oversight

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)

                                                             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.



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                                     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.




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                                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




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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




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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




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                                                                 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.




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                        Damage from
                        water leak around
                        window




                         Deteriorated,
                         unsecured basement
                         access door




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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.




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           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.




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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.




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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.




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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.




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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.




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                          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


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           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.




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                             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).




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                                     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.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         20
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Comment 2




Comment 3




Comment 4




                    21
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                    22
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Comment 5




Comment 6




Comment 7




Comment 8




                    23
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Comment 7




                    24
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                        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.




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            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.




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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.




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            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.




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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.




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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.




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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




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