AUDIT REPORT
HOUSING AUTHORITY OF BALTIMORE CITY
SECTION 8 CERTIFICATE AND VOUCHER
PROGRAMS
BALTIMORE, MARYLAND
2001-PH-1003
MARCH 28, 2001
OFFICE OF AUDIT, MID-ATLANTIC
PHILADELPHIA, PENNSYLVANIA
Issue Date
March 28, 2001
Audit Case Number
2001-PH-1003
TO: William D. Tamburrino, Director, Public Housing Program HUB
FROM: Daniel G. Temme, District Inspector General for Audit, Mid-Atlantic, 3AGA
SUBJECT: Housing Authority of Baltimore City
Section 8 Certificate and Voucher Programs
Baltimore, Maryland
We completed an audit of the Housing Authority of Baltimore City’s (HABC) Section 8 Certificate
and Voucher Programs. Our report contains four findings with recommendations requiring action
by your office. Based on the serious nature of the findings in this report, we recommend HUD take
administrative actions against the HABC as prescribed in Section 15 of the Consolidated Annual
Contributions Contract (ACC).
Within 60 days, please give us, for each recommendation made in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and the date to be completed; or (3)
why action is considered unnecessary. Also, please furnish us copies of any correspondence or
directives issued because of the audit.
Should you or your staff have any questions, please contact Allen Leftwich, Assistant District
Inspector General for Audit, at (215) 656-3401.
Management Memorandum
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Page ii 2001-PH-1003
Executive Summary
We conducted an audit of the Housing Authority of Baltimore City’s (HABC) Section 8
Certificate and Voucher Programs. The purpose of our review was to determine whether the
HABC was effectively and efficiently managing its Section 8 Program according to terms and
conditions of its Consolidated Annual Contributions Contract (ACC) and applicable Federal
regulations.
We found the HABC is not properly administering its Section 8 Program according to the terms
and conditions of its ACC and applicable Federal regulations, and is in fact, in substantial default
of its contract with HUD. Specifically, the HABC does not: have a financial management
system that accurately accounts for and reports the results of Section 8 activities; operate its
Section 8 Program according to HUD guidelines; fully utilize available Section 8 resources; and
have a management information system that timely gathers, tracks, records, and reports critical
program data to HABC management and HUD. Further, as detailed throughout this report, the
HABC has demonstrated it does not currently have the capacity to successfully develop and
implement appropriate systems and procedures to correct identified systemic deficiencies in its
Section 8 Program. As a result of the HABC’s mismanagement of its Section 8 Program, more
than 2,000 families on the HABC’s waiting list of 16,000 households are not being provided
available program benefits; and existing program recipients and landlord/owners are not being
properly serviced by the HABC. The primary issue areas are summarized below, and detailed in
the Finding section of this report.
We observed fundamental weaknesses in the HABC’s
HABC’s Financial
overall financial management of its Section 8 Program in
Management of its
the areas of: gathering, recording, and reporting accurate
Section 8 Program Is
data to HUD; accurately and timely disbursing housing
Inadequate
assistance payments to owners; and accounting of program
receipts and disbursements. Because of the HABC’s
inability to effectively meet its financial responsibilities,
financial reports submitted to HUD are often inaccurate. In
fiscal years 1999 and 2000, the HABC submitted claims for
excessive administrative fees of more than $3.2 million,
and HUD paid at least $279,952 in excess fees to the
HABC. Furthermore, the HABC paid landlords/owners
more than $730,000 in excess rental assistance during the
same period.
The HABC is not properly administering key operational
HABC Is Not Properly
components of its Section 8 Program according to its ACC
Administering Its Section
and HUD Regulations. Specifically, the HABC does not
8 Program
have adequate controls and procedures in place to manage
its Section 8 Program according to HUD requirements. We
observed fundamental deficiencies in HABC’s: file
maintenance and record keeping; tenant income verification
Page iii 2001-PH-1003
Executive Summary
and file documentation; inspection process over Housing
Quality Standards (HQS); waiting list administration;
accounting for Section 8 portable units; and staff
assignments and training. As a result of these deficiencies,
the HABC’s Section 8 Program is barely functional; and
the HABC continues to mismanage and waste scarce
resources that should be used to provide housing
opportunities to low-income families of Baltimore.
The HABC is not fully utilizing its Section 8 resources in
HABC Is Not Fully providing affordable housing to its low-income residents. In
Utilizing Its Section 8 1997/1998 HUD recaptured $74 million of unused Section
Resources 8 operating reserves, and another $50 million of unused
operating reserves have accrued in its accounts between
1997 and 2000. Although HABC officials cited a variety of
reasons why it was not fully utilizing its Section 8 funds,
we found the HABC is not properly managing its Section 8
Program. For example, in fiscal year 2000, the HABC
significantly overstated the number of ACC units (by more
than 900) it had under lease, and also failed to lease more
than 1,300 additional units funded pursuant to a litigation
settlement (Thompson Court Decree) in 1996. As a result,
more than $124 million of Section 8 funds have either been
recaptured by HUD or allowed to accrue in its operating
reserve accounts instead of being used to provide much
needed housing opportunities for more than 16,000 families
on HABC’s waiting lists.
The HABC does not currently have an automated
HABC Does Not Have A management information system (MIS) that supports its
Management Information Section 8 Program. Even though HABC management was
System (MIS) aware that its previous computer system was not Y2K
compliant in 1997, it has not been able to successfully
develop, test and implement a replacement system, and has
been operating its Section 8 Program without a MIS since
December 1999. Further, adequate contingency plans were
not developed and implemented to ensure program
operations would not be adversely affected during an
interim period in which the HABC was working to install
its new system. Unfortunately, the HABC continues to
experience delays in its efforts to install its new MIS, and
the reliability of program data now being processed
manually by temporary employees continues to erode.
Thus, we question how effective the new system will be,
2001-PH-1003 Page iv
Executive Summary
when or if it becomes fully operational, in supporting the
HABC’s administration of its Section 8 Program.
During the course of our audit, the Greater Baltimore
Committee (GBC) and the Presidents’ Roundtable
completed a citywide report, “Managing for Success”,
which included a review of the HABC’s Section 8 Program.
The GBC cited similar problems and characterized the
HABC’s Section 8 Program as barely functional. Because
of the continuing problems at the HABC, which are
detailed in this report, and have also been raised in the
GBC report and local media, the new Mayor of Baltimore
pledged to adopt many of the recommendations contained
in the GBC’s report. Additionally, the Mayor recently
asked for and received the HABC Executive Director’s
resignation and hired a new Executive Director on
December 4, 2000. Although the initial actions taken by
the new Mayor are encouraging, much more work will need
to be done to turn the HABC’s program around.
As a result of the serious nature of the findings in this
report, we recommended HUD take appropriate
administrative actions against the HABC as prescribed in
Section 15 of the ACC. We have also made
recommendations for the HABC to repay $1,013,756 of
questioned expenditures, and made recommendations
designed to improve the operation of the Section 8
Program.
We discussed the findings and recommendations with
HABC and HUD staff during the audit. The HABC and
HUD were also given a draft report for comment. The
HABC’s Executive Director agreed with the report
indicating the report reinforces his views that the Section 8
Program suffers from major flaws. HUD program officials
also agreed with the draft report. The HABC’s written
comments are contained in Appendix
Appendix C C and summarized
elsewhere in this report.
2001-PH-1003 Page v
Executive Summary
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2001-PH-1003 Page vi
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 HABC’s Financial Management of Its Section 8
Program Is Inadequate 3
2 HABC Is Not Properly Administering Key
Operational Components Of Its Section 8 Program
17
3 HABC Did Not Fully Utilize Available Section 8 Resources 27
4 HABC Needs To Implement A Section 8 Management
Information System 35
Management Controls 41
Follow Up On Prior Audit 43
Appendices
A Schedule of Questioned Costs 45
B HQS Violations Cited 47
C Auditee Comments 49
Page vii 2001-PH-1003
Table of Contents
D Distribution 53
Abbreviations
ABA Annual Budget Authority
ACC Annual Contributions Contract
ACLU American Civil Liberties Union
CAATs Computer Assisted Audit Tools
CFR Code of Federal Regulations
GBC Greater Baltimore Committee
HA Housing Authority
HABC Housing Authority of Baltimore City
HAP Housing Assistance Payments
HQS Housing Quality Standards
HUD U.S. Department of Housing and Urban Development
IG Inspector General
IT Information Technology
MIS Management Information System
MTCS Multifamily Tenant Characteristics System
OIG Office of Inspector General
PHA Public Housing Authority
PIH Public and Indian Housing
PUPM Per Unit Per Month
TADS Tenant Accounts Data System
YESS Year-End Settlement Statement
Y2K Year 2000
2001-PH-1003 Page viii
Introduction
The Housing Authority of Baltimore City (HABC) was organized in 1937 under the laws of the
State of Maryland to develop, acquire, and operate low-rent housing programs. A five member
Board of Commissioners, appointed by the Mayor, governs the HABC. The Executive Director
is Paul T. Graziano. The HABC’s main office is located at 417 East Fayette Street in Baltimore,
Maryland, and the Section 8 office is located at 300 Cathedral Street in Baltimore, Maryland.
The HABC administers its Section 8 Program pursuant to an ACC with the Maryland State
Office of HUD. Under the ACC, HUD agrees to provide financial assistance to the HABC and
the HABC agrees to comply with HUD requirements in administering its Section 8 Program.
Financial assistance from HUD to the HABC, for the Section 8 Certificate and Voucher
Programs for fiscal years 1998 through 2000, was $167 million. As of June 30, 2000, the HABC
reported it administered 8,119 units and expended $42.7 million for these units in fiscal year
2000.
The purpose of our audit was to determine whether the HABC was effectively and efficiently
managing its Section 8 Program according to the terms and conditions of its ACC and applicable
Federal requirements.
The specific objectives were to determine whether the HABC: (1) developed and implemented
adequate financial and management systems that provided complete and accurate reporting to
HUD; (2) charged administrative fees according to HUD guidelines; (3) maintained an updated
housing assistance payments register with a complete and accurate count of Section 8 Program
units; (4) had an accounting system that adequately tracked program receipts and disbursements
associated with its Section 8 Program; (5) adequately administered key operational areas of the
Section 8 Program; (6) established procedures and provided adequate monitoring and oversight
in the areas of file maintenance and record keeping, tenant income verification, and Housing
Quality Standards (HQS); (7) administered its waiting list and properly accounted for Section 8
portable units, staff assignments, and training; (8) fully utilized its Section 8 ABA; and (9)
developed and implemented an automated management information system.
The audit was conducted between March 2000 and January
Audit Objectives 2001, and generally covered the period July 1, 1998
through June 30, 2000. The audit period was extended
where necessary. To accomplish the audit objectives, we
reviewed procedures and tested compliance at the HABC as
follows:
• reviewed disbursements including housing
assistance payments to owners and tenant utility
allowance payments as well as other costs charged
to the Section 8 Program to determine if
disbursements were reasonable;
Page 1 2001-PH-1003
Introduction
• reviewed administrative fees to determine if unit
counts were accurate and fees were calculated
according to HUD guidelines;
• conducted physical inspections of 37 units to ensure
compliance with HQS;
• examined 54 tenant files to determine if annual
certifications were performed properly and file
documentation supported housing assistance
payments to owners; and
• reviewed waiting lists to determine whether
applicants were selected properly.
We reviewed utilization of Section 8 resources by
reviewing the HABC’s year-end settlement reports
submitted to HUD. We used audit related software to
analyze computer data maintained by HABC. During the
audit, we interviewed applicable staff from HUD and the
HABC.
Our audit was conducted in accordance with generally
accepted government auditing standards.
2001-PH-1003 Page 2
Finding 1
HABC’s Financial Management Of Its Section
8 Program Is Inadequate
Even though the HABC has claimed over $11.6 million in administrative fees (for fiscal years
1999 and 2000) from HUD to administer its Section 8 Program, it has not been able to effectively
manage its program to provide full financial accountability of its resources and disbursements
according to its ACC and applicable HUD Regulations. Specifically, we identified fundamental
weaknesses in the HABC’s overall financial management of its Section 8 Program in the areas
of:
• Maintaining and reporting accurate data to HUD;
• Accurately and timely disbursing housing assistance payments to owners; and
• Establishing controls over program receipts and disbursements.
During our review HABC officials stated, and we observed, that the Section 8 Department
generally operated autonomously within the HABC. Because of this autonomy, the Finance
Department often relied entirely on the data, which we found to be inaccurate, that the Section 8
Department provided to process its housing assistance payments and prepare required financial
reports. Further, even though HABC officials expressed concern over the management of the
Section 8 Department and the accuracy of the data provided, which were exacerbated by not
having a functional MIS, (See See Finding
Finding4),
4 little was done to address these concerns and
implement appropriate corrective action. As a result of the HABC’s inability to effectively carry
out its financial responsibilities, financial reports submitted to HUD are often inaccurate and
excess rental payments are made to owners. For example, in fiscal year 2000, the HABC
submitted a claim to HUD that overstated administrative fees by $3 million. Fortunately, HUD
identified the error and adjusted the claim. However, in the same period, we found the HABC
claimed and received excess administrative fees of $279,952, due to overstating its unit count. In
addition, the HABC paid its owners/landlords $733,804 of excessive rental assistance.
Section 14 a. of the ACC for the rental Certificate and
Criteria
Voucher Program states the housing authority (HA) must
maintain complete and accurate books of accounts and
records for a program. The books and records must be in
accordance with HUD requirements, and must permit a
speedy and effective audit.
Section 14 b. states the HA must furnish HUD such
financial and program reports, records, statements, and
documents at such times, in such form, and accompanied
by such supporting data as required by HUD.
Page 3 2001-PH-1003
Finding 1
Section 15 a (1) of the ACC between the HABC and HUD
provides that upon written notice, HUD may take over the
Section 8 Programs if the HA has failed to comply with any
obligations under the ACC or under a contract for housing
assistance payments with an owner.
HABC financial reports submitted to HUD covering over
HABC Financial Reports $50 million of annual Section 8 Program resources are not
Are Not Complete and complete and accurate. HUD financial reporting guidelines
Accurate require housing authorities to submit an annual
reconciliation of all program receipts and expenditures.
Since HUD provides Section 8 resources based on the
HABC’s approved budget, it requires an annual financial
reporting of actual Section 8 Program receipts and
disbursements (HUD Form 52681 Year-End Settlement
Statement [YESS]) to reconcile discrepancies and make
necessary adjustments. As detailed throughout this finding,
the HABC did not maintain adequate supporting
documentation to substantiate its year-end reconciliation.
For example, in preparation for its most recent year-end
settlement submission to HUD for its fiscal year ending
June 30, 2000, HABC’s Comptroller asked the MIS and
Section 8 staffs to compile information regarding the
number of units the HABC had under lease.
Correspondence obtained from the HABC indicates
responsible staff could only provide the comptroller with
their best estimate of units under lease. However, as
discussed below, a simple comparison of unit based
administrative fees, claimed for its fiscal years 1999 and
2000, should have alerted the HABC Finance Department
of the reporting error since units under lease remained
relatively constant, but the administrative fees claimed
jumped from $4.3 million in fiscal year 1999 to $7.3
million (70% increase) in fiscal year 2000.
Also, the HABC made numerous reporting errors which
resulted in the HABC: receiving excessive administrative
fees from HUD; paying its owner/landlords excessive
housing assistance payments; and not properly accounting
for voided checks and salary expenses. These issues are
discussed in more detail below.
2001-PH-1003 Page 4
Finding 1
Section 8 administrative fee revenue is calculated using per
The HABC Claimed unit per month (PUPM) factors published annually by HUD
Excessive Administrative multiplied by the number of units under lease for each
Fees month during the year. Altogether, we found the HABC
claimed excessive administrative fees of more than $3.2
million in fiscal years 1999 and 2000. In fiscal year 1999,
we found the HABC claimed and HUD paid $163,496 in
excessive administrative fees, because it calculated its
administrative fees on Section 8 vouchers and certificates
issued, not under lease as required. Further, as we discuss
later in this finding, an additional $279,952 in excessive
administrative fees was claimed and paid to the HABC for
the period January through June 2000, because it was
overstating the number of units it had under lease. We also
found the HABC claimed another $2.8 million in excessive
administrative fees in fiscal year 2000 due to a calculation
error; however, HUD identified and adjusted the claim,
along with the prior years’ adjustment during the year-end
review process.
Since the HABC reported its units under lease had
remained relatively constant during fiscal years 1999 and
2000, it would stand to reason that administrative fee
revenues would also remain constant, and any large
variance should have alerted the HABC of an obvious error.
However, as we illustrate below, the HABC claimed and
certified $3 million more in administrative fee revenues in
fiscal year 2000 ($7.3 million vs $4.3 million) than in fiscal
year 1999 even though there was no significant change in
the number of leased units it reported.
Administrative Fee Revenues
As Reported by HABC
Units Under
Fiscal Year Administrative Fee Lease at Year End
1997 $3.6 Million 7108
1998 $4.0 Million 7584
1999 $4.3 Million 7747
2000 $7.3 Million 8119
Page 5 2001-PH-1003
Finding 1
Officials within the Finance Department indicated they did
not question the lease data provided by the Section 8
Department and assumed that it was correct. Considering
the significance of the variance from the prior years, staff
should have questioned the fee before certifying and
submitting it to HUD for approval.
Using the HABC’s most recent certification of units under
lease, we recalculated the administrative fee revenues and
determined the HABC claimed at least $2.8 million of
excess administrative fees in fiscal year 2000. As illustrated
below, we calculated the HABC’s administrative fee
revenue for fiscal year 2000 to be $4.5 million, not $7.3
million claimed by the HABC. Thus, it appears the Finance
Department simply miscalculated its administrative fee.
OIG Calculated FY 2000 Administrative Fee
Certificate and Voucher Units Under PUPM Earned Administrative
Lease (As reported by HABC) Fee
(Units x PUPM x 12
Months)
600 $49.64 $ 357,408
7,519 $45.41 $4,097,253
8,119 $4,454,661
Note: Per administrative fee guidelines PUPM rates are higher for first 600 program units.
For presentation purposes the recalculation was based on units under lease at year-end not
every month.
It should be noted that both HUD financial reviewers and
OIG staff independently identified this overcharge;
however, it is alarming that HABC staff submitted a
certified report with such an obvious error.
During our audit, we found the HABC did not know with
The HABC Overstated certainty the number of units it had under lease and,
Its Units Under Lease therefore, only reported its best estimate to HUD. Since the
number of leased units impacts almost every aspect of
program operations, including the calculation of the
HABC’s administrative fee revenues, it is essential that the
HABC maintain an accurate account of its leased units at
all times. Further, as described in Finding 3 of this report,
the HABC stated one of the primary reasons it had not
utilized its program resources more effectively, i.e. leased
units, was that it believed it was at or near its ACC unit
limitations.
2001-PH-1003 Page 6
Finding 1
Using Computer Assisted Audit Tools (CAATs), we
analyzed HABC’s housing assistance payments (HAPs) for
January through June 2000 to determine the actual number
of payments that were made on behalf of specific tenants in
the Section 8 Program. Since the HABC does not maintain
a HAP register, we used HABC payment data to owners,
because we believe this payment data to be the most
credible data maintained by the HABC. To ensure we
obtained an accurate unit count, and that tenants were only
counted once, we determined the total number of payments
made and then adjusted for one-time adjustments and
duplicate payments made by the HABC. We also
quantified the number of units attributed to Section 8
tenants who had moved to other jurisdictions since the
HABC was still responsible for reimbursing housing
assistance payments to other housing authorities.
As illustrated below, we found the HABC was overstating
its lease unit count by an average of 1,025 units per month
for the sample test period of January through June 2000.
Consequently, thousands of eligible families unnecessarily
remained on HABC waiting lists instead of being provided
the opportunity to find affordable, decent, safe, and sanitary
housing. Further, the HABC claimed, and HUD paid, an
additional $279,952 of administrative fee revenues due to
the HABC overstating its leased unit count.
Page 7 2001-PH-1003
Finding 1
Comparison of HABC’s Units Under Lease With OIG’s Analysis
Reported by OIG
HABC Recalculated
Excess
Administrative Fees
Units Under Units Under Units Overstated (Units Overstated x
Month Lease Lease (See Note) $45.41)
January 2000 7,818 6,673 1,145 $51,994
February 2000 7,853 6,619 1,234 $56,036
March 2000 7,920 6,808 1,112 $50,496
April 2000 7,963 7,096 867 $39,370
May 2000 8,005 7,100 905 $41,096
June 2000 8,119 7,217 902 $40,960
Total $279,952
Note: To mitigate possibly understating units in our recalculation due to the HABC not timely entering new units
into its payment process, we further analyzed the net effects of monthly one-time adjustments and utility allowance
payments, and compared data to prior months to determine the effect on our analysis. We also included an
additional 700 units per month, based on our review of payments to other housing authorities for Section 8 portable
units.
Unfortunately, HABC’s records prior to January 2000 were
not auditable and as such, we were not able to determine
whether the HABC overstated its units and collected excess
administrative fees before that time. Additionally, since the
HABC still has not implemented a functional MIS, (see
Finding 4),
Finding 4 in all likelihood total units are still overstated.
A limited review of Section 8 Program disbursements other
The HABC Improperly than HAPs disclosed the HABC charged salary and fringe
Charged Expenses to the benefit costs of an employee not working in the Section 8
Section 8 Program Certificate and Voucher Programs. These costs included
salary averaging about $36,000 a year, plus related fringe
benefits from 1995 to 1999, plus a leave payout totaling
$7,378 when the employee left HABC. Consequently,
HABC overstated costs of the Section 8 Certificate and
Voucher Programs by the costs of this employee.
In February 2000, the HABC wrote off $163,245 of
outstanding checks that were still on its books from as early
as 1990. As a normal business practice outstanding checks
should be voided if they are not presented for payment
within a reasonable time period. As a result, HABC
overstated Section 8 expenses reported to HUD.
2001-PH-1003 Page 8
Finding 1
As a result of the aforementioned errors, coupled with the
deficiencies in the two areas discussed below, HABC was
unable to provide supporting documentation to provide
complete and accurate reporting according to HUD
requirements.
The HABC failed to timely and accurately pay owners for
The HABC Failed to units in its Section 8 Program. For example, in March
Accurately Pay Housing 2000, the HABC failed to pay owners housing assistance
Assistance Payments payments for over 3,000 families or approximately one
third of its program participants. These problems occurred
because the HABC(s): (1) does not maintain a current
housing assistance payments register that identifies the total
number of units under lease; (2) does not have a
functional management information system; and (3)
Finance Department relied entirely on information provided
by the Section 8 Department, and did not perform any
independent verification of the payment process.
Consequently, owners were not paid timely and accurately.
Further, from December 1999 through September 2000, we
found the HABC paid $733,804 in duplicative and
questionable housing assistance payments and utility
allowance payments to its owners.
Part B. Section 7 of the housing assistance payments
contract for Section 8 Tenant-Based Assistance between the
HABC and owner requires the housing authority to make
prompt housing assistance payments to the owner at the
beginning of each month.
We reviewed a sample of payments to owners before and
after the HABC’s March 2000 payment problems to
determine whether HABC’s payment processing
deficiencies were isolated to March or if more extensive
problems existed. Using CAATs, we tested housing
assistance payments to determine if duplicative payments
were made and whether individual disbursements exceeded
monthly rental thresholds. As illustrated below, we found
the HABC paid $733,804 in duplicative and questionable
housing assistance payments and that the payment problems
were not isolated only for March 2000. Specifically, we
found numerous instances where two owners were paid for
the same tenant, and numerous instances where owners
were repeatedly paid three to five times the monthly rent for
a tenant.
Page 9 2001-PH-1003
Finding 1
Questionable Housing Assistance Payments and Tenant Utility
Allowance Payments
Category Test Frequency Amount
Duplicate Two or more exact 243 $120,424
Payments payments for the same
(January through tenant.
September 2000)
Questionable Two or more 545 $248,252
housing assistance payments for the same
payments tenant for the same
(January through month for at least two
September 2000) months.
Payment Monthly housing 95 $151,518
Adjustments assistance payments
(January through exceed $1,000 more
September 2000) than once.
Unusually Large Monthly housing 89 / $213,610
Payment assistance payments 279
Adjustments and/or utility
(December 1999) allowance exceeding
$1,000 and $100,
respectively.
$733,804
Using CAATs, we analyzed the HABC’s monthly housing
assistance payments for January to September 2000 to
determine whether:
• two or more exact payments were made for the
same tenant;
• two or more payments were made for the same
tenant for the same month, for at least two months,
(indicated the HABC continued to pay two owners
for the same tenant when a tenant moved from one
unit to another); and
• housing assistance payments exceeded $1,000
and/or tenant utility allowance exceeded $100
(amount exceeds what is normally paid for recurring
monthly housing assistance or tenant utility
allowance payments).
2001-PH-1003 Page 10
Finding 1
As detailed below, we found over 1,200 duplicative and
questionable housing assistance and tenant utility allowance
payments totaling $733,804.
From January through September 2000 the HABC paid 243
Duplicate Payments duplicate payments totaling $120,424. We provided HABC
management with a complete listing of the duplicative
payments and asked them to verify whether the payments
were made in error. The Finance Department confirmed
the payments were duplicates and blamed the Section 8
staff, as they provided finance with payment data.
The HABC continued to pay two owners for the same
tenant when a tenant moved from one unit to another.
From January through September 2000, we found 545 of
these questionable occurrences valued at $248,252. This
analysis was developed at the conclusion of our audit
fieldwork. Accordingly, we provided HABC management
with a complete listing of these payments and asked them
to verify whether the payments were made in error.
From January through September 2000 the HABC made 95
unusually large housing assistance payments totaling
$151,518. Further analysis of the questionable payments
and discussions with Finance Department officials
indicated the payments were intended to be one-time
housing assistance payment adjustments to catch up on
modifications resulting from 26 tenant recertifications
and/or new move-ins. However, the Finance Department
processed these payments as recurring monthly payments
and; therefore, these payments continued to be paid to
landlords in addition to the correct monthly housing
assistance payments. Several examples are illustrated
below:
Page 11 2001-PH-1003
Finding 1
HAP Overpayments
Owner Amount Month Comments
Intended to be one-time
adjustment for
1. $3,375 May 2000 December 1999 move-
in (5 x $675)
$675 May 2000 Monthly HAP
$3,375 June 2000 Overpayment
$675 June 2000 Monthly HAP
$3,375 July 2000 Overpayment
$675 July 2000 Monthly HAP
$3,375 August 2000 Overpayment
$675 August 2000 Monthly HAP
$3,375 September Overpayment
2000
$675 September Monthly HAP
2000
Between July through September 2000 owner was overpaid
$13,500 or 20 extra monthly rental payments.
Intended to be one-time
adjustment for January
2. $2,328 June 2000 2000 move-in
$380 June 2000
$2,328 July 2000 Overpayment
$380 July 2000 Monthly HAP
$2,328 August 2000 Overpayment
$380 August 2000 Monthly HAP
Between June through August 2000 owner was overpaid at least
$4,656
While performing follow-up analysis for the duplicate
Large Payment
payments described above, we identified an unusually large
Adjustments (December
payment made in December 1999 and, therefore, expanded
1999)
our testing to include this period. Specifically, using
CAATs, we analyzed the HABC’s monthly housing
assistance payments for December 1999 to determine
whether housing assistance payments to owners and utility
allowance payments to tenants exceeded $1,000 or $100,
respectively. We found 89 questionable owner payments
valued at $175,055, and 279 questionable utility allowance
2001-PH-1003 Page 12
Finding 1
payments valued at $38,555. Further analysis of a sample
of the questionable payments indicated it was generally a
one-time occurrence, unlike the recurring payment
adjustments described above. HABC officials initially
thought the large payments in December 1999 were also
intended to be one-time adjustments; however, our
subsequent verification of the three largest cases did not
support this conclusion, and the HABC could not provide
any other reasonable explanation. These three examples are
illustrated below:
Owner Amount Month Comments
HABC could not
explain any rationale
3. $7,359.98December for payment.
1999
Regular monthly HAP of $400 made for all periods before and after
unexplained payment
HABC could not
explain any rationale
4. $5,983.31December for payment.
1999
Regular monthly HAP of $500 made for all periods before and after
unexplained payment
HABC could not
explain any rationale
5. $4,312.49December for payment.
1999
Regular monthly HAP of $575 made for all periods before and after
unexplained payment
During our review, HABC officials stated, and we
Financial Controls Over observed, that the Section 8 Department generally operated
Program Receipts and autonomously, and the Finance Department relied entirely
Disbursements Are Not on data provided by Section 8 to process payments and
Adequate prepare required financial reports. Further, much of the
data entry has been completed by temporary employees
and, therefore, is vulnerable to errors. It is also unclear why
finance officials so readily accepted and relied on data
provided by the Section 8 Department since they repeatedly
expressed concerns over the capability of Section 8
management and the quality of the data. Prudent business
practice would prescribe that some level of independent
Page 13 2001-PH-1003
Finding 1
verification over financial transactions and the propriety of
data would have been conducted by the Finance
Department, since they ultimately certify as to the accuracy
of financial data reported to HUD. Due to the results
generated from our payment testing, the HABC’s Finance
Department purchased the data mining software used by us
in our review.
HUD Handbook 7420.6, Housing Assistance Payments
The HABC Did Not Program Accounting Handbook, Chapter 3, paragraph 12h.
Maintain A HAP Register provides guidelines for the HA to maintain an up-to-date
housing assistance payments register which will enable the
PHA to verify the housing owner's monthly requests for
housing assistance payments and subsequent adjustments.
The housing assistance payments register shall provide data
for:
• name and address of the family;
• name and address of the owner;
• dwelling unit size;
• effective date of the lease;
• expiration date of the lease;
• monthly contract rent payable to the owner;
• monthly rent payable by the family; and
• monthly housing assistance payment.
Contrary to HUD guidelines, the HABC did not maintain a
HAP register. Without this control document, the HABC
was unable to provide an accurate status of total program
units according to HUD requirements and, therefore, it had
no mechanism to:
• Reconcile monthly housing assistance payment
disbursements to control totals (units and amounts)
to ensure owner and tenant payments were accurate;
• Ensure owner payments were made promptly for all
new families coming into the Section 8 Program;
• Accurately quantify and support administrative fee
revenues; and
• Ensure its year-end reconciliation reports submitted
to HUD were complete and accurate.
Notwithstanding the HABC’s failure to maintain a HAP
register, the HABC did not properly oversee its payment
processing. For example, we found the HABC routinely
2001-PH-1003 Page 14
Finding 1
paid rental subsidies exceeding $1,000 and as much as
$7,000 without any level of review.
Even though HABC executive management was aware of
the continuing problems, which were exacerbated by not
having a functional MIS See
(See Finding
Finding 4),
4 little was done to
address these concerns and implement appropriate
corrective actions. Recently, the Mayor of Baltimore asked
for and received the HABC Executive Director’s
resignation and hired new executive management.
* * * * * *
In summary, the HABC does not have adequate financial
accountability over its Section 8 Program. The HABC’s
failure to recognize the importance of its mission and
demonstrate any significant improvement is discouraging.
Unless newly appointed executive management recognizes
the need to completely rededicate its efforts and place great
urgency towards overall improvement, it appears the
HABC will continue to mire in its inefficiency. In our
opinion, the Department needs to take expedient action
according to the terms of Section 15 of its ACC with the
HABC to turn the program around.
The HABC agreed with the report in its entirety and has
Auditee Comments provided a written response that outlines a 16 point
corrective action plan designed to dramatically improve its
Section 8 Program (Appendix
AppendixC). C
Recommendations We recommend you:
1A. Take appropriate administrative actions as detailed
in Section 15 of the ACC for the Section 8 Rental
Certificate and Rental Voucher Programs.
In addition, the recommendations below and throughout the
remainder of the report are designed to improve the overall
operation of the HABC Section 8 Program. We
recommend you require HABC to:
Page 15 2001-PH-1003
Finding 1
1B. Repay $279,952 in excessive administrative fees,
and $733,804 of questionable and duplicative
payments to owners and tenants, unless the HABC
is able to provide documentation supporting the
eligibility of some of the fees and payments.
1C. Seek recovery of overpayments made to owners and
tenants.
1D. Implement financial system controls and procedures
to ensure books and records are maintained
according to HUD requirements and year-end
reports are complete and accurate. At a minimum
these procedures should provide for: (1)
reconciliation of monthly housing assistance
payments to owners and tenants to a master housing
assistance payments register; (2) accurate
calculation of administrative fee revenues; and (3)
supervision to ensure quality control oversight.
2001-PH-1003 Page 16
Finding 2
HABC Is Not Properly Administering Key
Operational Components Of Its Section 8
Program
The HABC is not properly administering key operational components of its Section 8 Program.
Specifically, the HABC does not have adequate controls and procedures in place to manage its
Section 8 Program according to its ACC and HUD Regulations and requirements. We observed
fundamental deficiencies in HABC’s Section 8 Program in the areas of:
• file maintenance and record keeping;
• tenant income verification and file documentation;
• Housing Quality Standards (HQS);
• waiting list administration;
• Section 8 portable units accountability; and
• staff assignments and training
We observed problems in these areas for a variety of reasons. Primarily, the HABC does not
have a functional MIS, (See
See Finding
Finding4).4 Additionally, executive management has not placed any
urgency in ensuring Section 8 management and staff were properly supervised and trained, nor
did they develop and implement procedures to ensure program operations were maintained
during system development. Consequently, the HABC’s Section 8 Program is barely functional,
and the HABC continues to mismanage and waste scarce resources intended to provide housing
opportunities to its low-income residents.
Section 10 of the ACC requires the HA to comply with the
Criteria requirements of the U.S. Housing Act of 1937 and all HUD
Regulations and other requirements. Further, Section 14 of
the ACC requires the HA to maintain complete and
accurate books of account and records for its program in
accordance with HUD requirements to permit a speedy and
effective audit.
Title 24 CFR 982.204(b) requires that the waiting list at a
minimum must contain the date and time of the application.
Title 24 CFR, 982.401 states that Section 8 housing must
comply with HQS during the term of the assisted lease. To
meet HQS, units must:
Page 17 2001-PH-1003
Finding 2
• be structurally sound;
• 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 adequate facilities that are in proper
operating condition;
• have adequate heating and/or cooling facilities;
• have adequate illumination and electricity;
• be maintained in sanitary condition;
• meet the lead-based paint requirement; and
• include a smoke detector on each occupied level.
24 CFR 982.503 states that the HA must determine a
reasonable rent.
24 CFR 5.617(a) requires a re-examination of family
income and composition at least annually. In addition, Part
(b)(2) requires the Section 8 family to submit documents
necessary to determine or audit a family’s eligibility to
receive housing assistance for determining the family’s
annual income, adjusted income, or total tenant payment.
PIH Notices 99-2 and 2000-13 require all HAs that are
administering tenant-based assistance programs to submit,
on a timely basis, 100 percent of family records to HUD’s
Multifamily Tenant Characteristics System (MTCS). To
avoid sanctions under the Notices, the minimum acceptable
reporting rate to MTCS is 85 percent.
PIH Notice 96-54 provides the specific HUD guidelines
and details the billing process when the receiving HA
(HABC) does not absorb the portable family into its
program. The bill must be forwarded to the initial HA
within 10 working days from the date of the housing
assistance payments contract and must be received within
six months from the date the initial HA issued the
certificate/voucher to the portable family. The bill
submitted by the receiving HA to the initial HA must be on
Form HUD-52665, “Family Portability Information”.
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
2001-PH-1003 Page 18
Finding 2
valid results. Also, Chapter 5, paragraph 5-1 requires the
HA to conduct HQS inspections at least once a year.
As we detailed in Finding 1, the HABC did not maintain a
Record Keeping housing assistance payments register. The housing
assistance payments register is a basic program requirement
and should provide an up-to-date universe and summary
information on all units administered under the program.
Without maintaining this register the HABC cannot
adequately administer its Section 8 Program according to
HUD requirements.
The HABC also does not comply with HUD reporting
requirements for data entry into the Multifamily Tenant
Characteristics System (MTCS). In December 1999, the
HABC only reported 39 percent of its total Section 8
certificate and voucher units. HABC did improve to 67
percent for October 2000, but it still was well below the
required 85 percent. Further, we tested the quality of
HABC MTCS data with file documentation for unit
inspections and found MTCS data did not agree with actual
inspection dates in 19 out of 20 cases.
HABC officials said they have not been able to maintain a
current housing assistance payments register or report
complete and accurate data on their Section 8 Program to
HUD because the HABC does not yet have a functional
information system (see SeeFinding
Finding4).
4 Although HABC
officials attributed the problems noted above to not having
a functional information system, we found the HABC also
does not properly maintain its tenant files, which is
essential in an environment completely dependent on
manual processing. For example, the HABC was not able
to provide us with 168 of 409 tenant files (40 percent) we
requested for our review. As we discuss in more detail
below, information in tenant files that were provided often
was not complete or was not completed timely, and did not
support payments to owners.
We judgmentally selected 106 tenant files to determine if
File Maintenance tenants were being recertified according to HUD guidelines
and documentation in the file supported the HABC’s
determinations. Due to the number and significance of
duplicative and questionable housing assistance payments
we identified (see
See Finding
Finding1), 1 we also requested and
Page 19 2001-PH-1003
Finding 2
reviewed all the tenant files (303) for three of the largest
landlords to determine whether the tenant files contained
adequate documentation to support the housing assistance
payments that were made to these landlords between April
to June 2000. As we detail below, Section 8 staff were only
able to locate and provide us with 241 of the 409 (59
percent) files. The details of our file review follow.
The HABC was not able to locate and/or timely provide us
with 52 of 106 tenant files (43 tenant files not provided, 9
tenant files provided subsequent to our review) we
requested. However, for the 54 files that were provided and
reviewed, we noted numerous deficiencies in the HABC’s
recertification process. Specifically, we found:
• 16 files did not have documents verifying tenants’
income at initial certification.
• 24 files did not have adequate documents verifying
tenants’ income on the recent recertification.
• 25 files did not have birth certificates supporting all
family members.
• 7 files did not have a timely HQS inspection report
including one property that was not inspected since
1996, when it had failed.
• 36 files did not have documents supporting the
reasonableness of the units’ rent.
• 1 file did not have a timely recertification.
As reported in Finding 1 of this report, we found numerous
Tenant Income instances where the HABC made duplicative and
Verification/Supporting questionable payments to its landlords. Because of the
File Documentation significance and serious nature of the HABC’s housing
assistance payment problems, we expanded our testing by
requesting all the tenant files (303 files) for three large
landlords to determine if the documentation in the tenant
files supported the housing assistance payments made to
these landlords between April to June 2000. Unfortunately,
the HABC could only provide us with 178 of the 303 files
as detailed below:
2001-PH-1003 Page 20
Finding 2
Owner Files Requested Files Provided Files Not % Not Provided
Provided
A 71 42 29 41%
B 135 99 36 27%
C 97 37 60 62%
TOTALS 303 178 125 41%
For the 178 files the HABC did provide, we compared the
most recent housing assistance payments documented on
the HUD-50058 to the Finance Department’s payment
database for the corresponding period and found numerous
discrepancies between the payment amounts and the file
data. These discrepancies are as follows:
• Housing assistance overpayments totaling $5,963
were made to owners. Also, six owners were paid
two payments with no explanation in the file;
• Housing assistance payments did not agree with the
housing assistance payments on the applicable
HUD-50058 (24 cases);
• Tenant files did not have a HUD-50058 for the
payment period reviewed (9 cases). One of the
tenant files indicated the tenant had not been
recertified since August 1995;
• File data indicated tenant moved out of unit (2
cases) and; therefore, housing assistance payments
should not have been paid;
• One tenant file had a current HUD-50058, but the
previous one was completed in 1991;
• Unable to verify housing assistance payments
adjustment with supporting file documentation (2
cases); and
Page 21 2001-PH-1003
Finding 2
• No housing assistance payments were made even
though file documentation indicated payment was
due (4 cases).
Details of the above deficiencies were provided to the
Section 8 Department for their review.
The HAP contract requires that Section 8 owners provide a
Housing Quality dwelling that meets HQS standards in return for housing
Standards (HQS) assistance payments administered by PHA. PHA’s are
required to perform unit inspections to fulfill its
administrative responsibility to ensure that the owner’s
dwellings meet HQS standards.
In order to determine whether HABC units met HQS, we
judgmentally selected 40 units that were recently inspected
by the HABC and re-inspected the units. Our initial
sample size of 40 units was subsequently reduced to 37
because three of the tenants left the Section 8 Program prior
to the date of our inspection. Of the 37 units inspected 35
failed our inspection. On average each unit had about five
violations, although we did inspect a few units that had as
many as 10 to 12 deficiencies. Of particular note, for seven
units that were initially failed by the HABC inspector and
then subsequently passed, we found the deficiencies that
caused the unit to fail had not been corrected. Also, we
identified two units we believe the HABC inspectors
clearly should have failed based on the nature of the
deficiencies cited during our inspection. We provided our
inspection results to the HABC for their review and
corrective action as appropriate. Our inspection results are
also summarized in Appendix
Appendix B.B
We reviewed the HABC’s administration of its Section 8
Waiting List waiting list and found that the HABC continues to use staff
Administration resources to take new applications, even though it cannot
reasonably accommodate the existing waiting list of over
16,000 applicants. In fact, some applicants have been on the
waiting list for over 10 years. Furthermore, the HABC was
not even able to use the waiting list between March and
September 2000, as it had to give priority to its existing
public housing residents and Section 8 tenants who were
forced to move from the units in which they were living
when their housing assistance was terminated. We also
noted that the HABC was not recording the time an
2001-PH-1003 Page 22
Finding 2
applicant was placed on the waiting list according to HUD
guidelines and for some applicants the date was listed as
“00/00/00”.
The Section 8 Director indicated he did not make the
decision to keep the waiting list open and believed the
decision was more for political reasons, as the HABC did
not want to give the appearance it was not assisting its
residents. We believe that HABC staff resources used to
take new applications and manage the growing list could
have been better used in managing its more pressing
problems to include maintaining current tenant files, and
actually assist its residents rather than just giving the
appearance it was performing a worthwhile function.
HUD guidelines provide Section 8 voucher holders with the
Accounting for Section 8 ability to use their vouchers outside the issuing HA’s
Portables jurisdiction. The vouchers, termed Section 8 portable units
are accounted for based on specific guidance depending on
whether or not the jurisdiction the tenant moves to absorbs
the unit into its program. When the jurisdiction does not
absorb the unit it still has the responsibility to pay the
housing assistance payments to the owner and seek
reimbursement from the original HA, who will continue to
administer the unit in its program.
The HABC had a number of Section 8 tenants from other
HAs that moved to Baltimore City, but the HABC decided
not to absorb these tenants into its Section 8 Program.
According to HUD guidelines the HABC paid the housing
assistance payments to the owners and applicable utility
allowances to these tenants on behalf of the HA
administering the unit, and expected to be subsequently
reimbursed. However, when the HABC subsequently
billed the applicable HAs for these tenants, the other HAs
did not pay the HABC for these units because the HAs
indicated that the HABC did not send in the required
documentation showing the HABC executed a HAP
contract for the particular tenants and landlords. According
to Section 8 staff the required documentation was always
sent timely, and they could not understand why these HAs
were refusing to pay HABC the housing assistance
payments for these units that totaled $1.7 million at the end
of FY 1999. Despite the HABC’s indication that required
documentation was provided to the applicable HAs, in
Page 23 2001-PH-1003
Finding 2
March of 2000 the HABC wrote off $514,342 of the $1.7
million and absorbed the units into its program. The write-
off represented amounts due prior to FY 1998.
Consequently, in the current year, the HABC’s Section 8
Program absorbed the financial burden of these units
without accurately representing the actual cost and number
of units in its year-end settlement statement.
During our review, we asked the HABC Section 8
Staff Assignments and Department to provide us with a complete roster of its
Training employees and their current case workload. The HABC
was not able to provide us with this basic information.
Instead, they prepared a memo indicating employee’s case
workload for November 1999, but at the same time
questioned the accuracy of their own data. Additionally,
the HABC did not have any written documentation
indicating training that its Section 8 staff has taken.
The HABC’s Inspector General communicated his concerns
over the lack of capacity of the Section 8 Department in
several reports and memorandums to HABC management.
Specifically, in a memorandum regarding the current state
of the HABC’s effectiveness in operating its program
pursuant to the computer shutdown, the IG indicated staff
were not properly trained and questioned the reliability and
competency of temporary employees.
* * * * * * *
HABC officials said not having a functional management
information system (see
See Finding
Finding4)4 was the primary cause
for many of Section 8 deficiencies. The absence of an
automated MIS has certainly contributed to the current state
of the HABC’s Section 8 Program, however, executive
management has not placed any urgency in ensuring
Section 8 management and staff were properly trained and
supervised. Further, they did not take appropriate actions
to establish alternative procedures to ensure program
operations were not adversely affected during the interim
period while the new system is being implemented. As we
detailed above, the HABC did not maintain an adequate
inventory of tenant files and could not provide us with the
number of staff and their specific work responsibilities.
Additionally, an independent report prepared by the GBC
noted similar concerns with the HABC’s management of its
2001-PH-1003 Page 24
Finding 2
Section 8 Program. The report stated, “The Section 8
Program is perceived by its participants, its partners, and
the broader community as inefficient, inflexible, and
uncooperative. If this perception is to change, either the
program needs to be privatized or the culture of the Section
8 Division must be changed, the staff trained in the
fundamentals of customer service, and their performance
judged in accordance with quantifiable goals established by
HABC”. The GBC report indicated high error rates in (1)
verification and calculation of adjusted Section 8 family
income; (2) HQS inspections; and (3) documentation of
rent reasonableness. GBC also stated that formal
supervisory quality control reviews were not conducted on
an ongoing basis.
In summary, the HABC is not properly managing its
Section 8 Program according to HUD requirements. The
HABC’s Section 8 Program is barely functional, and the
HABC continues to mismanage and waste scarce resources
intended to provide housing opportunities to its low-income
residents.
The HABC agreed with the report in its entirety and has
Auditee Comments provided a written response that outlines a 16 point
corrective action plan designed to dramatically improve its
Section 8 Program (Appendix
AppendixC).C
Recommendations We recommend that you ensure the HABC’s Section 8
Program:
2A. Develops and implements procedures to improve its
operation of the Section 8 Program. Specifically the
HABC needs to:
• Maintain a complete and accurate updated housing
assistance payments register and ensure this critical
information is entered into HUD’s MTCS system.
• Maintain tenant files for every unit in its Section 8
Program. A tenant file maintenance system should
be developed and files should be controlled to
ensure they are not lost or misplaced. Additionally,
tenant files should provide supporting
Page 25 2001-PH-1003
Finding 2
documentation that clearly documents tenants were
recertified according to HUD requirements.
• Maintain Section 8 rosters and staff assignments.
This critical information should facilitate
management’s oversight of the Section 8 Program.
• Maintain employee training records and ensure staff
is adequately trained in program requirements and
the operation of its MIS when implemented.
• Ensure HQS inspections are performed according to
HUD requirements, and units failing HQS
inspections are re-inspected to ensure cited
deficiencies have been corrected.
• Administer its waiting list according to HUD
requirements, and ensure it appropriately and timely
bills for Section 8 portable units. Additionally, the
HABC should follow-up and collect disputed
receivables as appropriate.
2B. Obtain reimbursements and adjust payments based
on deficiencies disclosed in our review of tenant
files.
2C. Ensure HQS violations are corrected at properties that
failed HQS inspections during our review.
2001-PH-1003 Page 26
Finding 3
HABC Did Not Fully Utilize Available Section
8 Resources
The HABC is not fully utilizing its Section 8 funding. In 1997/1998 HUD recaptured $74
million of unused ACC reserves, and another $50 million of unused resources have accrued in its
reserve accounts between 1997 and 2000. HUD guidelines require a HA to develop and
implement procedures to ensure it utilizes its Section 8 ABA primarily to fund the baseline
number of units approved in the ACC. Additionally, the HA should also evaluate the anticipated
costs associated with leasing its ACC baseline number of units, and then determine if additional
ABA funds are available to assist more families. Although, HABC officials cited a variety of
reasons why it was not fully utilizing Section 8 funds, we found the HABC simply does not
manage its Section 8 Program effectively. Specifically, we found the HABC:
• overstated the number of units it has under lease and, therefore, has not
implemented any leasing initiatives, as it incorrectly believed its occupancy was at
or near ACC baseline levels;
• did not evaluate the historical costs of its leasing per unit to determine if
additional funds would be available to assist more families; and
• has not been able to adequately lease units with funding provided pursuant a
litigation settlement (Thompson Court Decree).
As a result of HABC not effectively managing its Section 8 Program, $124 million of Section 8
funds have been recaptured and/or continue to accrue in its operating reserve accounts instead of
providing much needed housing opportunities for 16,000 families on HABC’s waiting lists. For
fiscal year ending June 2000, we estimated the HABC could have leased an additional 2,500
units. Further, unless the HABC is able to completely turn around its program administration
and carefully evaluate the level of HUD funds provided to maximize the number of families it
can assist, it stands to lose future Section 8 funding. Unfortunately, the low-income citizens of
Baltimore would bear the consequences of this regrettable outcome, as less and less resources
would be available to satisfy much needed housing opportunities.
HUD Notices (PIH 96-68, PIH 97-59, PIH 98-22, PIH 98-
Criteria
58) provided budget guidance for the PHA to use in
administering its Section 8 Program. These notices state
the PHA is required to plan and continually monitor its
funding, as PHAs are ultimately responsible for ensuring
that the program is appropriately managed to keep costs in
line with the funding provided by HUD. HUD guidance
Page 27 2001-PH-1003
Finding 3
states a PHA can lease the number of units that can be fully
supported by its ABA.
Federal Register notices, dated October 21, 1999 and April
19, 2000, continue to instruct PHAs to lease as many units
as could be supported by its ABA. Specifically, the April
2000 register states that PHAs have significant flexibility to
manage the programs within the available funding
including the amount of program reserves available in each
PHA's ACC Reserve Account, and encourages PHAs to
evaluate program characteristics (demographics of waiting
list, turnover rate, future renewal funding) and assist as
many families as funding levels permit.
In November 1997, HUD recaptured Section 8 reserves
Background based on Public Law 105-18. The Public Law instructed
HUD to recapture $5.8 billion in Section 8 reserves.
Seventy-four million of this recapture came from unused
HABC Section 8 reserves. Even though HUD guidance
instructed PHAs to utilize program resources to assist as
many families as could be supported by its ABA, the
HABC continued to measure its leasing solely based on its
incorrect unit counts, and has built up an additional $50
million of unused resources at the end of fiscal year 2000.
Using the HABC’s Year End Settlement Statements
HABC Overstated Its (YESS) for fiscal years ending 1998 through 2000, we
Units Under Lease And compared the HABC reported number of leased units with
Did Not Adequately our own unit calculation and determined the HABC is
Evaluate Available significantly overstating its number of leased units. For
Funding example, we estimated the HABC overstated its leased
units on average of 1,025 units per month from January
through June 2000. Our detailed analysis is discussed
below and in Finding 1 of this report. Additionally, the
HABC did not adequately evaluate the anticipated costs
associated with leasing its ACC baseline number of units,
and then determine if additional ABA funds were available
to assist more families according to HUD guidelines.
Consequently, the HABC is not utilizing its Section 8
resources efficiently by any measure (ACC Unit
Allocations or ABA).
2001-PH-1003 Page 28
Finding 3
Because the HABC does not effectively manage its Section
Units Under Lease 8 Program it is unable to accurately determine the number
of units it has under lease. The HABC reported 8,119 units
were under lease on its June 30, 2000 YESS. However, we
determined the HABC’s actual unit utilization, including
move out portables not absorbed by other Housing
Authorities, is around 7,200 units, well below its reported
8,119 units and less than 90 percent of its ACC baseline of
8,422 units. As illustrated below, the HABC has
significantly overstated the number of units it has under
lease and, therefore, has not implemented any leasing
initiatives, as it incorrectly believed its occupancy was at or
near ACC baseline levels.
Units Under Lease
10000 As Reported By HABC OIG
Determined
9000
8119
7584 7747
8000 7217
7000
6000
UNITS 5000
4000
3000
2000
1000
0
1998 1999 2000
FISCAL YEARS
HABC’s records prior to January 2000 were not auditable
and, as such, we were not able to determine whether its
units under lease were accurate for prior years.
Page 29 2001-PH-1003
Finding 3
ABA Funding The HABC received $167.3 million of ABA for the three
years ending 1998 through 2000.
Annual Budget Authority
Accrued Into
Year Amount Expended Operating
Reserve
1998 $ 47.6 Million $ 41.7 Million $ 5.9 Million
1999 59.3 Million 41.3 Million 18.0 Million
2000 60.4 Million 42.7 Million 17.7 Million
Total $167.3 Million $125.7 Million $ 41.6 Million
The HABC did not use $41.6 million of the $167.3 million
(25 percent) of ABA provided between 1998 through 2000
and operating reserves have increased to more than $50
million.
Ending Operating Reserves
$50,334,144
$60,000,000
$50,000,000
$32,552,849
$40,000,000
AMOUNT
$30,000,000
$11,145,579
$20,000,000
$10,000,000
$0
1998 1999 2000
FISCAL YEARS
2001-PH-1003 Page 30
Finding 3
As discussed below, $15 million of the $50 million in
HABC’s accumulated operating reserves were specifically
earmarked for the Thompson Court Decree litigation, and
were also not effectively utilized. The remaining $35
million could have been used to assist more families in the
HABC’s Section 8 Program. According to HUD
guidelines, even if the HABC had correctly reported the
number of units leased, it still should have implemented
aggressive leasing measures to assist additional families
since so much funding was available.
For example, in fiscal year 2000, HUD provided the HABC
over $60 million of Section 8 funds. We determined $11
million of the $60 million was provided pursuant to the
Thompson Court Decree. However, as shown above, the
HABC did not have a system to track its units under lease
accurately and, therefore, was clearly not in a position to
evaluate how many units it could have leased to fully utilize
its ABA. Consequently, the HABC only spent $42,687,241
accounting for the large increase in program reserves
between fiscal years 1999 and 2000. The HABC invested
the $17,668,177 excess funds and earned $684,503 of
investment income as of November 2000.
The Thompson Court Decree was the result of a lawsuit
The HABC Has Not
brought by Carmen Thompson and five other public
Adequately Leased Units
housing families, represented by the American Civil
Pursuant To The
Liberties Union (ACLU), alleging that the HABC and HUD
Thompson Court Decree
engaged in racial and economic segregation through site
selection and development of public housing in Baltimore
City since 1937.
On June 25, 1996, the parties entered into a Partial Consent
Decree, approved by a United States District Court Judge of
Maryland. A key component of the settlement called for
HUD to provide funding for and the HABC to issue 1,342
new tenant-based Section 8 special vouchers to relocate
families from areas of minority concentration in the City of
Baltimore to non-impacted areas in the City of Baltimore
and surrounding counties.
Our earlier review of the Thompson Court Decree (Audit
No. 2001-PH-1801, dated January 24, 2001) found the
HABC has made little progress in implementing the terms
and conditions of the Decree to provide desegregated
Page 31 2001-PH-1003
Finding 3
housing opportunities to families residing in Baltimore City
public housing, public housing applicants, and Section 8
families on the waiting list. Based on records provided by
the HABC, we found the HABC had assisted no more than
51 of the 1,342 families in moving from impacted to non-
impacted areas.
HABC officials gave various reasons why it was unable to
fully utilize its Section 8 funding. The primary reason cited
was the HABC said its occupancy was at or near ACC
baseline unit allocations, and it did not want to expend
funds to hire additional staff and administrative resources
needed to lease additional units in case HUD subsequently
reduced its Section 8 budget authority. Additionally, the
HABC said its ABA included funds that could only be used
to lease units according to the Thompson Court Decree.
We believe the HABC does not fully utilize its Section 8
funding because it simply does not have the financial and
operational capacity to effectively administer its Section 8
Program. HUD guidelines provide flexibility to PHAs to
manage their programs within the available funding
including the amount of program reserves available in each
PHA's ACC Reserve Account, and encourage PHAs to
evaluate program characteristics and assist as many families
as funding levels permit. However, a fundamental
assumption in this critical evaluation is that PHAs have the
capacity to accurately report the number of units under
lease as a starting point. The HABC’s mismanagement,
specifically not knowing how many units it had under lease,
and its inability to comply with the terms and conditions of
the Thompson Court Decree weighed heavily on the
number of units under lease. Specifically, without even
considering additional units that could have been leased
with available ABA, we determined the HABC could have
leased an additional 2,500 units (1,200 for its Section 8
Program and 1,300 pursuant to the Thompson Court
Decree).
Recently, the GBC and the Presidents’ Roundtable
completed a citywide report, “Managing For Success”,
which included a review of HABC’s Section 8 Program.
The GBC also cited the HABC for its failure to utilize
program resources, including the Thompson Court Decree
2001-PH-1003 Page 32
Finding 3
and has made numerous recommendations that the Mayor
has pledged to adopt.
* * * * * *
In our opinion, the HABC is not meeting its program
mission of providing affordable housing to its low-income
families in the City of Baltimore. Specifically, the HABC
has over 16,000 families on its Section 8 waiting lists, and
its inability to effectively manage its Section 8 Program
resources has resulted in thousands of families being
deprived of housing opportunities the program is designed
to serve.
Auditee Comments The HABC agreed with the report in its entirety and has
provided a written response that outlines a 16 point
corrective action plan designed to dramatically improve its
Section 8 Program (Appendix
AppendixC).C
Recommendations We recommend you:
3A. Recapture the HABC’s unused operating reserves
and reallocate the program resources to other
jurisdictions as appropriate.
3B. Ensure all investment income earned on Section 8
resources are offset against HABC’s cash
requirements for its Section 8 Program.
3C. Ensure the HABC implements procedures to fully
budget Section 8 resources provided by HUD and
assist as many families as possible. These
procedures should provide for a thorough analysis
of the cost of its units under lease and the need to
issue additional vouchers to compensate for
anticipated turnover.
Page 33 2001-PH-1003
Finding 3
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2001-PH-1003 Page 34
Finding 4
HABC Needs To Implement A Section 8
Management Information System
The HABC does not currently have an automated Management Information System (MIS) that
supports its Section 8 Program. Even though HABC management was aware that its previous
information system was not Y2K compliant as early as 1997, it has not been able to successfully
develop, test, and implement a replacement system; and has been operating its Section 8 Program
without a MIS since December 1999. Further, adequate contingency plans were not developed
and implemented to ensure program operations would not be adversely affected during the
interim period in which the HABC was working to install its new system. HABC executive
management has failed to properly manage and coordinate the system development among its
Section 8, Finance, and Information Technology (IT) Divisions, and as such the HABC continues
to experience numerous delays in its efforts to install its new information system while the
reliability of program data now being processed manually by temporary employees continues to
erode. Thus, we question how effective the new system will be, when or if it becomes fully
operational, in supporting the HABC’s administration of its Section 8 Program so it can meet its
program mission in providing affordable housing opportunities to its residents.
A well-designed management information system is a critical component of a housing authority’s
operation. It allows staff to gather, track, record, and report on critical measures of the housing
authority’s Section 8 Program. The information allows housing authority staff and its
management to make informed business decisions to ensure the program is operating effectively
and efficiently. Critical Section 8 Program areas of a MIS include:
• leasing and voucher issuance;
• applications and waiting list management;
• Housing Quality Inspections;
• housing assistance payments;
• tenant eligibility and recertification;
• rent reasonableness;
• utility allowance calculations;
• financial and operational reporting; and
• quality control
The Section 8 Director confirmed that plans for a new
Background system began in 1997. According to HABC’s Section 8
Director, neither he nor his staff was consulted on the
contractor selected to develop the proposed computer
system. HABC’s Finance Director stated that the
contractor who was working with and installing the
Page 35 2001-PH-1003
Finding 4
HABC’s client server system for the rest of the Authority
was noncompetitively awarded the Section 8 MIS Project.
The Section 8 Director provided the following timeline in
his dealings with the contractor representatives.
Period Remarks
November 1997 Section 8 staff had meetings with
to March 1998 contractor representative about three days
for each week during this period.
Contractor representative was writing
March 1998 to functional specification for the Section 8
June 1998 system even though contractor was not
officially awarded a contract.
June 1998 to No Activity. Contractor representative
June 1999 was not onsite at the Authority.
June 1999 to Design work and system preparation
present started.
Since the Section 8 Director’s opinion was not solicited, he
stated he did not communicate any of his concerns about
the contractor or the delays in implementing the system, as
he believed it was more of an information technology
responsibility.
Total purchase order costs incurred during fiscal year 2000
for the development of the Section 8 system were
$446,919. Additionally, the HABC’s Inspector General
(IG) reported concerns over the significant labor costs in
temporary employees and overtime payments associated
with the manual processing of its Section 8 Program, which
further threatened the financial viability of its program.
In June of 1999, because of the continuing delays and
HABC’s IG Appointed To impediments, HABC’s former Executive Director asked the
Oversee The Section 8 HABC’s IG to oversee the Section 8 Project. We
Project questioned the appropriateness of the IG’s role, since it
appeared to conflict with his ability to provide independent
reviews of the HABC’s operations. Additionally, we
questioned whether the IG had the requisite technical
knowledge to coordinate the development and installation
of a computer system. The IG agreed this assignment
conflicted with his IG responsibilities and indicated he did
not have an information technology background. He said
he reluctantly accepted this assignment because he did not
2001-PH-1003 Page 36
Finding 4
believe he was in a position to decline since he reported to
the Executive Director.
The IG said he created a timeline of actions needed to
ensure the HABC was in position to function with or
without the new system. Specifically, the IG provided a
chronology of his instructions to the affected departments
in order to prepare for the HABC’s readiness and its ability
to manage the Section 8 Program during system
development. However, he indicated the Section 8 Director
was not responsive in ensuring his department would be
ready and did not timely develop a manual contingency
system.
DOCUMENT DATE
Y2K Action Plan June 23, 1999
Y2K Contingency Plan August 26, 1999
Y2K 90 Day Readiness Report October 4, 1999
Y2K “Zero Day” Plan October 15, 1999
The Y2K 90-day readiness report identified that Section 8
Section 8 Director Waited
Tenant Accounts Data System (TADS) would not be Y2K
Until The Last Minute To
compliant by 12/31/99. Nevertheless, the IG stated that the
Test The Manual System
Section 8 Director waited until the last minute to run the
manual system before the mainframe became inoperable.
In 2000, HABC had to rely on this untested manual system
because the mainframe was dismantled. Additionally, even
though contingency plans did provide for the retention of
Section 8 data for eventual migration to its new system, this
data was generally not retained and is inaccurate.
Specifically, we asked the HABC to provide us with the
Section 8 data; and we were advised the data was only
maintained on electronic tape cartridges, which were only
compatible with the mainframe system that was dismantled.
As expected, the HABC’s trial and error implementation of
manual processing resulted in the significant problems
described throughout this report.
Since the HABC’s IG had on-going concerns with the
Section 8 Department’s preparedness, he communicated
these concerns to HABC’s new senior management in a
management advisory report in early 2000. In the report,
the IG indicated a myriad of problems still existed with the
Section 8 contingency systems. Specifically, the IG’s report
indicated the contingency system was not run parallel to the
dismantled mainframe system, nor was training conducted
Page 37 2001-PH-1003
Finding 4
prior to its implementation. Further, the system was labor
intensive and dependent on staff overtime and temporary
staff that may not be supported by administrative fee
revenues. In addition to the technical problems cited by the
IG, he also cited management issues that contributed to the
dilemma, which included lack of collaboration by its
divisions in the problem solving process, and no one
individual has taken responsibility. Specifically, as late as
December 1999, Section 8 management stated that all of
the responsibility for a backup system fell on the MIS
Department and; therefore, Section 8 took no action to
ensure contingency systems were in place prior to
dismantling the mainframe.
In September 1999, the Section 8 Director estimated that
the new system would be ready by Spring 2000. However,
the estimate has been pushed back several times and the
HABC’s written response stated it was now exploring the
purchase of an “off the shelf” software package. Further, as
reported in Findings 1 and 2, the HABC does not maintain
a housing assistance payments register, and cannot account
for many of its tenants’ files. Therefore, the HABC has no
assurance, that when the new system becomes operational,
it will have accurate data available to enter into the system
to ensure a smooth migration to its new system takes place.
In its recent citywide report, the GBC also cited the
HABC’s failure to implement a MIS as a continuing
management problem. Specifically, the GBC stated the
Section 8 Program has had to perform most functions
manually, resulting in inefficiency, frequent errors, and
inadequate controls over the payment process. Further, the
GBC stated the Section 8 Department lacks the internal
capacity to adequately represent its interests in discussions
with the IT Department, and to take the necessary steps to
install, test, load, and bring up the new applications.
* * * * *
In summary, the HABC’s inability to develop and
implement a management information system or adequately
implement contingency plans has resulted in the waste and
misuse of program resources and the continued erosion of
its Section 8 Program. Consequently, the HABC is not
providing affordable housing opportunities to low-income
2001-PH-1003 Page 38
Finding 4
residents of the City of Baltimore according to HUD
guidelines.
The HABC agreed with the report in its entirety and has
Auditee Comments provided a written response that outlines a 16 point
corrective action plan designed to dramatically improve its
Section 8 Program (Appendix
Appendix C).C
Recommendations We recommend you:
4A. Closely monitor the HABC’s implementation of its
management information system to ensure the
HABC: (1) meets revised timelines for system
implementation; and (2) begins to reconstruct
program data to ensure complete and accurate data
entry. If the HABC is unable to meet its revised
goals and demonstrate tangible progress towards the
implementation of a functional management
information system, take appropriate administrative
action.
Finding 1
Page 39 2001-PH-1003
Finding 4
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2001-PH-1003 Page 40
Management Controls
In planning and performing our audit of the HABC, we considered the management controls to
determine our auditing procedures and not to provide assurance on management control. HABC’s
management is responsible for establishing effective management controls. Management control is
the process effected by HABC’s Board, managers, and other personnel, designed to provide
reasonable assurance for achieving objectives for program operations, validity and reliability of
data, compliance with applicable laws and regulations, and safeguarding resources.
We determined the following management controls were
Management Controls
relevant to our audit objectives:
Assessed
• Financial management, including program receipts and
disbursements;
• Compliance with Section 8 Program requirements and
reporting to HUD;
• Utilization of Section 8 Program funds; and
• Reliability of HABC’s management information system.
For each of these activities, we assessed the risk, control
enviroment, control activities, and internal monitoring and
reporting functions. We made our assessment and gained
our understanding through a testing of the transactions in
each of the activities.
It is a significant weakness if management controls do not
Significant Weaknesses
provide reasonable assurance that resource use is consistent
Found
with laws, regulations, and policies; that resources are
safeguarded against waste, loss, misuse; and that reliable data
are obtained, maintained, and fairly disclosed in reports.
Our audit disclosed significant weaknesses with HABC’s:
financial administration, including program receipts and
disbursements (Finding 1); compliance with Section 8
Program requirements and reporting to HUD (Finding 2);
utilization of Section 8 Program funds (Finding 3); and
reliability of its management information system (Finding 4).
Page 41 2001-PH-1003
Management Controls
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2001-PH-1003 Page 42
Follow Up On Prior Audits
The HUD Office of Inspector General recently completed two reviews that relate to this audit as
follows:
OIG Audit
Related
Title Memorandum Remarks
Number
Assessment of HABC’s No. 2001-PH-1801 The audit memorandum was issued
Progress in Implementing the January 24, 2001 and contained 3
Section 8 Component of the recommendations.
Thompson Court Decree
Housing Authorities Year No. 00-PH-166- OIG noted that HABC was not Y2K
2000 Readiness Activities 0801 ready
Page 43 2001-PH-1003
Follow Up On Prior Audits
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2001-PH-1003 Page 44
Appendix A
Schedule of Questioned Costs
Finding Number Ineligible 1/ Unsupported 2/
1 $279,952 $733,804
1/ Ineligible amounts are not allowed by law, contract, HUD or local agency policies or
regulations.
2/ Unsupported amounts are not clearly eligible or ineligible, but warrant being contested
(i.e. lack of satisfactory documentation to support the eligibility of the costs).
Page 45
2001-PH-1003
Appendix A
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2001-PH-1003 Page 46
HQS Violations Cited
Food
Preparation Space Illumination Structure Interior Total
Sanitary and Waste and Thermal And and Air Lead-based Site and Sanitary Smoke Violations
Number Facilities Disposal Security Environment Electricity Materials Quality Paint Neighborhood Condition Detectors Per Unit
1 3 2 5
2 1 1
3 2 1 1 4
4 3 3
5 1 1
6 1 1 2
7 1 7 3 11
8 2 1 2 5
9 4 1 5
10 1 2 1 2 1 7
11 2 2 1 1 6
12 2 1 2 2 2 1 10
13 3 1 4
14 0
15 4 2 1 7
16 1 5 1 1 8
17 1 2 3
18 1 1 1 1 4
19 1 1 3 5
20 3 3 1 4 1 12
21 1 1 2
Appendix B
22 2 1 1 1 5
23 2 1 2 5
24 3 1 4
Page 47 2001-PH-1003
HQS Violations Cited
Appendix B
Food
Preparation Space Illumination Structure Interior Total
Sanitary and Waste and Thermal and and Air Lead-based Site and Sanitary Smoke Violations
Number Facilities Disposal Security Environment Electricity Materials Quality Paint Neighborhood Condition Detectors Per Unit
25 2 1 3 6
26 2 3 1 6
27 1 1 2 3 3 1 11
28 1 1 3 1 6
29 0
30 1 1 1 1 3 7
31 1 1 1 3
32 1 1 1 1 4
33 2 2 3 1 8
34 1 1
35 1 2 1 4
36 1 2 2 5
37 1 1 2
24 16 15 3 7 66 8 24 1 13 5 182
Seven units that were failed by the HABC inspector and then subsequently passed but we found the deficiencies that caused the unit to fail were not corrected.
Two cases that we believe that the HABC inspectors should have failed the unit instead of passing it based on the nature of the deficiency disclosed in our inspection.
Passed HQS.
2001-PH-1003 Page 48
Appendix C
Auditee Comments
Page 49 2001-PH-1003
Appendix C
2001-PH-1003 Page 50
Appendix C
Executive Summary
Page 51 2001-PH-1003
Appendix C
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2001-PH-1003 Page 52
Appendix D
Distribution
Director, Public Housing Program, HUB, Baltimore Area Office, 3BPH
Secretary’s Representative, Mid-Atlantic, 3AS
Audit Liaison Officer, 3AFI
Special Agent in Charge, 3AGI
DIGA’s
Baltimore Area Coordinator, 3BS
Departmental Audit Liaison Officer, FM (Room 2206)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
Acquisitions Librarian Library, AS (Room 8141)
Principal Staff
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
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, US GAO, 441 G Street, N.W.,
Room 2474, Washington, DC 20548, Attn: Stanley Czerwinski
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
Mr. Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street,
N.W., Room 9226, New Executive Office Building, Washington, DC 20503
Executive Director, Housing Authority of Baltimore City, 417 E. Fayette Street, PO Box 1917,
Baltimore, MD 21202-3134
Page 53 2000-PH-1003
Housing Authority of Baltimore City, Section 8 Certificate and Voucher Programs, Baltimore, Maryland
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-03-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)