SAN FRANCISCO—The city-funded nonprofit HomeRise, one of San Francisco’s largest housing providers and developers for formerly homeless people, has been found to have engaged in “gross fiscal noncompliance, wasteful practices that misuse taxpayer funds, and spending of City funds on unallowed or questionable costs,” according to an audit report issued April 2 by the Controller’s Office.
“The breadth and magnitude of financial and compliance problems we found at HomeRise is concerning,” wrote Sjoberg Evashenk Consulting Inc., the firm hired by the Controller’s Office to do the audit.
Audit Findings
Over the four years of auditing from 2019 to 2023, HomeRise received $240 million in city funds, a relatively large share among other organizations the city contracts with to deliver similar services.These funds include almost $110 million in loans for HomeRise to develop and rehabilitate housing, $90 million in subsidies for property operation and and maintenance, and over $40 million in grants for support services.
The audit found that several expenses charged to its properties do not relate to property operating.
The audit report lists $126,000 in rental charges from the San Cristina property while it was being rehabilitated, and more than $96,000 in questionable resident services charges in 2021 and 2022, while two other properties did not have budgets for the services at the time.
“These inappropriate and noncompliant charges result in higher reported expenses and potentially lower cash surpluses,” the audit report states.
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HomeRise was also found to have transferred $2 million from a restricted account and borrowed $2.5 million from a property’s operating account to help cover payroll costs.
The report states that HomeRise failed to “maximize revenues and contain costs” and that it subsequently failed to pay loan debt with the possible cash surplus as city grant agreements required.
“HomeRise did not contain costs and even gave staff bonuses in 2022 that were unplanned and unbudgeted,” the report states.
These bonuses, totaling over $220,000, were charged to the properties’ spending despite some of them experiencing cash shortage and deficits.
The nonprofit granted large pay raises, in some cases as much as 20 percent, to certain employees despite insufficient cash flow.
Among other issues, HomeRise also created three new corporate positions during the audit period, “resulting in large salary increases and adding significant cost to the organization,” the report states.
“Our effort to determine the scale of problems and concerns with HomeRise’s property financial activities was hindered by the poor condition of HomeRise’s records and complicated by the maze of HomeRise’s corporate ownership structure,” the report states.
The audit was requested in 2022 by the Mayor’s Office of Housing and Community Development (MOHCD) and the City’s Department of Homelessness and Supportive Housing (HSH), the two departments in charge of the funding for homeless housing.
MOHCD had concerns about HomeRise’s organizational management and finances for some time, while HSH noticed discrepancies and ineligible expenses in HomeRise’s invoicing.
“Our audit focused on the financial provisions and requirements of the City agreements,” the report states. “We did not review HomeRise’s program areas such as supportive services offered to its residents or its facilities management and maintenance activities at the properties, nor did we review HomeRise’s real estate development or construction activities.”
Impact of Pandemic
HomeRise provides 18 percent of the supportive housing units and about 6 percent of the affordable housing units that MOHCD funds, and operates almost one third of the city-funded housing for formerly homeless people, the report states.That amounts to about 1,500 affordable housing units across 19 properties.
With the impact of the COVID-19 pandemic, the vacancy rate of the 19 properties connected with HomeRise averaged as high as 14 percent, and HomeRise lost about $6.3 million due to vacancies during the audit period, the audit found.
Together with more than $1.7 million in unpaid or late-paid rent as of April 2023, this worsened the cash flow crisis of the nonprofit, which exposed its fragility of management.
HomeRise’s new CEO, Janea Jackson, acknowledged some of the audit’s findings and summarized the steps the nonprofit has taken to improve accordingly, in an email response to the Controller’s Office on March 15, 2024.
Ms. Jackson stated in the email that much of the revenue shortfall mentioned in the audit report “was the result of rent forgiveness/eviction protection laws enacted during the pandemic, and that remained in place for a considerable period thereafter.”
The audit report states: “At this point, changing the funding given to HomeRise through City grant and loan agreements to develop housing is moot—HomeRise has received all the funds, developed the housing units, and is unlikely to be required to repay the loans to the City.”
Statement from Sheriffs’ Association
The city of San Francisco has spent hundreds of millions of dollars each year on the homelessness issue. Just in the fiscal year 2023, HSH received a $672 million dollar allocation, according to its website.The San Francisco Deputy Sheriffs’ Association criticized the city’s current homelessness policies in a statement published on April 5.
“In a shocking revelation, the City and County of San Francisco’s approach to tackling homelessness has been marred by mismanagement and fraud, further exacerbating the crisis on its streets,” the Association stated. “Compounding this issue is the city’s misguided focus on housing and shelter as the primary solutions to homelessness. The reality is that homelessness in San Francisco is not solely a product of poverty but more so a crime problem rooted in drug use.”
The Association stated that the city continues to “pour exorbitant amounts of money” into shelter programs that don’t address the reasons behind homelessness.
The statement also calls on the city government for “transparency, accountability, inclusiveness, equity, and efficiency” in spending public funds.
