Department of Housing

¢ Established in 2002
¢ Joan Serviss oversees Department

¢ Auditor General conducted Department’s 2010
sunset review

¢ Legislative CORs conducted Department’s last
sunset review in 2017

ARIZONA

AuditorGeneral

Making a Positive Difference

Key statutory responsibilities

¢ Establish policies and programs to address affordable
housing issues in the State

¢ Provide assistance to other entities for the development
of affordable housing

¢ Maintain and enforce quality standards for
manufactured and mobile homes and factory-built
buildings

ARIZONA
ee

Making a Positive Difference
Presentation overview

¢ Background information
¢ Problems identified

¢ Why the problems matter

¢ What led to the problems

¢ Key recommendations

ARIZONA
| Avdiioe Geral

Making a Positive Difference
Arizona Department of Housing

Oversight of Selected
Housing Programs

ARIZONA
AuditorGeneral

Making a Positive Difference
Department responsible for overseeing

affordable housing programs

Examples of the Department's affordable housing programs:

o Emergency shelter program—Short-term, temporary lodging for
individuals or families experiencing homelessness

o Special needs housing program—Temporary and long-term rental
assistance and supportive services for special needs populations,
including homeless individuals with a disability and families fleeing
domestic violence

o Rental housing development program—Financial support for the
development of rental housing for low-income individuals or families

ARIZONA

AuditorGeneral

Making a Positive Difference

Department distributes monies from

various federal and State sources

- Distributes monies for housing programs that it administers
from several sources, including:

o State Homeless Shelter and Services Fund for emergency shelters
o Federal Continuum of Care for housing for individuals with special needs

o State Housing Trust Fund and low-income housing tax credits for rental
housing development

¢- Committed approximately $1.26 billion in federal and State
monies and tax credits in fiscal year 2023

ARIZONA

AuditorGeneral

Making a Positive Difference

Key components of overseeing grantees

¢ Conduct site inspections
¢ Ensure grantee expenses are supported and allowable
¢ Review grantee reports to assess project progress

¢ Conduct risk assessments of each grantee

ARIZONA

AuditorGeneral

Making a Positive Difference

Problem identified

Department failed to provide sufficient oversight for projects
we reviewed, including not ensuring grantees used monies

to provide safe and sanitary housing or needed services for
individuals experiencing or at risk of homelessness

ARIZONA

AuditorGeneral

Making a Positive Difference

Case example

¢ 2023 monitoring review found that a grantee:
o Failed to address health and safety issues
o Misused grant monies
o Lacked documentation demonstrating it provided services to participants

¢ Department had not conducted annually required monitoring
review of grantee since 2019

¢ Department paid grantee $1.9 million

ARIZONA

AuditorGeneral

Making a Positive Difference

Issue 1: Department did not conduct

required site inspections

¢ Did not conduct required site inspections for 6 of 7 projects
since the beginning of 2021
o Did not inspect project awarded more than $1.5 million to provide

rehousing and supportive services for 45 individuals experiencing
homelessness

¢ Did not establish site inspection requirements for other
projects
o Did not inspect project awarded more than $13 million to provide

temporary housing for individuals experiencing homelessness
including an outdoor space for 400 individuals

I

ARIZONA

AuditorGeneral

Making a Positive Difference

Not conducting required site inspections put
individuals in need at risk for living in Unsafe or
unsanitary conditions

ARIZONA

AuditorGeneral

Making a Positive Difference

Issue 2: Department paid grantees

without verifying expenses were allowed

Department approved and paid 22 of 29 grantee payment
requests with more than $8.1 million of unsupported and/or
unallowable expenses, including:

More than $7.8 million for unsupported emergency shelter expenses

More than $190,000 in unsupported housing assistance expenses
consisting of rent or lease payments

More than $88,000 in unsupported costs for staff administration and
Supportive services

More than $4,000 for expenses that were not allowable

ARIZONA

AuditorGeneral

Making a Positive Difference

Department:

- Cannot ensure public monies were used for their intended
purpose, increasing the risk of misuse

- May need to collect repayment of unallowable expenses from
grant recipients

- May be required to reimburse monies paid for unallowable
expenses to the federal government or jeopardize future federal
grants

ARIZONA

AuditorGeneral

Making a Positive Difference

Issue 3: Department did not ensure

grantees submitted required reports

¢ Grantees for 8 of 12 projects we reviewed either did
not submit some required reports or submitted
incomplete reports to the Department

¢ Department failed to take action to hold grantees
accountable for providing required reports

ARIZONA

AuditorGeneral

Making a Positive Difference

Department may not be aware if grantees have failed to
provide housing and/or supportive services to individuals
required by their funding agreements, limiting its ability to

oversee and hold them accountable

ARIZONA

AuditorGeneral

Making a Positive Difference

Issue 4: Department did not conduct risk

assessments

Department:

¢ Had not conducted risk assessments for 6 special needs
housing projects we reviewed, as required by federal
regulations and Department policy

¢ Had not conducted risk assessments for the emergency
shelter projects we reviewed, which is inconsistent with
recommended practices

ARIZONA

AuditorGeneral

Making a Positive Difference

Risk assessments are intended to evaluate grantees’
risk of noncompliance and to establish a grantee-
specific monitoring plan based on the assessment

ARIZONA

AuditorGeneral

Making a Positive Difference

What led to this problem

Department's failure to train staff and develop oversight
processes contributed to its inadequate oversight

¢ New staff not adequately trained

¢ Staff were directed to not follow payment request review requirements
and instead approve costs previously reimbursed

immediately resumed |

¢ Department lacked written processes for overseeing emergency

shelter projects ARIZONA
AuditorGeneral

Making a Positive Difference

Key recommendations

Develop a plan to implement the key practices for providing
program oversight consistent with federal and State
requirements and recommended practices, including:

¢ Conducting site inspections

¢ Verifying payment request expenses are supported and allowable
prior to approving payments

¢ Ensuring grant recipients submit required project reports

¢ Conducting annual risk assessments and providing additional
monitoring activities for grantees determined to be higher risk

ARIZONA

AuditorGeneral

Making a Positive Difference

Key recommendations

¢ Develop and provide staff training on oversight
policies, procedures, guidance, and requirements

¢ Review grantee payments since 2021 to identify
unallowable expenses and recover those monies

ARIZONA

AuditorGeneral

Making a Positive Difference

Problem identified

The Department lacks a process to systematically and
comprehensively evaluate program performance, limiting
its ability to ensure and demonstrate its programs are
effectively addressing the State’s housing problems

ARIZONA

AuditorGeneral

Making a Positive Difference

Department does not systematically and

comprehensively evaluate its programs

¢ Developed some goals and performance measures for
its Rental Housing Development Program, but lacks
outcome measures for assessing the overall
effectiveness of the Program

¢ Has not developed a comprehensive performance
measurement system to evaluate the effectiveness of its
housing programs

ARIZONA

AuditorGeneral

Making a Positive Difference

Department does not have information it needs to
assess if its programs and the monies it spent on them
are effectively addressing the State’s housing issues

ARIZONA

AuditorGeneral

Making a Positive Difference

Why this occurred

Department believed it had processes in place, but
those processes did not include specific, measurable,
and timebound goals

ARIZONA

AuditorGeneral

Making a Positive Difference

Key recommendations

The Department should develop and implement a
performance management system, including processes for:

¢ Establishing specific and measurable program performance
measures and goals

¢ Tracking and assessing performance measures and
outcomes

¢ Assessing the extent to which the Department and its
programs are meeting their intended purposes, and timely
modifying those programs as necessary

ARIZONA

AuditorGeneral

Making a Positive Difference

Additional areas where Department can

improve performance

¢ Failed to develop wire transfer policies and procedures to
prevent and detect fraud, theft, waste, and abuse,

resulting in a $2 million fraudulent transfer from the State
Housing Trust Fund in 2023

¢ Conflict-of-interest procedures did not align with
requirements, increasing the risk that employees did not
disclose substantial interests, but policies were updated
during the audit

ARIZONA

AuditorGeneral

Making a Positive Difference

Additional recommendations

¢ Ensure Department wire transfers are secure

¢ Continue to implement changes that it developed during
the audit for conflicts of interest

ARIZONA

AuditorGeneral

Making a Positive Olfference

Department disagreed with some findings

¢ Did not assign responsibility to manufactured home licensees to
correct or repair defects within 120 days for 2 of 10 complaints we
reviewed, as required by federal regulations

¢ Federal regulation and Department policy do not specify that
delays outside Department control are acceptable reasons for not
timely resolving disputes

ARIZONA

AuditorGeneral

Making a Positive Difference

Department disagreed with some findings

¢ Did not implement all recommendations from 2011 to ensure fees
cover regulatory costs for manufactured homes and factory-built
buildings

¢ Could improve reporting on federal Low Income Housing Tax
Credit program, consistent with recommended practices

¢ Our recommendations in these 2 areas are focused on improving
performance, not statutory compliance

ARIZONA

AuditorGeneral

Making a Positive Difference

Additional information found in report

appendices

¢ Department-administered programs, funds, and tax credits,
including fiscal year 2023 commitments

¢ State Housing Trust Fund revenues and expenditures for
fiscal years 2022 through 2024

¢ Funding agreements and conditional awards from State
Housing Trust Fund and Homeless Shelter and Services Fund
for fiscal year 2024

ARIZONA

AuditorGeneral

Making a Positive Difference

‘ 301: 3104)
14 | 2101-2104
1107-1104

Sunset Audit Review Hearing

Arizona Bepeiment of Housing Director Joan Serviss ARIZANA

DEPARTMENT OF HOUSING
Funding quality affordable housing
and community revitalization to
benefit all Arizonans and ensure safe
manufactured buildings throughout
the state

°A cabinet-level agency created in 2002

¢ Funded primarily through Federal resources and
administrative fees

¢ FY2025 annual budget of $248 million and 99 FTE

DEPARTMENT OF HOUSING ©

ge APNE Cer wE CN EE TTY
Low Income Housing Tax Credit Program

Increased rural housing units by 175%

Streamlined Department regulations to encourage
development

Increased transparency and engagement with
stakeholders

ARIZOANA

OEE SAT MENT. OF | cnc

Rental development during audit time period

‘ut ply
ki : a
2
a ole —— “We
$237.8Million =  $1.92Billion = $2.16Billion
committed to acquire committed to construct for the development or
and renovate 8,7 85 New Units re-development of
1,794 Existing 10,458 Rental
Units Units
Source: ADOH’s Annual Reports FY20/21 — FY23/24 ARIZONA
Statewide manufacturing,
licensing, permit, and inspection
program resulting in
standardized regulatory mM
processes and a reduced burden | I {{ im | mm
on stakeholders ) as

eConsumer and industry focused 5 Office of Manufactured Housing

*One stop shop for statewide licensing,

plan dele peiton aed binding Ensures safe and sustainable units while supporting
actory certification, and ounaing diverse housing and a variety of commercial and

construction regulation revenue generating special events across the state.
eInnovation-driven with industry growth &

Sere wire 1 OF nal

High-Performing Public Housing Authority and
Performance-Based Contract Administrator

*Serving Yavapai County, AZ with just over 300 Housing
Choice Vouchers

*Administering over 8,000 units statewide with project-
based rental assistance

°All APHA functions are targeted to house Arizona’s
most vulnerable

ARIZANA

DEPARTMENT OF HOUSING

1

. -
.

Addressing Homelessness
eRapid Rehousing Rental Assistance
°Transitional Housing

Emergency Shelter

eShelter Services and Operations

eEstablished Local Coalitions to End Homelessness
serving 13 Counties

CA catholic
'() Chatitiss

‘id _Al
MAM

ELTERING

THE

Special Needs
Housing and Services for the Most
Vulnerable Arizonans

ARIZONA

DEPARTMENT OF HOUSING

= EE

iN Making Homeownership a Reality

Arizona is Home — Downpayment and
Mortgage Rate Reduction Assistance
Program

Homeowner Assistance Fund — Mortgage
Foreclosure Prevention Program (COVID
Relief)

ARIZONA

DEPARTMENT OF HOUSING
eInfrastructure Improvements (roads, parks,
streetlights, water and wastewater projects)

*Homeowner Housing Rehabilitation

°Weatherization (retrofit energy efficiencies for
homeowners throughout the State)

eSupported food banks and food insecurity programs

Investing in Rural Communities &
Homeowners Throughout Arizona

DEPARTMENT OF HOUSING
HIGHLIGHTS FROM THE FY24 HISTORIC STATE INVESTMENT IN

HOUSING

Bak a

Affordable Rental First Time
Homes Developed Homebuyers
(AZ is Home)

ie 8S

Individuals Substance Abuse
assisted in their Recovery Beds
housing crisis

a

Homeowners assisted
with emergency home
repairs

e

|
|
|
|
ry

ADOH Impact during audit time period

600,932

Arizonans benefited from
department resources

Source: ADOH’s Annual Reports FY20/21 — FY23/24 ARIZANA

DEPARTMENT OF HOUSING

DEPARTMENT OF HOUSING
Oversight of Selected Housing Programs

(4

Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4 Recommendation 5

Recommendations Implementation Status
Develop & Implement Written Plan on Program Oversight 60%
Ensure Implementation of Plan through Regular Reporting on Key Metrics 80%
Evaluate Oversight Processes and Align with Auditor General Recommended Practices 70%
Provide Periodic Training to Relevant Staff on Department’s Program Oversight 75%
Review Prior Approved Payments 15%

ARIZANA

DEPARTMENT OF HOUSING

Sunset Factors

ADOHW’s grantee hacked resulting in $2 million fraudulent wire transfer

[971 MEK SOHN LM EE PI
Background:

¢ In June 2023, ADOH wired $2 million to a Valley non-profit granted during the prior administration.
Later in December, ADOH learned that the nonprofit was hacked, resulting in a $2 million transfer to a
fraudulent account

¢ ADOH worked quickly to resolve the situation and coordinated with ADOA, the AZ Department of
Homeland Security through their Cyber Command, the FBI, and the AZ Treasurer

¢ The $2 million was recovered, minus the insurance deductible (which was absorbed by the nonprofit)

¢ The Department has significantly strengthened its controls over wire transfers to prevent fraud. We
are committed to protecting public funds and maintaining the highest standards of financial

accountability

ARIZONA og

DEPARTMENT OF HOUSING

Sunset Recommendation Implementation Tracker

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Recommendation Recommendation Recommendation Recommendation Recommendation Recommendation Recommendation Recommendation Recommendation
1 2 3 4 5 7 9 10 13

™Complete mln Progress

ARIZANA ie

DEPARTMENT OF HOUSING

THIET

Director Joan Serviss
602-771-1000

» 04 joan.serviss@azhousing.gov

housing.az.gov

Thank You

ff f O De

ARIZONA HOUSE OF REPRESENTATIVES
Fifty-seventh Legislature - First Regular Session

ROLL CALL VOTE
COMMITTEE ON Commerce BILL NO. DEPT. OF
_ HOUSING _
Contipueion with
DATE January 14, 2025 MOTION: _Reseibiona ,
PASS AYE NAY PRESENT | ABSENT

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Wilmeth of.

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JEFF WENINGER, Chairman
MICHAEL WAY, Vice-Chairman

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