Long wait time but little fraud in pandemic rental assistance program, legislative auditor says

By and large, Minnesota Housing did a good job getting the right amount of emergency rental assistance to the right people, but that attention to accuracy led to significant delays that frustrated renters and landlords, according to a report released by the state’s watchdog legislative auditor on Thursday.

In late 2020, Congress voted to send tens of billions of dollars to states and local governments to keep out-of-work Americans in their homes through the pandemic. Minnesota received about $598 million beginning in early 2021, which the state’s housing authority distributed through a new program called RentHelpMN.

Months after the federal funds arrived, however, the state had yet to distribute a single dollar.

At the time, state officials explained the delay was due to the complexity of standing up a new benefits program that dwarfed Minnesota Housing’s annual budget.

The federal government also required numerous forms of documentation to prevent fraud, which plagued other pandemic-era programs like the Paycheck Protection Program and the Federal Child Nutrition Program.

Applicants had to wait an average of 87 days for RentHelpMN to process their applications, although Minnesota Housing eventually sped up its assistance payments toward the end of 2021 and met a key congressional benchmark to distribute the funds.

The delay led to sharp criticism from landlords, renters and Republican lawmakers, and prompted Sen. Rich Draheim, R-Madison Lake, to request that the legislative auditor review the program.

Over the course of the program, Minnesota Housing distributed an average of nine months of assistance — $7,300 per household — to more than 58,600 households, providing a lifeline to renters and landlords, who were barred from evicting tenants for nonpayment of rent for roughly two years.

While RentHelpMN program staff weeded out thousands of applications suspected of fraud, they have also identified 630 overpayments totaling $3.5 million, or less than 1% of the program’s total budget.

Minnesota Housing Commissioner Jennifer Ho responded to the report in a letter saying she was proud of the work they did given the challenge of administering a brand new assistance program during the pandemic.

The program, which stopped taking applications in January 2022, was open to renters with incomes below 80% of the area median income — about $80,000 for a family of four in the Twin Cities metro area — though the vast majority of funds went to households with incomes less than half of the area median income, according to Minnesota Housing. Renters could receive up to 18 months of assistance for rent, utilities or other housing expenses.

The work of managing RentHelpMN — processing applications and evaluating eligibility — was performed by an outside contractor, Witt O’Brien’s, which in turn also hired several subcontractors. The state paid the company about $54.7 million for its work, by far the largest share of the total program dollars, according to the legislative auditor’s report.

Minnesota Housing also contracted with a company called Allita 360 to provide the online application portal and Greater Twin Cities United Way to provide a call center to answer basic questions about the program. Local community groups were contracted as well to advertise the program and help people apply.

According to the legislative auditor’s report, RentHelpMN application processors weeded out thousands of applications suspected of fraud and correctly determined eligibility in most cases.

In 40 of the 41 applications that state auditors reviewed, RentHelpMN application processors correctly determined eligibility. Ten of those applications were correctly denied: one applicant was above the income limit; five did not have past-due rent; and the remaining four were either suspected of fraud or did not respond to requests for more information.

“Given that Minnesota Housing allowed applicants and landlords to attest that applicants met the program’s eligibility requirements — rather than provide documentation proving their eligibility — it is perhaps not surprising that we found few issues in our eligibility determination review,” the report says.

Of the remaining 31 applications, Minnesota Housing paid the correct amount of assistance in 26 cases, according to state auditors.

A program staff member told state auditors that they began to see a significant uptick in suspected fraud in the fall of 2021. Witt O’Brien’s then hired a subcontractor to develop a predictive model to efficiently identify fraudulent applications.

Allita 360, the company hired to provide the online portal, also provided a built-in fraud score, but a program staff person said it was not effective.

By August 2022, program staff had declined more than 4,350 applications suspected of fraud, according to the report.

Still, Minnesota Housing may have paid out funds to hundreds of fraudulent applicants. The agency reported eight cases of suspected fraud for payments of $100,000 or more to federal authorities. The agency also reported 352 applications suspected of fraud or overpayment to the Minnesota Attorney General’s Office or local law enforcement officers.

Program staff told state auditors they were continuing to identify overpayments — which could be caused by an administrative error or because of fraud. In those cases, the applicant is given 30 days to return the funds or contest the claim.

State auditors found an additional 13 applicants suspected of fraud with payments totalling $63,700 that program staff had not yet identified. As of September 2022, the agency has recouped about $704,000 of the $3.5 million in overpayments it identified, according to the auditor’s report.

Draheim, the Republican senator who requested the audit, said the report points to “structural problems that need to be fixed right away” if the state is going create the permanent rental assistance program proposed by Democrats. He also suggested that the amount of overpayments could be much larger than the $3.5 million identified by Minnesota Housing given the auditors found problems in six out of 41 applications they reviewed.

Cecil Smith, president of the Minnesota Multi Housing Association, a landlord trade group, said property owners also acted as a buffer against overpayments by returning duplicate checks or checks sent to the wrong person. He added some property owners struggled to get the housing agency to acknowledge they had received the returned funds.

The Office of Legislative Auditor made several recommendations in its report, including that Minnesota Housing should establish standards for processing times, collect sufficient documentation and conduct regular audits, and develop procedures for recouping overpayments before it issues any payments.

Those recommendations are largely moot, since the program ended, although state lawmakers recently allocated $50 million more in emergency rental assistance to the state’s housing agency for their Family Homeless Prevention Assistance Program.

Ho said in a response published in the report that the standards were not reasonable for standing up a brand-new, large emergency program from scratch in four months.

She wrote she “agrees that in a world with adequate time and funding and not during a global pandemic, we would have addressed the issues,” and added that the agency would continue to evaluate potential overpayments.