oversight

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)

        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




               (THIS PAGE LEFT BLANK INTENTIONALLY)




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




               (THIS PAGE LEFT BLANK INTENTIONALLY)




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




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