Thurston County must return up to $667,990 in fraudulent rent aid, U.S. Treasury says
The federal government wants Thurston County to return up to $667,990 that it paid out to fraudulent rent assistant claims during the COVID-19 pandemic.
The large sum stems from 36 cases of suspected fraud that the county identified in 2022, according to four separate Notice of Recoupment documents from the U.S. Department of the Treasury Office of Inspector General (OIG).
The county Auditor’s Office began an expanded review of rental assistance payments in the summer of 2022 after initially discovering four applications of suspected fraud totaling $86,000. The county ultimately identified dozens more cases of suspected fraud that they reported to the Treasury OIG and law enforcement, as required by program rules.
“These events and the proper response from Thurston County show the value of our internal auditing program,” Thurston County Auditor Mary Hall said in a prepared statement to The Olympian.
“What the internal auditor initially identified in the rental assistance program ended up being a much broader issue. Ensuring public funds go towards their intended purpose to benefit those in need is the core mission of the County Auditor’s Office.”
At the time, the county had been passing federal and state funds to Community Action Council (CAC) of Lewis, Mason and Thurston Counties, a regional nonprofit that the county contracted to disperse rental and utility assistance during the COVID-19 pandemic.
Thurston County suspended its contract with CAC after the Auditor’s Office disclosed their early findings. This action led to a high-profile quarrel between the county and the nonprofit, which initially denied any fraud had occurred and lambasted the county’s response.
The county paid out a total of $53.6 million over 7,376 rent and utility assistance payments through multiple COVID-19 rent assistance programs between 2020 and 2023, according to county documents.
The total suspected fraud payments represent about 1.2% of that total.
How will this impact the county?
The county has already repaid $251,835 from its general fund and it has not received a final demand for repayment of the remaining funds, Clerk of the Board Amy Davis said in response to emailed questions.
Of the total repaid so far, $151,685 was repaid to the Washington State Department of Commerce, which passed through some funds from the federal government, and $100,150 was repaid directly to the U.S. Department of the Treasury.
The county’s midterm 2024-2025 budget indicates the Board of County Commissioners approved $504,000 for “repayment of housing overpayments” from its general fund in 2024.
Davis said the $504,000 is an increase in budget authority for “any remaining portion of the repayments” to the U.S. Treasury and/or the Department of Commerce.
Davis said the repayments have impacted the county’s general fund capacity, which has limited the county’s ability to spend on other priorities.
This comes at a time when county is dealing with budgetary challenges that are reflected in a “structural deficit” for the county budget, according to a message from the board in its midterm budget book.
Revenue for the general fund totals $127.2 million in 2024 and $123.9 in 2025, according to the budget. Meanwhile, the expenditures total $140.5 million in 2024 and $140.3 million in 2025.
Can the county get some leniency?
The Treasury’s Office of Capital Access has given Thurston County an opportunity to share additional information that could potentially lower the cost of the remaining amount that’s owed, Davis said.
The county hopes it can gain some leniency by demonstrating that it used local funding for emergency rental assistance, Davis said.
In a June 4 letter to the Treasury OIG, County Manager Leonard Hernandez made a case for leniency. He said the county has contributed $372,806 in locally generated revenue to supplement rent assistance programs in 2021.
He added that the county continues to use state and local resources to operate rental assistance programs that are more restrictive than past guidelines.
During an Oct. 9 meeting, Hernandez briefly told the board CAC was speaking with its insurance carrier about the money. On Friday, Davis confirmed the county hopes CAC can pay the amount owed and the nonprofit has been “very cooperative” on this matter.
“Per our sub-recipient agreement, they (CAC) had the responsibility for the administration and oversight of the rental assistance payments and any liability associated with possible fraudulent activity,” Davis said.
CAC did not respond to a request for comment and a list of questions from The Olympian.
How did the county identify suspected fraud?
The Auditor’s Office first noticed suspected fraud through sub-recipient monitoring. Hall said her office was able to conduct an expanded review after receiving previously withheld information from CAC.
During the review, auditors focused on payee names and cross-checked with property owner’s names, according to Hall and Treasury OIG documents.
The Auditor’s Office flagged cases in which payments were made to individuals other than registered property owners and contacted property owners for additional information, Hall said.
The review concluded in December 2022 and the Auditor’s Office presented their findings to the Board of County Commissioners during a closed-door session “due to ongoing reports to law enforcement.”
On Friday, Davis said the county has not recovered any money from people involved in the suspected fraud cases and it is not aware of prosecutions related to these applicants.
Treasury OIG documents indicate they received bulk reports from a Thurston County internal auditor on Aug. 18, 2023, with a total of 38 suspected fraud cases.
The Treasury OIG ultimately agreed with the internal auditor’s conclusions on 36 of those cases.
Did the county make any reforms?
In his June 4 letter, Hernandez said the county had difficulty balancing “expediency and thoroughness” in verifying rental assistance applications.
At the time, the Treasury allowed grantees to use “self-attestation” without further documentation to speed the delivery of aid during the COVID-19 pandemic.
The Treasury OIG determined the county’s characterization of this was not “contextually accurate” and pointed to rules requiring documentation and controls in place to prevent fraud, according to Treasury OIG documents.
Hernandez ended the letter by saying the county is committed to “additional measures to strengthen our monitoring and verification processes” to prevent similar fraud.
Davis said Thurston County switched to a contract with LiveStories, a Seattle-based company with “more robust fraud prevention policies and procedures in place.”
“Among the processes put in place is increased verification that the property manager either owns the rental unit in question or is authorized to represent the owner,” Davis said.
