Issue Date September 29, 2005 Audit Case Number 2005-AT-1015 TO: Olga I. Saez, Director, Public and Indian Housing, San Juan Field Office, 4NPH FROM: James D. McKay Regional Inspector General for Audit, 4AGA SUBJECT: The Municipality of San Juan Housing Authority, San Juan, PR, Did Not Properly Administer Its Section 8 Housing Choice Voucher Program HIGHLIGHTS What We Audited and Why We audited the Municipality of San Juan Housing Authority’s (Authority) Section 8 Housing Choice Voucher program as part of our strategic plan goals to reduce erroneous payments in rental assistance programs. The review was initiated in response to a request from the Department of Housing and Urban Development’s (HUD) San Juan Office of Public and Indian Housing. The San Juan office advised that it was not satisfied with the Authority’s overall performance in administering its Section 8 program. The objective of our audit was to determine whether the Authority had adequate controls to effectively administer the Section 8 Housing Choice Voucher program. What We Found The Authority did not have adequate controls to ensure tenants received the proper voucher size, assistance payments were correct, files were properly documented, and participants were properly selected from the waiting list. As a Table of Contents result, the Authority made erroneous housing assistance payments totaling $9,601 and could incur additional overpayments of $148,827. What We Recommend We recommend that the director of the Office of Public and Indian Housing require the Authority to repay $9,601, less the $3,138 already recovered, for excessive and erroneous housing assistance payments and take measures to avoid future estimated overpayments of $148,827. The director should also require the Authority to review tenant files with inadequate income verifications, locate missing tenant files, and determine the appropriateness and eligibility of the $121,638 in housing assistance disbursed. Further, since the Authority failed to correct deficiencies identified by HUD in December 2002, HUD should reduce the Authority’s administrative fees earned by 10 percent retroactively to July 2003 or about $413,327. HUD should continue to monitor the Authority and withhold 10 percent of the administrative fee, about $410,338, until the Authority complies with requirements. We also recommend that the director require the Authority to establish and implement controls to ensure it follows HUD requirements so that assistance payments are correct, files are properly documented, and participants are properly selected from the waiting list. 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 the exit conference on September 9, 2005. The Authority provided its written comments to our draft report on September 16, 2005. In its response, the Authority generally agreed with the findings. The complete text of the Authority’s response, along with our evaluation of that response, can be found in appendix B of this report. Table of Contents 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Authority Did Not Properly Administer Its Section 8 Housing 5 Choice Voucher Program Scope and Methodology 11 Internal Controls 13 Followup on Prior Audits 14 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 15 B. Auditee Comments and OIG’s Evaluation 16 C. Criteria 26 D. Summary of File Deficiencies 28 3 BACKGROUND AND OBJECTIVES The Municipality of San Juan Housing Authority (Authority) administers about 4,000 housing choice vouchers within San Juan and its vicinity. The annual assistance payments and administrative fees approach $24 million. The Authority’s Subsidized Housing Office was assigned the responsibility of administering the Section 8 program. The Authority’s books and records for the Section 8 program are maintained at 1205 Ponce de Leon Avenue, San Juan, Puerto Rico. We audited the Authority’s Section 8 Housing Choice Voucher program in response to a request from the Department of Housing and Urban Development’s (HUD) San Juan, Puerto Rico, Office of Public and Indian Housing. The San Juan office advised that it was not satisfied with the Authority’s overall performance in administering its Section 8 program. The San Juan office conducted several reviews during the past few years that continually identified weaknesses in the Authority’s procedures. The objective of our audit was to determine whether the Authority had adequate controls to effectively administer the Section 8 Housing Choice Voucher program. This audit is part of an ongoing review of the Authority. Table of Contents 4 RESULTS OF AUDIT Finding 1: The Authority Did Not Properly Administer Its Section 8 Housing Choice Voucher Program The Authority paid $3,348 in excess subsidies for tenants with oversize vouchers and could incur additional overpayments of $148,827. In addition, the Authority made erroneous housing assistance payments totaling $6,253, did not comply with record-keeping requirements, and did not select participants from the waiting list in accordance with HUD requirements. The deficiencies occurred because the Authority did not establish and implement adequate controls to ensure tenants received the proper voucher size, assistance payments were correct, files were properly documented, and participants were properly selected from the waiting list. Thus, the Authority cannot assure it only paid subsidies for eligible families or in the appropriate amounts and selected applicants in accordance with HUD requirements. Wrong Size Vouchers The Authority has 354 tenants with Section 8 vouchers larger than the number of people in their households (overhoused tenants). Of the 354 overhoused tenants, 10 tenants are overhoused with excessive subsidy payments, and 282 tenants have the potential to receive subsidy overpayments. This overhousing occurred because the Authority does not have adequate procedures in place to ensure that its tenants receive the proper voucher size. HUD’s Housing Choice Voucher Guidebook explains that when determining unit size, the subsidy standards must provide for the smallest number of bedrooms needed to house a family without overcrowding. In addition, the Authority’s administrative plan provides that tenants will be assigned units based on the number of people in their households. A sample of 13 overhoused tenants showed that the Authority issued the wrong size voucher to 10 families from the beginning of the tenants’ participation in the Section 8 program. The tenants had a Section 8 voucher larger than the number of people in their households. As a result, the Authority used the incorrect payment standard and/or utility allowance to calculate the housing assistance. The housing authority calculates the maximum subsidy allowable, based on the payment standard and gross rent of the unit. We found the Authority incorrectly used a higher payment standard and/or gross rent, causing the payment of $3,348 in excess subsidy payments from the admission date to June 2005. The Authority could incur additional overpayments of $3,939, during the remaining contract period for the above 10 tenants, if it does not implement corrective measures. Table of Contents 5 Based on the results of our sample, we recalculated the housing assistance for the remaining 341 overhoused tenants to determine the possible effect on the Section 8 program. To recalculate the housing assistance, we used the payment standard and utility allowance that applied to tenants based on the number of people in their households. Our analysis showed that 282 of the 341 overhoused tenants had the potential to have excess subsidy payments. The Authority may have applied the incorrect payment standard and/or gross rent to calculate housing assistance. We estimate that the Authority may pay $144,888 in excess subsidies for the tenants with oversize vouchers over the next 12 months. Housing Assistance Was Improperly Paid Our examination of 29 files disclosed the Authority did not properly determine or verify housing assistance payments. As a result, the Authority made erroneous assistance payments totaling $6,253. It made duplicate subsidy payments of $4,813 and made errors causing the overpayment of $1,440 in housing assistance. The Authority recovered $3,138 during the audit, leaving $3,115 to be repaid. We also found the Authority did not follow HUD requirements and its own policies when verifying a family’s income. • Duplicate subsidy. The Authority did not disburse housing assistance subsidies for only eligible purposes. Two tenants moved to new units, but the Authority continued to make rental payments to former landlords and paid utility allowance reimbursement to tenants. When tenants moved to new units, the Authority issued a new voucher without canceling the original. Therefore, the same tenant was in the Authority’s housing assistance payment register with two active vouchers. This resulted in duplicate subsidy payments of $4,813. During the audit, the Authority initiated corrective measures and recovered $3,138 of the duplicate subsidies, leaving an uncollected balance of $1,675. Duplicate Recovered File number subsidy (as of June 2005) Balance Tenant A PI-050, 7076 $3,252 $3,138 $ 114 Tenant B 1085, 7317 $1,561 0 $1,561 Total $4,813 $3,138 $1,675 • Subsidy errors. The Authority did not correctly calculate the housing assistance payment in three tenant files because it did not properly determine tenants’ annual income or used the incorrect fair market rent when calculating assistance payments. Errors in three files resulted in the Authority making net overpayments of $1,440. The tenant’s annual Table of Contents 6 income was understated in two files, and the fair market rent was overstated in another. File number Overpayment 2299 $864 9677 552 9123 24 Total $1,440 • Inadequate verification of income. In 21 tenant files, the Authority did not consistently follow HUD requirements and its own policies and procedures when verifying a family’s income. 1 As a result, the Authority cannot ensure the propriety and eligibility of $80,199 in housing assistance paid from the last certification to June 2005. For example, the Authority did not obtain employment information directly from the source and allowed four tenants to handle verification forms. The written verification documents must be supplied directly to the independent source by the housing authority and be returned directly to the housing authority from the independent source. The tenant shall not hand carry documents to or from the independent source. Authority officials informed us the employment verification was provided to tenants to help accelerate the certification process. This was not an acceptable explanation for not performing an integral component of its Section 8 Housing Choice Voucher program responsibilities. We also found that notarized statements and/or copies of tax returns were not obtained to verify the income of two self-employed tenants. When third-party verification is not available, the housing authority should always request a notarized tenant declaration that includes a perjury statement. The files only included general statements of the tenant’s annual earnings without the Authority documenting the efforts made to obtain a higher level of verification. In two other files, there was information indicating tenants could be underreporting income, but the Authority did not respond appropriately to clarify or resolve the issue. The Authority is required to verify the accuracy of income information received. Files Were Not Properly Documented The Authority did not comply with HUD record-keeping requirements that permit a speedy and effective audit. During our examination, the Authority could not 1 Appendix D provides a chart summarizing the deficiencies found. Table of Contents 7 locate tenant files, housing assistance payment contracts, and consent forms signed by tenants. • Missing files. The Authority could not locate nine Section 8 tenant files for our review. As a result, it cannot ensure the propriety and eligibility of $41,439 in housing assistance paid from the last certification to June 2005. The missing files were as follows: File number Housing assistance payments MB-081 $1,344 MB-084 7,752 * 6033 2,964 PI-029 2,975 9055 6,250 * 6033 7,755 4016 8,588 4104 2,060 0709 1,751 Total $41,439 * Duplicate case file number. • Missing contracts. In 10 tenant files, the Authority did not provide a properly executed housing assistance payment contract. The housing assistance payment contract is the written agreement between the Authority and the owner of the unit occupied by the Housing Choice Voucher program participant. Housing authorities may not pay any housing assistance payment to the owner until the contract has been executed. The housing assistance payment contract must be executed no later than 60 calendar days from the beginning of the lease term. Without a properly executed contract, the Authority would not be able to enforce landlord obligations under the Section 8 Housing Choice Voucher program. The Authority could not explain why the contracts were missing. • Consent forms not signed. In three tenant files, the Authority did not ensure that tenants signed HUD Form 9886, Authorization for the Release of Information. HUD Form 9886 allows the Authority and HUD to obtain income information about applicants and participants. All heads of households and any other member who is 18 years of age or older are required to sign the consent form. The Authority’s failure to ensure that all participants sign the consent form increases HUD’s risk to the Section 8 Housing Choice Voucher program. Without the consent forms properly signed, the Authority cannot independently verify the family’s income and assure the eligibility of participants. Table of Contents 8 Tenants Not Properly Selected from Waiting List The Authority did not select participants from the waiting list in accordance with HUD requirements and in compliance with admission policies in the Authority’s administrative plan. As a result, the Authority may have denied other eligible applicants an opportunity to receive housing assistance. During the review, we identified four families that were recently admitted to the program but were not on the Authority’s housing choice voucher waiting list. File number Admission date 9677 July 16, 2004 2005 Nov. 1, 2004 0706 Dec. 5, 2004 1928 Jan. 6, 2005 We also found 16 families selected for admission to the program in an order different from the order on the waiting list. When admitting these families to the program, the Authority did not consider or ignored other applicants with similar needs that were on the waiting list for a longer period. The Authority did not provide documentation showing the method of selecting the applicants and that it was done in accordance with HUD requirements and the administrative plan. Conclusion Our examination of tenant files showed the Authority did not have proper controls in place to assure it administered the Section 8 Housing Choice Voucher program in an effective manner and in compliance with HUD requirements. The lack of adequate controls allowed the Authority to issue the wrong size voucher, make incorrect housing assistance payments, improperly document tenant files, and improperly select tenants from the waiting list. The deficiencies were similar to those identified in three HUD reviews. 2 Despite the fact that HUD has provided technical assistance, the Authority has not made significant progress to improve its performance. Therefore, we recommend that HUD reduce the Authority’s administrative fees by 10 percent retroactively to July 2003, about $413,327. Further, we recommend that HUD continue to withold 10 percent of future administrative fees, about $410,338, until the Authority complies with program requirements. 2 In December 2002, HUD performed a rental integrity monitoring review and followup reviews in November 2003 and 2004. Table of Contents 9 Recommendations We recommend that the director, Office of Public and Indian Housing, 1A Require the Authority to reimburse the Section 8 Housing Choice Voucher program from nonfederal funds $3,348 in excess subsidies and $6,253, less the $3,138 recovered during the audit, for the erroneous housing assistance payments. 1B Require the Authority to review the identified overhoused tenants and prevent future estimated overpayments of $148,827. 1C Require the Authority to review identified tenants with inadequate income verifications, determine the appropriateness and eligibility of $80,199 disbursed in housing assistance, and repay the Section 8 Housing Choice Voucher program from nonfederal funds any amounts determined ineligible. 1D Require the Authority to locate the missing tenant files and determine the appropriateness and eligibility of the $41,439 disbursed in housing assistance and repay the Section 8 Housing Choice Voucher program from nonfederal funds any amounts determined ineligible. 1E Reduce the Authority’s administrative fees by 10 percent retroactively to July 2003, about $413,327. 1F Continue to monitor the Authority and withhold 10 percent of administrative fees, about $410,338, until the Authority complies with requirements of the Section 8 Housing Choice Voucher program. 1G Require the authority to establish and implement controls to ensure it follows HUD requirements so that assistance payments are correct, files are properly documented, and participants are properly selected from the waiting list. Table of Contents 10 SCOPE AND METHODOLOGY Our audit objective was to determine whether the Authority had adequate controls to effectively administer the Section 8 Housing Choice Voucher program. To accomplish our objective, we • Obtained and reviewed relevant HUD regulations and Authority guidelines. • Interviewed HUD program staff and reviewed their monitoring reports. • Interviewed Authority staff. • Obtained and reviewed the Authority’s latest independent public accountant report. • Reviewed a sample of Section 8 tenant files. • Reviewed the Authority’s controls related to the administration of its Section 8 program. We obtained a download of the Authority’s current units from the housing assistance payment register. There were 4,131 units as of April 1, 2005. We selected and performed a detailed review of a sample of 25 tenant files to verify that the Authority properly determined eligibility, subsidy payments and to test waiting list selection. 3 We verified that each file contained adequate support for tenant income, utility allowances, deductions, payment standards, and contract rent. Using this information, we recomputed the tenant’s assistance payments and compared them to the Authority’s assistance payment calculations to determine any variances. We also reviewed four tenants with possible duplicate housing assistance payments. During the initial phase of the audit, we identified three tenants who had vouchers larger than the number of people in their households (overhoused tenant). As a result, we decided to expand the scope of our review to determine the number and effect of overhoused tenants. We applied a computer formula to the Authority’s data and identified 354 cases of families who possessed a Section 8 housing choice voucher with more bedrooms than their family size. Of the 354 overhoused tenants, we selected 13 tenants to verify that the Authority issued proper voucher sizes to tenants. We also recalculated the housing assistance for the remaining 341 overhoused tenants to determine the possible effect on the Section 8 program. To recalculate the housing assistance, we used the payment standard that applied to tenants based on the number of people in their households. We accepted and did not reverify the Authority’s calculation for income and deductions for the overhoused tenants. The audit generally covered the period of July 2003 through March 2005, and we extended the period as needed to accomplish our objectives. We conducted our fieldwork from March through June 2005 at the Authority’s offices in San Juan, Puerto Rico. 3 We selected 23 tenants who were admitted to the Section 8 program between October 2003 and March 2005 and two admitted in June and August 2002. Table of Contents 11 To achieve our audit objectives, we relied in part on computer-processed data contained in the Authority’s database. Although we did not perform a detailed assessment of the reliability of the data, we did perform a minimal level of testing of these data and found them to be adequate for our purposes. The results of the audit apply only to the items selected and cannot be projected to the universe or population. We conducted the audit in accordance with generally accepted government auditing standards. Table of Contents 12 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 item is a significant weakness: • The Authority did not establish and implement adequate controls to ensure tenants received the proper voucher size, housing assistance payments were correct, files were properly documented, and tenants were properly selected from the waiting list (see finding 1). Table of Contents 13 FOLLOWUP ON PRIOR AUDITS Prior Independent Public Accountant Report Findings The most recent audit of the Authority’s financial statements ending June 30, 2004, contained findings that the Authority’s Section 8 tenant files were missing, incomplete, and did not show rationale used to admit applicants to the Section 8 program. Our audit determined that these conditions had not been corrected. Table of Contents 14 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Funds to be put to Recommendation Ineligible 1/ Unsupported 2/ better use 3/ 1A $ 9,601 1B $ 148,827 1C $ 80,199 1D 41,439 1E 413,327 1F 410,338 Total $ 422,928 $ 121,638 $ 559,165 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law; contract; or federal, state, or local policies or regulations. 2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 3/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an Office of Inspector General (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. Table of Contents 15 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Table of Contents 16 Table of Contents 17 Table of Contents 18 Table of Contents 19 Comment 1 Table of Contents 20 Table of Contents 21 Table of Contents 22 Comment 2 Table of Contents 23 Table of Contents 24 OIG Evaluation of Auditee Comments Comment 1 We agree with the Authority that changes in the computer system might improve the chances of detecting duplicate subsidy payments. However, the Authority must also ensure it has appropriate procedures for canceling vouchers when new vouchers are issued. Comment 2 The implementation of corrective measures should not be conditioned to the approval of additional HUD funding as proposed by the Authority. HUD already paid the Authority about $4 million in administrative fees during the last two years to administer the Authority’s Section 8 Housing Choice Voucher program. We are currently recommending a reduction in administrative fees until the Authority can establish it has the ability to carry out the housing choice voucher program in accordance with HUD regulations. HUD will make the determination on how to best approach the corrective action needed to get the Authority operating appropriately. Table of Contents 25 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] 982.152(d) HUD may reduce or offset any administrative fee to the public housing authority, in the amount determined by HUD, if the public housing authority fails to perform its administrative responsibilities correctly or adequately under the program. 24 CFR [Code of Federal Regulations] 982.158(a) The public housing authority must maintain complete and accurate accounts and other records for the program in accordance with HUD requirements in a manner that permits a speedy and effective audit. 24 CFR [Code of Federal Regulations] 982.204(a) The public housing authority must select participants from its waiting list, except for special admissions. 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. Table of Contents 26 Notice PIH [Public and Indian Housing] 2005-7 (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 or other reviews, 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. Authority’s Administrative Plan The Authority’s administrative plan establishes local policies for items not specifically covered by federal regulations and acknowledges the Authority’s responsibility for complying with HUD regulations. Table of Contents 27 Appendix D SUMMARY OF FILE DEFICIENCIES Missing Housing Inadequate Inadequate housing assistance HUD Form File earnings waiting list assistance calculation 9886 not signed number verification selection contract error by tenant 1449 X X 2005 X X X 1928 X X X 9123 X X X 6935 X X X 9376 X PI-084 X 6253 X X X 0848 X X X 6320 X X 9529 X X X 6728 X 9231 X X X X 1551 X X X X 0258 X 0344 X X X 0392 X X 0525 X X 1704 X X 2299 X X X 9503 X X X 0706 X 9467 X 9677 X X X 0903 X X X Total 21 20 10 6 3 Table of Contents 28
Municipality of San Juan Housing Authority San Juan, Puerto Rico
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)