oversight

Housing Authority of Maricopa County, Phoenix, Arizona

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-09-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

           AUDIT REPORT




HOUSING AUTHORITY OF MARICOPA COUNTY

             PHOENIX, ARIZONA

                 2004-LA-1007

            SEPTEMBER 22, 2004



    OFFICE OF AUDIT, PACIFIC/HAWAII REGION IX
            LOS ANGELES, CALIFORNIA
                                                                  Issue Date
                                                                          September 22, 2004
                                                                 Audit Case Number
                                                                          2004-LA-1007




TO:            Eileen M. Rogers, Acting Director, Office of Public Housing 9APH



FROM:          Joan S. Hobbs, Regional Inspector General for Audit, 9DGA

SUBJECT:       Housing Authority of Maricopa County
               Housing Choice Voucher Program
               Phoenix, Arizona


We audited the Housing Authority of Maricopa County’s Housing Choice Voucher Program (also
referred to as Section 8). We selected this housing authority’s Housing Choice Voucher Program for
audit based on a preliminary review we conducted in response to numerous complaints to HUD.
Our preliminary work revealed that the Housing Authority of Maricopa County had serious control
weaknesses over its Housing Choice Voucher Program payment process and that it had been slow to
implement corrective actions recommended by HUD in a 2002 Rental Integrity Monitoring Review.

Our report contains four findings with recommendations requiring action by your office. In
accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without management decisions, 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. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. 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 me at (213) 894-8016, or Charles
Johnson, Assistant Regional Inspector General for Audit, at (602) 379-7243.
Management Memorandum




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2004-LA-1007              Page ii
Executive Summary
We audited the Housing Choice Voucher Program operated by the Housing Authority of Maricopa
County (Maricopa) located in Phoenix, Arizona. The overall audit objective was to determine
whether Maricopa managed its Housing Choice Voucher Program (Voucher Program) effectively
and efficiently and in compliance with Federal requirements. Our specific objectives were to
determine whether Maricopa (1) met minimum performance standards required by the United
States Department of Housing and Urban Development’s (HUD) Section 8 Management
Assessment Program; (2) made only valid, fully supported Housing Assistance Payments; (3)
implemented adequate controls over its Voucher Program to ensure that the program was
managed effectively and efficiently and in accordance with HUD requirements—and whether
Maricopa had taken effective actions to correct the findings in HUD’s Rental Integrity
Monitoring (monitoring) reviews; and (4) incurred program operating costs in accordance with
applicable procurement policies and procedures and properly allocated any shared costs.



                                   Maricopa did not ensure compliance with HUD’s minimum
 Maricopa Did Not Meet             performance standards that measure how effectively a
 Performance Standards             housing authority administers its Voucher Program.
                                   Officials did not establish the management or quality
                                   control procedures necessary to comply with the Section 8
                                   Management Assessment Program (Assessment Program)
                                   and failed to submit their online certification for fiscal year
                                   2003. As a result, HUD could not use its normal
                                   monitoring process to address the housing authority’s
                                   noncompliance in the areas of rent reasonableness
                                   determinations, utility allowance schedules, housing
                                   inspections, and determinations of adjusted incomes and
                                   tenant rents. Because neither the housing authority nor
                                   HUD could be assured that the Voucher Program funds
                                   were properly and effectively used to benefit the low- and
                                   moderate-income households the program is designed to
                                   help, we believe that Maricopa did not fully earn the more
                                   than $2 million HUD paid it to administer the program over
                                   the last three years.

                                   In our opinion, the housing authority’s failure to ensure
                                   compliance with minimum performance standards stemmed
                                   from years of management neglect while the housing
                                   authority was administered by Maricopa County and
                                   overseen by the Maricopa County Board of Supervisors.
                                   Under the new Board of Commissioners and new Executive
                                   Director, Maricopa is taking steps to correct the Voucher
                                   Program’s operating deficiencies. As part of this effort,
                                   officials must ensure that recordkeeping and quality control



                                       Page iii                                     2004-LA-1007
Executive Summary


                            systems are put in place to track performance and
                            compliance with HUD requirements.

 Maricopa Made More Than    Maricopa made more than $87,000 in improper housing
 $87,000 in Improper        assistance payments (assistance payments) to Voucher
 Housing Assistance         Program landlords. These payments occurred during a 13-
 Payments                   month period as a result of weak controls over the housing
                            authority’s payment process. For example, inadequate
                            controls allowed caseworkers to use inconsistent
                            processing procedures and multiple identification numbers
                            for tenants or landlords.        In addition, Maricopa’s
                            information system had limitations that allowed improper
                            payments to go undetected, and officials did not adequately
                            compensate for these limitations. As a result of processing
                            mistakes and system weaknesses, Maricopa issued many
                            assistance payments that were either duplicates or were for
                            invalid contracts (such as contracts that were previously
                            terminated). Furthermore, Maricopa did not systematically
                            account for those overpayments it did detect and could not
                            ensure their recovery. Of the $87,000 in improper
                            payments we identified, $55,947 has not been recovered.

                            Improper housing subsidy payments reduced funds
                            available to assist eligible families on Maricopa’s waiting
                            list. Also, HUD inappropriately paid an administrative fee
                            for the improper payments that Maricopa counted in its
                            total number of active vouchers. Finally, inadequate
                            controls over the payment and recovery processes increased
                            the risk of fraud and abuse.

                            Based on our random file review, we estimated that
As a Result of Inadequate   Maricopa incorrectly determined assistance payment
Controls One Third of       amounts for one-third of the 605 case files processed
Housing Assistance          during the period December 1, 2003, through March 24,
Payments May Be Incorrect   2004. In addition, we identified significant numbers of
                            errors in tenant eligibility and income determinations.
                            These occurred even though HUD had called attention to
                            similar errors in its recent monitoring reviews. We
                            attributed the unacceptable error rates to a lack of
                            systematic quality controls and operating guidance over
                            Voucher Program case file processing, as well as to the
                            high turnover in staff during the past year. We recognize
                            that Maricopa has taken steps to correct problems, but we
                            believe that until it fully implements comprehensive quality
                            control reviews, errors in tenant eligibility certification and
                            subsidy calculations will continue to result in ineligible or
2004-LA-1007                    Page iv
                                                                      Executive Summary


                             excessive assistance payments that reduce funds available
                             to assist eligible families on Maricopa’s waiting list.

                             Maricopa did not have a cost allocation plan to equitably
Officials Did Not Always
                             charge the Voucher Program for its share of administrative
Follow Proper Cost
                             costs that benefited all of its operations. Although
Allocation and Procurement
                             Maricopa did allocate many shared costs, including
Procedures
                             management salary costs, it had no documented basis for
                             the allocation ratios used. To the extent Maricopa did not
                             charge the Voucher Program for its shared costs, Voucher
                             Program administrative fee reserves were inappropriately
                             increased at the expense of its other programs.

                             In addition, managers did not follow sound procurement
                             practices when obtaining certain types of services. As a
                             result, Maricopa had no assurance that prices it paid for
                             these services were fair and reasonable.

                             We are recommending that you direct Maricopa officials to
 Recommendations
                             •   Implement the policies, procedures, records, and quality
                                 controls required to ensure compliance with HUD’s key
                                 performance standards. In addition, we recommend
                                 that you require Maricopa to repay $812,087 in Section
                                 8 administrative fees that it did not fully earn in fiscal
                                 year 2003;

                             •   Implement controls and procedures to detect and
                                 prevent improper assistance payments, examine
                                 Maricopa’s records for past improper payments that
                                 have not been recovered and refund to HUD any
                                 improper/ineligible payments identified and seek
                                 appropriate refunds from the landlords, and repay
                                 ineligible administrative fees it received related to these
                                 improper assistance payments, including the $5,405
                                 identified in our report;

                             •   Establish and implement management controls and
                                 operating guidance to address weaknesses in Voucher
                                 Program case file processing and ensure compliance
                                 with participant eligibility and housing subsidy
                                 determinations; and




                                  Page v                                      2004-LA-1007
Executive Summary


                           •   Develop and implement an equitable cost allocation
                               plan as well as procedures to ensure that appropriate
                               procurement procedures are followed for all purchases.

 Audit Results Discussed   We discussed the findings with Maricopa officials during
 With Auditee              the audit and at an exit conference held on August 18,
                           2004. We also provided Maricopa and HUD with a copy of
                           the draft report for comments on August 2, 2004. We
                           received Maricopa’s written responses on September 1,
                           2004. Maricopa generally agreed with our findings, and its
                           responses along with our evaluations are discussed in each
                           finding. The complete text of Maricopa’s response can be
                           found in appendix D of this report.




2004-LA-1007                   Page vi
Table of Contents
Management Memorandum                                                     i



Executive Summary                                                     iii



Introduction                                                           1



Findings

1. Maricopa Did Not Properly Manage Its Housing Choice
   Voucher Program                                                    5


2. Maricopa Made More Than $87,000 in Improper Housing Assistance
   Payments to Landlords                                        19

3. Potentially One-Third of Recently Processed Housing Assistance
   Payments Are Incorrect                                            27


4. Cost Allocation and Procurement Procedures Were Not Followed      35



Management Controls                                                   41



Follow-up on Prior Audits                                             43



Issues Needing Further Study and Consideration                       45




                              Page vii                       2004-LA-1007
Table of Contents


                            ______________________________________________

Appendices
    A. Schedule of Questioned Costs and Funds Put to Better Use         47

    B. Schedule of Improper Housing Assistance Payments                 49

    C. Schedule of Errors in Sampled Case Files                         51

    D. Auditee Comments                                                 53




2004-LA-1007                  Page viii
Introduction
The Housing Authority of Maricopa County (Maricopa) was created in 1943, as authorized by the
U.S. Housing Act of 1937 and Arizona Revised Statute (ARS) 36-1404. Maricopa operated as an
independent entity until February 1992, when Maricopa County took over its administration through
the County’s Housing Department. Under the County government, the Maricopa County Board of
Supervisors functioned as the Board of Commissioners for the housing authority. In July 2003, the
County again made the housing authority an independent entity, and an intergovernmental
agreement delegated the authorities under ARS 36-1404 to Maricopa. Currently, each member of
the Maricopa County Board of Supervisors appoints one Housing Authority Commissioner, and
these Commissioners serve as the governing board of Maricopa. As one of its early actions, the
Board of Commissioners replaced the Acting Executive Director with a new Executive Director who
assumed his position in January 2004.

Maricopa assists low-income families in renting affordable housing with Federal subsidies under the
Housing Choice Voucher Program (Voucher Program). The program originated from the Housing
and Community Development Act of 1974 that authorized the Section 8 certificate program.
Congress has since modified the program and in 1998, passed housing reform legislation that
resulted in the present Section 8 program, entitled the Housing Choice Voucher Program. During
fiscal year 2003, Maricopa received approximately $11 million of Voucher Program funds to
support vouchers for approximately 1,500 families.

Maricopa must operate its Voucher Program according to the rules and regulations prescribed by the
United States Department of Housing and Urban Development (HUD) in accordance with the
United States Housing Act of 1937, as amended. The rules and regulations set forth detailed
eligibility requirements for participating families and prescribe the method for determination of rent
subsidy levels based upon each family’s income and other factors. HUD also regulates the condition
of participating properties and the rental subsidy (housing assistance payment) contracts between the
owners and the housing authority.



                                       Our overall audit objective was to determine whether
 Audit Objectives                      Maricopa managed its Voucher Program effectively and
                                       efficiently and in compliance with HUD requirements. Our
                                       specific objectives were to determine whether the housing
                                       authority (1) met minimum performance standards required
                                       under HUD’s Section 8 Management Assessment Program
                                       (Assessment Program); (2) made only valid, fully
                                       supported Housing Assistance Payments (assistance
                                       payments); (3) implemented adequate controls over its
                                       Voucher Program to ensure that the program was being
                                       managed effectively and efficiently and in accordance with
                                       HUD requirements—and whether Maricopa had taken
                                       effective actions to correct the findings of HUD’s Rental
                                       Integrity Monitoring (monitoring) reviews; and (4) incurred
                                       program operating costs in accordance with applicable
                                            Page 1                                      2004-LA-1007
Introduction


                   procurement policies and procedures and properly allocated
                   any shared costs.

                   We performed our audit during the period November 2003
 Audit Scope and   through June 2004. Our review generally covered the
 Methodology       housing authority’s records and transactions for its
                   Voucher Program from July 2002 through April 2004.
                   Where appropriate, we extended our review to cover other
                   periods. We selected our time period to cover Maricopa’s
                   fiscal year that ended on June 30, 2003, as well as most of
                   the time period covered by HUD’s two monitoring reviews
                   performed in December 2002 and November 2003.
                   Finally, to assess any corrective actions implemented by
                   Maricopa in response to HUD’s reviews, we analyzed the
                   most recent Voucher Program case file actions available.

                   To accomplish our audit objectives we

                   •   Reviewed program requirements including Federal laws
                       and regulations, Office of Management and Budget
                       Circulars, the Consolidated Annual Contributions
                       Contract between Maricopa and HUD, HUD Office of
                       Public and Indian Housing Handbooks and guidance
                       including the Housing Choice Voucher Program
                       Guidebook HUD 7420.10G (April 2001), and
                       applicable Arizona Revised Statutes and Maricopa
                       County Codes.

                   •   Reviewed Maricopa’s annual program reports sent to
                       HUD, including Estimates of Total Required Annual
                       Contributions, Vouchers for Payment of Annual
                       Contributions and Operating Statements, Assessment
                       Program      certifications, Independent     Public
                       Accountant’s reports, and HUD monitoring and onsite
                       Assessment Program confirmatory reviews.

                   •   Interviewed Maricopa personnel and HUD officials and
                       reviewed meeting minutes from the housing authority’s
                       Board of Commissioners.

                   •   Reviewed Voucher Program documentation at
                       Maricopa including the Administrative Plan(s),
                       applicant and certification packages, case file
                       documentation, management logs and information, and
                       accounting system records.
2004-LA-1007            Page 2
                                                Introduction



•   Used Computer Assisted Audit Techniques to analyze
    Maricopa’s master and history database files for
    irregular Voucher Program housing assistance
    payments or operating expenses.

•   Selected a nonrepresentative sample of 54 tenant files
    (based upon known risk factors) and reviewed them to
    resolve    identified   and    potential    assistance
    overpayments.

•   Inspected Voucher Program participating and nearby
    properties and interviewed tenants, property owners, or
    managers.

We also selected a statistical sample of Voucher Program
case files, which we reviewed for (1) compliance with
participant eligibility and income reporting requirements
and (2) compliance and accuracy of the housing subsidy
calculations. The purpose of this test was to evaluate
Maricopa’s progress in implementing corrective actions to
address deficiencies in these areas reported by HUD’s
recent monitoring reviews. To accomplish this, we used a
statistical software program to randomly select 19 case files
from a universe of 605 that had at least one reportable
action completed during the period December 1, 2003,
through March 24, 2004. Reportable actions could include
annual reexaminations, new admissions, interim
examinations, change of units and other action types coded
on section 2a of form HUD 50058 (Family Report). We
performed detailed reviews on the 19 randomly selected
files, which was the sample size for attribute testing
stipulated by a confidence interval of 90 percent, an
expected error rate of 10 percent, and a precision of 8
percent. Based on the errors we found in our sample files,
we estimated the error rates for the universe of 605 files;
however, the sampling methodology was not designed to
estimate the dollar magnitude of the errors, and we did not
do so.

We performed site work primarily at the Maricopa Main
Office located in Phoenix, Arizona, and we also visited
participating properties throughout Maricopa County. We
conducted our review in accordance with generally
accepted government auditing standards.


    Page 3                                      2004-LA-1007
Introduction




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2004-LA-1007     Page 4
                                                                                     Finding 1


         Maricopa Did Not Properly Manage Its
          Housing Choice Voucher Program
The Housing Authority of Maricopa County (Maricopa) had not developed and implemented
management or quality control procedures necessary to effectively administer its Housing
Choice Voucher Program (Voucher Program) and ensure compliance with key HUD
requirements. Furthermore, because of Maricopa’s failure to submit its Section 8 Management
Assessment Program (Assessment Program) certification to HUD for the fiscal year ending June
30, 2003, HUD was unable to monitor and address Maricopa’s management problems through its
normal online process. In our opinion, this failure to implement procedures necessary to
properly carryout its program resulted from years of management neglect under the Maricopa
County Board of Supervisors that held executive authority over Maricopa until July of 2003. As
a result of the management deficiencies, neither Maricopa nor HUD could be assured that the
Voucher Program was carried out in a cost-effective manner and fully used for the benefit of
low- and moderate-income households the program is designed to help. Management
deficiencies were so serious that, in our opinion, Maricopa did not fully earn the more than $2
million HUD paid it to administer the program over the last three years.




                                    HUD uses the Assessment Program to evaluate how well
 HUD Monitors                       each housing authority spends its Voucher Program funds
 Compliance with Key                to help eligible families afford decent rental units at the
 Program Requirements               correct subsidy cost. Through the online Assessment
 Through the Assessment             Program reporting system, HUD officials can remotely
 Program                            monitor the performance of thousands of housing
                                    authorities and target those that need additional oversight
                                    and assistance. The Assessment Program measures each
                                    housing authority’s performance in 14 key program areas
                                    listed below:




                                         Page 5                                   2004-LA-1007
     Finding 1




                         Assessment Program Performance Indicator Areas
            Indicator
                                                         Description
               No.
                1       Applicant selection from the Voucher Program waiting list
                2       Determination of reasonable rent for each unit
                3       Accurate verification of family income
                4       Maintenance of a current allowance schedule for utility costs
                5       Performance of quality control inspections for housing quality standards
                        Ensuring that landlords and tenants promptly correct housing quality
                 6
                        deficiencies
                 7      Encouragement of expanded housing opportunities
                 8      Establishment of rental subsidy standards within program limits
                 9      Timely annual reexaminations of family income
                        Correct calculation of the tenant share of the rent and the housing assistance
                 10
                        payment
                 11     Ensuring that units pass inspection before assistance contracts are executed
                 12     Timely inspection of units for quality standards
                 13     Ensuring that all available housing choice vouchers are used
                 14     Enrolling and assisting families in the family self-sufficiency program

                                           HUD relies on the housing authority to self-certify its
                                           performance for the first eight area indicators and uses
                                           information from other data sources—primarily provided
                                           by the housing authorities—to corroborate a housing
                                           authority’s Assessment Program answers for the remaining
                                           indicators. HUD annually assigns housing authorities a
                                           rating for each area, as well as an overall performance
                                           rating of high, standard, or troubled. Any housing
                                           authority that does not submit an annual Assessment
                                           Program certification within 60 days after the end of its
                                           fiscal year is automatically designated troubled. If a
                                           housing authority does not perform adequately on any of
                                           the 14 indicators—or is assigned an overall performance
                                           rating of troubled—then HUD must conduct onsite reviews
                                           to assess the magnitude of the problem. With close
                                           oversight from HUD, the troubled housing authority must
                                           develop and implement a corrective action plan.

                                           Maricopa failed to submit its Assessment Program
Maricopa Did Not Submit Its
                                           certification for the fiscal year ending June 30, 2003, and in
Fiscal Year 2003 Monitoring
                                           accordance with the Assessment Program regulations,
Certification to HUD
                                           HUD declared the housing authority to be troubled in
                                           December 2003. Moreover, Maricopa officials apparently
                                           disregarded HUD requirements that housing authorities
                                           base their Assessment Program certification on auditable
     2004-LA-1007                               Page 6
                                                                               Finding 1


                            records that document the level of performance and
                            compliance with program requirements over the
                            certification period.

                            Officials could not provide supporting documentation for
                            the Assessment Program performance certifications they
                            proposed to submit in 2003 and did not even track the data
                            needed to measure performance. Maricopa also had no
                            substantive documentation for its 2002 Assessment
                            Program certification. Maricopa officials claimed that the
                            2002 support had been lost and provided us with some
                            limited documentation that they had reconstructed. This
                            documentation was wholly inadequate and, in fact,
                            indicated that in 2002, Maricopa did not meet its claimed
                            performance measures, as illustrated in the following
                            examples:

                            •   Officials provided correspondence with utility companies
                                that purported to show the utility allowance schedule was
                                based upon current rates, but in some cases, the
                                correspondence actually proved the schedule was not
                                updated as required when rates had increased more than
                                10 percent; and

                            •   Officials provided schedules of completed housing
                                quality standard inspections, but the data did not show
                                that units were inspected within the required 12-month
                                timeframe or that failed units were reinspected and
                                passed.

                            In our opinion, Maricopa’s failure to submit its 2003
Maricopa Did Not Meet Key   Assessment Program certification and the lack of
Performance Standards       documentation to support its previous submissions not only
                            reflected noncompliance with the Assessment Program
                            reporting system but served to conceal severe deficiencies
                            in Maricopa’s management of its Voucher Program. Our
                            review of Maricopa’s operations identified serious
                            instances of noncompliance for the Assessment Program
                            indicator areas we reviewed as well as inadequate
                            recordkeeping systems needed for performance and
                            compliance reporting in other areas. Following are key
                            Assessment Program performance indicators that Maricopa
                            failed to meet:

                            Rent Reasonableness

                                Page 7                                      2004-LA-1007
Finding 1


               Maricopa had not performed any rent reasonableness
               determinations for more than 1 year. In December 2002,
               HUD performed a monitoring review of Maricopa, and
               reported that the housing authority inappropriately
               compared Voucher Program unit rents to those of other
               assisted units. At that time, Maricopa was developing a
               new computer-based rent reasonableness system—having
               suspended the use of its old one—and HUD directed the
               housing authority to implement its new system within 30
               days. Yet, as of March 2004, Maricopa was still gathering
               comparison rental data needed for the new system, which it
               hoped to start using by the end of the month. Thus, at least
               16 months elapsed without Maricopa performing the rent
               reasonableness determinations required when new
               properties enter the Voucher Program or participating
               owners increase their rents.

               HUD’s rent reasonableness requirements ensure that
               housing authorities do not subsidize rents that are above the
               market rents charged for similar, nearby units without
               rental assistance. HUD relies wholly on the housing
               authorities to self-certify their performance for the
               Assessment Program rent reasonableness area. This area
               indicator asks the housing authority to affirm that it (a) has
               and implements a written method to determine and
               document that the rent to the owner for each unit is
               reasonable when compared with current rents for
               comparable unassisted units and (b) has a quality control
               sample of tenant files that shows (for files requiring the
               rent reasonableness determination) what percentage have
               documentation of appropriate comparison units and rents.

               As a result of Maricopa’s failure to implement rent
               reasonableness procedures, HUD has no assurance that
               housing assistance payments to Maricopa’s Voucher
               Program landlords—almost $10 million in 2003—were
               reasonable in comparison with local unassisted housing
               markets. Subsidies for excessive rents reduce funds
               available to other eligible families and inappropriately
               enrich landlords, who are not the intended beneficiaries of
               the Voucher Program. We believe the consequences of
               Maricopa’s failure to enforce reasonable rents could be
               substantial. Competition in the rental market for the
               Phoenix metropolitan area has been intense as low interest
               rates fuel new housing construction, and financing
               incentives draw renters into home ownership. Renters who
2004-LA-1007       Page 8
                                                                                       Finding 1


                                  can afford a payment around $1000 per month have opted
                                  for home ownership. As a result, three- and four-bedroom
                                  single-family homes are readily available for rents almost
                                  comparable to those for apartments. Yet we noted
                                  Maricopa had numerous assistance payment contracts for
                                  rents of $1,100 to $1,300. In certain areas, investors even
                                  appeared to be building new homes with the intent of
                                  renting them out with Voucher Program assistance.

                                  For example, in the City of Avondale, an area under
                                  Maricopa’s jurisdiction, we determined that owners of
                                  unassisted/comparable units near several Voucher Program
                                  properties charged considerably less than the Voucher
                                  Program payment standards to attract tenants. In one
                                  newly developed community, we noted several single-
                                  family properties renting in the $950 - $995 price range.
                                  These properties were brand-new and had more attractive
                                  amenities than the current Voucher Program units (see
                                  table and pictures below).

          Comparison of Unassisted and Voucher Program Single Family Units

           Unassisted Properties                         Voucher Program Properties
                                                    st
12565 W. Monroe       12517 W. Washington   914 S. 1 St.            232 S. 3rd St.
4 Bedroom             4 Bedroom             4 Bedroom               4 Bedroom
2 Bath                2 Bath                1 Bath                  1 Bath
2 Car Garage          2 Car Garage          No garage               No Garage
1,653 Sq. Feet        1,653 Sq. Feet        1,254 Sq. Feet          1,407 Sq. Feet
$995.00               $950.00               $1,200.00               $1,100.00




  12565 W. Monroe Avondale, AZ 85323              232 S. 3rd St. Avondale, AZ 85323




                                       Page 9                                        2004-LA-1007
Finding 1




   12517 W. Washington, AZ 85323                  914 S. 1st St. Avondale, AZ 85323




                                   Utility Allowance Schedules
                                   Since at least December 2002, Maricopa has used an
                                   outdated utility allowance schedule for its Voucher
                                   Program subsidy calculations. After its December 2002
                                   monitoring review, HUD recommended that (1) the utility
                                   allowance format be revised to better match the categories
                                   presented on the Request for Tenancy Approval form and
                                   (2) the schedule be reviewed annually and the
                                   review/update noted on the form. In response, the housing
                                   authority decided to engage a contractor to completely
                                   revise its utility allowance schedule. However, this
                                   corrective action has been delayed by (1) uncertainty and
                                   turnover in management positions at the housing authority
                                   and (2) Voucher Program department efforts to address
                                   other problems deemed more pressing.

                                   HUD requires housing authorities to maintain utility
                                   allowance schedules that establish amounts above the rent
                                   that it can cover for tenant-paid utilities. These amounts are
                                   to be based on typical utility costs paid by energy-
                                   conservative households in comparable housing. The
                                   Assessment Program performance indicator relies wholly
                                   on the housing authority to affirm that it maintains an up-
                                   to-date utility allowance schedule that adjusts for any rate
                                   increases of 10 percent or more since the last revision.

                                   We determined that some utility rates had increased as
                                   much as 16 percent since Maricopa last revised its utility
                                   schedule in 2001. As a result, the allowances paid to
2004-LA-1007                           Page 10
                                                     Finding 1


tenants may be smaller than necessary to cover the typical
utility charges.

Housing Quality Standard Inspections
During the latter half of fiscal year 2003, Maricopa did not
have adequate Voucher Program inspection staff to conduct
the required property inspections. At that time, the Voucher
Program was under its third supervisor in two years. One of
two property inspectors had been placed on inactive status
pending investigation of improper conduct, and the remaining
one was not certified and exhibited little knowledge of
HUD’s Housing Quality Standard requirements. He relied
upon an out-of-date manual from a commercial advisory
service and was not familiar with HUD regulations for
Housing Quality Standards. The supervisor at the time
became concerned with the quality of the Voucher Program
inspections and ordered the inspections to stop until
procedures were updated; however, several months elapsed
without further guidance. As a result, officials told us that at
one point, they were almost four months behind in the annual
inspections.

HUD requires the housing authority to perform annual
physical inspections of all Voucher Program units to ensure
that subsidized housing is decent, safe, and sanitary. In
addition, housing authority supervisors must conduct quality
control re-inspections to ensure the inspections were
adequate. The Assessment Program has two indicators that
measure the housing authority’s performance in this area.

•   Indicator number 12 asks the housing authority to affirm
    that it inspects each unit under contract at least annually,
    and HUD verifies the answer with family data reported
    periodically by the housing authority to HUD’s
    Multifamily Tenant Characteristics System. However, in
    fiscal year 2003 HUD could not use this system to verify
    Maricopa’s performance because its reporting rate did not
    meet the minimum 85 percent required by HUD.

•   Indicator number five relies wholly on the housing
    authority to affirm that a supervisor re-inspected a
    minimum sample of units that represented a cross-section
    of neighborhoods and inspectors’ workloads.



    Page 11                                       2004-LA-1007
Finding 1


               Without performing periodic Housing Quality Standards
               inspections and quality control re-inspections, Maricopa
               could not ensure that the housing it subsidized in fiscal year
               2003 was decent, safe, and sanitary.           According to
               Maricopa’s case files, some properties failed the Housing
               Quality Standards inspection every year. Each year the
               owners made the minimum required repairs, but by the next
               annual inspection, problems reappeared. Inspectors told us
               that in many cases, the tenant had caused the Housing Quality
               Standards violations, and the owners had not enforced lease
               agreements. However, HUD requires Voucher Program units
               to meet the minimum standards regardless of who caused the
               violations.

               Determination of Adjusted Income and Tenant Rents
               At the end of fiscal year 2003, Maricopa had not yet
               implemented the corrective actions recommended by HUD to
               ensure that caseworkers properly verified tenant incomes and
               correctly computed adjusted incomes and rent subsidies. In
               its December 2002 monitoring review, HUD found a lack of
               internal quality control procedures and policies and
               significant error rates for income and asset verification and in
               mathematical calculations.          The monitoring report
               recommended that Maricopa conduct quality control reviews
               of 25 percent of all actions processed monthly for 12 months.
               Despite this, our review at the end of 2003 determined that
               Maricopa still did not have procedures in place to
               systematically select and review an unbiased sample of
               Voucher Program actions for quality control purposes.
               Instead, officials’ primary response had been to correct the
               errors identified in the monitoring report and review a portion
               of the case files processed by one caseworker. This last effort
               identified errors that amounted to approximately $45,000 in
               incorrect assistance payment subsidies.

               To ensure that only eligible families receive the proper
               level of assistance, HUD requires housing authorities to
               reexamine and verify each participating family’s income
               and composition at least annually. The Housing Choice
               Voucher Program Guidebook, issued in 2001, provides
               detailed guidance for the reexamination process. The
               following two Assessment Program indicators measure
               performance in this area:



2004-LA-1007       Page 12
                                                                         Finding 1


                      •   Indicator number three relies upon the housing authority
                          to review a quality control sample of files and report the
                          percentage in which caseworkers properly determined the
                          family’s adjusted income.       To receive Assessment
                          Program rating points, the percentage must be over 80
                          percent. HUD does not routinely verify the housing
                          authority’s Assessment Program certification for this
                          indicator, but the Department’s monitoring reviews focus
                          on compliance in this area.

                      •   Indicator number 10 asks the housing authority to affirm
                          that it correctly calculates family rent to the owner, and
                          HUD verifies the answer with information in the
                          Multifamily Tenant Characteristics System. HUD awards
                          Assessment Program rating points if two percent or less
                          of the housing authority’s calculation for family rent to
                          the owner are incorrect. As we reported under the section
                          on Housing Quality Standards inspections, because
                          Maricopa’s reporting rate was less than 85 percent, HUD
                          could not use the data to score the Assessment Program
                          indicators.

                      Regarding correct determination of adjusted income and
                      tenant rent, HUD’s monitoring review concluded, “due to
                      the number and scope of errors, HUD was unable to
                      determine the extent of over- and under-payment in rent
                      subsidy.” We did not perform our own testing to estimate
                      the magnitude of assistance payment errors in 2003 but
                      believe the amount of wasted funds could be significant.
                      Of greater concern is the potential for fraud and abuse
                      resulting from a lack of caseworker guidance, support, and
                      oversight.

                      Maricopa’s management problems with its Voucher
Management Problems   Program were evident before fiscal year 2003. HUD’s
Existed before 2003   December 2002 monitoring review reported that
                      “discrepancies were noted between the housing authority’s
                      self-certification for the Assessment Program (for fiscal
                      year 2002) and the results of HUD’s random file review.”
                      Maricopa officials could not provide documentation for
                      their 2002 Assessment Program certifications when HUD
                      officials attempted to perform a remote confirmatory
                      review of the answers in spring 2003. Finally, Maricopa
                      did not submit accurate or timely case information to
                      HUD—the Department’s information systems show that

                          Page 13                                     2004-LA-1007
Finding 1


                            Maricopa’s reporting rate for the required family reports
                            (form HUD 50058) was unacceptably low at 79 percent.

                            In our opinion, Maricopa’s mismanagement of its Voucher
 Maricopa County Board of   Program and its inability to certify compliance with HUD
 Supervisors Was the        requirements through the Assessment Program reporting
 Responsible Authority      process stemmed from years of management neglect. From
                            1992 until July 2003, Maricopa operated under Maricopa
                            County’s Housing Department with oversight by the
                            Maricopa County Board of Supervisors. The County Board
                            of Supervisors functioned as the Public Housing Authority
                            Commissioners for Maricopa. Commissioners have a
                            responsibility to HUD to ensure national housing policies
                            are carried out and to the housing authority’s management
                            staff and employees to provide sound and manageable
                            directives. The Board of Commissioners is accountable to
                            its locality and best serves it by monitoring operations to be
                            certain that housing programs are carried out efficiently
                            and effectively.

                            Over its tenure, the County Board appointed a series of
                            Executive Directors for the housing authority and relied
                            heavily upon these individuals to ensure that Maricopa
                            complied with HUD’s requirements for Voucher Program
                            administration. Recent Executive Directors apparently
                            allowed the Voucher Program caseworkers to run the
                            program with little guidance. For a time, each caseworker
                            controlled a portion of tenant files with no oversight or
                            shared processing duties. As these caseworkers left
                            employment, replacement staff was provided little training
                            or guidance to bring the operations up-to-date. For
                            example, the Section 8 Administrative Plan was out of date,
                            and no copies of the Housing Choice Voucher Guidebook
                            were in use at the start of our review. By the end of fiscal
                            year 2003, the annual Assessment Program certification
                            was due, and the Voucher Program department was in
                            disarray. The Acting Executive Director, who has since
                            departed, failed to monitor the situation and disregarded the
                            obligation to base his performance certifications on current
                            records that demonstrated performance and compliance
                            with program requirements.




2004-LA-1007                    Page 14
                                                                             Finding 1


                           HUD pays an annual administrative fee to Maricopa for
Maricopa Inappropriately   every Voucher Program unit under assistance payment
Collected Voucher          contract on the first day of every month. In the past three
Program Administrative     fiscal years, Maricopa collected more than $2 million in
Fees                       fees for administering its Voucher Program (or other
                           Section 8 program) units as shown below.


                           Administrative Fees
                             Fiscal Year           Ongoing
                              Ended on         Administrative Fees
                              6/30/2001                   $603,504
                              6/30/2002                   $748,797
                              6/30/2003                   $812,087
                                Total                   $2,164,388


                           In accordance with the Voucher Program governing
                           regulations set out in 24 Code of Federal Regulations
                           (CFR) 982.152, the housing authority may use these fees to
                           cover the cost of performing housing authority
                           administrative responsibilities for the program in
                           accordance with HUD regulations and requirements. HUD
                           may reduce or offset any administrative fee to the housing
                           authority if it fails to perform housing authority
                           administrative responsibilities correctly or adequately
                           under the program.

                           In our opinion, Maricopa inappropriately received Voucher
                           Program administrative fees because, as discussed above, it
                           failed to ensure that subsidized rents and utilities were
                           reasonable; subsidized housing was decent, safe, and
                           sanitary; and program participants were provided the
                           proper level of assistance. At the same time, Maricopa’s
                           accounting records showed it had $415,893 in its Voucher
                           Program administrative fee reserve at the end of fiscal year
                           2003—funds that should have been used to correct known
                           deficiencies in its operations. Because Maricopa was
                           unable to certify adequate performance under the
                           Assessment Program reporting system, it should return to
                           HUD the administrative fees it did not earn for fiscal year
                           2003.




                               Page 15                                    2004-LA-1007
Finding 1


                                    We recognize that new Maricopa management is taking
 New Management Has                 many steps to correct its Voucher Program deficiencies,
 Made Improvements,                 and we support those efforts. Nevertheless, our review
 But Performance                    raised questions regarding Maricopa’s ability to meet the
 Questions Remain                   performance standards that will be evaluated by the
                                    Assessment Program for fiscal year 2004. HUD officials
                                    who performed the required onsite confirmatory review in
                                    March 2004 have similar concerns. Their preliminary
                                    report identified inadequate performance for seven of the
                                    eight indicators that are wholly self-certified by the housing
                                    authority. For Maricopa to demonstrate improvements in
                                    its Voucher Program operations, it is imperative that
                                    management establish recordkeeping and quality control
                                    systems to track performance and compliance with HUD
                                    requirements. This is not a matter of technical compliance.
                                    Information from these systems will provide needed
                                    oversight and signal problems that might otherwise be
                                    overlooked.



Auditee Comments

Maricopa agreed that it needed to improve the overall management and quality control of its
Voucher Program, and outlined actions taken or currently underway to correct the deficiencies
identified in our finding. However, Maricopa disagreed with our contention that it did not earn
the $812,089 in Voucher Program administrative fees questioned in our report. Maricopa
asserted that our recommendation to repay this amount of administrative fees did not take into
consideration all HUD operating regulations, and was a broad interpretation of existing
guidance. The response further noted that Maricopa had been able to manage over 1,400
authorized voucher clients during fiscal year 2003 without “a recognizable number of resident or
landlord complaints.”      Accordingly, Maricopa felt that it had earned the questioned
administrative fees.



OIG Evaluation of
Auditee Comments

Notwithstanding these assertions, in our opinion Maricopa’s inability to certify adequate
performance under the Assessment Program (apparently for several years), along with its failure
to ensure that it met HUD’s basic requirements for determination of allowable subsidy amounts
and other management deficiencies discussed in this finding and Findings 2 through 4
constituted serious disregard of its Voucher Program administrative responsibilities. While we
recognize that new management is making a sincere effort to correct the deficiencies and we
2004-LA-1007                             Page 16
                                                                                        Finding 1


support the actions outlined in its response, we believe that pervasive mismanagement in
previous years should result in sanctions by HUD.



Recommendations                  We recommend the Director of the Regional Office of Public
                                 Housing direct Maricopa to

                                 1A.      Implement rent reasonableness procedures and re-
                                          evaluate the rent for units that have entered the
                                          program and/or undergone rent increases without the
                                          required reasonable rent determination.

                                 1B.      Update and use utility allowance schedules.

                                 1C.      Establish and implement quality control procedures
                                          and recordkeeping systems to track the timeliness and
                                          results of Housing Quality Standards inspections.

                                 1D.      Maintain documentation of activities and results to
                                          support their annual Assessment Program certification
                                          to HUD.

                                 1E.      Prepare and follow through with a comprehensive
                                          corrective action plan that will respond to all findings
                                          from this audit and the onsite confirmatory review
                                          recently performed by HUD officials.

                                 1F.      Repay $812,087 in Voucher Program unearned
                                          administrative fees received.




                                       Page 17                                      2004-LA-1007
Finding 1




               THIS PAGE LEFT
                   BLANK
               INTENTIONALLY




2004-LA-1007   Page 18
                                                                                        Finding 2


     Maricopa Made More Than $87,000 in
    Improper Housing Assistance Payments to
                  Landlords
We identified and reviewed more than $87,000 in assistance payments made to landlords
participating in the Voucher Program that were either duplicates of valid payments or were not
based on valid contracts. Our analysis of other landlord payment histories identified an
additional $109,000 in potential duplicate payments that, because of time constraints, we did not
review. Maricopa identified and obtained reimbursement for many of these duplicate payments.
However, it failed to systematically account for the overpayments it identified and thus could not
determine whether the landlords had refunded the overpayments. In this regard, we could find
no evidence that more than $55,000 of the $87,000 in overpayments we reviewed had been paid
back.

Improper assistance payments occurred as a result of weak controls involving a number of steps
in the payment process, including use of multiple identification numbers for the same landlord or
tenant, failure to execute a new contract and issue a new landlord number when unit ownership
changed, and lack of procedures to independently track subsidy adjustments as a control over the
monthly assistance payment register. Information system problems further aggravated the
situation. As a result of the housing authority’s improper assistance payments, the amount
available to assist eligible families on its waiting list was decreased. The duplicate payments
also resulted in Maricopa claiming and receiving more than $5,400 in inappropriate (ineligible)
administrative fees from HUD. Finally, inadequate controls over the processes for payments—
and for recapture of improper payments—left HUD funds susceptible to waste, fraud, and abuse.



                                     Maricopa enters into assistance payment contracts with
 Assistance Payments                 participating property owners (landlords) as authorized by
 Must Be Accurate and                its Consolidated Annual Contributions Contract with HUD.
 Based on a Valid Contract           The Contract stipulates that the housing authority must
                                     comply and must require owners to comply with the
                                     requirements of the U.S. Housing Act of 1937 and all HUD
                                     regulations and other requirements. In addition, the
                                     housing authority must use the assistance payment contract
                                     form prescribed by HUD and may only use program
                                     receipts to pay program expenditures. The regulations
                                     clearly define the information required to execute a valid
                                     assistance payment contract for the correct amount of
                                     housing subsidy. According to the Housing Choice
                                     Voucher Program Guidebook, if the housing authority
                                     discovers that the owner is not entitled to the full amount of
                                         Page 19                                     2004-LA-1007
Finding 2


                           assistance payments received, the owner must pay back the
                           housing authority the portion to which the owner is not
                           entitled.   Finally, the Contract requires the housing
                           authority to maintain complete and accurate books of
                           account and records, in accordance with HUD
                           requirements, and must permit a speedy and effective audit.

                           Maricopa improperly paid owners more than $87,000 in
 Maricopa Paid More Than
                           assistance payments for 35 of the 54 Voucher Program
 $87,000 in Improper
                           tenant case files we reviewed. In most of these cases, the
 Assistance Payments
                           owner either received an extra assistance payment for one
                           or more months, or the owner received assistance payments
                           for months that were not covered by a valid contract.
                           Altogether, 120 improper payments occurred over a 13-
                           month period that ended on December 31, 2003. The
                           number of improper payments for an individual case file
                           ranged from a one-time occurrence to seven over a period
                           of four months. The average amount per instance of
                           improper payment was $731.

                           The 54 case files we examined covered a fraction of the
                           assistance payments made by Maricopa on behalf of
                           approximately 1,500 Voucher Program authorized
                           vouchers. Limited time and resources did not allow us to
                           examine additional case files. However, we performed an
                           automated analysis of Maricopa’s landlord assistance
                           payment history database and identified an additional
                           $109,000 in assistance payments, involving 111 other cases
                           that were potentially duplicate payments in 2003.
                           Maricopa officials claimed they had reviewed many of
                           these potential duplicate payments, but they did not
                           maintain any record of the ones already reviewed or any
                           documentation supporting resolution of the cases.
                           Accordingly, Maricopa needs to review these cases, resolve
                           them, and document all actions taken.

                           We could not determine whether Maricopa recovered
    Maricopa Did Not       $55,947 of the $87,720 it improperly paid as Voucher
    Track Recovery of      Program housing assistance. According to its landlord
    Improper Payments      assistance payment history database, Maricopa recaptured
                           $31,773 of the total by holding back future assistance
                           payments due to landlords that were overpaid. However,
                           Maricopa did not maintain auditable records for other
                           methods it used to recover overpayments. As a result, we
                           could not determine whether the remaining $55,947 was
                           either (1) detected by Maricopa as an overpayment or (2)
2004-LA-1007                   Page 20
                                                                            Finding 2


                          recovered by repayment from the landlord or other means.
                          Appendix B lists the improper payments and the amounts,
                          if any, recovered by Maricopa.

                          In response to our request that Maricopa determine whether
                          it had recovered any of the $55,947, officials stated that
                          some amounts were repaid; however, they did not provide
                          any documentation to support this assertion. Officials
                          explained that we had been unable to identify some of these
                          recaptured amounts because Maricopa had simply reduced
                          the assistance payment amount owed to the landlord on
                          behalf of another tenant.        In our opinion, without
                          supporting documentation, this procedure is inappropriate
                          as it obscures the assistance payment recovery and results
                          in a recorded underpayment for the second tenant’s
                          assistance payment contract.

                          Although Maricopa’s general policy was to recapture
                          improper payments from future assistance payments owed
                          to the landlord, it did not have written or consistent
                          procedures to record and recover improper assistance
                          payments. Officials did not set up any accounts receivable
                          or otherwise systematically track either the amounts
                          recovered or assistance payment checks that were never
                          cashed. In some instances, the case file contained a letter,
                          note, or adjustment slip regarding the overpayment and
                          recovery schedule, but this was not consistent. Case files
                          also did not normally contain any indication of when the
                          overpayment recovery was completed. Officials stated that
                          if they received a refund check, they manually credited the
                          landlord’s total assistance payments as reported on Internal
                          Revenue Service (IRS) form 1099.

                          Maricopa issued improper assistance payments largely as a
                          result of weak operating procedures and poor financial
Weak Operating
                          controls. As discussed under findings 1 and 3, the Voucher
Procedures and Lack of
                          Program department did not have operating procedures to
Controls Allowed Errors
                          ensure that caseworkers processed files consistently, and
                          oversight was inadequate to detect and correct patterns in
                          processing errors. Our detailed review of 54 case files did
                          not reveal any major pattern of errors that led to improper
                          payments. However, we observed the following types of
                          errors that resulted in improper payments and noted that
                          supervisory oversight and quality control procedures could
                          have detected or prevented many of these errors.

                              Page 21                                    2004-LA-1007
Finding 2


                                             •    In eight of the case files reviewed, multiple identification
                                                  numbers for either the landlord or the tenant resulted in
                                                  improper assistance payments.               The additional
                                                  identification numbers occurred because the Voucher
                                                  Program department had not established protocols for
                                                  identification number assignments or changes—staff
                                                  simply accepted the number assigned by the information
                                                  system when a new record was input. If more than one
                                                  account was used (which continues to be the case for the
                                                  portability tenants1), the same identification number could
                                                  be assigned under the other account. Careless file
                                                  maintenance also contributed to the problem.

                                             •    Errors in processing Voucher Program property
                                                  ownership changes also resulted in improper assistance
                                                  payments.          Maricopa’s     Voucher     Program
                                                  Administrative Plan—the formal operating guidance
                                                  adopted by the housing authority’s board—specifies the
                                                  required steps for documenting a property ownership
                                                  change. Basically the housing authority must either
                                                  execute a new assistance payment contract or formally
                                                  approve assignment of the existing contract to the new
                                                  owner. However, the files we reviewed showed several
                                                  instances in which procedures were not followed.

                                             For example, in January 2003, Maricopa improperly made
                                             six assistance payments to the current and previous owners
                                             of a multifamily Voucher Program property (see table
                                             below). According to a letter in one case file, the property
                                             had been sold in July 2002. In January 2003, Maricopa
                                             finally executed a new contract for one of the six case files.
                                             Our review of the landlord’s assistance payment history file
                                             did not indicate that any of these improper payments were
                                             recaptured.




1
 Portability tenants are tenants who have an assistance voucher with one housing authority and move to another
housing authority’s jurisdiction. The tenant has “ported out” of the one housing authority’s program area and
“ported in” to the other, receiving authority’s program area. The receiving authority can absorb the tenant into its
program, using one of its vouchers, or can administer the tenant and voucher on behalf of the other housing
authority, which would continue to be responsible for the assistance payments made on behalf of the tenant.
2004-LA-1007                                        Page 22
                                                                                 Finding 2

             Improper Assistance Payments to Previous Landlord 0050
            Tenant ID         Date        Landlord ID        Amount
                           01/13/2003         1092               $489.00
             0097-01
                           01/01/2003         0050               $489.00
                           01/13/2003         1092               $759.00
             0136-01
                           01/01/2003         0050               $759.00
                           01/13/2003         1092               $625.00
             0226-01
                           01/01/2003         0050               $625.00
                           01/13/2003         1092               $825.00
             0243-01
                           01/01/2003         0050               $825.00
                           01/13/2003         1092               $382.00
             0358-01
                           01/01/2003         0050               $382.00
                           01/01/2003         1092               $495.00
             0855-01
                           01/01/2003         0050               $495.00

                               Officials could have readily detected the extra payments if
                               the Voucher Program department had procedures to track
                               new assistance payment contracts and other subsidy
                               adjustments as an independent control over the automated
                               monthly assistance payment register report. Instead,
                               accounting officials verified the caseworkers’ payment
                               adjustment slips to changes on the monthly register, but
                               this procedure did not detect duplicate payments. In an
                               effort to identify duplicate payments, the accounting
                               department last year began to examine the monthly register
                               for multiple instances of tenant names. This procedure
                               continues to catch several improper payments each month;
                               however, the process is cumbersome, and we believe that
                               the Voucher Program supervisor should independently
                               approve the monthly register.

                               Officials maintained that software errors continued to cause
Management Did Not             problems despite management efforts to address them. For
Adequately Compensate          example, several officials told us the system has issued
For Information System         assistance payment checks after the contract end-date was
Limitations                    entered into the system—manual input of this date signals
                               the software to stop issuing checks. In one instance, the
                               tenant moved, and Maricopa executed a new assistance
                               payment contract and commenced payments of $670 to the
                               new landlord in January 2003. Monthly payments of $599
                               to the old landlord ceased until, inexplicably, Maricopa
                               resumed them in March 2003—while continuing payments
                               to the proper landlord. In June 2003, the previous landlord
                               notified Maricopa of the overpayments, and Maricopa
                               stopped them. Maricopa subsequently recovered $1,797


                                   Page 23                                    2004-LA-1007
Finding 2


                             (this amount only covered three of the four monthly
                             overpayments) by personal check.

                             We could not establish the exact cause for extra assistance
                             payments in this and other instances, but we agree that
                             software limitations and inaccurate data contribute to the
                             problem. Some software limitations we observed that
                             should be addressed include

                             •   Limited automated edit checks for data entry errors,
                             •   Weak access controls,
                             •   Lack of transaction histories for the family certification
                                 module,
                             •   Absence of a prompt to users when they enter an
                                 invalid identification number, and
                             •   Acceptance of duplicate identification numbers.

                             Improper assistance reduced the level of funds available to
 Improper Assistance         assist eligible families on Maricopa’s waiting list. Even
 Payments Reduced            when the overpayments were eventually recovered,
 Available Assistance and    officials spent considerable time and resources detecting,
 Wasted Other Resources      analyzing, and correcting errors—time that would have
                             been better spent improving the overall quality of the
                             Voucher Program operations. We are also concerned that
                             Maricopa’s inadequate controls over Voucher Program
                             subsidy payments leave taxpayer dollars vulnerable to
                             fraud or abuse.

                             In addition to funding the cost of improper payments made
HUD Paid Maricopa $5,405     by Maricopa, HUD inappropriately paid administrative fees
of Unearned Administrative   related to many of those payments. In fiscal year 2003,
Fees                         HUD paid the housing authority approximately $47 per
                             unit for every month it issued an assistance payment—a
                             total of $812,087 for 17,227 unit-months. However, the
                             number of unit-months claimed by Maricopa included
                             charges for any duplicate or improper payments made on
                             the first of the month. Maricopa did not subsequently adjust
                             the unit months number for any improper assistance
                             payments it recaptured or otherwise detected. Our review
                             of 54 files identified 115 instances of improper payments
                             made on the first of the month—approximately $5,405 of
                             unearned administrative fees claimed by Maricopa.




2004-LA-1007                     Page 24
                                                                                         Finding 2




Auditee Comments


Maricopa agreed that problems with duplicate identification numbers and procedures for
monthly reconciliation of the assistance payments need to be addressed. In this regard, Maricopa
claimed that, “as evidenced by the most recent “HUD/PIC” Reports,” the duplicate
landlord/tenant identification problem has been mostly eliminated. Maricopa also agreed to
verify the $55,947 in duplicate assistance payments that we identified and to address any non-
accountable amounts with HUD, subject to a corrective action plan. Maricopa’s formal response
stated that its Finance Manager disputed some of the overpaid amounts, however, there was no
documentation to support this claim. Regarding repayment of other potential assistance
overpayments of $109,361 and any administrative fees inappropriately paid by HUD for extra
assistance payments, Maricopa agreed to take the actions stated above.



OIG Evaluation of
Auditee Comments
Maricopa agreed with the basis for our finding and proposed to verify and address any
unallowable assistance payments in a corrective action plan with HUD.           We continue to
recommend that HUD recover the full amount of any unallowable payments we identified for
which Maricopa does not either document recovery or eligibility. Regarding Maricopa’s claim
that reduced errors in HUD/PIC reports are evidence that it has eliminated duplicate
identification numbers, we note that PIC did not record Maricopa’s tenant identification numbers
and we believe additional control procedures over assignment of identification numbers are
necessary to address this finding.



Recommendations                     We recommend the Director of the Regional Office of Public
                                    Housing direct Maricopa to

                                    2A.      Eliminate duplicate landlord and tenant identification
                                             numbers in its database and establish and implement
                                             procedures to ensure that such duplication does not
                                             occur in the future.

                                    2B.      Establish and implement procedures to independently
                                             reconcile the monthly assistance payment register to
                                             the amount of assistance authorized by valid
                                             contracts and their related amendments.


                                          Page 25                                     2004-LA-1007
Finding 2


               2C.      Refund to HUD the $55,947 of duplicate assistance
                        payments identified in appendix B, or provide
                        documentation     evidencing     that    appropriate
                        adjustments have already been made; and obtain
                        reimbursement from the applicable landlords for these
                        duplicate payments where adjustments have not
                        already been made.

               2D.      Research the $109,361 of potential overpayments
                        related to the other 111 case files that have not been
                        analyzed (provided to Maricopa as a separate
                        document), refund to HUD any duplicate payments
                        for which claims have been submitted, and obtain
                        appropriate reimbursement from landlords determined
                        to have received duplicate payments.

               2E.      Refund to HUD the $5,405 in unearned
                        administrative fees it received related to the 54 cases
                        we reviewed, determine whether similar ineligible
                        claims were made in relation to the other 111 case
                        files discussed in recommendation 2D that we did not
                        review, and refund any unearned fees to HUD.




2004-LA-1007         Page 26
                                                                                         Finding 3


   Potentially One-Third of Recently Processed
   Housing Assistance Payments Are Incorrect
Maricopa incorrectly computed assistance payments for approximately one-third of the Voucher
Program case files processed from December 2003 through March 2004. Our file reviews also
identified significant error rates for certification of tenant eligibility and for data reported to
HUD, as well as improper assistance payments. We attribute the high rate of errors not only to a
lack of systematic quality controls and operating guidance over file processing, but also to the
high turnover in Voucher Program staff as Maricopa sought to address multiple problems raised
in recent Rental Integrity Monitoring reports. Until planned improvements are implemented, the
errors in tenant certification and subsidy calculations will continue to allow ineligible or
excessive assistance payments that reduce the funds available to assist eligible families on
Maricopa’s waiting list.



                                      Housing authorities are ultimately responsible for ensuring
 Housing Authorities Must             that the right people receive the right amount of subsidy,
 Maintain a High Degree               and they must maintain a high degree of accuracy in
 of Accuracy                          administering the Voucher Program. In 42 United States
                                      Code (USC) 1437f, Congress stipulated specific eligibility
                                      requirements for program participants and limits on the
                                      amounts of assistance they can receive. HUD’s regulations
                                      governing the program are set out in 24 CFR 982 and
                                      detailed administrative guidance is provided in its Housing
                                      Choice Voucher Program Guidebook. In recognition that
                                      the complex requirements make the program susceptible to
                                      errors, omissions, fraud, and abuse, chapter 22 of the
                                      Guidebook outlines the types of quality control procedures
                                      that should be used to prevent and detect these problems.

                                      In addition, Office of Management and Budget (OMB)
                                      Circular A-133 (Audits of States, Local Governments and
                                      Non-profit Organizations) states that entities receiving
                                      more than $300,000 in Federal funds per year must
                                      maintain management controls over Federal programs
                                      which provide reasonable assurance that the entity is
                                      managing Federal awards in compliance with laws,
                                      regulations, and provisions of contracts or grant agreements
                                      that could have a material effect on each program.



                                          Page 27                                     2004-LA-1007
Finding 3


 Previous Monitoring    In its December 2002 monitoring review of the Voucher
 Reviews Identified     Program at the housing authority, HUD reported an error
 Significant Problems   rate of 78 percent for the tenant files it reviewed, including
                        errors relating to determination of tenant incomes used to
                        compute correct subsidy levels and to reporting accurate
                        data to HUD. In its follow-up monitoring review in
                        November 2003 HUD identified many of the same
                        problems and noted that many of its recommendations had
                        not been implemented. We attributed Maricopa’s failure to
                        take timely corrective action to factors including: high staff
                        turnover, failure to provide adequate training to new staff,
                        and administrative uncertainty caused when Maricopa
                        became a separate operating entity waiting to acquire a new
                        Executive Director.

                        To assess how effectively Maricopa’s latest actions have
 We Reviewed Recently   addressed the monitoring review findings, we evaluated
 Processed Files        case files that were recently processed and determined
                        whether caseworkers complied with HUD’s eligibility
                        criteria and accurately calculated housing subsidy levels.
                        We reviewed a random sample of 19 case files selected
                        from 605 files with processing actions that had effective
                        dates between December 1, 2003, and March 24, 2004, as
                        reported to HUD’s Public and Indian Housing Information
                        Center. For each selected file, we reviewed all actions with
                        effective dates within our time period. (For a detailed
                        description of our sampling method see Audit Scope and
                        Methodology under the Introduction section of this report.)
                        We planned the time period to obtain a snapshot evaluation
                        of Maricopa’s case processing after (1) HUD officials had
                        completed their last monitoring review and (2) Maricopa
                        had replaced most of the Voucher Program caseworkers.

                        Although the 605 case files comprised approximately 48
                        percent of 1,249 active voucher files as of March 2004, we
                        can only project our test results to the 605 files processed
                        within our sample timeframe.             In addition, our
                        methodology excluded files for cases in which the program
                        participant had ported-in to Maricopa but was not absorbed
                        or cases in which participants had ported-out, but Maricopa
                        still held the voucher. Such cases represented about 110
                        additional vouchers.




2004-LA-1007                Page 28
                                                                                                     Finding 3


                                         Our review of Voucher Program case files identified
Case Files Continue to                   incorrect determinations of assistance payments for 6 of 19
Have a High Rate of                      sample files or 32 percent. Common processing errors that
Processing Errors                        resulted in incorrect assistance payment amounts included
                                         errors in

                                         •   Utility allowance verification or calculation,
                                         •   Adjusted income verification or calculation,
                                         •   Rent verification, and
                                         •   Payment standards.

                                         We found these types of errors in 14 of the 19 sample files
                                         or 74 percent (errors in eight cases did not ultimately affect
                                         the assistance payment). We found at least one type of
                                         error in 15 of 19 files—an overall error rate of 79 percent.
                                         The following table summarizes the types of errors found
                                         in our random sample of 19 files. See appendix C for a
                                         detailed listing of errors by case file.

                      Summary of Case File Errors Found by HUD OIG
                                                             Number of     Percentage of
                                                  Number
                                                             Files with Files Sampled (19)
                  Type of Error                   of Errors
                                                            One or More with One or More
                                                   Found
                                                              Errors          Errors
   Late recertification                                 1            1                5%
       Utility arrangements/type not verified           5            5               26%
       Utility allowance calculation incorrect          6            6               32%
   Utility allowance - total errors                    11            9               47%
       Income not verified                             4             4               21%
       Income calculation incorrect                     6            6               32%
   Income calculation - total errors                   10            8               42%
   Social Security number not verified                  1            1                5%
   Medical expense calculation incorrect                1            1                5%
   Rent verification error                              1            1                5%
       50058 data incorrect -review required a        17            12               63%
                                                b
       50058 data incorrect –no review required        4             4               21%
   50058 data incorrect - total errors                 21           14               74%
   Improper assistance payment                          2            2               11%
                                          c
   Assistance payment amount incorrect                 6             6               32%
   Payment standard incorrect                           2            2               11%
     a
       The action under review should have included reentering or verifying that this data element was correctly
     recorded in the family report.
     b
        The action under review would not necessarily include reentering or verifying this data element.
     c
        Incorrect assistance payment amounts could result from errors in the determination of utility allowance,
     income, medical expenses, rent, or payment standard.



                                              Page 29                                             2004-LA-1007
Finding 3


                                       In our opinion, error rates of this magnitude do not
                                       demonstrate adequate compliance with HUD requirements.
                                       Also, for the most part, we found the same types of errors
                                       that HUD reported in its previous monitoring reviews. One
                                       exception was the decrease we observed in the frequency of
                                       errors for verification of Social Security number, birth date,
                                       and citizenship. Due to differing test methodologies, we
                                       cannot directly compare our results with HUD’s; however,
                                       both reviews examined most of the same processing details.
                                       The last monitoring review covered the period May
                                       through October 2003, and the report recommended
                                       corrective actions for the following errors:


     Summary of Voucher Program Case File Errors Reported in HUD’s Monitoring Review
                                                                                   Number
                                                                                       of
                                             Type of Error(s)                      Instance
                                                                                    s in 36
                                                                                     Files
                  Missing Social Security number, birth certificate, or proof of
                  citizenship                                                         10
                  Inadequate income/asset verification                                 9
                  Inaccurate income calculations                                      30
                  Missing deduction verifications                                      4
                  Inaccurate dependent calculations                                    7
                  Inappropriate payment standard                                      4
                  Inappropriate utility calculation                                   11
                  50058 data incorrect                                                8



                                       Our test results indicate that Maricopa continues to issue
 Improper Assistance                   improper assistance payments as a result of the same types
 Payments Continue to                  of errors we described under finding 2. In our random
 Occur                                 sample of 19 files, we found one duplicate assistance
                                       payment and one that was not based on a valid contract—
                                       an improper payment rate of 11 percent (2 of 19). The
                                       improper payments totaled $1,003 for one month. Based
                                       upon this rate, we estimated that as many as 67 of the 605
                                       files randomly sampled could have had improper payments
                                       over the roughly four-month period covered by our test.
                                       We cannot estimate the potential dollar amount of the
                                       improper payments because our sampling methodology was
                                       not designed to do so.

                                       Duplicate payment: For one sample file, we reviewed the
                                       processing of an annual reexamination with an effective
2004-LA-1007                                Page 30
                                                                          Finding 3


                        date of January 1, 2004. Maricopa paid the January 2004
                        assistance payment to the same landlord twice, once at the
                        new rate of $638 and once at the previous rate of $619.
                        The extra payment apparently occurred when caseworkers
                        assigned two identification numbers to the landlord—one
                        for use with regular accounts and another for use with port-
                        in accounts that were not absorbed. As of April 2004, the
                        landlord history reports did not show that Maricopa had
                        recaptured the duplicate payment.

                        Invalid assistance payment contract: For another sample
                        file, we reviewed an interim reexamination with an
                        effective date of March 1, 2004. Log notes in the file
                        indicated that, upon discovery that the unit had changed
                        ownership some time ago, the caseworker simply changed
                        the owner’s name and address. The same landlord number
                        was kept because no other tenants were on that account.
                        Because the new owner retained the same management
                        agent and the account was under the agent’s tax
                        identification, failure to execute a new contract went
                        unnoticed.

                        When Maricopa pays ineligible or excessive housing
Excessive or Improper   subsidies because of errors in qualifying tenants or
Payments Reduce         computing assistance amounts, fewer funds are available to
Funds for Eligible      assist other eligible families. At the time of our review,
Families                Maricopa had almost 500 applicants on its Voucher
                        Program waiting list and had not opened the list to new
                        applicants since August 2002. In our sample of 19 cases,
                        we determined that incorrect assistance payment
                        calculations resulted in a monthly net overpayment of
                        $222. Improper payments such as those described above
                        drain even more funds from the program. We cannot
                        project these amounts to the rest of the 605 files that were
                        not selected for testing, but clearly the amount of wasted
                        funds could be significant (also see finding 2).

                        In addition, our sample files showed a high rate of data
                        errors reported to HUD on form HUD-50058. Such
                        inaccurate family data reduces the ability of both HUD and
                        the housing authority to use the data for effective program
                        oversight and analysis. For example, HUD could not use
                        50058 data to evaluate Maricopa’s performance under the
                        Assessment Program because the reporting rate was too
                        low (see finding 1). Also, inaccurate data can contribute to

                            Page 31                                    2004-LA-1007
Finding 3


                      misleading or false analyses of trends and patterns that may
                      be used to make administrative or program adjustments.

                      The new managers at Maricopa as well as new staff in the
 Improved Quality     Voucher Program department have already greatly
 Control System and   improved the control environment. Officials demonstrate
 Operating Guidance   renewed interest in keeping up with HUD’s program
 Will Help            changes and correcting old problems. The new Executive
                      Director, who arrived in January 2004, appears to expect
                      accountability and has taken steps to provide the necessary
                      training and/or staffing to raise the overall level of
                      expertise at the housing authority. Such leadership appears
                      to have been absent from Maricopa for a long time, and we
                      fully recognize and support the positive changes. At the
                      same time, we believe it is imperative for the housing
                      authority to establish quality control procedures and
                      recordkeeping that will enable it to detect or prevent
                      problems and to measure improved performance.

                      As it implements these changes Maricopa must address the
                      following weaknesses that contributed to many of the
                      ongoing errors in determination of tenants’ eligibility and
                      subsidies:

                      •   Although newly updated and improved, Maricopa’s
                          Administrative Plan does not have the detailed operating
                          procedures needed to standardize the day-to-day
                          processing of case files. For example, the Plan does not
                          discuss the specific steps a caseworker should take when
                          the housing authority absorbs an assistance payment
                          contract it previously administered under the portability
                          program.       Additionally, the Plan’s chapter on
                          recertification contains many important rules and
                          guidelines but does not discuss how caseworkers should
                          use the file checklists or organize the case files. Finally,
                          the section on quality control (chapter 1, section J) has no
                          detailed procedures for sampling or recordkeeping and
                          should not be used as a substitute for the housing
                          authority’s quality control plan.

                      •   Strict protocols over the use of accounts and
                          documentation of changes in identification numbers do
                          not exist.



2004-LA-1007              Page 32
                                                                                        Finding 3


                                   •     Caseworkers inconsistently utilize quality control tools
                                         such as the file checklist.

                                   •     Caseworkers do not adequately document their
                                         calculations or the basis of their decisions, such as the
                                         exclusion of declared child support.

                                   •     Written procedures for use of the State unemployment
                                         database to corroborate reported levels of income do
                                         not exist.

                                   •     Written procedures regarding responsibilities and
                                         timeframes for correction of errors do not exist.

                                   •     Supervisory approval to adjust assistance payments is
                                         not required, and the Voucher Program department
                                         does not independently track its monthly assistance
                                         payment adjustments to provide a control for the
                                         assistance payment register prepared by the accounting
                                         department (see finding 2).



Auditee Comments

Maricopa agreed that it needed to improve its management controls and operating guidance for
the Voucher Program, ensure accuracy and compliance with HUD requirements, and monitor the
accuracy of its 50058 reporting. Actions outlined in Maricopa’s response included: revised
controls and internal guidance, development of day-to-day operating procedures, hiring of a
quality control specialist, and new software expected to improve 50058 reporting.


OIG Evaluation of
Auditee Comments

Because Maricopa agreed with the finding, we have no further comment.



Recommendations                    We recommend the Director of the Regional Office of Public
                                   Housing direct Maricopa officials to

                                   3A.      Establish and implement management controls and
                                            operating guidance to ensure that Voucher Program
                                         Page 33                                     2004-LA-1007
Finding 3


                        funds are used consistent with laws, regulations, and
                        policies and to safeguard Voucher Program resources
                        from waste, fraud, and abuse. Management controls
                        and guidance should include policies and procedures
                        to address weaknesses in the (1) documentation of
                        detailed operating procedures, (2) assignment of
                        unique identification numbers, (3) implementation of
                        quality control tools, (4) complete documentation of
                        calculations and other determinations in case files, (5)
                        procedures for use of online resources for
                        employment verification, (6) timely correction of
                        errors, and (7) monthly approval and reconciliation of
                        assistance payment adjustments.

               3B.      Monitor case files on an ongoing basis for accurate
                        calculations and compliance with all certification
                        requirements.

               3C.      Monitor the accuracy of case data reported on HUD
                        form 50058 and make needed corrections.




2004-LA-1007         Page 34
                                                                                                     Finding 4




Maricopa Did Not Follow Cost Allocation and
         Procurement Procedures
Maricopa did not have a cost allocation plan to equitably distribute all of its shared
administrative costs to the Voucher Program and did not always follow sound procurement
policies. Although Maricopa did allocate some costs, including management salaries, it had no
plan or other documented basis supporting the allocation ratios it used. To the extent Maricopa
did not charge the Voucher Program for its shared costs, Maricopa inappropriately increased its
Voucher Program administrative fee reserves at the expense of its other programs. Also,
managers did not follow sound procurement practices because they did not use the purchasing
department to obtain certain types of services. As a result, Maricopa had no assurance that
prices it paid for these services were fair and reasonable.



                                           Federal cost principles require all activities that benefit
    Office of Management                   from a governmental unit’s2 indirect costs to receive an
    and Budget Requires a                  appropriate allocation of those indirect costs. Also, when
    Cost Allocation Plan                   indirect costs will be charged to a Federal award, a cost
                                           allocation plan is required. These Office of Management
                                           and Budget requirements (Circular No. A-87 Attachment
                                           A, May 4, 1995, and as revised May 10, 2004) apply to
                                           other Federal programs administered by Maricopa, such as
                                           its low-income public housing program. The Voucher
                                           Program is conditionally exempted from A-87;3 however,
                                           under A-87 the housing authority cannot charge costs that
                                           benefit the Voucher Program to its other Federal programs.

                                           Maricopa operates its Voucher Program under a
                                           Consolidated Annual Contributions Contract between the
                                           housing authority and HUD. Under the Contract, HUD
                                           pays Maricopa a fee to administer the Voucher Program,
                                           and the housing authority must maintain an administrative
                                           fee reserve that is credited for (1) the amount by which
                                           program administrative fees exceed the housing authority’s
                                           administrative expenses for the fiscal year plus (2) interest
                                           earned on the reserve account. The Contract further

2
  Maricopa now operates as a political subdivision of Maricopa County, and the Board of Directors is appointed by
the County Supervisors. Accordingly, Maricopa is considered a governmental unit under Office of Management
Budget Circular A-87.
3
  In accordance with Volume 53 Number 48 of the Federal Register, the Section 8 programs are outside the scope of
Office of Management and Budget Circular A-102 and Circular A-87.

                                                Page 35                                           2004-LA-1007
Finding 4


                         stipulates that the housing authority must use the funds in
                         its administrative fee reserve to pay administrative
                         expenses in excess of program receipts. If any funds
                         remain in the reserve, the housing authority may use these
                         funds for other housing purposes. In addition, paragraph
                         14 of the Contract states that the housing authority must
                         maintain complete and accurate books of account, in
                         accordance with HUD requirements, and must permit a
                         speedy and effective audit.

                         HUD regulations contained in 24 CFR 85.36 set out the
 Maricopa Must Follow
                         minimum procurement standards that housing authorities
 Procurement Standards
                         must use when procuring goods or services. The standards
                         allow the housing authority to adopt procedures that reflect
                         the applicable State and local laws and regulations,
                         provided that the procurements conform to applicable
                         Federal law and the standards identified in section 85.36.

                         In accordance with applicable regulations, Maricopa used
                         procurement procedures in the Maricopa County
                         Procurement Code. Article 3, section 342, paragraph C of
                         the Code stated that for purchases estimated to cost $5,000
                         or more but less than $10,000, the Procurement Officer
                         should solicit written quotations by using a Request For
                         Quotations to at least three vendors, if possible. If only one
                         responsive quotation was received, the purchase could be
                         based on that quotation upon a determination that the price
                         was fair and reasonable. A statement was to be included in
                         the contract file setting forth the basis for determining that
                         the price was fair and reasonable. Maricopa’s procurement
                         procedures also required departments to request services by
                         means of a requisition for services to the purchasing
                         department, which then issued a purchase order. Before the
                         invoice was paid, the accounts payable department should
                         have matched the invoiced amount or rate to the purchase
                         order.

                         Maricopa had no documented cost allocation plan to
    Maricopa Had No      equitably charge its programs for their share of indirect or
    Documented Cost      joint administrative costs. For example, Voucher Program
    Allocation Plan      offices occupied roughly one half of a main office building,
                         but officials did not charge the Voucher Program for any
                         utilities for fiscal year 2003. Expenses for computer
                         software and services also did not appear as charges to the
                         Voucher Program, but officials stated those costs had been
                         paid from a capital grant fund. Officials did allocate
2004-LA-1007                 Page 36
                                                                          Finding 4


                         administrative charges billed by Maricopa County, but they
                         had no documented rationale for the amounts attributed to
                         each program.       Likewise, Maricopa allocated some
                         administrative salaries to the Voucher Program. We
                         audited salary expenses for one pay period in fiscal year
                         2004, and in most cases, the allocation ratio appeared
                         reasonable based upon our limited observations of
                         employee responsibilities. However, the allocation ratios
                         were based on spreadsheet formulas, and officials could not
                         recall how or when the formulas were established.

                         To the extent Maricopa charged the Voucher Program’s
Maricopa’s               portion of shared expenses to other Federal programs, it
Administrative Fee       understated its Voucher Program operating expenses and
Reserve May Be           inappropriately increased the program’s administrative fee
Overstated               reserve. At the end of fiscal year 2003, Maricopa’s
                         administrative fee reserve showed a balance of $415,893
                         that was included in Voucher Program unrestricted net
                         assets of $449,219 reported in Maricopa’s audited financial
                         statements. Those statements also showed an excess of
                         $64,866 in revenues over expenses. In the prior year’s
                         financial statements, Maricopa reported unrestricted net
                         assets of $345,914 and an operating loss of $16,361 for its
                         Voucher Program.        We believe the increase in the
                         unrestricted net assets during 2003 includes administrative
                         fee reserves that should have been used to pay for the
                         program’s shared expenses or otherwise improve the
                         administration of the Voucher Program.

                         Managers authorized procurements for training services
Management Disregarded   and temporary help without utilizing the housing
Sound Procurement        authority’s purchasing department and procedures. Instead,
Practices                managers told us that the human resources department
                         independently and routinely made arrangements to
                         purchase services for training and temporary help. For
                         example, managers executed a training contract with an
                         estimated cost of at least $7,800 based on a proposal
                         received by the human resources department. However,
                         the human resources department did not obtain three
                         written quotations as required. The official stated she had
                         obtained a favorable price by negotiating between two
                         organizations, but there was no purchasing file or other
                         documentation to support the basis used to determine that
                         the price was reasonable. Instead, the human resources
                         department had maintained the final contract and payment
                         information in its files. The Finance Director and the
                             Page 37                                   2004-LA-1007
Finding 4


                                     Administrator approved the payment requisition without
                                     reviewing the contract.

                                     The human resources department also arranged for
                                     temporary help services without using the purchasing
                                     department. Because officials procured the services under
                                     a county contract, the purchase was not subject to the
                                     quotations process. However, the human resources official
                                     made verbal agreements with the temporary help agency
                                     regarding the level of expertise to be provided and the
                                     hourly cost. From this point on, the human resources
                                     department had nothing to do with the procurement.
                                     Department managers approved time slips for the
                                     temporary workers, and the temporary help agency billed
                                     the housing authority using an hourly rate. Since the
                                     Finance Director and the Administrator were not privy to
                                     the verbal arrangement between human resources and the
                                     temporary help agency, they approved payments without
                                     any way of knowing whether the agency billed at the
                                     agreed upon price.

                                     When officials circumvent procurement policies and
                                     procedures, they may fail to comply with laws and
                                     regulations, make uneconomical purchases, and invite
                                     abuse. For example, failure to obtain multiple bids on
                                     higher dollar procurements can result in reduced
                                     competition and higher prices than necessary. Also,
                                     procedures that require documentation of agreed-upon
                                     prices, quantities, and qualities of goods or services prevent
                                     abuses such as overcharges and invalid claims for payment.



Auditee Comments


Maricopa agreed that it needs a revised cost allocation plan and revised procurement practices
with special emphasis on federal requirements. The response questioned the direction of our
recommendation that it reallocate shared costs according to the benefiting program in fiscal year
2003.




2004-LA-1007                             Page 38
                                                                                           Finding 4




OIG Evaluation of
Auditee Comments

Maricopa should apply the cost allocation methods that it adopts in its new cost allocation plan
to the financial operating statements for fiscal year 2004. In addition, it should use the new cost
allocation methods to re-compute and restate any shared expenses that were incorrectly reported
in its fiscal year 2003 financial statements.



Recommendations                       We recommend the Director of the Regional Office of Public
                                      Housing direct Maricopa officials to

                                      4A.      Develop and implement a cost allocation plan to
                                               equitably distribute shared costs among HUD
                                               programs as well as any applicable nonfederal
                                               programs.

                                      4B.      Using the established cost allocation plan, reallocate
                                               shared costs to the benefiting program for fiscal years
                                               ending June 30, 2003, and 2004.

                                      4C.      Implement procedures to ensure appropriate
                                               procurement procedures are followed for all
                                               purchases.




                                            Page 39                                     2004-LA-1007
Finding 4




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2004-LA-1007   Page 40
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. We reviewed the Maricopa’s management controls to determine
our audit procedures and not to provide assurance on management controls.

Management controls include the plan of organization; methods and procedures adopted by
management to ensure that its goals are met; the processes for planning, organizing, directing,
and controlling program operations; and the systems for measuring, reporting, and monitoring
program performance.



                                    We determined the following management controls were
 Relevant Management
                                    relevant to our audit objectives:
 Controls
                                    •   Program Operations – Policies and procedures that
                                        management has implemented to reasonably ensure that a
                                        program meets its objectives.

                                    •   Validity and Reliability of Data – Policies and procedures
                                        that management has implemented to reasonably ensure
                                        that valid and reliable data are obtained, maintained, and
                                        fairly disclosed in reports.

                                    •   Compliance with Laws and Regulations – Policies and
                                        procedures that management has implemented to
                                        reasonably ensure that resource use is consistent with
                                        laws and regulations.

                                    •   Safeguarding Resources – Policies and procedures that
                                        management has implemented to reasonably ensure that
                                        resources are safeguarded against waste, fraud, loss, and
                                        misuse.

                                    We assessed the relevant controls identified above.

                                    It is a significant weakness if management controls do not
    Significant Weaknesses          provide reasonable assurance that the process for planning,
                                    organizing, directing, and controlling program operations will
                                    meet an organization’s objectives.

                                    Based on our review, we believe the following items are
                                    significant weaknesses:


                                        Page 41                                      2004-LA-1007
Management Controls


                      •   Maricopa did not establish recordkeeping systems to track
                          performance, quality control, or compliance with
                          Voucher Program administrative requirements (see
                          finding 1).

                      •   Maricopa did not have adequate procedures to ensure that
                          participant family data submitted to HUD was accurate
                          and timely (see finding 3).

                      •   Maricopa did not have adequate procedures to ensure that
                          its administrative fees were based on accurate program
                          participation data (see finding 2)

                      •   Maricopa did not have adequate controls to ensure that it
                          correctly certified eligibility for its Voucher Program
                          participants and correctly calculated housing subsidy
                          levels (see finding 3).

                      •   Maricopa did not have adequate controls to ensure that it
                          safeguarded its Voucher Program funds from improper
                          payments that were wasteful, fraudulent, or abusive (see
                          finding 2).

                      •   Maricopa did not have adequate controls to ensure that all
                          purchases were economical and appropriately charged to
                          the Voucher Program (see finding 4).




2004-LA-1007              Page 42
Follow-up on Prior Audits
The prior HUD OIG audit of Maricopa covered the period January 1, 1992, through May 31,
1993, and focused on activities after Maricopa County took over operations of the Maricopa
Housing Authority in February 1992 (HUD OIG Audit Report 93-SF-202-1016, September 24,
1993). No findings remain unresolved from that audit; however during the current audit, we
noted deficiencies that are similar to problems we reported in 1993. These deficiencies were in
the areas of procurement, cost allocation, rent reasonableness determinations, and utility
allowances. Finding 1 of this report discusses rent reasonableness determinations and utility
allowances. Finding 4 discusses procurement and cost allocation.

The latest Independent Public Accountant’s report covered the fiscal year ending June 30, 2003.
The Accountant’s report on compliance and internal controls noted the following reportable
conditions that pertain to our audit: Maricopa did not comply with requirements for (1) the
submission of the Assessment Program report to HUD and (2) the maintenance of Section 8
Voucher Program tenant files. Findings 1 and 3 of our report address these conditions. The
Independent Accountant’s report concluded that none of the reportable conditions rose to the
level of a material weakness. We disagree. In our opinion, these management deficiencies were
so serious that Maricopa did not fully earn the administrative fees it received from HUD to
administer the program in 2003.




                                        Page 43                                   2004-LA-1007
______________________________________________________________________________
Follow Up On Prior Audits




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2004-LA-1007                     Page 44
______________________________________________________________________________

Issues Needing Further Study and
Consideration
We did not perform a complete review of Maricopa’s Voucher Program portability accounts;
however, we noted that many of the processing errors in our sample files were related to these
accounts. The portability program has significantly affected Maricopa’s operations because the
housing authority’s jurisdiction—unincorporated Maricopa County and its cities with no housing
authorities of their own—is contiguous with jurisdictions for at least 10 other housing
authorities. According to Maricopa officials, the other housing authorities do not always process
portable accounts properly or consistently, and guidance from HUD has been inadequate. In
addition, although the Independent Auditor issued an unqualified opinion on Maricopa’s
Financial Statements for the fiscal year ending June 30, 2003, the report found deficiencies in
Maricopa’s accounting for portability receivables. The finding also noted that Maricopa had not
adjusted its financial statements to correct for portability accounting errors identified in the fiscal
year 2001 financial audit.

Further study and consideration of Maricopa’s procedures and controls for its portability
accounts is needed to determine whether Maricopa properly processes, accounts for and reports
its Voucher Program participants in the portability program.




                                           Page 45                                       2004-LA-1007
______________________________________________________________________________
Issues Needing Further Study and Consideration




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2004-LA-1007                     Page 46
                                                                                    Appendix A

Schedule of Questioned Costs
and Funds Put to Better Use
Recommendation                       Type of Questioned Cost              Funds Put to
   Number                     Ineligible 1/         Unsupported 2/         Better Use 3/

1G                             $812,087

2C                             $ 55,947

2D                                                   $109,361

2E                             $ 5,405

Totals                        $873,439              $109,361


1/       Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
         that the auditor believes are not allowable by law; contract; or Federal, State or local
         policies or regulations.

2/       Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
         activity, and eligibility cannot be determined at the time of audit. The costs are not
         supported by adequate documentation, or there is a need for a legal or administrative
         determination on the eligibility of the costs. Unsupported costs require a decision by
         HUD program officials.          This decision, in addition to obtaining supporting
         documentation, might involve a legal interpretation or clarification of departmental
         policies and procedures.

3/       Funds Put to Better Use are costs that will not be expended in the future if our
         recommendations are implemented.




                                          Page 47                                   2004-LA-1007
Appendix A




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2004-LA-1007    Page 48
                                                                                  Appendix B

Schedule of Improper Assistance Payments
Case Count Tenant Number Landlord Number Improper Payments Recaptured       Uncollected
     1        0057-01          1202               $7,588.00       $0.00          $7,588.00
              0057-01          1144               $2,916.00       $0.00          $2,916.00
     2        0088-01           481                 $654.00     $436.00            $218.00
     3        0090-01
              0123-01           455               $3,540.00   $3,540.00              $0.00
     4        0097-01            50                 $489.00       $0.00           $489.00
     5        0120-01          1054               $4,260.00   $3,000.00          $1,260.00
     6        0136-01          1092               $1,518.00       $0.00          $1,518.00
     7        0193-01           248               $1,080.00        $0.00         $1,080.00
     8        0195-01            25               $2,067.00   $1,378.00            $689.00
     9        0213-01           481               $1,670.00   $1,616.00             $54.00
    10        0226-01            50                 $625.00       $0.00           $625.00
    11        0243-01            50                 $825.00       $0.00           $825.00
    12        0358-01            50                 $382.00       $0.00           $382.00
    13        0378-01           754                 $832.00     $416.00            $416.00
    14        0463-01           417               $3,300.00   $3,300.00              $0.00
    15        0535-01           417               $5,375.00   $1,455.00          $3,920.00
    16        0570-01            91               $1,035.00        $0.00         $1,035.00
    17        0706-01
              0050-01           570               $3,240.00   $3,240.00              $0.00
    18        0852-01           481               $1,962.00        $0.00         $1,962.00
    19        0855-01            50                 $495.00       $0.00           $495.00
    20        0882-01           614               $1,250.00        $0.00         $1,250.00
    21        1044-01            50               $2,396.00   $1,797.00            $599.00
    22        1084-01           174               $3,356.00   $1,668.00          $1,688.00
    23        2073-01          1161               $2,196.00       $0.00          $2,196.00
    24        2085-01
              1086-01          455                $2,840.00   $2,840.00              $0.00
    25        3117-01           823               $1,125.00       $0.00          $1,125.00
    26        3121-01
              0247-01           323               $2,322.00        $0.00         $2,322.00
    27        3145-01           366               $5,970.00        $0.00         $5,970.00
    28        0514-01
              3147-01          481                $2,010.00   $2,005.00              $5.00
    29        4026-01           455               $5,997.00        $0.00         $5,997.00
    30        6054-01          1292                 $374.00       $0.00           $374.00
    31        6096-01          1186               $6,342.00   $2,114.00          $4,228.00
    32        6117-01          1253               $2,991.00   $1,994.00            $997.00
    33        7015-01           738                 $974.00     $974.00              $0.00
    34        7025-01
              6096-01          1186               $3,171.00        $0.00         $3,171.00
    35        7072-01            23                 $553.00       $0.00           $553.00
Totals                                           $87,720.00    $31,773.00       $55,947.00




                                       Page 49                                    2004-LA-1007
Appendix B
Schedule of Improper Assistance Payments




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2004-LA-1007                          Page 50
                                                                                                                                 Appendix C
Schedule of Errors in Sampled Case Files
 Sample                                                           Number of
                              Type of Error                                          Description of 50058 Data Error(s)
   No.                                                            Occurrences

     1     Late recertification                                         1
           Utility verification/calculation mistake                     1
           Utility verification/calculation mistake                     1

     2     Income verification/calculation mistake                      2                 Food Stamp income omitted
           Incorrect 50058 data                                         1
           Incorrect assistance payment calculation                     1
     3     None
     4     Income verification/calculation mistake                      2
     5     Incorrect 50058 data                                         1                     Incorrect last name*

     6     Utility verification/calculation mistake                     1                      Incorrect unit size
           Incorrect 50058 data                                         1
           Medical expense verification/calculation error               1
     7     Incorrect 50058 data                                         1                 Incorrect payment standard
           Incorrect assistance payment calculation                     1
           Incorrect assistance payment calculation                     1
     8     Income verification/calculation mistake                      1                   Incorrect effective date
           Incorrect 50058 data                                         1
           Utility verification/calculation mistake                     1
     9     Incorrect 50058 data                                         2           Incorrect unit size, incorrect action code
           Improper assistance payment                                  1
           Utility verification/calculation mistake                     2           Incorrect unit size, Food Stamp income
    10
           Incorrect 50058 data                                         2                           omitted*
                                                                                   Incorrect Soc.Sec. number and inspection
    11     Incorrect 50058 data                                         3
                                                                                     pass date, Food Stamp income omitted
           Utility verification/calculation mistake                     1
           Income verification/calculation mistake                      1
    12     Rent verification mistake                                    1                     Incorrect first name
           Incorrect 50058 data                                         1
           Improper assistance payment                                  1
           Utility verification/calculation mistake                     1
           Income verification/calculation mistake                      1         Incorrect Social Security number, incorrect
    13     Social Security number not verified                          1          inspection pass date, incorrect owner tax
                                                                                             identification number
           Incorrect 50058 data                                         3
           Incorrect assistance payment calculation                     1
           Utility verification/calculation mistake                     2

    14     Income verification/calculation mistake                      1                 Food Stamp income omitted
           Incorrect 50058 data                                         1
           Incorrect assistance payment calculation                     1
    15     None
           Income verification/calculation mistake                      1
                                                                                  Incorrect birth date,* unverified owner tax
    16     Utility verification/calculation mistake                     1                    identification number
           Incorrect 50058 data                                         2
           Income verification/calculation mistake                      1

    17     Incorrect 50058 data                                         1                      Incorrect unit size
           Incorrect assistance payment calculation                     1
           Incorrect payment standard                                   1
           Incorrect 50058 data                                         1
    18                                                                                 Social Security number incorrect*
           Incorrect payment standard                                   1
    19       None
* Indicates that the action we reviewed did not include verification of the 50058 data. For example, an interim monitoring exam to change
family income does not require the caseworker to reverify the Social Security numbers.


                                                             Page 51                                                             2004-LA-1007
                                                        Appendix C
Schedule of Errors in Sampled Case Files




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2004-LA-1007                           Page 52
                             Appendix D

Auditee Comments




                   Page 53   2004-LA-1007
Appendix D




2004-LA-1007   Page 54
          Appendix D




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Appendix D




2004-LA-1007   Page 56
          Appendix D




Page 57   2004-LA-1007
Appendix D




2004-LA-1007   Page 58