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Lawmakers are considering cutting the number of years the Arizona Department of Housing can continue to operate without legislative oversight after a state audit identified multiple problems with the agency’s policies, including inadequate fraud security measures that led to $2 million being wired to people pretending to represent a housing nonprofit.
On Tuesday, lawmakers on the House Commerce Committee unanimously greenlit the continued existence of the state housing department. The vote was part of a process known as a “sunset review,” during which the legislature scrutinizes a state agency’s performance and decides whether to reauthorize it for up to 10 years. Tuesday’s move forward for the housing department was tentative, with Republicans on the panel signaling their future approval on the chamber floor won’t come without restrictions for the agency.
Chairman Jeff Weninger, a Republican who represents Chandler, acknowledged that the department’s role as a bridge between the federal government and state housing initiatives is critical, but said that heightened regulation is necessary in light of its recent stumbles.
“Look, the Department of Housing has to continue,” he said. “We get a ton of money that comes in from the federal government, I think we all know that. The question is how long it continues and what can we put in there to make sure we have some safeguards?”
An October 2024 report from the Arizona Auditor General’s Office found that, despite setting aside nearly $1.26 billion for affordable housing initiatives, the department lacks a comprehensive process to figure out if those initiatives are actually working. An accompanying review of 12 housing projects that won grants from the department found that the agency routinely neglected its oversight responsibilities, putting the people living there at risk of unsanitary conditions and approving payment requests from grant recipients with incomplete documentation.
The $2 million wire fraud scandal, according to the audit, occurred because the state housing department failed to develop wire transfer procedures to prevent it.
Weninger said the issues outlined in the review don’t come across as isolated mistakes, but instead indicate a bigger problem with how the department operates.
“One of the big takeaways for me was (that) it wasn’t just, ‘Hey, you had one slip through the cracks.’ It was just pretty much systemic,” he said.
Joan Serviss, the director of the state housing department, told the committee that the agency agrees with the majority of the audit’s recommendations and has already made progress towards improving many of its policies. To prevent future wire fraud theft, verbal verifications and small dollar transfers have been implemented before full grants can be sent. Part of the reason the $2 million, which has since been recouped through insurance, was so easily stolen is because the department focused on modern theft schemes that involve more advanced methods.
Serviss also pointed out that much of the criticism in the audit is aimed at protocols she inherited from her predecessor. She took office in January 2023, and the report covers October 2020 through September 2023.
Lawmakers seemed sympathetic to Serviss’ situation, but said they still expect changes to department policies. In closing speeches, Republicans on the panel emphasized that their initial approval in committee wouldn’t hold in the future without increased oversight stipulations, and some Democrats seemed to agree.
Tucson Democrat Betty Villegas praised Serviss for her work and highlighted the difficulties of steering an agency that is still recovering from defunding during Republican Gov. Doug Ducey’s administration and the Great Recession, but added that “there’s no excuse for some of the items on these items and they have to be corrected.”
“The department has been doing a lot of work, especially these last few years and especially coming out of COVID,” echoed Rep. Cesar Aguilar, D-Phoenix. “I understand there’s a lot of issues within the department that came out of the auditor’s report and I definitely would like to see a lot of those things get fixed.”
What ends up in the final continuation bill remains to be seen. Lawmakers can agree to reauthorize an agency for up to 10 years, but have tended to limit reauthorizations up to 8 years, coinciding with legislative term limits.
The housing department’s continuation appears poised to become a controversial topic this legislative session, especially as Serviss’ appointment to the directorial position was opposed by the state Senate’s Committee on Director Nominations. After a legal battle, Hobbs has agreed to restart the nomination process and Serviss will be forced to face the entire Senate.
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