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State of California Tracks Fraudulent ARPA Funding Distribution with Fraud Risk Map

State of California

California

Throughout the COVID-19 pandemic, the State of California was under pressure to get ARPA funding to residents quickly, increasing the potential for fraud. California adopted a fraud risk map to track ARPA rental and homeowner assistance funds distribution.

Topics Covered

Transparency
Housing & Affordable Housing

Cost

Initial: Zero Upfront Cost

Funding

Federal grants

Project Status

Operational since 2022

Gov Champion

Housing Finance Agency

Problem Addressed

The quick distribution of ARPA funding increased the State of California's susceptibility to fraud.

The American Rescue Plan Act of 2021 (ARPA) put nearly $43 billion into the hands of state and local governments nationwide. The largest part of this relief came in the form of rental and homeowner assistance funds, sitting at $21.5 and $10 billion respectively.

As a result of the COVID-19 pandemic, California residents were facing economic uncertainty, causing the Housing Finance Agency to distribute the money quickly. The fast change of hands opened the door to potential fraud, where local governments would be at fault, putting municipalities in debt to the federal government.

California Housing Finance Agency received $1 billion in homeowner's assistance funds to help those impacted by COVID-19. To handle the large influx of money, the agency created the non-profit California Homeowner Relief Corporation (CAL HRC) which was tasked with building a program.

The risk is expansive with these programs. From internal to external fraud, CAL HRC needed to look at all applications with close scrutiny to protect the state from fraud.

Solutions Used

California developed a fraud map to identify fraudulent behavior in ARPA funding distribution.

California Homeowner Relief Corporation (CAL HRC) began a partnership with Grant Thornton who played a consultative role in preparing them for homeowner's assistance fund applications.

The team built a comprehensive framework of risk factors covering third-party risks, falsification of eligibility, identity-related risks, insider threats, account number falsification, and double-dipping.

After understanding potential risk factors associated with a large influx of funds, they were able to develop the next steps. The process emphasized thorough data review, identifying factors of fraudulent behavior, and review of specific steering committees.

The fraud map is crucial for homeowner's assistance funds but can be additionally be modified for various fraud schemes, giving the state a reliable reference for potential future fraud schemes. With the program rolled out in January 2022, California is well-equipped to prevent fraud in its ARPA spending.

Outcomes

1

The California Housing Finance Agency conducted a fraud risk assessment to identify potential risk factors in distributing federal funds and a process for ARPA distribution to residents.

2

The California Housing Finance Agency's fraud risk map was able to track ARPA funding distribution to mitigate fraud, and will track future distribution of federal funds in the state.

3

The ARPA funds distribution process consisted of thorough data review, identifying factors of fraudulent behavior, and reviewing instances with specific steering committees.

Who Should Consider

Municipalities looking to prevent fraud following large influxes of federal funds.

Last Updated

Apr 5th, 2022
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