Management Memorandum
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page ii
Executive Summary
We conducted an audit of Virginia Housing Development Authority (VHDA) Section 8 Certificate
and Voucher Programs. The purpose of our review was to determine if VHDA was managing its
Section 8 Program efficiently and effectively. Specific audit objectives were to determine
whether VHDA:
• established procedures and provided adequate monitoring and oversight of its
administrative agents in the areas of Housing Quality Standards (HQS), rent
reasonableness, financial management, tenant income verification, family composition,
and waiting list administration;
• fully utilized Section 8 resources;
• charged administrative fees according to HUD guidelines;
• had an accounting system that adequately tracked costs associated with its Section 8
programs; and
• provided tenant utility allowances according to HUD requirements.
Generally, we found VHDA effectively manages its Section 8 programs and provides adequate
oversight and direction to its 83 administrative agents. However, in our review, we did identify a
number of areas in the VHDA’s administration of its Section 8 Program that needed to be
improved. These areas are summarized below and detailed in the finding section of this report. At
the end of our audit, VHDA was in the process of procuring a consultant to perform a
comprehensive evaluation of its Section 8 programs to address audit recommendations and areas
needing improvement.
VHDA Can Improve Its We found VHDA can improve its administration of the
Administration of the Section 8 Program along with its compliance with related
Section 8 Program requirements in the areas of: HQS; rent reasonableness;
financial management; tenant waiting list administration; and
tenant income verification. We observed problems in these
areas because VHDA’s monitoring of sub-recipients did not
identify existing problems and provide for the uniform and
consistent application of program requirements among sub-
recipients.
VHDA did not utilize $30 Million of available Section 8
VHDA Did Not Utilize resources. Until recently, VHDA has measured its
Available Section 8 occupancy based on ACC unit allocations even though HUD
Resources revised its Section 8 procedures in 1995, requiring housing
authorities to budget resources based on dollars instead of
units. VHDA was conservative in its interpretations of HUD
budget guidelines, and did not change its leasing benchmarks
to recognize dollars instead of units as the relevant leasing
measure. Budgeting Section 8 resources based on available
dollars as required, would have provided the VHDA with
Page iii 00-PH-203-1003
Executive Summary
the opportunity to house significantly more families since it
allows a Housing Authority to lease as many units as
possible without regard to ACC unit limitations. As a result,
VHDA did not fully utilize its Section 8 resources, and HUD
recently recaptured over $30 Million that could have
otherwise provided additional rental subsidies to families
on VHDA waiting lists.
The VHDA needs to improve its recertification procedures.
VHDA Needs to Improve A computer match of tenants reported income with 1997
Its Recertification Internal Revenue Service (IRS) and Social Security
Procedures Administration (SSA) information for over 7,000
households reported in HUD’s Multifamily Tenant
Characteristics System (MTCS) identified over 300
households with potential income discrepancies exceeding
$10,000 and 1,900 households with potential income
discrepancies between $1,000 and $10,000.
Detailed analysis of 138 active households of the 300
households with potential income discrepancies exceeding
$10,000 appeared to validate the overpayment of Section 8
subsidies in 116 of the cases. The VHDA’s recertification
procedures contributed to subsidy overpayments because
they did not provide for interim recertifications of
significant income changes unless the tenant did not report
any income on the last certification. Additionally,
administrative agents were not always obtaining third party
income verifications.
VHDA did not follow existing policies and procedures in
VHDA Did Not Follow establishing tenant utility allowances. It did not:
Utility Allowance
Procedures
• obtain tenant utility consumption data in analyzing
utility allowances;
• ensure utility allowances were sufficient to cover
minimum provider charges; and
• ensure utility allowance schedules provided to
localities were correct.
As a result, VHDA tenants incurred total housing payments
in excess of program requirements, since utility allowances
were not sufficient to pay actual utility costs. VHDA staff
commented that one locality’s utility allowances were not
raised because gross rents would exceed fair market rents.
00-PH-203-1003 Page iv
Executive Summary
We recommend VHDA implement quality control
Recommendations procedures to improve its administration of the Section 8
program. VHDA needs to improve monitoring of localities
in the areas of HQS, financial management, rent
reasonableness, waiting list administration, and tenant
income verification. We also recommend VHDA change its
tenant recertification procedures to reduce tenant’s under
reporting of income, ensure HQS violations disclosed in our
review are corrected, and revise utility allowance schedules
accordingly when it completes its ongoing utility study.
The findings were discussed with the VHDA during the
course of the audit and at an exit conference on January 19,
2000. The VHDA was also given draft findings for
comment. VHDA’s written comments are contained in
Appendix A and summarized elsewhere in the report.
Page v 00-PH-203-1003
Executive Summary
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page vi
Table of Contents
Management Memorandum
i
Executive Summary iii
Introduction
1
Findings
1 VHDA Needs to Improve Its Administration and Monitoring
of the Section 8 Program 5
2 VHDA Did Not Utilize $30 Million of Available Section 8
Resources
17
3 The VHDA Needs to Improve Its Recertification Procedures
21
4 VHDA Did Not Properly Establish Section 8 Utility
Allowances
25
Management Controls
29
Follow Up On Prior Audits
31
Appendices
Page vii 00-PH-203-1003
Table of Contents
A Audit Comments
33
B Distribution
45
Abbreviations
AAF Annual Adjustment Factor
ACC Annual Contributions Contract
CFR Code of Federal Regulations
FMR Fair Market Rent
HA Housing Authority
HQS Housing Quality Standards
HUD Housing and Urban Development
IRS Internal Revenue Service
OIG Office of Inspector General
OMB Office of Management and Budget
PHA Public Housing Authority
PIH Public and Indian Housing
SSA Social Security Administration
VHDA Virginia Housing Development Authority
VSO Virginia State Office
00-PH-203-1003 Page viii
Introduction
The Virginia Housing Development Agency (VHDA), is governed by a ten-member Board of
Commissioners, chaired by Sam Kornblau. The Executive Director is Susan Dewey. Hunter L.
Jacobs is the Director of Multifamily Special Programs which administers the Section 8 Program.
The VHDA’s offices are located at 601 South Belvidere Street, Richmond, VA 23220.
The VHDA’s Section 8 Program has been operating since 1977. A mission of VHDA is to make
the Section 8 Subsidy Program available to all localities in Virginia who wish to participate.
During Fiscal Year 1998, the VHDA’s Section 8 Program administered 86 localities contracting
with 83 administrative agents. The HUD’s Virginia State Office and the Washington, DC field
office contracted with VHDA through an Annual Contribution Contracts (ACC) to provide Section
8 funding. As of June 30, 1998, VHDA administered 9,716 units and expended $46,233,168 for
these units in Fiscal Year 1998.
The purpose of our audit was to determine whether the PHA
Audit Objectives was complying with the provisions of its Section 8 ACC
contracts with HUD, as well as applicable regulations, and
to determine if they are administering their Section 8
Program efficiently and effectively. The specific objectives
were to determine whether VHDA: established procedures
and provided adequate monitoring and oversight of its
administrative agents in the areas of Housing Quality
Standards (HQS), rent reasonableness, financial
management, tenant income verification, family composition,
and waiting list administration; fully utilized Section 8
resources; charged administrative fees according to HUD
guidelines; had an accounting system that adequately tracked
costs associated with its Section 8 programs; and provided
tenant utility allowances according to HUD requirements.
The audit was conducted between December 1998 and
Audit Scope and December 1999, and covered the period July 1, 1997
Methodology through June 30, 1998. The audit period was extended where
necessary. To accomplish the audit objectives, we reviewed
procedures and tested compliance as follows:
At VHDA we reviewed:
• administrative fees to determine if the fees were
supported.
• disbursements including salaries and indirect costs
charged to the Section 8 Program to determine if
costs were reasonable.
Page 1 00-PH-203-1003
Introduction
• monitoring reports of administrative agents to
determine if monitoring was adequate.
• utility allowances to determine if allowances were
analyzed adequately.
• Section 8 Voucher Payment Standards to determine if
standards were established properly.
We judgmentally selected four of the largest administrative
agents for review of VHDA’s administration of its Section 8
Program. The four agents were: Prince William County;
City of Virginia Beach; City of Martinsville; and
Shenandoah/Page County Department of Social Services. At
these localities we:
• conducted physical inspections of 63 units to ensure
compliance with HQS. During the inspection, we
asked the tenants about their utility costs to determine
if utility allowances were adequate.
• examined tenant files to verify: tenants qualified as a
family; tenants’ income were within income limits;
and annual recertifications were performed properly.
• reviewed the use of administrative fees provided by
VHDA.
• reviewed rent reasonableness to determine if rents
were reasonable and in accordance with regulations.
• reviewed waiting lists to determine if agents
maintained lists and selected applicants properly.
We reviewed utilization of Section 8 resources by
reviewing documents from VHDA and HUD. Also, with the
assistance of HUD Headquarters, we performed a computer
match of tenant’s income. We used audit related software to
analyze computer data maintained by VHDA. During the
audit, we interviewed applicable staff from HUD, VHDA,
and the administrative agents.
Our audit was conducted in accordance with generally
accepted government auditing standards.
00-PH-203-1003 Page 2
Introduction
Page 3 00-PH-203-1003
Introduction
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page 4
Finding 1
VHDA Needs to Improve Its Administration and
Monitoring of the Section 8 Program
VHDA can improve the administration of its Section 8 Program along with its compliance with
related requirements in the areas of: housing quality standards; rent reasonableness; financial
management; tenant waiting list administration; and tenant income verification. We observed
problems in these areas because VHDA’s monitoring of administrative agents did not identify
existing problems and provide for the uniform and consistent application of program requirements
among its administrative agents. As a result VHDA does not have assurance that:
• tenants are occupying units that meet Housing Quality Standards (HQS);
• administrative agents are adequately documenting circumstances regarding rent
reasonableness determinations, tenant income verification and over housed tenants;
• administrative agents are efficiently utilizing Section 8 resources; and
• tenants are selected from waiting lists according to HUD requirements.
Chapter 5-12 of the Public Housing Authority
VHDA Did Not Perform Administrative Practices Handbook (7420.7) requires
Supervisory Inspections housing authorities to establish procedures for reviewing a
According to HUD sample of the completed Section 8 unit inspections.
Requirements Supervisory re-inspection of a random sample of five
percent of the approved units is required.
Our review of VHDA’s 1998 locality monitoring reports
disclosed that VHDA inspected only 2.72 percent, or about
half as many units as provided for in the administrative
practices handbook, and inspected at least five percent of the
units in only 21 of 72 of its monitoring reviews during 1998.
As illustrated below, VHDA inspected five percent of the
housing units in only one of the five localities that we
sampled.
Page 5 00-PH-203-1003
Finding 1
Quality Control Inspections Percentage
7%
5.95%
6%
5% 5 % Requirement Prince William County
4% Henry & Patrick Counties
Martinsville
3%
1.88% 1.69% 1.89% Virginia Beach
2%
Shenandoah & Page Counties
0.94%
1%
0%
VHDA did not inspect five percent of its units because it
erroneously believed quality control requirements were
satisfied using a combination of quality control inspections
and tenant confirmations. VHDA revised this policy in
December 1998 and the number of inspections in a locality
will now be based on the following sliding scale:
Number Number of
of Units Inspections
0-100 5
101-150 6
151-200 8
201-250 10
251+ 12
However, even with this new policy, there is still no
assurance the five percent thresholds will be met, especially
in larger jurisdictions that have significantly more than 251
units.
In order to determine if VHDA units met HQS, we
Units Did Not Meet HQS
judgmentally selected and then inspected 63 of 2,325 leased
units in the four localities, and found that 50 units failed
HQS. Inspections of the 50 units were provided to VHDA
and each applicable locality. Of note was that nine units
which previously failed VHDA, HUD and locality
inspections were subsequently passed without making sure
00-PH-203-1003 Page 6
Finding 1
the deficiencies were corrected, as we found similar
deficiencies during our inspections.
24 CFR, Part 982.401, states that Section 8 housing must
comply with HQS, both at initial occupancy of the dwelling
unit, and during the term of the assisted lease. To meet HQS,
units must :
• be structurally sound;
• provide an alternative means of exit in case of fire;
• provide adequate space and security for each
resident and their belongings;
• be free of pollutants in the air at levels that threaten
the health of residents;
• provide sanitary facilities that are in proper
operating condition;
• have adequate heating and/or cooling facilities;
• have adequate illumination and electricity;
• be maintained in sanitary condition; and
• include a smoke detector on each occupied level.
Our review of the four localities disclosed that a database
Rent Reasonableness for establishing rent reasonableness was lacking at one
locality and rent increases were based on an owner’s
willingness to accept the Annual Adjustment Factor (AAF).
We also noted several instances where administrative agent
files did not adequately document circumstances when:
comparable properties were not used to support rent
reasonableness determinations; and tenants were leasing
units exceeding their allowable bedroom size.
24 CFR, Part 882.106(b) states that the HA shall certify for
each unit for which it approves a lease that the Contract Rent
for such unit is:
(i) Reasonable in relation to rents currently being charged
for comparable units in the private unassisted market, taking
into account the location, size, type, quality, amenities,
facilities and management and maintenance service of such
unit, and
(ii) Not in excess of rents currently being charged by the
Owner for comparable unassisted units.
Page 7 00-PH-203-1003
Finding 1
24 CFR, Part 882.108(a), provides that owners can request
the HA to annually adjust rents based on the AAF.
Paragraph (b) provides that AAF adjustments shall not result
in material differences between the rents charged for
assisted and comparable unassisted units. Part
982.402(c)(1), provides that the gross rent under the
certificate program should not exceed FMR for a bedroom
size determined by HA subsidy standards. Paragraph (b)(1)
provides that subsidy standards must provide for the
smallest number of bedrooms needed to house a family
without overcrowding.
In reviewing rent reasonableness determinations at the
localities, we selected units that were above the FMRs and
checked these units to ensure the number of bedrooms did
not exceed the number allowed for the family composition.
There was no indication that VHDA’s monitoring reviews
examined this aspect of rent reasonableness.
In Virginia Beach, the rental database was insufficient to
establish the rent reasonableness of some units since it did
not include comparables for single-family homes or
townhouses. Also the manner in which Virginia Beach
provided rent increases to apartment owners was flawed.
Virginia Beach asked owners each year if they wanted a rent
increase. If the owner said yes, then Virginia Beach would
process the rent increase based on the AAF, without any
assurance the new rent was reasonable and did not exceed
rents charged to unassisted units in the same apartment
complex.
VHDA did not reconcile amounts budgeted to its Section 8
Financial Management program to reflect actual expenditures. Additionally,
VHDA did not review the localities accounting of Section 8
funds during its monitoring visits.
Paragraph 1a of OMB Circular A-87 Part C states that costs
under Federal awards must be necessary and reasonable for
the proper and efficient performance and administration of
Federal awards.
Also the ACC, paragraph 11d, provides that program
receipts in excess of current needs must be invested. Our
review of the Section 8 accounting systems of VHDA and
the four localities disclosed the following:
00-PH-203-1003 Page 8
Finding 1
Agency Deficiency
VHDA Its system used budgeted amounts in charging
indirect costs to the Section 8 Program and did
not adjust the amounts to actual costs. For
example, Fiscal Year 1998 telephone expense
was based on a budgeted amount of $363,193.
Actual costs were $282,513. VHDA included
the cost of installing a new phone system in the
budgeted amount. The actual cost was less
because the phone system was not installed
causing the Section 8 telephone expense to be
overcharged. VHDA officials stated that the
overcharging was offset by computer, legal, and
furniture costs not charged to Section 8 Program.
Prince PWC did not earn interest on its Section 8 funds.
William As of July 1, 1998, Prince William had Section
County (PWC) 8 funds totaling $217,964 on hand which were
not earning interest income.
Virginia Virginia Beach did not maintain separate
Beach accounting records for Section 8 units funded by
VHDA and directly by HUD. Virginia Beach
complained to VHDA that its administrative fee
was not sufficient to administer the VHDA units.
However, Virginia Beach did not have a system
to determine the administration costs of the
VHDA units.
Martinsville Martinsville staff working less than 100% of
their time on Section 8, did not prepare time
sheets. Additionally, Martinsville commingled
funding for Section 8 and Community Planning
and Development activities.
Shenandoah Shenandoah County did not account for receipts
County from VHDA totaling $6,963. County staff stated
that the receipts were used for expenses incurred
during October 1997. The staff did not provide
us an accounting for these expenses.
Since the VHDA did not monitor its administrative agents
financial accountability, it is unclear how VHDA determined
whether the administrative agents were using their fees to
administer the program efficiently.
Page 9 00-PH-203-1003
Finding 1
We reviewed waiting lists maintained at the four localities
Waiting List and determined Virginia Beach and Martinsville did not
Administration administer their waiting lists properly and VHDA’s
monitoring of these localities did not disclose some of the
waiting list problems. Handling waiting lists improperly
could lead to improprieties in the admission of tenants into
the State’s Section 8 Program.
24 CFR 982.204(b) states that the HA will select applicants
from the waiting list in accordance with their admission
policies. The waiting list at a minimum must contain the
following information:
(1) applicant’s name;
(2) number of bedrooms required based on the family
size and make up;
(3) date and time of the application;
(4) federal preference qualifications;
(5) local preference qualifications; and
(6) ethnic or racial designation of the Head of
Household.
Part 982.204(d) states that the order of admission from the
waiting list may not be based on family size. In addition
VHDA Policy 486, Method of Selection, states that: “The
method for selecting applicants from preference categories
must have a clear audit trail that can be used to verify that
each applicant has been selected in accordance with the
method specified.” In the following instances the tenant
selection process was not documented on the waiting lists.
Virginia Beach
Our review of Virginia Beach’s administration of its waiting
list disclosed the following:
• No explanations were given for selecting applicants
before others who were on the waiting lists longer.
• Two applicants were still on the waiting list even
though they were being assisted in the Virginia
Beach Section 8 Program.
• One applicant appeared twice on the waiting list.
00-PH-203-1003 Page 10
Finding 1
• Virginia Beach had a waiting list containing one
Federal Preference; however, it did not document the
date when the applicants requested the preference.
In 1998, the VHDA monitoring report documenting the
review of the waiting list only disclosed that Virginia Beach
did not verify Federal Preferences.
Martinsville
Martinsville did not maintain waiting lists that documented
how selections were made. According to an administrative
agent, she selected applicants needing a one bedroom
voucher over other applicants even though the other
applicants were on the waiting list longer. The agent stated
that she was told by a Housing Management Officer from
VHDA that these selections from the waiting list were
acceptable. The Housing Management Officer denied telling
the agent to make selections from waiting list based on
bedroom size. The 1998 monitoring reports did not disclose
any problems with the way Martinsville was administering
its waiting list.
Three out of four localities did not obtain third party
Tenant Income verifications of tenant income, another problem which was
Verification not disclosed by VHDA monitoring. These deficiencies
were provided to VHDA and each applicable locality.
Tenant recertification procedures are discussed in more
detail in finding three of this report.
HUD Handbook 7420.7, Chapter 4, paragraph 4-5d.(1)
states that the tenant’s income must be verified by third
parties. Third-party contacts must be transmitted through the
mail rather than handled directly by the tenant to ensure
valid results.
* * * **
We discussed the preceding deficiencies with the VHDA
and with the applicable communities during our review. We
believe the problems need to be corrected by VHDA and
their administrative agents. Further monitoring efforts need
to be improved to make sure these types of problems are
identified when they exist so that corrective action can be
Page 11 00-PH-203-1003
Finding 1
taken and VHDA can provide housing opportunities as
efficiently as possible.
Auditee Comments HQS Inspections
VHDA acknowledged that additional improvements are
needed in HQS compliance and enforcement. In that regard,
VHDA said it has recently provided its administrative
agents with HQS training and will require administrative
agents to confirm in writing that repairs have been made and
also require photographs and tenant confirmations. VHDA
did not agree that it needed to conduct quality control
inspections for 5% of units in each administrative agent
locality or that units that failed OIG inspections exposed
tenants to imminent health and safety hazards. VHDA said
its supervisory inspection procedures are in compliance
with current HUD requirements. Additionally, VHDA asked
the OIG to provide additional support for its position that
units were subsequently passed without assurance that
deficiencies were corrected.
Rent Reasonableness
VHDA agreed that Virginia Beach did not follow its
guidelines for rent reasonableness and that it intends to
provide administrative agents with rent reasonableness
training. VHDA did not agree that comparable properties
were not used to support rent reasonableness determinations
since its administrative policies allow for a $25 - $50
variance in determining rent reasonableness. Additionally,
VHDA said units identified by the OIG as over FMR were
allowed pursuant to Over Fair Market Tenancy Option
(OFTO), and over housed tenants were paying rents within
lesser bedroom FMR guidelines.
Financial Management
VHDA agreed that it needs a financial system that accurately
reflects its Section 8 program expenditures and is in the
process of implementing an activity based management
system which will accurately allocate costs across its
programs. However, VHDA did not agree that its
administrative agents needed to comply with OMB Circular
A-87 since they are paid a predetermined fee, and to require
00-PH-203-1003 Page 12
Finding 1
administrative agents to comply with OMB Circular A-87
will only increase their operating costs and serve as a
disincentive to support the Section 8 program. Further,
VHDA said OMB encourages agencies to test fee for service
alternatives to reduce the burden associated with
maintaining systems for charging administrative costs.
Waiting List
VHDA agreed with the discrepancies noted in the finding
and will ensure administrative agents maintain file
documentation to ensure its ability to determine correct
placement and tenant selection.
Tenant Income Verification
VHDA agreed that obtaining independent third party income
verification is required and has implemented procedures to
confirm appropriate third party verification in its initial and
annual reviews.
OIG Evaluation of VHDA is to be commended for its commitment towards
Auditee Comments implementing training and procedures to improve areas of its
Section 8 program. Additionally, we have taken VHDA
responses into consideration and provided VHDA with
additional support and clarification regarding HQS
deficiencies and made appropriate revisions to the finding.
Regarding areas of disagreement we respond as follows:
HQS Inspections
We evaluated VHDA’s compliance with HUD guidelines for
quality control inspections that were in effect during our
review and noted the discrepancies accordingly.
Additionally, VHDA indicated in its written response, that
its supervisory quality inspections will now be based on
current HUD regulations, which only requires supervisory
quality inspections based on percentages of the total number
of units administered by the VHDA and does not distinguish
Page 13 00-PH-203-1003
Finding 1
between its 83 localities. Even though this procedure would
meet HUD’s new requirement we do not believe it is in the
best interest of VHDA’s Section 8 programs, as HUD
requirements do not consider that State agencies manage
Section 8 programs administered by many sub-recipients and
therefore, it would not ensure VHDA is providing
supervisory quality inspections consistently throughout the
State.
Rent Reasonableness
Regarding issues of rent comparability, OFTO tenancy, and
over housing, our findings were based on appropriate
documentation not being included in the files to justify
administrative agents determinations of allowability. The
VHDA’s policy of allowing a $25 - $50 variance in rent
reasonableness determinations is appropriate as long as the
tenant files contain adequate documentation to support the
determination. Regarding Virginia Beach tenants identified
as being over housed, we do not agree that their rents were
within the applicable FMRs for the bedroom size they were
eligible for, as indicated in the VHDA response.
The VHDA did not address other rent reasonableness and
over housing discrepancies noted during our review. We
will provide the HUD VSO and the VHDA with a complete
listing of these discrepancies for their continued review and
determination.
Financial Management
We agree it is VHDA’s responsibility to ensure its program
is operating as efficiently as possible and administrative
agents do not necessarily need to maintain financial systems
according to OMB Circular A-87. However, VHDA needs
to include some level of financial monitoring and assurance
that administrative agents are using fees to administer the
Section 8 program efficiently.
Recommendations We recommend that HUD require VHDA to:
1A. Ensure HQS violations are corrected at properties
that failed HQS inspections during our review.
00-PH-203-1003 Page 14
Finding 1
1B. Establish and implement quality control procedures
to improve its administration of the Section 8
Program. Specifically:
• assure that quality control HQS inspections
include a representative sample of units from all
of its administrative agents.
• ensure HQS inspections are performed according
to HUD requirements, and units failing HQS
inspections are performed to ensure cited
deficiencies are corrected; and
• provide all localities with HUD guidelines for
the assessment of rent reasonableness; family
composition; financial management; tenant
selection and maintaining waiting lists; and
verification of tenant income, and determine if
the guidelines are being followed during
monitoring visits.
Page 15 00-PH-203-1003
Finding 1
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page 16
Finding 2
VHDA Did Not Utilize $30 Million of Available
Section 8 Resources
Until recently, VHDA has measured its occupancy based on ACC unit allocations even though
HUD revised its Section 8 procedures in 1995, requiring housing authorities to budget resources
based on dollars instead of units. Budgeting Section 8 resources based on available dollars as
required, would have provided the VHDA with the opportunity to house significantly more
families since it allows a Housing Authority to lease as many units as possible without regard to
ACC unit limitations. VHDA was conservative in its interpretations of HUD budget guidelines,
and did not change its leasing benchmarks to recognize dollars instead of units as the relevant
leasing measure. VHDA said its interpretations of HUD guidelines were prudent since HUD has
now revised its guidelines going back to using units as the relevant leasing measure. Additionally,
HUD budget reviews and program guidance did not effectively communicate the significant
program changes, as VHDA budgets were approved even though it was not fully utilizing its
resources. As a result, VHDA did not fully utilize its Section 8 resources, and HUD recently
recaptured over $30 Million that could have otherwise provided additional rental subsidies to
families on VHDA waiting lists.
In November 1997, HUD recaptured Section 8 reserves
HUD Recaptured $30.7 based on Public Law 105-18. The Public Law instructed
Million From VHDA HUD to recapture $5.8 Billion in Section 8 reserves to
provide funding for disaster relief activities from the spring
floods. $30.7 Million was recaptured from unused VHDA
resources.
In a Federal Register dated July 3, 1995, HUD required the
Housing Authorities (HA) to manage Section 8 Program
funds based on dollars instead of units. Also, the Register
stated that HUD cannot guarantee that the funding that is
appropriated by Congress and obligated by HUD to a
specific HA’s admission of families without regard to unit
size.
VHDA continued to use ACC unit allocations as its leasing
benchmark and was conservative in its leasing of Section 8
units because:
• HUD guidelines overemphasized penalties associated
with over utilizing Section 8 resources (PIH Notice 97-
Page 17 00-PH-203-1003
Finding 2
59 states, The cost of over-leasing must be absorbed by
the HA through the Section 8 operating reserve or other
funding sources. The Section 8 Certificate and Voucher
programs will not absorb the cost of HA over-leasing.);
and
• Although, HUD budget reviewers encouraged VHDA to
lease additional units, they still approved budgets that
VHDA anticipated spending significantly less than
authorized.
As shown below, VHDA Section 8 resources continued to
increase until they were recaptured in 1997.
Funding - Virginia State Office Section 8 Certificates
$60,000,000
$50,000,000
$40,000,000
$ Amounts
$30,000,000
Available Funding
Total Requisition
$20,000,000
$10,000,000
$0
1992 1993 1994 1995 1996 1997
Fiscal Years
The HUD Virginia State Office (VSO) did not support
VHDA’s request for additional administrative fees and
considered the agency to be “at risk” based on its under-
utilization of program resources. The VHDA protested these
actions and HUD Headquarters overturned the earlier
determination and VHDA was awarded $600,000 of
additional administrative fees. It appears the VSO actions
were ultimately effective in getting the VHDA to initiate a
more rapid leasing strategy.
Since July 1998, VHDA has responded to VSO
recommendations and successfully leased over 2,400
00-PH-203-1003 Page 18
Finding 2
additional Section 8 units, and significantly improved its
utilization of Section 8 resources as shown below.
Increase in Units Under Leased for the Virginia State Office Programs
9000
8000
7000
Number of Units
6000
5000 6559 8584
FY 1998
4000 FY 1999
3000
2000
1000 1789 2171
0
Certificates Vouchers
* * * * * *
In our opinion, better communication between the VHDA
and HUD’s Virginia State Office (VSO) can increase
housing opportunities for needy families and result in a more
efficient use of program resources. The VHDA should
continue to seek clarification and guidance to ensure its
program is operating as efficiently as possible and meeting
its mission of providing low-income housing for needy
families in Virginia.
VHDA indicated the recapture of program resources
Auditee Comments represented only one half of one percent (.00529) of the
National recapture, and was due in large part to: HUD’s
methodology for calculating renewal funding; a HUD
internal reconciliation that added $9.5 Million in subsidy
after the end of Fiscal Year 1996; and FMR reductions in
1993 and 1994.
VHDA said the recaptured funds were used as a contingency
reserve to be used in the event of unforeseen economic
events, and in funding shortfalls, such as VHDA faces this
Page 19 00-PH-203-1003
Finding 2
year. Further VHDA said the fact that HUD has returned to
its old policy of funding the Section 8 program on the basis
of ACC unit allocations makes a strong argument that PHA’s
should use prudence in managing these programs.
OIG Evaluation of As stated in the finding narrative, we acknowledge Section 8
Auditee Comments resources were recaptured throughout the Nation, and HUD
regulations could have contributed to VHDA’s conservative
leasing approach. However, we do not agree that VHDA’s
leasing strategy was prudent considering HUD guidelines
have mandated using program dollars as the relevant leasing
measure since 1995. Clearly, the VHDA continued to use
units as the relevant leasing measure and could have
provided additional rental subsidies to Virginia households
as demonstrated by its recent success in increasing program
utilization.
Recommendations We recommend the:
2A. VHDA administer its Section 8 Programs
according to the most current HUD guidelines.
2B. VHDA fully budget the Section 8 resources provided
by HUD, and monitor its administrative agents to
ensure full leasing is maintained.
00-PH-203-1003 Page 20
Finding 3
The VHDA Needs to Improve Its Recertification
Procedures
We compared the income tenants reported to the VHDA with income they reported to the IRS and
SSA and found significant discrepancies. The discrepancies resulted in the potential overpayment
of Section 8 subsidies, in 116 of 138 tenant cases in our review. The VHDA’s recertification
procedures contributed to income reporting discrepancies since its requirements did not provide
for interim recertifications of significant income changes unless the tenant did not report any
income on the last certification. Additionally, administrative agents did not always obtain third
party income verifications.
24 CFR 982.516 states, Housing Authorities are responsible for reexamination (recertification)
and interim examinations of tenant income. The Housing Authority must obtain third party
verification of income and adopt policies identifying the time and the circumstances under which
tenants must report a change in family income or composition.
Our computer matching project consisted of comparing tenant income data for over 7,000
households reported in HUD’s MTCS with the tenants’ 1997 IRS and SSA information. This
automated comparison identified over 300 households with potential income discrepancies
exceeding $10,000 and 1,900 households with potential income discrepancies between $1,000 and
$10,000.
We performed a detailed analysis of 138 households that were still active in VHDA’s program, of
the 300 households with computer generated discrepancies greater than $10,000 to determine why
they existed. Detailed analysis of 138 active households appeared to validate the overpayment of
Section 8 subsidies in 116 of the cases. As detailed below, many of the discrepancies existed
because of weaknesses in VHDA’s tenant income recertification and verification procedures. This
warranted tenant and VHDA notification according to PIH computer matching procedures.
Additionally, we also referred 11 egregious cases to HUD-OIG’s Office of Investigations.
Income Recertification We noted numerous instances where the tenant reported
Procedures child support or public assistance on the annual
recertification, but shortly after obtained a job with a
material increase in income. However, VHDA’s
recertification procedures do not require any interim
recertification for changes in a tenants’ income as long as the
tenant had reported some income on the previous
certification. These procedures are too lenient and could
encourage tenants to avoid paying their share of rent by
manipulating their employment schedules around annual
recertifications.
Page 21 00-PH-203-1003
Finding 3
VHDA’s sub-recipient agencies were not always obtaining
Income Verification third party income verifications to support annual
Procedures recertifications. Instead, they relied on pay stubs to verify
tenant income. VHDA’s verification requirements only
allow sub-recipients to use pay stubs as a last resort.
However, it appears that the sub-recipients used them too
frequently and they did not adequately document their
calculation of annual income. For example, in some cases
sub-recipients incorrectly calculated frequency of pay which
caused the potential income discrepancies. Additionally,
sub-recipients did not have adequate documentation that
could verify if certain tenants were live-in aides or whether
the head of households’ children were full-time students.
* * * * * *
In summary, the VHDA could reduce Section 8
overpayments and improve tenant income reporting by
strengthening its interim recertification requirements and
ensuring its sub-recipient agencies obtain independent
income verifications and maintain complete file
documentation.
VHDA said it has redesigned its compliance monitoring
Auditee Comments protocol and is more closely monitoring administrative
agents to ensure they properly calculate tenant income and
obtain third party verifications. VHDA did not agree its
interim recertification procedures were too lenient since the
requirement to report interim increases in income imposes a
strong disincentive upon participating families to improve
their financial status and places an additional administrative
burden on the VHDA and its administrative agents.
Notwithstanding the disincentives of earning additional
OIG Evaluation of income and the extra paperwork associated with interim
Auditee Comments recertifications, the VHDA’s recertification procedures in
our opinion are too lenient. By requiring tenants to report
material income changes the VHDA could ensure tenants are
paying their share of rent and limited Section 8 resources are
used more efficiently.
Recommendations We recommend the VHDA:
00-PH-203-1003 Page 22
Finding 3
3A. Change its interim reporting requirements.
Specifically, require tenants to report all material
increases or changes in source of income within 30
days of receiving the income regardless of whether
they reported income or not on the prior
recertification.
3B. Implement procedures that will closely monitor sub-
recipients to ensure they properly calculate tenant
income.
Page 23 00-PH-203-1003
Finding 3
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page 24
Finding 4
VHDA Did Not Properly Establish Section 8
Utility Allowances
VHDA did not follow existing policies and procedures in establishing tenant utility allowances. It
did not:
• obtain tenant utility consumption data in analyzing utility allowances;
• ensure utility allowances were sufficient to cover minimum provider charges; and
• ensure utility allowance schedules provided to localities were correct.
As a result, VHDA tenants incurred total housing payments in excess of program requirements,
since utility allowances were not sufficient to pay actual utility costs. VHDA staff commented that
one locality’s utility allowances were not raised because gross rents would exceed Fair Market
Rents.
24 CFR 882.214(a) states that, at least annually, the PHA shall determine whether there has been a
substantial change in utility rates or other charge of general applicability, and whether an
adjustment is required in the allowance of utilities and other services. If the PHA determines that
an adjustment should be made, the PHA shall establish a schedule of adjustments taking into
account size and type of dwelling units and other pertinent factors. Paragraph (c) provides that if a
PHA finds that utility cost changes are causing substantial difficulties in leasing decent, safe and
sanitary housing within the existing Fair Market Rent limitations, then the PHA shall furnish
appropriate documentation to HUD with a request for consideration of the need for a change in the
Fair Market Rents.
We tested utility allowances by asking tenants what their average utilities were costing during
HQS inspections, and verifying monthly minimum charges with utility providers. We compared
this information with the VHDA utility allowances. It appears the utility allowances were
inadequate in two of the four localities reviewed as follows:
Prince William County
Tenant Utility Costs
Exceeded Utility Tenant utility costs exceeded utility allowances in 25 of 25
Allowances tenants interviewed. Water and sewer utility allowances for
Manassas Park, Virginia, did not even cover minimum
monthly service charges. Additionally, VHDA made an
error in preparing Prince William County’s utility allowance
for heating a unit with two exposed walls as shown below:
Page 25 00-PH-203-1003
Finding 4
Exposed Monthly Dollar Allowances
Walls
0 BR 1 BR 2 BR 3 BR 4 BR 5 BR
1 17 19 21 22 24 25
2 10 11 12 15 18 21
3 22 24 27 28 30 33
Logically, utility allowances for units with two exposed
walls should have been between the allowances for one and
three exposed rates, not less than the one exposed rate.
VHDA agreed to correct these rates and sent the revised
rates to Prince William County. VHDA instructed Prince
William County to adjust the tenant rent retroactively for the
applicable tenants.
Virginia Beach
Tenant utility costs exceeded allowances for 17 of 18
tenants’ accounts we tested. Based on tenant surveys it
appears actual water and sewer costs significantly exceeded
the utility allowances provided.
VHDA updated its utility allowance schedules effective July
1, 1998 by analyzing changes in utility rates without
considering tenant utility consumption data or utility
provider minimum charges. VHDA’s policy for updating
utility allowance schedules did not require VHDA to obtain
utility consumption data or use utility minimum charges.
Without using consumption data or utility minimum charges,
VHDA did not update utility allowance schedules
adequately.
******
VHDA is in the process of updating its utility allowances to
follow HUD guidelines by obtaining actual utility data from
tenants. VHDA sent a memorandum dated January 25, 1999
to all of its administrative agents requesting tenant releases
so that VHDA can request tenant’s utility records including
consumption data for the past 12 months. VHDA
expects to complete this study shortly and will use this data
to revise their utilities’ allowances.
The VHDA reiterated its commitment to updating its utility
Auditee Comments allowance schedules based on actual tenant consumption
data by March 2000.
00-PH-203-1003 Page 26
Finding 4
Recommendations We recommend HUD to:
4A. Monitor the progress of VHDA in updating their
utility allowances to ensure that the allowances meet
HUD guidelines.
Page 27 00-PH-203-1003
Finding 4
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page 28
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. Management is responsible for establishing effective management
controls. Management controls, in the broadest sense, include the plan of organization, methods,
and procedures adopted by management to ensure that its goals are met. Management controls
include the processes for planning, organizing, directing, and controlling program operations. They
include the systems for measuring, reporting, and monitoring program performance.
We determined the following management controls were
Relevant Management
relevant to our audit objectives:
Controls
• utilizing Section 8 budget authority fully
• calculating administrative fees properly
• implementing a financial management system to
administer the Section 8 Program
• monitoring of administrative agents by VHDA
• updating utility allowances adequately
• determining payment standard and rent reasonableness of
Section 8 units adequately
• complying with Section 8 requirements including income
verification
• maintaining units under Housing Quality Standards
(HQS)
• selecting applicants from waiting lists properly
We assessed all of the relevant controls identified above.
It is a significant weakness if internal controls do not give
reasonable assurance that resource use is consistent with
laws, regulations, and policies; that resources are
safeguarded against waste, loss, and misuse; and that
reliable data are obtained, maintained, and fairly disclosed
in reports.
Based on our review, we believe the following items are
Significant Weaknesses significant weaknesses:
Page 29 00-PH-203-1003
Management Controls
• VHDA did not administer and monitor Section 8
program properly in the areas of (1) HQS, (2) Financial
Management System, (3) rent reasonableness, (4)
waiting lists, and (5) tenant income verification
• VHDA did not fully utilize Section 8 resources
• VHDA did not adequately update utility allowances
00-PH-203-1003 Page 30
Follow Up On Prior Audits
This was the first Office of Inspector General’s audit of VHDA Section 8 Certificate and Voucher
Programs.
Page 31 00-PH-203-1003
Follow Up On Prior Audits
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-PH-203-1003 Page 32
Appendix A
Auditee Comments
Page 33 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 34
Auditee Comments
Page 35 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 36
Auditee Comments
Page 37 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 38
Auditee Comments
Page 39 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 40
Auditee Comments
Page 41 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 42
Auditee Comments
Page 43 00-PH-203-1003
Auditee Comments
00-PH-203-1003 Page 44
Appendix B
Distribution
Executive Director, Virginia Housing Development Authority, 601 South Belvidere Street,
Richmond, VA 23220-6504
Secretary’s Representative, Mid-Atlantic, 3AS (2)
Virginia State Coordinator, 3FS
Director, Office of Public Housing, Virginia State Office, 3FPH
Director, Office of Public Housing, Maryland State Office, 3BPH
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room 5156)
Departmental Audit Liaison Officer, FM (Room 2206) (2)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
Acquisitions Librarian Library, AS (Room 8141)
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
Senate Office Building, US Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
Hart Senate Office Building, US Senate, Washington, DC 20515
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Building, House of Representatives, Washington, DC 20515
The Honorable Henry Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Building, House of Representatives, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House
Office Building, Washington, DC 20515
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W., Room
2474, Washington, DC 20548, Attn: Judy England-Joseph
Mr. Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street,
N.W., Room 9226, New Executive Office Building, Washington, DC 20503
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Acting Assistant Secretary for Administration, S (Room 10110)
Assistant Secretary for Congressional & Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, S (Room 10132)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10234)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Operations, S (Room 10226)
Deputy Chief of Staff for Programs and Policy, S (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W (Room 10216)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Page 45 00-PH-203-1003
Distribution
Office of Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Chief, Financial Officer, F (Room 2202)
Director, Enforcement Center, V, 200 Portals Building, Washington, DC 20024
Director, X, Real Estate Assessment Center, 1280 Maryland Avenue, SW, Suite 800, Washington,
DC 20024
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building, Washington,
DC 20024
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Office of the Deputy General Counsel, CB (Room 10220)
00-PH-203-1003 Page 46
VHDA Section 8 Certificate and Voucher Programs, Richmond, VA
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-02-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)