oversight

Seattle Housing Authority, Moving To Work Demonstration Program Seattle, Washington

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-05-21.

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

         AUDIT REPORT




      SEATTLE HOUSING AUTHORITY
MOVING TO WORK DEMONSTRATION PROGRAM
         SEATTLE, WASHINGTON

              2004-SE-1004

              MAY 21, 2004



         OFFICE OF AUDIT, REGION 10
           SEATTLE, WASHINGTON
                                                              Issue Date
                                                                      May 21, 2004
                                                              Audit Case Number
                                                                      2004-SE-1004




TO: Milan Ozdinec, Deputy Assistant Secretary, Office for Public Housing Investments, PI



FROM: Frank E. Baca, Regional Inspector General for Audit, 0AGA

SUBJECT:     Seattle Housing Authority
             Moving To Work Demonstration Program
             Seattle, Washington

We completed an audit of the Seattle Housing Authority’s Moving To Work Demonstration
Program activities. We performed the audit as part of a national audit of the Department’s
Moving To Work Demonstration Program. This report contains two 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 (206) 220-5360.
Management Memorandum




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2004-SE-1004              Page ii
Executive Summary
We completed an audit of the Seattle Housing Authority’s (Authority) Moving To Work
Demonstration Program (MTW Program). The audit objectives were to determine if the
Authority’s MTW Program activities furthered the purpose of the Program and were carried out
in compliance with Program agreements. The Authority’s Program included 17 activities, 8 of
which the Authority actually implemented.



                                    Under the MTW Program the Authority designed activities
 HUD did not require the            to accomplish the Program’s purpose of reducing cost and
 Authority to collect               achieving greater cost effectiveness, providing work
 information to show the            incentives to promote resident self-sufficiency, and
 purpose of the Program             increasing housing choices for low-income families.
 was furthered                      However, HUD did not require the Authority to evaluate
                                    Program accomplishments or keep specific records to
                                    facilitate such an evaluation. Accordingly, the Authority
                                    did not have readily available information to determine if
                                    the activities furthered the purpose of the Program. We
                                    will address this issue during our national audit of the
                                    MTW Program.

                                    Our review of the eight activities implemented showed the
 Two of eight Authority             Authority was carrying out six of the activities in
 MTW activities did not             compliance with the MTW Agreement. However, the
 fully comply with several          Authority did not carry out the two remaining activities in
 Program requirements               full compliance with Program requirements:

                                       •    For the “Simplification of the Process to Project-
                                            Base Section 8 Assistance” activity, our sample of
                                            11 (of 60) housing projects showed the Authority
                                            exceeded the authority granted under the MTW
                                            Demonstration Agreement for simplifying the
                                            process to project-base Section 8 Certificates and
                                            Vouchers. As a result, the Authority cannot provide
                                            HUD with assurance that: (1) impacts on
                                            environmental quality were properly considered; (2)
                                            prevailing wages were paid; (3) relocation and real
                                            property acquisition requirements were met; and (4)
                                            assistance was the minimum needed to provide
                                            affordable housing. Authority officials told us the
                                            design of their MTW Program made it unnecessary
                                            to address environmental, prevailing wage,
                                            relocation and acquisition requirements, and the
                                            MTW Demonstration Agreement did not require
                                            them to perform subsidy-layering reviews.

                                        Page iii                                   2004-SE-1004
Executive Summary



                              •   For the “Site-Based Waiting List” activity, the
                                  Authority did not implement its site-based waiting
                                  list program in accordance with HUD requirements.
                                  Specifically, the Authority did not collect required
                                  information on tenant and applicant nationality and
                                  language. As a result, the Authority did not carry
                                  out agreed to affirmative marketing, and racial
                                  concentrations as reported in its Annual Report
                                  were as high as 86 percent. Authority officials told
                                  us they perceived tenants as having diverse national
                                  and language backgrounds and concluded there was
                                  no racial concentration.

                           We provided Authority Board and management officials
 The Authority Disagreed   with a discussion draft report on March 19, 2004, and
 with the Draft Report     discussed our findings with them at the exit conference on
                           April 1, 2004. On April 19, 2004, we provided the
                           Authority a formal draft report and the Executive Director
                           responded with written comments on May 3, 2004. The
                           Executive Director generally disagreed with our findings
                           and noted there were differences in the interpretation of the
                           Moving To Work requirements. The findings section of
                           this report summarizes and evaluates the Authority’s
                           comments. A copy of the Authority’s full response is
                           included in Appendix B.

                           For the Simplification of the Process to Project-Base Section
 Recommendations           8 Assistance activity we recommend that HUD make a
                           determination regarding the issues raised. If appropriate,
                           HUD should require the Authority to bring the sampled
                           projects into compliance with MTW Program requirements or
                           repay housing assistance payments, review the projects that
                           were not in the audit sample to determine if Program
                           requirements were met and take appropriate action as needed,
                           and ensure that any future project-based Section 8 assistance
                           complies with the MTW Demonstration Agreement.
                           Regarding the Site-Based Waiting List activity, we
                           recommend that HUD require the Authority to take necessary
                           measures to properly implement its affirmative fair housing
                           marketing activity.




2004-SE-1004                   Page iv
Table of Contents
Management Memorandum                                                   i



Executive Summary                                                     iii



Introduction                                                           1



Findings

1.    The Authority Did Not Comply With Environmental, Labor, and
      Other Moving To Work Program Requirements When Awarding
      Project-Based Assistance                                       5
2.    The Seattle Housing Authority Needs to Properly Address Racial
      Concentrations in Assisted Buildings                          17




Management Controls                                                   23



Follow Up On Prior Audits                                             25



Appendices
     A. Schedule of Questioned Costs and Funds Put to Better Use      27

     B. Auditee Comments                                              29

     C. Sampling Methodology                                          37

     D. Distribution                                                  39



                               Page v                        2004-SE-1004
Table of Contents




Abbreviations

Authority           Seattle Housing Authority
FHEO                Fair Housing & Equal Opportunity
HAP                 Housing Assistance Payments
HUD                 U.S. Department of Housing and Urban Development
MTW Program         Moving To Work Demonstration Program
OIG                 Office of Inspector General
URA                 Uniform Relocation Assistance and Real Property Acquisition
                     Act of 1970, as amended




2004-SE-1004                          Page vi
Introduction
The Moving To Work Demonstration Program was established by Public Law 104-134 Section
204 (April 26, 1996). The MTW Program tasked HUD with identifying replicable models for
reducing cost and achieving greater cost effectiveness; providing work incentives to promote
resident self-sufficiency; and increasing housing choices for low-income families. To
accomplish this task, HUD offered up to 30 Public Housing Authorities the unprecedented
authority to design and test, with HUD approval, housing and self-sufficiency strategies that had
not been possible under the existing programs.

The Seattle Housing Authority submitted a proposal to participate in the MTW Program in
response to HUD’s December 18, 1996 MTW Program notice in the Federal Register. HUD
accepted the Authority’s proposal, and an MTW Demonstration Agreement was executed in
December 1998 with a 5-year term. In January of 2001 the Authority and HUD agreed to extend
the term of the MTW Demonstration Agreement through September 2006.

The MTW Demonstration Agreement established the requirements applicable to the Authority’s
Program. Further, the Agreement included the Statement of Authorizations that specifically
described the activities that could be carried out under the MTW Demonstration Agreement.
The Authority’s MTW Program Agreement authorized 17 activities. Of the 17 activities, the
Authority decided to implement eight:

           •   Site-Based Waiting List
           •   Changes to Section 8 Tenant-Based Assistance Program
           •   Simplification of the Process to Project-Base Section 8 Assistance
           •   Simplification of Housing Management Practices
           •   Targeting Assistance
           •   Establish Reasonable Rent and Subsidy Levels
           •   Single Fund Budget with Full Flexibility
           •   Investment Policy



                                     Our audit objectives were to determine if the Authority’s
 Audit Objectives                    Moving To Work Demonstration Program activities
                                     furthered the purpose of the Program and were carried out
                                     in compliance with Program agreements.


                                     To achieve our objectives, we performed audit procedures
 Audit Scope and                     that included:
 Methodology
                                     Obtaining and reviewing:




                                          Page 1                                     2004-SE-1004
Introduction


                  •   The MTW Demonstration Agreement between
                      HUD and the Authority to determine the activities
                      approved.

                  •   HUD files and records to obtain information
                      relevant to the Authority’s MTW Program.

                  •   The Authority’s annual MTW Program plans and
                      reports.

                  •   Available Authority records showing how activities
                      further the purpose of the MTW Program.

                  •   Available Authority records showing how activities
                      meet the requirements established in the MTW
                      Demonstration Agreement.

               Interviewing:
                   • HUD program staff to confirm our understanding of
                       the MTW Program requirements the Authority must
                       follow.

                  •   The Authority’s current staff members involved in
                      implementation of the MTW Program to obtain
                      information regarding Program purpose, activities,
                      and records.

               In addition, to evaluate the Authority’s compliance with
               Program requirements for project-based Section 8
               assistance, we selected a non-statistical sample of 11
               projects drawn from the 60 projects in the Program.
               Accordingly, our test results apply to the 11 projects tested
               and cannot be projected to the remaining 49 projects (see
               Appendix C for sampling methodology).

               Finally, we used Fair Housing & Equal Opportunity
               (FHEO) guidance to analyze the Authority’s information
               on resident racial composition for buildings with site-based
               waiting lists. We used the FHEO guidance because the
               Authority did not have standards for determining if
               buildings were racially identifiable.

               We performed audit work from August 2003 through
               November 2003. The audit covered the period May 1997
               through March 31, 2003. We extended the review, where

2004-SE-1004       Page 2
                                              Introduction


appropriate, to include other periods. We performed the
Audit in accordance with generally accepted government
auditing standards.

We provided a copy of this report to the Deputy Assistant
Secretary of the Office for Public Housing Investments.




    Page 3                                     2004-SE-1004
Introduction




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2004-SE-1004   Page 4
                                                                                              Finding 1


     The Authority Did Not Comply With
  Environmental, Labor, and Other Moving To
  Work Program Requirements When Awarding
           Project-Based Assistance
In implementing its Simplification of the Process to Project-Base Section 8 Assistance
activity, the Seattle Housing Authority exceeded the authority granted under the Moving
To Work Demonstration Agreement when it disregarded select MTW Program
requirements applicable to project-based Section 8 assistance. As a result, project-based
Section 8 assistance totaling $1.5 million has been provided with no assurance that: (1)
impacts on environmental quality were properly considered; (2) prevailing wages were
paid; (3) relocation and real property acquisition requirements were met; and (4) the
assistance was the minimum needed to provide affordable housing. Authority officials told
us the design of their Program made it unnecessary to address environmental, prevailing
wage, relocation and acquisition requirements, and the MTW Demonstration Agreement
did not require them to perform subsidy-layering reviews.



                                    The following table summarizes the results for the 11 (of
                                    60) projects reviewed in our sample, and shows Housing
                                    Assistance Payments (HAP) received, estimated annual
                                    HAPs, and MTW Program requirements that the Authority
                                    did not adhere to.

                                              Moving To Work Demonstration Program Requirements not met
                                                                           Relocation
                   Total HAP                                              Assistance and
                    made at     Estimated                   Prevailing    Real Property
    Project Name    11/2003    Annual HAP   Environmental     Wage         Acquisition     Subsidy-layering
Eastlake
Supportive
Housing                         $111,000         ⌧             ⌧               ⌧                 ⌧
YWCA Opportunity
Place                           $748,200         ⌧             ⌧                                 ⌧
St. Charles
Apartments                      $279,000         ⌧             ⌧                                 ⌧
Colwell Building    $422,556    $117,923         ⌧                                               ⌧
Legacy Hotel        $148,816     $99,211         ⌧                                               ⌧
Meadowbrook
View                $223,198    $223,198         ⌧                                               ⌧
Lam Bow             $241,682    $241,682         ⌧                             ⌧                 ⌧

                                        Page 5                                             2004-SE-1004
Finding 1


Apartments
Plymouth Place              $257,917      $309,500          ⌧            ⌧           ⌧              ⌧
Traugott Terrace             $66,141      $132,282          ⌧            ⌧                          ⌧
Kingway
Apartments                   $17,199       $34,398          ⌧                                       ⌧
Morrison Hotel              $138,955      $555,820          ⌧                        ⌧              ⌧
Total HAP                 $1,516,464 $2,852,214


                                              Each requirement not followed is separately discussed
                                              below.

                                              The MTW Agreement (Article I.J.) specifically requires the
    The Moving To Work
                                              Authority to obtain HUD environmental approval under 24
    Demonstration Agreement
                                              CFR Part 50 before committing HUD or local funds to
    specifically requires
                                              Program activities involving eligible property. Further, the
    environmental reviews
                                              MTW Agreement (Article I.A.3.) states that Section 12 of
    and payment of prevailing
                                              the 1937 Housing Act1 governing wage rates shall apply to
    wages
                                              housing assisted under the MTW Program, unless tenant
                                              based assistance is the only assistance received by
                                              participating families and the housing in which they reside
                                              receives no other assistance. Accordingly, the section of
                                              the 1937 Housing Act regarding wage rates applies to
                                              project-based Section 8 assistance.

                                              The MTW Demonstration Agreement states that, if
    Environmental reviews                     applicable to activities under the Agreement’s Statement of
    were not performed                        Authorizations, the Authority agreed to provide HUD with
                                              any documentation needed to carry out its review under the
                                              National Environmental Policy Act (NEPA) and other
                                              related authorities, and otherwise assist HUD in complying
                                              with 24 CFR Part 50 environmental review procedures.
                                              The Authority further agreed (a) to carry out mitigating
                                              measures required by HUD or select an alternate eligible
                                              property, if permitted by HUD, and (b) not to acquire,
                                              rehabilitate, convert, lease, repair or construct property, or
                                              commit HUD or local funds to Program activities involving
                                              eligible property without HUD’s approval under 24 CFR
                                              Part 50.

                                              The Authority did not receive HUD environmental
                                              approval under 24 CFR Part 50 for projects receiving
                                              project-based Section 8 assistance. Authority officials told
                                              us they did not request or receive environmental reviews

1
    Section 12 of the United States Housing Act of 1937 (42 U.S.C. 1437J).

2004-SE-1004                                       Page 6
                                                                          Finding 1


                      from HUD for any of the projects provided project-based
                      Section 8 assistance under the MTW Program. Our review
                      of documentation for the 11 projects also found no
                      Authority requests for environmental reviews or evidence
                      of HUD approvals.

                      The MTW Demonstration Agreement (Article I.A.3.)
Non-compliance with   specifically states that the prevailing wage requirements in
prevailing wage       Section 12 of the United States Housing Act of 1937
requirements          continue to apply to the Authority. Section 12 states:

                      “Any contract for loans, contributions, sale, or lease
                      pursuant to this chapter shall contain a provision requiring
                      that not less than the wages prevailing in the locality, as
                      determined or adopted (subsequent to a determination
                      under applicable State or local law) by the Secretary, shall
                      be paid to all architects, technical engineers, draftsmen, and
                      technicians employed in the development, and all
                      maintenance laborers and mechanics employed in the
                      operation, of the low-income housing project involved; and
                      shall also contain a provision that not less than the wages
                      prevailing in the locality, as predetermined by the Secretary
                      of Labor pursuant to the Davis-Bacon Act [40 U.S.C. 276a
                      et seq.], shall be paid to all laborers and mechanics
                      employed in the development of the project involved
                      (including a project with nine or more units assisted under
                      section 8 of this Act…), and the Secretary shall require
                      certification as to compliance with the provisions of this
                      section prior to making any payment under such contract.”

                      The Authority did not include provisions for compliance
                      with prevailing wage requirements in the agreements
                      entered for project-based Section 8 assistance. Our review
                      showed prevailing wage requirements were applicable to
                      five of the 11 projects in our audit sample. The agreements
                      with the owners of these five projects did not require
                      prevailing wages.

                      The Authority entered into agreements with the owners of
                      the five projects to provide project-based Section 8
                      assistance before construction or rehabilitation was started.
                      Those agreements were in the form of letters from the
                      Authority committing project-based Section 8 assistance to
                      the owners of the proposed projects. The following table
                      shows the date of commitment letter and the start of
                      construction or rehabilitation for the five projects.

                          Page 7                                       2004-SE-1004
Finding 1



                                       Date of commitment to
                 Project                provide project-based          Date Construction or
                                         Section 8 assistance          Rehabilitation started
        Eastlake Supportive          July 11, 2001                  Anticipated start in early
        Housing                                                     2004
        Traugott Terrace             July 11, 2001                  July 2002
        Plymouth Place/ aka First    July 11, 2001                  December 19, 2001
        & Denny
        YWCA-Opportunity Place       July 11, 2001                  October 1, 2002
        St. Charles Apartments       March 18, 2002                 March 24, 2003

                                    The five projects included two that were in operation at the
                                    time of our audit, and had received HAPs totaling about
                                    $324,000. For the remaining three projects that were not
                                    yet in operation, the Authority commitment letters included
                                    monthly HAPs that would amount to $1.1 million annually.

                                    The MTW Demonstration Agreement did not explicitly
 The Authority was not              state that the Authority had to follow federal relocation
 exempt from adhering to            assistance, real property acquisition, or subsidy-layering
 Uniform Relocation                 requirements. However, the Agreement did state that the
 Assistance, Real Property          Authority was subject to all requirements of the Annual
 Acquisition, and Subsidy-          Contributions Contracts, United States Housing Act of
 layering requirements              1937, and other HUD requirements except as necessary to
                                    implement the activities in the Statement of Authorizations.
                                    These requirements include federal provisions regarding
                                    relocation assistance, real property acquisition, and
                                    subsidy-layering. The activities the Authority was
                                    authorized to implement involved simplifying the process
                                    to project-base Section 8 Certificates and Vouchers,
                                    selecting projects to receive assistance, and suspending
                                    HUD reviews and approvals. In implementing these
                                    activities, the Authority did not need to do away with
                                    Uniform Relocation Assistance, Real Property Acquisition,
                                    and subsidy-layering requirements; therefore, the Authority
                                    had to follow these requirements. Further, the Authority’s
                                    Fiscal Year 2001 annual plan included a certification that
                                    the Authority will comply with acquisition and relocation
                                    requirements of the Uniform Relocation Assistance and
                                    Real Property Acquisition Policies Act of 1970 and
                                    implementing regulations as applicable.



2004-SE-1004                            Page 8
                                                                                Finding 1


                            Federal regulations at 24 CFR Part 983 require that project-
The Authority did not       based Section 8 assistance be provided in compliance with
require or monitor          the Uniform Relocation Assistance and Real Property
compliance with Uniform     Acquisition Policies Act.
Relocation Assistance and
Real Property Acquisition
Policies Act requirements


                            The regulations at 24 CFR 983.10 state that a displaced
Relocation Assistance       person must be provided relocation assistance at the levels
requirements not followed   described in, and in accordance with the requirements of,
                            the Uniform Relocation Assistance and Real Property
                            Acquisition Policies Act of 1970, as amended (URA) (42
                            U.S.C. 4201– 4655) and implementing regulations at 49
                            CFR part 24. The relocation requirements at 49 CFR part
                            24 include provisions that at least one comparable
                            replacement dwelling is made available to the person to be
                            displaced, relocation assistance advisory services be
                            provided, reasonable documentation supporting relocation
                            expenses be kept, and displaced persons receive payment
                            for moving and related expenses.

                            The Authority’s agreements for project-based Section 8
                            assistance did not include provisions for compliance with
                            relocation requirements. Our sample review of 11 projects
                            identified two projects that involved potential
                            displacement:

                                   •     Plymouth Place. The proposal for project-based
                                         Section 8 assistance at the Plymouth Place
                                         project stated the site was presently occupied by
                                         an Ivar's Fish & Chips restaurant; however, the
                                         proposal did not indicate whether the restaurant
                                         was in operation or closed. We contacted the
                                         Plymouth Place owner and Ivar’s, who informed
                                         us that on May 23, 2001 the owner notified
                                         Ivar’s that its lease would be terminated on
                                         September 1, 2001. An Ivar’s official told us
                                         that they closed operations, moved all company
                                         owned equipment and fixtures, and turned the
                                         property over to Plymouth Housing on
                                         September 1.

                                         The owner’s May 23, 2001 notice to Ivar’s that
                                         their lease would be terminated came 12 days

                                Page 9                                       2004-SE-1004
Finding 1


                                           after the Authority issued the request for
                                           proposals for project-based Section 8 assistance,
                                           and nine days before the application for
                                           assistance was prepared. Accordingly,
                                           relocation benefits may have been applicable.

                                    •      Morrison Hotel. The development budget
                                           narrative in exhibit C of the Morrison Hotel
                                           HAP states the building will operate during
                                           construction (rehabilitation) and includes a
                                           $257,000 relocation entry that notes a
                                           breakdown was previously provided. We
                                           contacted the Morrison Hotel owner, who said
                                           that residents were relocated during
                                           construction, and that relocation requirements
                                           were also contractually required by other
                                           funding sources. However, the Authority has no
                                           assurance that relocation requirements were
                                           met.

                             For these two projects, the Authority did not fulfill its
                             responsibility to require and monitor compliance with
                             relocation requirements.

                             Federal regulations at 24 CFR 983.10 also state that the
 Real property acquisition   acquisition of real property for a project is subject to the
 requirements not adhered    URA and the requirements of 49 CFR part 24, subpart B.
 to                          The real property acquisition requirements at 49 CFR part
                             24 include provisions that must be met for real property
                             acquisition for a Federal program or project, and to
                             programs and projects where there is Federal financial
                             assistance in any part of project costs.

                             The regulations at 49 CFR 24.2 define program or project
                             as any activity or series of activities undertaken by a
                             Federal agency or with Federal financial assistance
                             received or anticipated in any phase of an undertaking in
                             accordance with the Federal funding agency guidelines.
                             Further, 49 CFR 24.101 states that with limited exceptions,
                             the requirements for real property acquisition apply to any
                             acquisition of real property for a Federal program or
                             project, and to programs and projects where there is
                             Federal financial assistance in any part of project costs.

                             For two of the 11 sampled projects, Section 8 assistance
                             was clearly anticipated prior to the expected real property

2004-SE-1004                     Page 10
                                                                                 Finding 1


                           acquisition; however the Authority did not include
                           provisions for compliance with real property acquisition
                           requirements in the agreements.

                                  •      Eastlake Supportive Housing. In a July 11,
                                         2001 commitment letter, the Authority
                                         committed to provide project-based Section 8
                                         assistance for this project, and the application
                                         showed the real property acquisition was to be
                                         completed September 29, 2001.

                                  •      Lam Bow Apartments. The Authority
                                         anticipated project-based Section 8 assistance
                                         for the Lam Bow Apartments prior to
                                         acquisition on December 2, 2002. A September
                                         15, 2003 Board Resolution adjusting the rent
                                         structure of the apartments stated that “…the
                                         financing for the acquisition of the Lam Bow
                                         apartments was based on Section 8 voucher
                                         payment standards and market rents for the area
                                         at the time of acquisition.”

                           The Department of Housing and Urban Development
Subsidy-layering reviews   Reform Act of 1989 limits the amount of assistance that
not performed              can be provided to a project. The Act requires HUD or a
                           housing credit agency to certify that the combination of
                           HUD and other government assistance provided in
                           connection with a property shall not be any greater than is
                           necessary to provide affordable housing. The regulations at
                           24 CFR Part 983 implement this requirement and require
                           housing authorities to obtain subsidy-layering contract rent
                           reviews from HUD or a Housing Credit Agency before
                           entering into an agreement for assistance. The rent reviews
                           are to determine if rents charged are the minimum rents
                           needed to cover project costs. Rents above the minimum
                           needed to cover costs would result in HUD paying
                           excessive Section 8 rental subsidies.

                           Authority officials told us they did not request subsidy-
                           layering reviews for any of the projects that were provided
                           project-based Section 8 assistance under the MTW
                           Program. Also, our sample review of 11 projects identified
                           no requests for subsidy-layering review, and showed that
                           all 11 projects received or anticipated receiving other
                           governmental assistance. The initial rents for these
                           projects were not supported by a comparability analysis

                               Page 11                                        2004-SE-1004
Finding 1


                      prepared by a qualified State-certified appraiser as required
                      by 24 CFR 983.256. Instead, the Authority determined that
                      initial rents were reasonable based on its standard rent
                      reasonableness process.



Overall Auditee       The Authority concluded that it complied with all
Comments              requirements of the MTW Program and its MTW
                      Agreement. The Authority characterized each of the issues
                      discussed in the finding as arising from serious differences
                      of opinion over the interpretation of the program
                      requirements. Further, the Authority believed these
                      differences in interpretation of the requirements were
                      certain to arise in future audits of other housing authorities.
                      For this reason the Authority recommended the finding be
                      withdrawn and the differences of interpretation reported in
                      a national audit report addressing the MTW Program as a
                      whole.

OIG Evaluation of     We maintain the finding accurately reflects HUD
                      requirements. Nevertheless, to address Authority concerns
Overall Auditee
                      regarding differences in interpretation and to ensure that
Comments              program requirements are clearly communicated, we are
                      recommending that HUD make its own determinations
                      regarding the issues raised.

Auditee Comments on   The Authority stated that HUD reviews were not applicable
Environmental         activities under the MTW Statement of Authorizations and,
                      therefore, the environmental review and documentation
Reviews
                      requirements contained in the MTW Agreement did not
                      apply. Additionally, the Authority stated that to comply
                      with the National Environmental Policy Act (NEPA), it had
                      sent required documentation for a Part 58 review to the
                      City of Seattle, which conducted a review and determined
                      that project basing is an exempt activity under NEPA.

OIG Evaluation of     We do not agree the Statement of Authorizations exempted
                      the Authority from its responsibility under the MTW
Auditee Comments
                      Agreement. The General Conditions of the Statement of
                      Authorizations provide that:

                         “This Statement of Authorizations describes the
                         activities that the Seattle Housing Authority (SHA) may
                         carry out under the Moving to Work Demonstration
                         program (MTW), subject to the terms and conditions of

2004-SE-1004              Page 12
                                                                                                          Finding 1


                                                  the Moving to Work Demonstration Agreement (MTW
                                                  Agreement) between the SHA and the U.S. Department
                                                  of Housing and Urban Development (HUD).”

                                             Accordingly, the provisions of the MTW Agreement apply,
                                             and take precedence over the Statement of Authorizations.

                                             Further, the Part 58 reviews by the City of Seattle cannot
                                             be properly assessed until HUD has determined if the
                                             Authority’s award letter constitutes an agreement for
                                             project basing assistance. The HUD determination is
                                             needed to properly classify the transaction for
                                             environmental purposes as new construction, rehabilitation,
                                             or acquisition. Such classification is critical to determining
                                             the appropriate environmental requirements.

Auditee Comments on                          The Authority stated that prevailing wage requirements did
                                             not apply to projects awarded project based assistance
Prevailing Wage                              because construction or rehabilitation was started before an
Requirements                                 agreement for the assistance was executed. The Authority
                                             stated the award letters issued to owners selected from
                                             those responding to a request for proposals were merely a
                                             statement of a willingness to provide assistance. They
                                             were neither a contract nor a formal agreement. Also, the
                                             Authority stated that prevailing wage requirements do not
                                             describe the nature or the formality of the agreement
                                             required to invoke prevailing wage requirements.

OIG Evaluation of                            As stated in the finding, we believe the letter is a clear
Auditee Comments                             acceptance of the owner proposal meeting the requirements
                                             for application of prevailing wage requirements. In
                                             addition, we believe that to conclude otherwise could lead
                                             to a perception that prevailing wage requirements are being
                                             circumvented or abused.2




2
 Abuse is distinct from fraud, illegal acts, and violations of provisions of contracts or grant agreements. When
abuse occurs, no law, regulation, or provision of a contract or grant agreement is violated. Rather, the conduct of a
program or entity falls far short of behavior that is expected to be reasonable and necessary business practices by a
prudent person.

                                                  Page 13                                              2004-SE-1004
Finding 1


                       The Authority stated that the findings on relocation and
Auditee Comments on
                       real property acquisition are incorrect in concluding that
Relocation and Real    the Authority failed to comply with the requirements. The
Property Acquisition   Authority stated that assistance was provided after any real
Requirements           property was acquired and after rehabilitation and
                       demolition. The Authority’s position is that assistance was
                       not provided until the Housing Assistance Payment
                       Contract was executed and stated award letters issued to
                       owners were not considered a formal document.

                       The Authority concluded that under the circumstances, the
                       event creating any displaced persons and requiring
                       relocation assistance would be the initiation of negotiations
                       between Seattle Housing Authority and the owners. In
                       support of this conclusion, the Authority cited HUD
                       handbook 1378, Section 1-15c:

                          Whenever displacement occurs as a direct result of
                          privately undertaken acquisition, rehabilitation or
                          demolition, the initiation of negotiations is the
                          execution of the loan or grant agreement between the
                          grantee and the person owning or controlling the
                          property.

                       The Authority also concluded real property acquisition
                       requirements did not apply because the owners that
                       undertook the projects did not have authority to use
                       eminent domain authority.

OIG Evaluation of      Regarding relocation, we believe the Authority’s award
                       letter is the appropriate measure for the start of HUD
Auditee Comments
                       assistance used in determining if persons are displaced.
                       We selected this date since the Authority program did not
                       require an agreement to enter a housing assistance payment
                       contract similar to the standard Section 8 project based
                       program.

                       As regards real property acquisition, the Authority’s
                       comments did not address its acquisition of a project or
                       include the requirements that apply even when eminent
                       domain authority does not exist. Although the regulations
                       at 49 CFR 24.101 exempt qualifying real property
                       acquisition from the requirements, specified conditions
                       must be met for the acquisition to be considered exempt.
                       Those conditions include provisions that the purchaser (the


2004-SE-1004               Page 14
                                                                            Finding 1


                      Authority or program participants lacking eminent domain
                      authority) advise the owner:

                             •      The property will not be acquired unless
                                    negotiations result in an amicable agreement,
                                    and

                             •      Of what it believes to be the fair market value of
                                    the property.

                      The Authority did not ensure these conditions were met or
                      retain documents needed to show they were met.

Auditee Comments on   The Authority stated that provisions in the MTW
                      Agreement clearly indicate that HUD and the Authority
Subsidy Layering
                      intended to suspend HUD’s subsidy layering review. In
                      support of this position the Authority cites:

                             •      Section VII E4 of the Statement of
                                    Authorizations that suspends HUD reviews and
                                    approvals related to the project basing of
                                    Section 8 Certificates and Vouchers,

                             •      Section VI.A of the Statement of Authorizations
                                    that permits the Authority to determine
                                    reasonable rents, the content of housing
                                    assistance payments contracts to owners, and
                                    the content of contract rental agreements, and

                             •      Section 3 of the Calculation of Subsidies
                                    provision in Attachment A to the MTW
                                    Agreement that does not require the Authority
                                    to provide only the minimum assistance
                                    necessary to provide affordable housing.

OIG Evaluation of     We do not agree that HUD and the Authority intended to
                      suspend HUD’s subsidy layering reviews. The Statement
Auditee Comments
                      of Authorizations was silent on HUD subsidy layering
                      reviews because Section VII E4 of the Statement of
                      Authorizations applies only to projects that are “otherwise
                      non-subsidized.” In the absence of other governmental
                      subsidies a HUD subsidy layering review is not required.
                      However, as noted in the finding, all 11 projects included
                      in our review received other governmental assistance,
                      making all HUD Section 8 Project Based Assistance rules


                          Page 15                                        2004-SE-1004
Finding 1


                  applicable, including the Subsidy Layering Review
                  requirements.



Recommendations   We recommend that you take action in accordance with the
                  Moving To Work Demonstration Agreement and:

                  1A.      Determine if the Seattle Housing Authority
                           complied with statutory and regulatory
                           requirements for environmental reviews, prevailing
                           wages, relocation assistance, real property
                           acquisition, and subsidy-layering reviews for the 11
                           projects discussed in Finding 1.

                  If you determine that the Authority did not comply with
                  any or all of the applicable requirements per
                  Recommendation 1A, we further recommend you:

                  1B.      Direct the Authority to bring the projects into
                           compliance or repay to HUD any of the $1,516,464
                           in Housing Assistance Payments that it received for
                           these projects that are ineligible.

                  1C.      Review the award of project-based Section 8
                           assistance to each project in the Seattle Housing
                           Authority Program for similar non-compliance, and
                           take appropriate corrective action.

                  1D.      Take the appropriate corrective or remedial actions
                           under the Moving To Work Demonstration
                           Agreement to ensure future project-based Section 8
                           assistance complies with statutory and regulatory
                           requirements for environmental reviews, prevailing
                           wages, relocation assistance, real property
                           acquisition, and subsidy-layering reviews.




2004-SE-1004            Page 16
                                                                                                           Finding 2




        The Seattle Housing Authority Needs to
       Properly Address Racial Concentrations in
                  Assisted Buildings
The Seattle Housing Authority did not include agreed to affirmative marketing provisions
in its public housing site-based waiting list procedures. As a result, the Authority did not
have a basis for determining when affirmative marketing was required and had not
addressed apparent minority racial concentrations even though its reports showed
concentrations as high as 86 percent in its buildings. This occurred because the Authority
did not believe it had to affirmatively market its buildings if those buildings maintained the
same racial composition as at Program inception.



                                             The Moving To Work Agreement allows the Authority to
                                             use site-based waiting lists, subject to HUD approval of an
                                             implementation plan. HUD required that the
                                             implementation plan address how the Authority will
                                             conduct affirmative fair housing marketing3 and maintain
                                             records for auditing purposes. The Authority’s Board of
                                             Commissioners detailed the implementation plan for site-
                                             based waiting lists in its Applicant Choice Policy (Policy)
                                             Resolution in June 2000, and HUD approved it the
                                             following October. The Resolution requires the Authority
                                             to conduct affirmative fair housing marketing when a
                                             building becomes “racially identifiable,” and allows the
                                             Authority to determine racial identifiability using resident
                                             race, nationality, and language.4 The Authority’s
                                             affirmative fair housing marketing program was intended to
                                             promote diversity in racially identifiable buildings by
                                             marketing those buildings to underrepresented groups
                                             through appropriate community or other newspapers. The
                                             Resolution directed Authority staff to develop the


3
  The purpose of affirmative fair housing marketing is to promote a condition where people of similar incomes in
the same housing market area have a like range of housing choices by ensuring that positive outreach and
informational efforts are made to those least likely to know about and apply for the housing being marketed. (HUD
Handbook 8025.1 para 1-3)
4
 If the vast majority of residents in a building are Asian Americans, for example, but they represent a mix of
Laotian, Thai, or Korean, etc., the Authority will not consider a building racially identifiable merely because a
majority of the residents are Asian Americans.

                                                   Page 17                                              2004-SE-1004
Finding 2


                                            necessary procedures and implement the policy by January
                                            2001.
                                            Our review found that, while the Policy meets applicable
                                            fair housing requirements, the Authority did not fully
                                            implement the Policy. The Authority did not attempt to
                                            reach underrepresented groups through community or other
                                            newspapers. Also, although the Resolution called for using
                                            nationality and language in addition to race as a basis for
                                            determining racial identifiability, the Authority’s
                                            procedures did not define “racial identifiability,” or provide
                                            for collecting nationality and language information.
                                            Therefore the Authority does not have the criteria or the
                                            information needed to determine if a building is racially
                                            identifiable under its Policy, and lacks an objective basis
                                            for deciding whether to conduct affirmative fair housing
                                            marketing to promote diversity in its buildings.

                                            The Authority anticipated that people of particular races
                                            would apply for certain buildings and mitigated this
                                            tendency toward racial identifiability by having every other
                                            placement come from the urgent needs waiting list.5
                                            Monitoring communities for racial identifiability was
                                            expected to take into account the different nationalities in
                                            racial groups and would show that a community was not
                                            racially identifiable even though it had a preponderance of
                                            one race. However, the Authority’s FY 2002 Applicant
                                            Choice Policy Evaluation found that the Authority only
                                            haphazardly records the information needed for this
                                            monitoring and recommended the Authority “decide
                                            whether to invest time and resources in better tracking of
                                            ethnic heritage and language, or accept a certain amount of
                                            apparent racial concentration.”

                                            The Authority’s Fiscal Year 2002 Annual Report included
                                            information on the resident racial composition for buildings
                                            with site-based waiting lists. This information showed
                                            significant differences in the resident racial distributions.
                                            Because the Authority had not established standards for
                                            determining if buildings were racially identifiable, we used
                                            Fair Housing & Equal Opportunity (FHEO) guidance to put
                                            the reported distributions into context and determine if they
                                            could be classified as concentrations. The comparison of
                                            building racial composition using FHEO guidance showed

5
 Applicants on the urgent needs waiting list consider their housing need to be too urgent to wait for a development
of their own choosing.

2004-SE-1004                                     Page 18
                                                                            Finding 2


              four buildings could be classified as racially identifiable.
              For these four buildings the percentage of residents of a
              particular racial group was at least 20 percent higher than
              the average percentage for all high-rise buildings or more
              than 50 percent for minority groups.

              The below charts show the reported racial distribution for
              these four buildings is clearly out of proportion to the
              Applicant Choice program population as a whole. Also, for
              International Terrace, the reported percentage of Asian
              American residents in that building rose from 84 percent to
              86 percent in fiscal year 2002 while the percentage of
              Asian American applicants for that building rose from 82
              percent to 90 percent over the same period. However, the
              Authority has not collected nationality and language
              information for this (or any) of its buildings, defined “racial
              identifiability,” nor advertised site based waiting lists in
              community or other newspapers. As a result, the Authority
              had not addressed these apparent racial concentrations
              reported in its Fiscal Year 2002 Annual Report.

       International Terrace                                  Barton Place
100%                                           100%
 90%           13
                                                90%
 80%
                                                80%
 70%                                                         23
 60%                                            70%
                                   86           60%
 50%
 40%                                            50%                             63
 30%                                            40%
 20%                                            30%
 10%                                            20%
  0%                                            10%
        Tenant Population    International       0%
           as a Whole     Terrace Population          Tenant Population   Barton Place
                                                         as a Whole        Population

                                        Legend

            Beacon Tower                                          Holly Court
100%                                           100%
 90%           13                               90%
 80%                              48            80%
 70%                                            70%          23
 60%                                            60%
 50%                                            50%                             60
 40%                                            40%
 30%                                            30%
 20%                                            20%
 10%                                            10%
  0%                                             0%
        Tenant Population     Beacon Tower            Tenant Population    Holly Court
           as a Whole          Population                as a Whole        Population



              Authority officials said they did not believe the Authority
              had to conduct affirmative marketing as long as the racial

                    Page 19                                               2004-SE-1004
Finding 2


                    composition of its buildings had not significantly changed
                    since the inception of the Applicant Choice Policy.



Auditee Comments    The Authority states that it Applicant Choice Policy
                    (Policy) involves a new approach of providing services and
                    conducting business in keeping with the purpose of the
                    MTW Demonstration and that they identified the
                    shortcomings in the finding before our audit and are
                    making progress toward full implementation of the Policy
                    and the HUD-approved implementation plan.

                    The Authority noted that the implementation of the Policy
                    was harder than they anticipated and shared their ongoing
                    concern about its implementation. When there are long
                    wait lists to get into particular buildings, affirmative fair
                    housing marketing may be a disservice to those who
                    respond to such marketing with the expectation of renting
                    there in the near future. It makes little sense to advertise
                    the long site-specific wait lists for buildings such as
                    International Terrace and Beacon Tower because anyone
                    responding to the ad will wait months for a unit when they
                    could be housed much more quickly at another building. In
                    these cases, only those who are more interested in living at
                    International Terrace or Beacon Towers are served by the
                    fair marketing advertising. SHA believes it is making
                    substantial progress toward meeting fair housing
                    requirements.

                    The Authority says the four buildings identified in the
                    findings as racially identifiable were already racially
                    identifiable before the Policy was adopted. The Authority
                    had always interpreted the policy as requiring affirmative
                    fair housing marketing when there is a significant change in
                    the racial, ethnic, or national population in any building,
                    and that change evidences an unacceptable concentration of
                    any racial group or nationality. Since the policy was
                    adopted, there has not been a significant change in the
                    racial composition of any Authority building.


OIG Evaluation of   We do not agree that implementation concerns identified
Auditee Comments    by the Authority are difficult to overcome and should delay
                    implementation. A simple disclosure of the estimated time
                    applicants can expect to wait for a unit and use of the

2004-SE-1004            Page 20
                                                                       Finding 2


                  Authority’s existing waiting list designed for applicants
                  wanting the first available housing should address the
                  concerns listed. The estimated time that would be spent on
                  the waiting list would ensure expectations were reasonable,
                  the use of the urgent needs waiting list would help those
                  wanting the first available unit, and those wanting to live at
                  a specific property would be given a fair opportunity to do
                  so.

                  Further, we do not agree with the Authority position that
                  only a significant change in the racial population of a
                  building will require affirmative fair marketing. The
                  Authority should take action under its affirmative fair
                  marketing plan when a property is racially identifiable
                  regardless of how long that condition has existed. Also, the
                  Authority should continue to monitor changes and take
                  action when a “significant change” is noted. Accordingly,
                  we believe adding appropriate definitions of racial
                  identifiability and significant changes requiring affirmative
                  fair housing marketing would enhance the Authority’s
                  policy and plan.



Recommendations   We recommend that you take action in accordance with the
                  Moving To Work Demonstration Agreement to require the
                  Seattle Housing Authority to:

                  2A.      Amend its Applicant Choice Policy procedures to
                           include a definition of racial identifiability, and a
                           method of collecting the nationalities and languages
                           of its residents and applicants.

                  2B.      Conduct affirmative fair housing marketing for its
                           buildings that are racially identifiable based on race
                           until the Authority has the nationality and language
                           information it needs to carry out the Applicant
                           Choice Policy.




                        Page 21                                     2004-SE-1004
Finding 2




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2004-SE-1004   Page 22
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. Management is responsible for establishing effective management
controls. Management controls, in the broadest sense include the plan of organization, methods, and
procedures adopted by management to meet its missions, goals, and objectives. Management
controls include the processes for planning, organizing, directing, and controlling program
operations. They include the systems for measuring, reporting, and monitoring program
performance.



                                      We determined the following management controls were
 Relevant Management
                                      relevant to our audit objectives:
 Controls
                                          •   Program Operations – Policies and procedures that
                                              management has implemented to reasonably ensure
                                              that Moving To Work Demonstration Program
                                              activities are carried out as authorized.

                                          •   Compliance with Laws and Regulations – Policies
                                              and procedures that management has implemented
                                              to reasonably ensure that resources used are
                                              consistent with laws and regulations.

   Scope of Work                      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.

                                      We identified significant weakness in the Authority’s
                                      management controls over project-based Section 8
                                      assistance and fair housing. These weaknesses are
                                      discussed in findings 1 and 2 respectively.




                                          Page 23                                      2004-SE-1004
Management Controls




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2004-SE-1004           Page 24
Follow Up On Prior Audits
This was the first Office of Inspector General audit of the Seattle Housing Authority’s Moving
To Work Demonstration Program. Two prior audits by the Office of Inspector General
addressed parts of the Authority’s MTW Program; report numbers IG301003 and IG401001.
The recommendations in those reports were resolved or are pending a HUD management
decision, respectively. The pending HUD management decision on recommendations in
IG401001 will not impact the objectives of this audit.

We reviewed the independent auditor’s reports for fiscal years 1997 through 2002. The reports
did not contain any findings related to our audit objectives or the issues discussed in Findings 1
and 2.




                                          Page 25                                      2004-SE-1004
Follow Up On Prior Audits




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2004-SE-1004                 Page 26
                                                                                    Appendix A

Schedule of Questioned Costs
and Funds Put to Better Use
     Recommendation            Type of Questioned Cost              Funds Put to
         Number                    Unsupported 1/                   Better Use2/
           1B                        $1,516,464                     $1,714,014 3/




1/    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 future 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.

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

3/    The $1,714,014 million in Funds Put to Better Use are based upon only those projects
      that had executed HAP contracts. The estimated annual HAP of $2,852,214 in Finding 1
      for all 11 projects includes $1,138,200 for three projects that did not yet have a HAP
      contract.




                                        Page 27                                      2004-SE-1004
Appendix A




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2004-SE-1004    Page 28
                             Appendix B

Auditee Comments




                   Page 29   2004-SE-1004
Appendix B




2004-SE-1004   Page 30
          Appendix B




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Appendix B




2004-SE-1004   Page 32
          Appendix B




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Appendix B




2004-SE-1004   Page 34
          Appendix B




Page 35   2004-SE-1004
Appendix B




2004-SE-1004   Page 36
                                                                                       Appendix C

Sampling Methodology
To evaluate the Seattle Housing Authority’s compliance with Moving To Work Demonstration
Program requirements for project-based Section 8 assistance (see Finding 1), we selected a non-
statistical sample of 11 projects, drawn from the 60 projects in the Program. We developed this
sample by obtaining information on the number of projects receiving project-based Section 8
assistance under the Authority’s MTW Program. The Authority lists its project-based Section 8
assistance under four categories:

       1. Projects owned by the Authority.
       2. Awards through Requests for Proposals for projects owned by profit or nonprofit
          entities.
       3. The Sound Families program, a nonprofit entity.
       4. Projects assisted by the City of Seattle.

The 11 projects sampled included: the largest project (category 1); four new construction
projects under a 2001 Request for Proposal, and the two largest projects under a 2002 Request
for Proposal (category 2); the two largest projects (category 3); and the largest project and the
largest project with tax credits (category 4). The 11 projects in the sample account for 675 of
1281 project-based Section 8 assisted units in the 60 projects.

As noted, we did not statistically sample the project-based Section 8 assistance. Accordingly,
our results will only apply to the 11 projects in our sample and cannot be projected to the
remaining 49 projects.




                                          Page 37                                      2004-SE-1004
Appendix C




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2004-SE-1004   Page 38
                                                                           Appendix D

Distribution Outside of HUD
Tom Tierney, Executive Director, Seattle Housing Authority
Jennifer Potter, Chair, Board of Commissioners, Seattle Housing Authority
The Honorable Joseph Lieberman, Ranking Member, Committee on Government Affairs
Elizabeth Meyer, Senior Advisor, Subcommittee on Criminal Justice
Clinton C. Jones, Senior Counsel, Committee on Financial Services
Kay Gibbs, Committee on Financial Services
Mark Calabria, Committee on Banking, Housing, and Urban Affairs
W. Brent Hall, U.S. General Accounting Office
Steve Redburn, Chief Housing Branch, Office of Management and Budget
Linda Halliday, Department of Veterans Affairs, Office of Inspector General
The Honorable Susan M. Collins, Chairman, Committee on Government Affairs
The Honorable Thomas M Davis, III, Chairman, Committee on Government Reform
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform




                                    Page 39                                2004-SE-1004