Issue Date June 9, 2005 Audit Case Number 2005-AT-1010 TO: Karl H. Kucen, Director, Office of the Public and Indian Housing, Memphis Hub, 4KPH FROM: James D. McKay Regional Inspector General for Audit, 4AGA SUBJECT: The Chattanooga Housing Authority, Chattanooga, Tennessee Did Not Ensure Section 8 Assisted Units Were Decent, Safe, and Sanitary HIGHLIGHTS What We Audited and Why As part of the Department of Housing and Urban Development (HUD), Office of the Inspector General’s (OIG) strategic plan, we conducted an audit of the Chattanooga Housing Authority’s (Authority) Section 8 Housing Choice Voucher program. Our audit objectives were to determine whether the Authority made Section 8 subsidy payments only for units that were decent, safe, and sanitary and whether the Authority properly determined tenant program eligibility and subsidy payment amounts. What We Found Our statistical sample of 60 Section 8 units found that 40 units, 67 percent, did not meet minimum housing quality standards. Of the 40 units, 28 were in material noncompliance with housing quality standards. Projecting the results of the statistical sample to the population indicates at least 1,486 of the Authority’s 2,778 units did not meet minimum housing quality standards. Further, 939 units were in material noncompliance with housing quality standards. Table of Contents The Authority did not consistently determine or verify family incomes, calculate utility allowances, perform timely recertifications, or correctly calculate Section 8 housing assistance payment amounts. The Knoxville, Tennessee, Office of Public and Indian Housing also found these conditions existed in September 2002 and continued to exist as late as December 2004. What We Recommend We recommend that the director of the Office of Public and Indian Housing require the Authority to correct the deficiencies identified in our unit inspections and inspect all of its Section 8 housing choice voucher-assisted units within the next 12 months to ensure those units also meet standards. If the units cannot be made decent, safe, and sanitary, the Authority should abate the rents or terminate the tenants’ vouchers. The Director should also require the Authority to develop and implement an internal control plan to ensure units meet housing quality standards and inspections meet HUD requirements to prevent an estimated $4,710,024 from being spent on units that are in material noncompliance with standards. The Authority should also repay $9,201 for housing assistance payments it made for ineligible units. Further, since the Authority failed to correct deficiencies identified by HUD in September 2002, HUD should reduce the Authority’s administrative fees by 10 percent retroactively to August 2004, or about $125,000. HUD should continue to monitor the Authority and withhold 10 percent of the administrative fee until the Authority has complied with requirements. For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. Auditee’s Response We discussed the findings with the Authority during the audit and at an exit conference on May 4, 2005. The Authority provided its written comments to our draft report on May 20, 2005. In its response, the Authority generally disagreed with the findings. The Authority objected to our reporting its history of failing to properly maintain tenant files and ensuring units met housing quality standards. Further, the Authority claimed the report did not incorporate reform measures it had implemented during the past 6 to 10 months. The Authority also objected to our methodology of selecting units for inspection and the reported results. The complete text of the Authority’s response, along with our evaluation of that response, can be found in appendix B of this report. The Authority also provided exhibits with its response that are available for review upon request. 2 Table of Contents TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary 5 Finding 2: The Authority Cannot Ensure Subsidy Payments Were Appropriate 13 Scope and Methodology 16 Internal Controls 18 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 19 B. Auditee Comments and OIG’s Evaluation 20 C. Criteria 31 D. Table of Units in Material Noncompliance with Housing Quality Standards 33 3 BACKGROUND AND OBJECTIVES The Chattanooga Housing Authority (Authority) was chartered in 1938 pursuant to the Tennessee Housing Authorities Law. Its primary objective is to provide low-income housing to the citizens within Chattanooga, Tennessee, and the surrounding area in compliance with its annual contributions contract with the Department of Housing and Urban Development (HUD). The Authority administers approximately 3,000 housing choice vouchers in the city of Chattanooga and its vicinity. The annual housing assistance payments and administrative fees approach $17 million. A seven-member board of commissioners appointed by the mayor of Chattanooga governs the Authority. Anne Henniss is the board chairman and Matthew Powell is the executive director. HUD’s Knoxville, Tennessee, Office of Public and Indian Housing is responsible for overseeing the Authority. The office conducted several reviews during the past few years that continually identified weaknesses in the Authority’s procedures. As a result of the reviews, the Authority made a number of changes to its Section 8 program in attempts to resolve the weaknesses. This included terminating several staff members, hiring new staff, and revising its procedures. Our audit objectives were to determine whether the Authority made Section 8 subsidy payments only for units that were decent, safe, and sanitary and whether the Authority properly determined tenant program eligibility and subsidy payment amounts. 4 Table of Contents RESULTS OF AUDIT Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary Our inspection of 60 units showed that 40 (67 percent) did not meet minimum housing quality standards. Projecting the results of the statistical sample to the population indicates at least 1,486 of the Authority’s 2,778 units did not meet standards. Of the 40 units not meeting standards, 28 were in material noncompliance with housing quality standards. This occurred because Authority management did not place sufficient emphasis on housing quality standards requirements and did not implement adequate internal controls. As a result, tenants lived in units that were not decent, safe, and sanitary, and HUD made housing assistance payments for units that did not meet standards. Also, the Authority paid $8,286 for units for which it should have abated the housing assistance payments and $915 for a unit that had been condemned for three months. Based on the sample, we estimate that over the next year, HUD will pay housing assistance payments of more than $4.7 million for units that were in material noncompliance with housing quality standards. Units Were in Material Noncompliance With Standards We estimate that over the next year, HUD will pay housing assistance payments of more than $4.7 million for units that are in material noncompliance with housing quality standards if the Authority does not institute better controls. We inspected a statistical sample of 60 units with a HUD facilities management public housing revitalization specialist and the Authority’s inspection supervisor. At the end of each unit inspection, we generally agreed with the inspection supervisor regarding whether the unit met housing quality standards. We found a total of 161 standards violations in 40 of the 60 units we inspected. Additionally, 28 of the 40 units were in material noncompliance with housing quality standards. Appendix D provides details on the 28 units. The following table lists the most frequently occurring violations: Type of Number of Number of Percentage deficiency deficiencies units of units Electrical hazards 47 26 43 Foundation 15 13 22 Exterior doors 12 10 17 Windows 14 11 18 Interior doors 13 8 13 5 Table of Contents Electrical Hazards Were Predominant The most predominant deficiencies were electrical hazards, including inoperable ground fault interrupter outlets, exposed wiring, and improper wiring of water heaters. In one unit, a lamp cord wire was used as permanent wiring for a light fixture. A lamp cord used as permanent wiring Bare electrical wires at furnace connections 6 Table of Contents Health Hazards Also Existed We also found hazards such as rusted pipes, glass, sewage leaks, and roach infestation. Rusted pipe and broken glass at one unit where two small children lived Fecal material from sewage leak under property 7 Table of Contents Roach infestation Inspectors Did Not Report Deficiencies Several deficiencies existed at the time of the Authority’s most recent inspection, but the inspectors did not report them. Damage from water leaks around the windows of several units at one apartment complex had existed for some time and may have been due to a design flaw. We also found other conditions, such as missing or damaged foundation vents, unsecured/damaged basement access doors, broken door and window locks, and inoperable ground fault interrupter outlets. Additionally, we found instances, 6 of 60, in which inspectors identified deficiencies but improperly passed the units. 8 Table of Contents Damage from water leak around window Deteriorated, unsecured basement access door 9 Table of Contents The Authority Paid $9,201 for Ineligible Units The Authority paid $9,201 for units for which it should have abated the housing assistance payments. Landlords are required to repair failed items within 30 days, except for emergency items, which have to be repaired with 24 hours. If a landlord has not completed repairs at the time the Authority reinspects a failed unit, the Authority is required to abate the housing assistance payment. For our sample of 60 units, we found four instances in which the Authority did not abate the housing assistance payments as required. The Authority paid ineligible payments of $8,286 for the four units. The Authority had not inspected one of the units since August 25, 2003, at which time the unit failed housing quality standards. As of March 1, 2005, the Authority had not abated the rent and had paid $6,600 of ineligible housing assistance payments for the unit. Further, the Authority paid $915 for a unit that had been condemned for three months. Paid $915 for condemned unit The Authority Did Not Have Adequate Internal Controls The Authority’s management did not place sufficient emphasis on housing quality standard requirements. Management failed to implement an effective internal control plan that ensured units met minimum housing quality standards and inspections complied with requirements. 10 Table of Contents As a result, the Authority did not • Perform required inspections, • Perform the required quality control inspections; or, • Provide proper guidance or feedback to its inspection staff. The Authority’s internal control plan should include written policies and procedures that provide detailed daily guidance and a quality control plan that ensures policies and procedures are followed. The plan must be sufficient to ensure the Authority complies with HUD regulations and other requirements. The Authority did not have a written policy requiring it to perform an analysis to determine whether it employed adequate inspection staff to perform all required inspections. The Authority only employed two inspectors for eight months during 2003. For the remaining four months, the Authority employed only three inspectors. During 2004, the Authority employed only three inspectors for eight months and two inspectors for four months. The inspection staff was responsible for all inspections, reinspections, emergency inspections, quality control inspections and complaint inspections for about 3,000 Section 8 units. According to the new inspection supervisor, because there were not enough inspectors to meet the workload requirements, he frequently helped conduct inspections. As a result, he was not always able to conduct all required supervisory quality assurance reviews. We found that the Authority did not conduct all required inspections. The Authority did not inspect 11 of the 60 units in our sample, 18 percent, within the most recent 12 months. Two units were not inspected in 2003 or 2004. Another unit was inspected on June 30, 2000, and was not inspected again until May 3, 2004, almost four years later. The May 2004 inspection found a number of housing quality standards violations. Inspectors informed us that prior supervisors provided conflicting guidance and little feedback. They also claimed that at times supervisors intimidated them into passing units and one supervisor threatened that if they did not stop writing up the landlords, they, themselves, would be written up. The Authority recently began reorganizing its inspection processes. During our audit, the Authority replaced two current inspectors with three inexperienced inspectors, who have not had formal training. According to the current inspection supervisor and inspectors, the supervisor has begun performing some quality assurance reviews, provides face-to-face feedback to the inspectors, and holds weekly meetings to ensure the inspectors understand what items constitute violations warranting failure of a unit. Also, inspectors have recently been scheduled to conduct about six inspections daily, down from 12 to 15 inspections daily in 2003. 11 Table of Contents Conclusion Because Authority management did not place sufficient emphasis on housing quality standards requirements, and did not implement adequate internal controls, HUD made housing assistance payments for units that were in material noncompliance with standards. While the Authority has made some improvements, additional improvements are needed. Management must emphasize the importance of housing quality standards and implement policies and procedures that ensures it complies with HUD requirements and gives tenants the opportunity to live in decent, safe, and sanitary conditions. By continuing to make necessary improvements, the Authority will ensure that at least $4.7 million of Section 8 funds are put to better use. Recommendations We recommend that the director of Office of Public and Indian Housing require the Authority to 1A. Abate Section 8, or terminate tenant’s vouchers, on the 40 units that do not meet housing quality standards if deficiencies are not corrected. 1B. Inspect all of its Section 8 housing choice voucher-assisted units in the next 12 months and ensure the units meet housing quality standards. If the units cannot be made decent, safe, and sanitary, the Authority should either abate the Section 8 or terminate the tenants’ vouchers. 1C. Develop and implement an internal control plan to ensure units meet housing quality standards, and inspections meet HUD requirements to prevent an estimated $4,710,024 from being spent on units that are in material noncompliance with standards. 1D. Repay $9,201 from nonfederal funds for housing assistance payments it paid for ineligible units. 12 Table of Contents Finding 2: The Authority Cannot Ensure Subsidy Payments Were Appropriate The Authority did not consistently determine or verify family incomes, calculate utility allowances, perform timely recertifications, or correctly calculate Section 8 housing assistance payment amounts. This occurred because the Authority did not have adequate policies and procedures or adequate internal controls. Thus, the Authority cannot assure it only paid subsidies for eligible families or in the appropriate amounts. Controls Were Inadequate The Authority did not have adequate controls to ensure it complied with requirements. Although the Authority was in the process of implementing new procedures and controls when we performed our initial file review in November 2004, it had not completed implementation and staff had only reviewed and made its corrections to 230 of almost 3,000 files. Also, the 230 files had not been subjected to the Authority’s revised quality control review process. Our review of 15 randomly selected tenant files from the 230 corrected files found: • 14 (93 percent) had missing documents, coding errors, and/or incorrect family data (incorrect Social Security numbers, incorrect dates, etc.); • 8 (53 percent) had incorrect utility allowance calculations or other problems; • 7 (47 percent) had errors or other problems with respect to income calculation and/or third party verification of income; • 4 (27 percent) had late reexaminations; and, • 2 (13 percent) had rent/housing assistance payment calculation errors (for those that could be calculated). Because of the condition of the files, we could not perform a complete rent calculation for 13 of the 15 files. After our review, the Authority performed its quality control review of the 15 files. In December 2004, we compared the deficiencies noted in the quality control review to determine whether the process identified the same problems we found. We determined that the quality control review did identify most of the problems and the Authority had either corrected, or was in the process of making needed corrections, to the files. 13 Table of Contents HUD Intended to Impose Sanctions Because of Continued Problems In September 2002, the Knoxville, Tennessee, Office of Public and Indian Housing performed a rental integrity monitoring review of the Authority’s Section 8 program. The review found • Inadequate controls to assure tenant income, assets, and deductions were properly calculated and/or verified; • Insufficient controls to assure tenant eligibility; and • Incorrect calculations of utility allowances. The Office of Public and Indian Housing demanded the Authority immediately develop and implement policies and procedures for improved quality control systems and train/retrain all Section 8 staff. A September 2003 followup review found the Authority had not made significant progress in addressing the deficiencies. Another follow-up review in June 2004, found the Authority still had not made significant progress. Subsequently, the director of Public and Indian Housing advised the Authority that beginning in August 2004, HUD would start withholding 10 percent of the Authority’s monthly scheduled administrative fees until the Authority complied with requirements. As of March 31, 2005, HUD had not imposed the sanction. Improvements Are Still Needed Following HUD’s June 2004 rental integrity monitoring review, Authority management terminated employment of several Section 8 employees, obtained the services of a consultant, and began reorganizing the Section 8 function. Management hired temporary employees to correct tenant file deficiencies and revised its Section 8 procedures to more effectively administer its program. It also implemented new quality control procedures to include supervisory quality assurance reviews of files. In December 2004, the Office of Public and Indian Housing reviewed a random sample of 23 tenant files out of 458 the Authority indicated had been through its entire verification, rent determination, and quality control process. The review noted the Authority had made significant strides and that the quality control process had been put into place. However, the Authority had not completed the required 100 percent review of all files. 14 Table of Contents Recommendations We recommend that the director, Office of Public and Indian Housing, 2A. Reduce the Authority’s administrative fees by 10 percent retroactively to August 2004, about $125,000. 2B. Continue to monitor the Authority and withhold 10 percent of administrative fees until the Authority has complied with requirements. 15 Table of Contents SCOPE AND METHODOLOGY Our audit objectives were to determine whether the Authority made Section 8 subsidy payments only for units that were decent, safe, and sanitary and whether the Authority properly determined tenant program eligibility and subsidy payment amounts. To accomplish our audit objective, we reviewed the following: • Applicable laws, regulations, and other HUD program requirements; • Minutes from the board of commissioners meetings; • A representative sample of Section 8 tenant files; • The Authority’s policies and procedures related to its Section 8 administration; • HUD’s most recent rental integrity monitoring review reports; and • The Authority’s latest independent public accountant reports. We inspected 60 units with a facilities management public housing revitalization specialist from the Knoxville, Tennessee, Office of Public and Indian Housing and the Authority’s inspection supervisor. We performed the inspections January 10-27, 2005. We performed a detailed review of a representative sample of 15 Section 8 tenant files. We also obtained a general understanding of the Authority’s information technology systems and performed limited tests of the accuracy of the Authority’s electronic data. We interviewed the Knoxville, Tennessee, Office of Public and Indian Housing program officials and Authority management and staff. Statistical Sample Selection and Methodology We obtained a download of all of the Authority’s current units from the housing assistance payment register for December 2004. There were 2,778 units as of December 1, 2004. We used a statistical software program to select a random statistical sample of the 2,778 tenants. Based on a confidence level of 95 percent, a precision level of 10 percent, and an assumed error rate of 80 percent, the software returned a statistical sample of 60 units with a random selection start. We used the software to generate 60 additional sample units to be used as replacements if needed. We inspected 11 of the replacement units because eight tenants were not home at the time of the scheduled inspection, one tenant had moved, one unit had been condemned by the City of Chattanooga, and we had previously inspected one of the units during our audit survey. We selected the next consecutive units (61 16 Table of Contents through 71) as replacement units; however, the tenants for three of the replacement units (numbers 65, 67, and 70) were not home. Thus, we inspected the next consecutive sample items (numbers 72, 73, and 74). Projecting the results of the 40 failed units in our statistical sample to the population indicates: The lower limit is 53.5 percent X 2,778 units = 1,486 units not meeting housing quality standards. The point estimate is 66.7 percent X 2,778 units = 1,852 units not meeting housing quality standards. The upper limit is 78.2 percent X 2,778 units = 2,172 units not meeting housing quality standards. We evaluated the 40 units that did not meet housing quality standards to identify those that were in material noncompliance with housing quality standards. Based on our judgment, we determined 28 units were in material noncompliance with housing quality standards because they had: (1) deficiencies that existed for an extended period of time, (2) deficiencies we noted in a prior inspection and were not corrected, and/or (3) deferred maintenance that consistently fails a unit. Projecting the results of the 28 units that were in material noncompliance with housing quality standards to the population indicates: The lower limit is 33.8 percent X 2,778 units = 939 units in material noncompliance with housing quality standards. The point estimate is 46.7 percent X 2,778 units = 1,296 units in material noncompliance with housing quality standards. The upper limit is 59.9 percent X 2,778 units = 1,644 units in material noncompliance with housing quality standards. Using the lower limit and the average annual housing assistance payments for the population based on the Authority’s December 2004 check register, we estimated the Authority spent at least $4,710,024 for 939 units that were in material noncompliance with housing quality standards. The estimate is not a statistical projection and is used only for the purpose of determining funds that can be put to better use. We conducted our fieldwork from October 2004 through March 2005 at the Authority’s offices in Chattanooga, Tennessee. Our audit period was from October 1, 2003, through September 30, 2004. We expanded our audit period as needed to accomplish our objectives. We conducted the audit in accordance with generally accepted government auditing standards and included tests of management controls that we considered necessary under the circumstances. 17 Table of Contents INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: • Effectiveness and efficiency of operations, • Reliability of financial reporting, and • Compliance with applicable laws and regulations. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: • Compliance with laws, regulations, policies, and procedures that management has implemented to reasonably assure that resource use is consistent with laws and regulations. • Policies and procedures that management has implemented to reasonably assure that resources are safeguarded against waste, loss, and misuse. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. Significant Weaknesses Based on our review, we believe the following items are significant weaknesses: • The Authority did not have a system in place to ensure that housing assistance payments were being made for only eligible units (see finding 1), and • The Authority did not have a system in place to ensure that appropriate housing subsidy payments were made on behalf of only eligible tenants (see finding 2). 18 Table of Contents APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible1/ Funds to be put to better use 2/ 1C $ 4,710,024 1D $ 9,201 2A 125,000 Total $ 9,201 $ 4,835,024 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 polices or regulations. 2/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an OIG recommendation is implemented, resulting in reduced expenditures at a later time for the activities in question. This includes costs not incurred, deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not made, and other savings. 19 Table of Contents Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 20 Table of Contents Comment 2 Comment 3 Comment 4 21 Table of Contents 22 Table of Contents Comment 5 Comment 6 Comment 7 Comment 8 23 Table of Contents Comment 7 24 Table of Contents 25 Table of Contents 26 Table of Contents OIG Evaluation of Auditee Comments Comment 1 As we discussed with the Authority during the audit, our audit period was generally from October 1, 2003, to September 30, 2004. Thus, the report generally discusses conditions that existed during that period. We did not audit the procedures that were implemented after September 30, 2004. However, because we were aware that the Authority was implementing changes, we took those into consideration by reviewing revised policies and procedures, conducting a follow-up review of the 15 tenant files, interviewing staff and management, and reviewing HUD’s February 7, 2005, letter to the Authority that communicated the results of HUD’s December 2004 review. Both Findings 1 and 2 recognize that the Authority made improvements, but that additional improvements are needed. Comment 2 The Authority is incorrect in its statement that the “…vast majority of findings were not major health or safety hazards as the finding report alludes.” In arriving at the 28 units that were in material noncompliance with housing quality standards, we evaluated the inspection results for all 40 units that did not meet minimum housing quality standards. The 28 units included units that had fail items that existed at the time of the Authority’s last inspection (if the inspection had been performed at least 30 days prior to our inspection), deficiencies that existed for an extended period of time, and deferred maintenance that consistently fails a unit. As shown in the finding, this included units that had health and safety violations, such as exposed electrical wiring, human fecal material in the yard, severe roach infestation, and other similar deficiencies. So, while 40 units were in noncompliance with requirements based on housing quality standards, we primarily only addressed the more serious violations. We believe this method is conservative based on HUD requirements that all units must meet standards at all times. None of the 28 units included in the finding failed because of minor deficiencies. The Authority cites Exhibit C as its support for this statement. However, Exhibit C of the Authority’s response is inaccurate and misleading. For example, of the 60 “Disputed IG Fail Items” detailed on the Exhibit, 39 were not even fail items as designated by the HUD inspector. They were “Pass with Comments” items as explained on the inspection summaries provided to the Authority during the audit. Of the remaining 21 disputed fail items, 12 were listed as “Fail Item Follow-Up Items” by the Authority, meaning the Authority planned to ensure the items were corrected. They include such items as bathroom ground fault interrupter outlets not working properly, water leaks around windows (a picture is used in the report), and roach infestation. The items clearly are fail items in accordance with HUD’s minimum housing quality standards. 27 Table of Contents One of the 12 disputed items was even specified as a 24 hour health and safety violation by the Authority’s inspection staff. We do not understand why the Authority disputes this item if it identified it as an emergency fail item. Of the remaining nine disputed fail items, eight were based on the HUD inspector’s judgment of deficiencies noted. One such judgment pertained to bare electrical wires just above the kitchen sink, and well within reach of the resident. The wires were exposed due to a missing light globe. Although having a missing light globe it is not a failure in and of itself, the globe is needed in this case due to the electrical hazard. The last disputed fail item was blocked bedroom egress due to keyed burglar bars in the bedroom window. Although the HUD inspector did not identify this as a fail item, we subsequently classified it as a fail item because the Authority’s Section 8 Administrative Plan prohibits the use of such burglar bars. In addition to the above, we met with the Authority’s inspection supervisor at the conclusion of the review and discussed the items on the spreadsheet. We provided similar explanations to him. As the report details, to ensure the results of the inspections were unbiased and Comment 3 representative of the Authority’s current Section 8 housing stock, we selected a statistical sample of 60 units (emphasis added). In order to select a statistical sample of units to inspect, it is necessary to determine a universe of units from which to select the sample. We selected our sample in December 2004 from the Authority’s December 1, 2004, Housing Assistance Payment register, which was the most current information available. It should also be noted that the units in the universe as of December 2004 would be subjected to revised procedures the Authority had implemented, thus giving some indication of the success of the revised procedures, at least for any units the Authority had recently inspected. While it is true that such a sample would reflect conditions based on a snapshot in time, this is irrelevant because HUD requires that units meet housing quality standards at all times. To ensure that every unit had an equal opportunity to be selected for inspection (an unbiased sample), the last inspection date was not considered. Doing so would bias the sample. The Authority does not believe the results of the statistical sample are representative of its Section 8 housing stock. We disagree, since an underlying premise of a statistical sampling is that the results of the sample can be projected to the universe. 28 Table of Contents Comment 4 The finding accurately reports the conditions that existed at the time of our review. We acknowledge that the Authority had made some improvements and was continuing to make changes. Since some of those occurred after our review period, we have not audited those procedures and cannot attest to whether they are effective. We are encouraged by the Authority’s efforts to take corrective actions and encourage it to continue to do so in order to both resolve the conditions that existed during our review period, and to provide better quality housing to its tenants. Comment 5 We did not perform a random selection and extrapolate the overall agency impact. As is explained in the report, we performed a statistical sample. We then projected the results of the 28 units that were in material noncompliance with housing quality standards to the population. Using the lower limit and the average annual housing assistance payments for the population based on the Authority’s December 2004 check register, we estimated the Authority spent at least $4,710,024 for 939 units that were in material noncompliance with housing quality standards. The estimate is not a statistical projection and is used only for the purpose of determining the annual amount of funds that could be put to better use if the Authority implements the suggested recommendations. This is a conservative estimate based on the lower limit of the possible range. The Authority’s internal failure rate is irrelevant. It is not based on an unbiased statistical sample. Further, as stated in the finding, the Authority’s inspection procedures were inadequate. Comment 6 The finding does not infer the Authority at no time correctly calculated subsidy payments. The finding only discusses the results of the HUD RIM reviews and the results of our review of 15 files. We did not project those results to any other files, and clearly stated that the Authority did not consistently calculate subsidy payments. The phrases “at no time” and “did not consistently” have much different meanings. However, given that the Authority terminated its staff and completely revamped its procedures, the extent of the problems must have been extreme. Comment 7 The Authority believes that it has completed corrective actions based on its interpretation of what HUD required it to do. In our discussions with HUD staff and management, they have consistently stated that the Authority has yet to comply with requirements. The director of the Office of Public and Indian Housing, Knoxville communicated this to the Authority’s executive director again at the exit conference. Clearly there are conflicting opinions as to what expectations were pertaining to the corrective actions to be taken. 29 Table of Contents However, it is also clear that the Authority has had a long history of failing to properly administer its Section 8 program as it pertains to management of tenant data. While our report gives credit to the Authority for having made significant improvements, it also recognizes that at the time of our review in November and December 2004, the Authority still had not completed correcting all files. As such, we believe the sanctions are appropriate. We do believe the Authority and HUD need to meet and ensure that a mutual agreement is reached as to exactly what needs to be accomplished in order to avoid additional sanctions. At the exit conference, the director of Public and Indian Housing, Knoxville advised the Authority that since the Authority is now claiming to have all files corrected, a followup review will be performed. The results of that review could be used to determine whether sanctions should continue. The finding does give credit to the Authority for implementing a new quality Comment 8 control review process that identified the majority of the deficiencies we found during our review of 15 files. However, the finding did not state the corrections were in accordance with the corrective action plan. Similarly, the December 2004 followup HUD review noted improvements, but also noted that the Authority still was not in compliance with program requirements. This is the same month the Authority claims it was in 100 percent compliance. We did not make any changes to the report based on the Authority’s comments. 30 Table of Contents APPENDIX C CRITERIA 24 CFR [Code of Federal Regulations] 5.240(c) The responsible entity must verify the accuracy of the income information received from the family and change the amount of the total tenant payment as appropriate, based on such information. 24 CFR [Code of Federal Regulations] 982.516(a) The Authority must conduct a reexamination of family income and composition at least annually and document in the tenant file third party verification or why third party verification was not available. Notice PIH [Public and Indian Housing] 2004-01 (HA), Verification Guidance The notice provides instructions on HUD-established verification guidance and requires public housing authorities to implement procedures to ensure compliance with the verification policies. It also outlines the verification procedures a public housing authority must use when verifying income and deductions to calculate rent. Notice PIH [Public and Indian Housing] 2003-34 (HA), Rental Integrity Monitoring Disallowed Costs and Sanctions under the Rental Housing Integrity Improvement Project Initiative The notice highlights the importance of timely and accurate income and rent determinations by public housing authorities and the consequences for failure to identify and correct income and rent determination deficiencies. Public housing authorities must identify and implement corrective actions or rectify errors in meeting program requirements uncovered during rental integrity monitoring reviews. In the event that a public housing authority fails to comply with the requirements of the rental integrity monitoring review, HUD will impose sanctions on the public housing authority pursuant to section 6(j)(4)(A)(v) of the U.S. Housing Act of 1937 and 24 CFR [Code of Federal Regulations] 982.152(d) regarding voucher programs. If, as a result of a rental integrity monitoring review, a public housing authority does not implement its corrective actions within the timeframes approved by the field office, 10 percent of its monthly scheduled administrative fee advance will be withheld beginning the month the field office makes the sanction effective and lasting until the public housing authority has complied with the program requirements. 31 Table of Contents 24 [Code of Federal Regulations] 982.401(a)(3) All program housing must meet housing quality standards performance requirements, both at commencement of assisted occupancy and throughout the assisted tenancy. 24 [Code of Federal Regulations] 982.405(a) The public housing authority must inspect the unit leased to a family before the initial term of the lease, at least annually during assisted occupancy, and at other times as needed to determine whether the unit meets housing quality standards. 24 [Code of Federal Regulations] 982.405(b) The public housing authority must conduct supervisory quality control housing quality standards inspections. HUD Handbook 7420.10g, chapter 10, section 10.6 The Handbook provides guidance the public housing authority should consider to determine how many total inspections will need to be scheduled and completed each year. After estimating the number of required unit inspections, the public housing authority should determine the number of staff needed to complete required inspections. The public housing authority should take into account the following factors: • Number of days employees actually conduct inspections each year (exclude time in office, training days, vacation, sick days, and approximate number of days lost to weather conditions for the area) and • Number of inspections each employee completes per day. This analysis will indicate the number of inspections each inspector must have scheduled and completed each day. The public housing authority should determine the amount of time required for an inspector to complete thorough inspections, taking into account the type of unit and the number of bedrooms. The public housing authority should also consider travel time. 32 Table of Contents Appendix D TABLE OF UNITS IN MATERIAL NONCOMPLIANCE WITH HOUSING QUALITY STANDARDS Deficiencies existed for Corresponding extended period of time or Item sample item Deferred at the time of the number number maintenance Authority’s last inspection 1 2,555 X X 2 1,332 X X 3 1,350 X 4 772 X 5 85 X X 6 2,665 X 7 1,587 X X 8 1,768 X X 9 2,772 X 10 916 X 11 985 X 12 166 X X 13 1,386 X X 14 364 X X 15 2,224 X X 16 2,462 X X 17 1,521 X X 18 2,256 X X 19 730 X 20 1,486 X X 21 1,821 X 22 599 X X 23 2,494 X X 24 2,252 X X 25 804 X 26 1,014 X X 27 517 X X 28 1,536 X X 33 Table of Contents
The Chattanooga Housing Authority Chattanooga, Tennessee
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-06-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)