After Audit, Legislators Push for Stronger Control Over Arizona Housing Department

Arizona lawmakers are reviewing the operational oversight of the Department of Housing following a state audit that uncovered several critical flaws within the agency. The audit revealed inadequate fraud prevention measures, which culminated in a $2 million incident where funds were fraudulently transferred to individuals posing as representatives of a housing nonprofit.

During a recent meeting, the House Commerce Committee unanimously endorsed the continuation of the housing department as part of a “sunset review.” This legislative process evaluates state agencies’ effectiveness and determines whether they should be reauthorized for up to a decade. Although the committee voted to advance the department’s existence, Republican members suggested that future legislative approval would depend on implementing stricter regulations.

Committee Chairman Jeff Weninger emphasized the department’s vital role in connecting federal housing funds with state initiatives. He asserted, however, that the agency must enhance its operational safeguards following the recent audit. “The Department of Housing has to continue,” Weninger stated. “The question is how long it continues and what safeguards can we implement?”

The audit, released in October 2024 by the Arizona Auditor General’s Office, noted that the department had allocated nearly $1.26 billion for affordable housing but lacked a reliable evaluation system to measure the effectiveness of these initiatives. A review of 12 housing projects revealed that the department had neglected its oversight duties, exposing residents to unsanitary living conditions and approving payments without adequate documentation.

Weninger characterized the problems as indicative of systemic issues rather than isolated errors. “It wasn’t just a slip through the cracks,” he remarked. “It was pretty much systemic.”

Joan Serviss, the department’s director, responded to the audit’s findings, assuring lawmakers that many of the recommended changes were already in progress. Measures implemented to prevent wire fraud include mandatory verbal confirmations and limited transfer amounts before full grants are released. Serviss clarified that the vulnerabilities that allowed for the $2 million theft were rooted in outdated protocols inherited from her predecessor, who held office from October 2020 to September 2023.

While lawmakers acknowledged the challenges faced by Serviss since taking office in January 2023, they expressed the need for continued policy improvements. Republican committee members made it clear that their initial support would be contingent upon greater oversight in future legislation. Some Democrats also echoed the sentiment for necessary reforms.

Tucson Democrat Betty Villegas commended Serviss for her efforts but insisted that the issues identified in the audit must be addressed. “There’s no excuse for some of these items, and they have to be corrected,” she remarked. Rep. Cesar Aguilar, D-Phoenix, supported this stance, acknowledging the department’s hard work, especially in the aftermath of COVID.

The final terms of the department’s continuation remain uncertain. Lawmakers may decide to extend the agency’s authorization for a maximum of ten years, although they have often limited reauthorizations to eight years in line with legislative term limits. The housing department’s future may spark significant debate this legislative session, particularly as Serviss faces renewed scrutiny after her initial appointment met with resistance from the state Senate’s Committee on Director Nominations. Following a legal dispute, Governor Hobbs has committed to reinitiate the nomination process, requiring Serviss to gain full Senate approval.