oversight

Kankakee County Housing Authority's Low-Rent Housing Unit Conditions; Kankakee, Illinois; The Authority�s Family Units Were Not in Good Repair, Order, and Condition; and The Authority Improperly Used Funds to Pay Fines for Not Meeting the City of Kankakee�s Ordinance on Rental Licensing

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-08-05.

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

              AUDIT REPORT




       KANKAKE COUNTY HOUSING AUTHORITY
        LOW-RENT HOUSING UNIT CONDITIONS

               KANKAKEE, ILLINOIS

                   2005-CH-1014

                 AUGUST 5, 2005




              OFFICE OF AUDIT, REGION V
                  CHICAGO, ILLINOIS


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                                                                 Issue Date
                                                                              August 5, 2005
                                                                 Audit Report Number
                                                                              2005-CH-1014




TO:         Linford Coleman, Director of Public Housing Hub, 5APH


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: Kankakee County Housing Authority’s Low-Rent Housing Unit Conditions;
           Kankakee, Illinois; The Authority’s Family Units Were Not in Good Repair,
           Order, and Condition; and The Authority Improperly Used Funds to Pay
           Fines for Not Meeting the City of Kankakee’s Ordinance on Rental Licensing

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Kankakee County Housing Authority’s (Authority) low-rent
             housing unit conditions. The audit was conducted in response to a citizen’s
             complaint to our office and was part of our comprehensive audit of the Authority.
             Our objective was to determine whether the Authority maintained its low-rent
             housing units in accordance with the U.S. Department of Housing and Urban
             Development’s (HUD) requirements. We determined whether the Authority
             maintained its units in good repair, order, and condition, and whether the
             Authority ensured its low-rent housing units met the City of Kankakee’s (City)
             ordinance on rental licensing.

 What We Found


             The Authority’s

                •   Housing units were in poor repair. An Office of Inspector General (OIG)
                    appraiser inspected 39 statistically selected family housing units and
                    identified 693 deficiencies causing units not to be in good repair, order,
                    and condition, as well as health and safety issues for 36 of the 39 units.



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                     The appraiser estimated that more than $152,000 in repairs was needed to
                     bring the 39 units into good repair.

              •      The Authority improperly used HUD funds to pay $10,475 in fines for its
                     low-rent housing family units that did not have valid rental licenses issued
                     by the City.

What We Recommend


           We recommend that HUD’s director of Public Housing Hub, Chicago Regional
           Office, require the Authority to (1) reduce its low-rent housing operating subsidy
           for the inappropriately used funds, (2) seek reimbursement from the City for fines
           that may have been improperly paid, and (3) implement procedures and controls
           to correct the weaknesses cited in this report.

           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 provided our discussion draft audit report to the Authority’s executive
           director and HUD’s staff on June 15, 2005. We conducted an exit conference
           with the Authority on June 28, 2005. Based upon the exit conference, we issued a
           revised discussion draft audit report to the Authority’s executive director and
           HUD’s staff on July 18, 2005.

           We asked the Authority to provide written comments on our revised discussion
           draft audit report by July 28, 2005. The Authority’s executive director provided
           written comments to the revised discussion draft audit report on July 22, 2005.
           The executive director disagreed with our findings and recommendations. The
           complete text of the Authority’s written response, along with our evaluation of
           that response, can be found in Appendix B of this report.




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                                   TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding 1: The Authority’s Low-Rent Family Units Were Not in Good Repair,
      Order, and Condition                                                        5
      Finding 2: The Authority Improperly Used HUD Funds to Pay Fines for Units
                                                                                  14
      Not Meeting the City of Kankakee’s Ordinance on Rental Licensing

Scope and Methodology                                                             16

Internal Controls                                                                 17

Appendices
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use              19
   B. Auditee Comments and OIG’s Evaluation                                       20
   C. Units Charged for Lacking Valid Rental License from the City of Kankakee    25




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                     BACKGROUND AND OBJECTIVES

The Kankakee County Housing Authority (Authority) was organized under the laws of the State
of Illinois as a tax-exempt, quasi-governmental entity under the U. S. Housing Act of 1937. The
Authority’s central administrative office is located at 185 North Saint Joseph Avenue, Kankakee,
Illinois. The Authority, created by the County of Kankakee in 1966, is a private municipal
corporation governed by a seven-member board of commissioners. The board members,
appointed by the County’s board chairman and approved by the county board, set the overall
policy in matters concerning the Authority’s operations. The executive director, appointed by
the board of commissioners, is responsible for coordinating and carrying out the policies
established by the board. Since its creation, the Authority has grown from a small operation,
providing housing for low-income families, to one of the largest single property managers in
Kankakee County.

The Authority was organized to provide housing for low-income families in good repair, order,
and condition. The Authority entered into an annual contributions contract with the U.S.
Department of Housing and Urban Development (HUD) for the purpose of financing low-rent
housing unit construction and the retirement of debt, and entered into another annual
contributions contract to provide housing assistance payments to owners of section 8 housing
units.

The Authority provides subsidized housing to eligible households in Kankakee County. It
operates 308 low-rent housing units in four developments: Midtown Towers, located at 340
North Dearborn Street; Azzarelli High-Rise, located at 145 West Broadview Drive; and Locust
Street Complex and Wildwood Complex, which are scattered sites. The Authority also has six
Turnkey III Homeownership Opportunity program (Turnkey III) units in one development called
Old Fair Park. These programs are funded through rental receipts and operating subsidies from
HUD. In addition, grants are received annually for the renovation and modernization of these
units.

The low-rent housing program is not limited to the rental and maintenance of physical facilities,
but also operates programs designed to resolve many of the social and economic problems
experienced by low-income families. It is the Authority’s goal to assist in improving the living
conditions of persons choosing to reside in its low-rent housing and Turnkey III programs. As of
January 1, 2004, the Authority is working under a memorandum of agreement with HUD that
specifies performance target dates and strategies to improve the Authority’s overall operations.

Our objective was to determine whether the Authority maintained its low-rent housing units in
accordance with HUD’s requirements. We determined whether the Authority maintained its
units in good repair, order, and condition, and whether the Authority ensured its low-rent
housing units met the City of Kankakee’s (City) ordinance on rental licensing. We focused on
the scattered family sites located at Locust Street Complex and Wildwood Complex, since these
family units scored lowest in an overall inspection by HUD’s Real Estate Assessment Center in
August 2004. The Housing Authority was subsequently rated as a standard performer (overall)
by the Center in 2005.



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                                 RESULTS OF AUDIT

 Finding 1: The Authority’s Low-Rent Family Units Were Not in Good
                    Repair, Order, and Condition
The Authority’s low-rent housing family units were not maintained in good repair, order, and
condition. An Office of Inspector General (OIG) appraiser identified 693 deficiencies, which
included 93 health and safety violations, in 39 statistically selected low-rent housing family units
inspected. The appraiser estimated that $152,499 in required repairs was needed to ensure the 39
units were in good repair, order, and condition. Although the Authority converted five percent of
its units to be accessible to persons with disabilities, in at least one example, many of the
converted items did not comply with the uniform federal accessibility standards. The problems
occurred because the Authority (1) identified deficiencies during its inspections but did not
repair them, (2) failed to include all noted deficiencies on work orders, and (3) had inadequate
quality control reviews of repairs to ensure units were free of deficiencies. As a result, tenants
were subjected to poor housing units, and the Authority did not efficiently and effectively use
$118,666 of HUD provided operating subsidies for making repairs to the 39 units.



 Public Housing Agencies Must
 Maintain Units in Good Repair,
 Order, and Condition


               The Authority’s administrative plan provides for the annual inspection of its low-
               rent housing units using a combination of HUD’s uniform physical condition
               standards and local codes. These standards are described in 24 CFR [Code of
               Federal Regulations], part 902. The Authority was also operating under the
               former annual contributions contract (HUD-53011). In it, section 209 requires the
               Authority to at all times maintain each public housing project in good repair, order,
               and condition.

               To evaluate the repair, order, and condition of the Authority’s low-rent housing
               units, an OIG appraiser inspected a statistical sample of 39 units using housing
               quality standards and local code. Maintaining public housing projects in
               accordance with standards which meet or exceed housing quality standards is
               required per section 6(f)(3) of the Housing Act of 1937 (42 U.S.C. 1437d(f)(3)).
               This requirement is also recognized in 24 CFR [Code of Federal Regulations],
               subpart B, part 902.20.

               Additionally, the uniform federal accessibility standards set forth requirements for
               facility accessibility by physically handicapped persons for federal and federally
               funded facilities. HUD adopted these standards in 24 CFR [Code of Federal
               Regulations], part 40, effective October 4, 1984.



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Sample Selection and
Inspections


           We selected a statistical sample of the Authority’s low-rent housing family units
           using computer assisted auditing techniques. A statistical sample of 39 units was
           selected from the Authority’s 85 family units using audit command language.
           The units were selected to determine whether the Authority’s units were
           maintained in good repair, order, and condition.

           During January 2005, an OIG appraiser inspected the Authority’s 39 low-rent
           family units. The appraiser is a registered architect with a Bachelors Degree in
           Architecture, has 25 years experience inspecting HUD properties, and 14 years
           experience with the U.S. military inspecting army reserve training facilities.
           During the audit, we provided our inspection results to HUD’s Chicago Regional
           Office director of public housing hub and the Authority’s executive director.


Low-Rent Family Units Were
Not in Good Repair, Order, and
Condition

           The Authority’s 39 low-rent family units inspected had 693 deficiencies—
           indicating that they were not in good repair, order, and condition, and did not
           meet the City’s housing code. Of the 693 deficiencies, 93 were health and safety
           deficiencies. Thirty-six of the 39 units contained at least one health and safety
           deficiency. The deficiencies ranged from 6 to 37 per unit.

           From a comparison of the Authority’s annual inspection reports to the inspection
           reports prepared by the OIG appraiser, 26 of the 39 units had health and safety
           deficiences for at least a year. The deficiencies related to medicine cabinet outlets
           that did not have ground fault circuit interrupter protection. The Authority’s
           former maintenance supervisor identified 23 of the 26 units’ deficiencies related
           to the ground fault circuit interrupter protection. These deficiencies were
           recorded by the former supervisor on the Authority’s annual inspection forms, but
           were not recorded on the Authority’s work orders, or resolved within 24 hours as
           required by HUD. The Authority’s executive director said the problem was an
           oversight because the maintenance supervisor informed him of the medicine
           cabinet outlet deficiencies that were in the high-rise units, but was not informed
           the problem also existed in the family units.

           The OIG appraiser estimated the total cost of required repairs to bring the 39 units
           to a livable condition would cost $152,499. The following table shows the types
           of deficiencies identified.




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                             Types of deficiencies        Number of deficiencies
                 Cabinets, doors, closets, and hardware           160
                 Electrical fixtures and systems                  104
                 Doors, windows, and screens                       90
                 Plumbing fixtures and systems                      80
                 Refrigerators/Ranges                               73
                 Walls/Ceilings                                     58
                 Floors, carpets, and tiles                         32
                 Heating/Air conditioning                           26
                 Painting                                           24
                 Walks, steps, and guardrails                       15
                 Stairs, walkways, and community spaces             12
                 Garbage disposal and exhaust fans                   7
                 Exterminating                                       7
                 Exterior lighting                                   4
                 Gutters, downspouts, and splash blocks              1
                                   Total                           693



Cabinets, Doors, Closets, and
Hardware


            There were 160 deficiencies related to cabinets, doors, closets, and hardware
            identified in 38 of the Authority’s 39 low-rent units inspected. The deficiencies
            included: kitchen cabinets improperly installed protruding from under the
            countertop; sink cabinet bottom panels deteriorated and moldy; kick plates on
            kitchen cabinets missing caulking; doors and fronts of sink cabinets deteriorated;
            drawers on kitchen cabinets were broken; hinges on cabinet doors had failed;
            loose doorframes at bathrooms and in danger of falling out; closet doors to
            bedroom closets without frames and leaning against the door openings; bedroom
            doors with impact holes in them; closet doors in bedrooms were off their tracks;
            bedroom door latches were loose; and door latches were missing. The following
            pictures are examples of cabinets, doors, closet, and hardware deficiencies.




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  The unit at 307 North Evergreen had
  kitchen cabinets with two broken
  drawers and missing front panels; sink
  cabinet had moisture damage and was
  delaminating; and the kitchen cabinet
  door hinges were damaged and did not
  keep doors straight and closed.




The unit located at 543 South Gordon
had a broken latch and doorframe.




  Electrical Hazards


                 We identified 104 electrical deficiencies in 35 of the Authority’s 39 low-rent units
                 inspected. The deficiencies identified included: ground fault circuit interrupter
                 outlets did not trip when tested; light fixtures were missing their protective
                 globes; light switch plates missing; broken electrical outlet cover plates; loose
                 electrical outlets; electrical outlets on bathroom medicine cabinets not protected
                 by ground fault circuit interrupters; ceiling light fixtures loose and hanging from
                 their wires; improper washer/dryer outlet wired on the wall surface from the
                 electrical panel box without using conduit or standard connections; and electrical
                 outlets on walls of rooms not grounded. The following pictures are examples of
                 the electrical deficiencies.



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The unit located at 727 West Harbor
had a ceiling light fixture in the
master bedroom closet that was
loose and hanging from its wires.




The electrical outlet cover plates were
missing from the walls for the unit
located at 321 North Evergreen.




  Doors, Windows, and Screens


                  We identified 90 exterior door, window, and screen deficiencies in 35 of the
                  Authority’s 39 low-rent units inspected. The deficiencies included items such as:
                  bottom flange on windows snipped off; screens on front entrance storm doors
                  torn; torn screens on windows; window screens missing from windows; front steel
                  entrance door frames were rusted, were not square and plumb, and doors were
                  sagging—creating large gaps between the door and frame; and front and back
                  entrance screen doors were torn and missing latches. The following pictures are
                  examples of deficiencies with exterior doors, windows, and screens.




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The front entrance storm door screen
was torn and missing its latch for the
unit located at 307 North Evergreen.




The unit located at 1843
Meadowview had windows with
serious mold problems.




  Deficiencies Noted during
  Inspections and not Repaired,
  and Failure to Include All
  Deficiencies on Work Orders


                  During the fiscal year 2004 annual inspections that were conducted in April 2004,
                  the Authority’s maintenance staff identified 30 deficiencies; however, they were
                  not repaired and were subsequently identified during our inspections. Examples
                  of these deficiencies included: missing and/or torn screens to windows and doors;
                  handrails missing and/or having loose brackets; and electrical outlets on the


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           bathroom medicine cabinets that were not protected by means of a ground fault
           circuit interrupter.

           Although the Authority would note the deficiencies on its inspection worksheet,
           the information did not consistently get included on a work order. For example,
           the Authority would document on the inspection form the deficiency of not
           having ground fault circuit interrupters on the medicine cabinets, but would not
           ensure that the information was included on a work order for repairs. Another
           example was not generating work orders for excessive moisture in units—causing
           holes and/or mold on walls, ceilings, and window panes.

Not Prepared to Make
Adequate Repairs


           The Authority’s maintenance staff was not prepared to make the required repairs
           in the units for such items as electrical, caulking, ranges, and drywall. Thirty-five
           of the 39 units required some form of electrical repairs that the Authority’s
           maintenace staff were not equipped to make. Examples of poor workmanship
           included having paint over electrical plugs which made it difficult for the outlets
           to be tested; electrical outlets with reversed polarity that may damage electrical
           equipment—caused by the outlets being improperly installed; and medicine
           cabinet outlets not having ground fault circuit interrupter protection.

           In 23 of the units, floor tiles in many parts of the units (kitchen, living room,
           bathroom, and bedrooms) were missing, broken, loose, and/or improperly
           installed, leaving large gaps between them making it very difficult to keep the
           floors clean. In 17 of the units, either the oven or several burners on the stoves
           would not ignite—causing a health and safety deficiency.

           In 16 of the units, the caulking around the tub was moldy and unevenly installed
           over old moldy caulking. There were 10 units where the maintenance staff
           performed sloppy and uneven drywall repair patches that required correction.


Inadequate Quality Control
Reviews


           Prior to December 2004, the Authority had not performed any type of quality
           control reviews of its unit inspections. The Authority’s maintenance plan, which
           includes a section on the procedures for performing quality control reviews, was
           revised on May 19, 2004, and made effective July 1, 2004. However, the quality
           control reviews were not implemented until December 2004.

           The Authority’s technical services manager and its maintenance foreman were
           responsible for performing the quality control reviews. During the December
           2004 quality control reviews, the Authority reported it performed 24 quality
           review inspections and cited 2 units requiring corrections due to failed
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            inspections. However, there was no followup by the Authority on the reviews to
            ensure the adequacy of the corrections.

            The Authority’s executive director said the quality control reviews were
            implemented months after the revision to the maintenance plan because of the
            phase-out of the position of the maintenance supervisor, the hiring of a new
            technical services manager, the time needed to get acclimated to the position,
            union negotiations, and certifications of the Management Assessment Sub-System
            and the Section Eight Management Assessment Program. The memorandum of
            agreement—which the Authority is currently operating under—addresses the
            quality control reviews as a work-in-progress because certain parts of the
            Authority had to be reorganized prior to fully implementing quality control
            reviews.

Not In Full Compliance with
Uniform Federal Accessibility
Standards


            Although the Authority converted five percent of its units to be accessible to
            persons with disabilities, many of the converted items did not comply with the
            uniform federal accessibility standards. One of the Authority’s handicapped units
            was included in our statistical sample of units to be inspected. The unit was not in
            compliance because of the following deficiencies:

               •   Due to the obstruction of the kitchen base cabinets, the maximum side
                   reach height of the cupboards was not within 46 inches above the floor.

               •   The kitchen had an open space under the sink for wheelchair access, but
                   did not have a 30-inch countertop work surface with an open space
                   underneath.

               •   The kitchen exhaust hood light and fan control switches were 65 inches
                   above the floor on the hood. Remote switches should be located within 46
                   inches above the floor.

               •   The grab bars at the bathtub complied with uniform federal accessibility
                   standards; however, the shower controls were left in the center of the tub
                   instead of being offset close to the bathtub edge. The grab bar behind the
                   toilet bowl was 30 inches long and the uniform federal accessibility
                   standards require a 36-inch long grab bar behind the toilet bowl.

               •   The heat-regulating thermostat was at a height of 60 inches instead of 54
                   inches as required.




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Conclusion


             The Authority did not effectively use $118,666 of HUD operating subsidy for
             fiscal years 2004 and 2005 to ensure the 39 inspected housing units were in good
             repair, order, and condition. With full implementation of our recommendation
             regarding improved procedures and controls, this should help ensure that
             $254,735 in HUD operating subsidy in fiscal year 2006 is efficiently and
             effectively used by the Authority for its 85 low-rent family housing units.

Recommendations

             We recommend that HUD’s director of Public Housing Hub, Chicago Regional
             Office, assure that the Authority

             1A. Reduce its performance funding operating subsidy for fiscal year 2006 by
                 $118,666 for the 39 units that were not good repair, order, and condition.

             1B. Perform the necessary repairs to correct all deficiencies identified in the 39
                 low-rent housing family units inspected.

             1C. Conduct complete maintenance inspections on all other low-rent housing
                 family units not inspected during the audit to identify deficiencies and perform
                 the necessary repairs to correct the deficiencies.

             1D. Implement adequate procedures and controls to ensure that annual inspections
                 of its low-rent housing units are conducted and identified deficiencies
                 corrected as required by HUD and the Authority’s requirements. These
                 procedures and controls should help the Authority properly use $254,735 in
                 HUD performance funding operating subsidy in fiscal year 2006.

             1E. Inspect of all of its handicapped units and makes repairs to ensure the units
                 comply with the uniform federal accessibility standards.




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Finding 2: The Authority Improperly Used HUD Funds to Pay Fines for
    Units Not Meeting the City Of Kankakee’s Ordinance on Rental
                               Licensing
The Authority improperly used HUD funds to pay fines by the City for failing to ensure its low-rent
housing units met the City’s ordinance governing the licensing of units occupied by persons other
than the owners. Of the Authority’s 85 low-rent housing family units, 33 lacked a valid rental
license issued by the City. The Authority used $10,475 in low-rent housing operating subsidy to
pay fines imposed by the City. However, the Authority’s cooperation agreement contained a
provision that may have exempted the Authority from paying these fines. As a result, HUD funds
were not used efficiently and effectively, and the Authority may be entitled to have these fines
reimbursed by the City.


 Fines Imposed by the City


               The Authority was charged fines by the City for failing to ensure its low-rent
               housing units met the City’s ordinance governing the licensing of units occupied by
               persons other than the owners. The City’s ordinance number 2002-33, adopted in
               June 2002, established minimum standards governing the licensing of housing units
               occupied by persons other than owners. Paragraph PM112.1 of the ordinance states
               that no person, corporation, or other entity shall rent, lease, or allow a person other
               than the legal owner to occupy any dwelling unit within the City unless it has issued
               a current unrevoked operating license in the name of the legal owner of record for
               the specific dwelling unit.

               Further, paragraph PM112.2 of the ordinance states an initial operating license
               will be issued upon the inspection of the premises, and a determination by the
               City that the premises comply with the applicable property maintenance code, and
               fire/life safety codes as amended. Upon the issuance of an initial license, every
               operating license will be issued for a period of two years from its date of issuance,
               unless revoked sooner. The City had requirements prior to its 2002 ordinance
               regarding the licensing of rental units.

               The Authority had 33 of 85 low-rent housing family units that were fined for not
               having a valid rental license issued by the City (see Appendix C of this report).
               Prior to 1999, the City did not require the Authority to have a valid rental license for
               its low-rent housing units because the Authority’s position was it was exempt from
               the jurisdiction of the City’s ordinance. Starting in 1999, the City started requiring
               the Authority to obtain rental licenses for its low-rent housing units when landlords
               of other rental properties began to complain and felt the Authority should be held to
               the same licensing standards they were.

               Prior to March 2005, the Authority paid $4,100 in fines and had a balance of
               $18,525 due to the City. On March 25, 2005, the City accepted payment of $6,375
               in full satisfaction and settlement of the Authority’s outstanding debt. The executive
               director said HUD low-rent operating subsidy funds were used to pay the fines;
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           however, he said he was not aware that prior authorization from HUD was needed
           before making such payment.

Cooperation Agreement

           Even though the Authority failed to ensure its low-rent housing family units met the
           City’s ordinance governing the licensing of units occupied by persons other than the
           owners, its existing cooperation agreement with the City contained language that
           may have exempted it from paying the fines.

           According to the cooperation agreement, signed July 7, 1969, in so far as the City
           may lawfully do so, the City may grant such deviations from the building code of the
           City as are reasonable and necessary to promote economy and efficiency in the
           development and administration of such project, and at the same time safeguard
           health and safety. This language may preclude the Authority from having to pay
           fines relating to its low-rent housing units—given that the payment could impact the
           economy and efficiency of its operations.

           Additionally, according to Office of Management and Budget Circular A-87, section
           16—fines, penalties, damages, and other settlements resulting from violations (or
           alleged violations) of, or failure of the government unit to comply with federal,
           State, local, or Indian tribal laws and regulations are unallowable except when
           incurred as a result of compliance with specific provisions of the federal award or
           written instructions by the awarding agency authorizing in advance such payments.

           As a result, the Authority should seek to obtain reimbursement of $10,475 in fines
           paid to the City. If the Authority is unable to obtain reimbursement, then the
           Authority should reduce its performance funding operating subsidy for fiscal year
           2006 for the improperly used HUD funds.

Recommendation

           We recommend that HUD’s director of Public Housing Hub, Chicago Regional
           Office, assure that the Authority

           2A.    Invoke its cooperation agreement to have the fines of $10,475 returned to
                  the Authority’s low-rent housing program. If the Authority is unable to
                  get the City to reimburse for the fines paid, then the Authority should
                  reduce its performance funding operating subsidy for fiscal year 2006 by
                  $10,475 for the 33 units that lacked a valid rental license.

           2B.    Implement procedures and controls to ensure its low-rent housing units have
                  valid rental licenses and the use of HUD funds to pay fines meets Office of
                  Management and Budget Circular A-87.




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                          SCOPE AND METHODOLOGY

We conducted the audit at HUD’s Chicago Regional Office and the Authority’s office. We
performed our on-site audit work from July 2004 through January 2005.

To accomplish our audit objectives, we interviewed the Authority's staff, the City code official, and
tenants of the low-rent housing family units.

We analyzed the Authority’s tenant files, board meeting minutes, organizational chart, and the
annual contributions contract for its low-rent housing program. We also reviewed HUD’s files
for the Authority, its memorandum of agreement with the Authority, Office of Management and
Budget Circular A-87, the City’s ordinance number 2002-33, and 24 CFR [Code of Federal
Regulations] parts 5, 901, and 902.

We used computer assisted auditing techniques to analyze the Authority’s low-rent housing unit
information obtained from its automated accounting system.

As a basis for selecting the sample, we used the total population of 85 occupied low-rent housing
family units as of July 31, 2004, to determine the sample size of units to review. We set the
confidence level at 90 percent, the precision at 10 percent, and the expected error rate at 50
percent. The sampling software determined that our sample size should be 39 units.

The sample method chosen was simple random sampling for attributes. Simple random
sampling is the basic sampling technique in which each item is chosen entirely by chance, and
each item of the population has an equal chance of being included in the sample.

This audit was the final phase of our comprehensive audit of the Authority. The audit was
conducted in response to a citizen’s complaint to our office.

The audit covered the period July 1, 2002, through June 30, 2004. This period was adjusted as
necessary. We conducted the audit in accordance with generally accepted government auditing
standards.




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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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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:

              •       Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

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

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

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

              We assessed the relevant controls identified above.

              A significant weakness exists if internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




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Significant Weaknesses


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

           •      Program operations

           The Authority did not operate its low-rent housing units in accordance with
           federal and City requirements regarding its program operations (see findings 1
           and 2).

           •      Validity and reliability of data

           The Authority failed to ensure that valid and reliable data were used to complete its
           unit inspections (see finding 1).

           •      Compliance with laws and regulations

           The Authority failed to comply with Office of Management and Budget Circular A-
           87 regarding the use of HUD funds to pay fines (see finding 2).

           •      Safeguarding resources

           The Authority failed to ensure that its HUD funding was used in the most efficient
           and effective manner (see findings 1 and 2).




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                                        APPENDICES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS
                 AND FUNDS TO BE PUT TO BETTER USE

                     Recommendation          Ineligible 1/     Funds To Be Put
                         number                                to Better Use 2/

                         1A                    $118,666
                         1D                                            $254,735
                         2A                      10,475
                        Totals                 $129,141                $254,735


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/      “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




Comment 2


Comment 3




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Ref to OIG Evaluation   Auditee Comments




Comment 4


Comment 5

Comment 6




Comment 7




Comment 8




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Ref to OIG Evaluation   Auditee Comments




Comment 9




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                        OIG Evaluation of Auditee Comments


Comment 1   The unit inspections performed by OIG’s appraiser were performed using
            proper inspection methods. The inspections were conducted in accordance
            with 24 CFR [Code of Federal Regulations] subpart B, part 902.20(c). Part
            902.20(c) state that HUD-conducted physical inspections required by this part
            (the requirement to follow uniform physical condition standards) do not relieve
            the public housing authority of the responsibility to inspect public housing
            units as provided in section 6(f)(3) of the Housing Act of 1937 (42 U. S. C.
            1437d(f)(3)). This section of the Housing Act states that housing agencies
            must maintain public housing projects in accordance with standards that meet
            or exceed housing quality standards. In addition, part 902.20(d) states that
            public housing authorities must continue to adhere to state and local building
            and maintenance codes. We converted our housing quality standard inspection
            results to the City’s local code to determine whether the cited repairs were still
            required for these units. Our reported results reflect the number of repairs
            needed.

Comment 2   Documentation provided by the City’s Code Enforcement Department states
            the presence of ground fault circuit interrupters shall only be required during
            new construction; when a change in occupancy exists; or when a condition
            exists that would pose imminent danger. Of the 39 units inspected, 20 units
            were occupied by tenants who moved in since January 2002. Consequently,
            ground fault circuit interrupters were required in those units.

Comment 3   We did consider site violations in the unit inspections to determine what
            repairs, if any, were needed with the condition of the foundation, stairs, rails,
            porches, roofs and gutters.

Comment 4   Based on observations of the units and repairs made by the maintenance staff,
            there were instances of poor workmanship. Examples included paint over
            electrical plugs; floor tiles improperly installed leaving large gaps; and uneven
            caulking around tubs that was installed over moldy caulking. HUD’s
            Recovery and Prevention Corps previously identified areas needing
            improvement in a memorandum of agreement with the Authority as of January
            2004. Areas requiring improvement included enhancing the maintenance
            staff’s capabilities; assessing maintenance employee skills and determining
            employee training needs; obtaining and conducting training to enhance
            employee skills; and investigating the feasibility of providing competency-
            based training with continuing education credits.




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                       OIG Evaluation of Auditee Comments


Comment 5   The Authority was unable to provide documentation to support that it
            performed quality control reviews of its unit inspections prior to December
            2004.

Comment 6   According to Office of Management and Budget Circular A-87, section 16—
            fines, penalties, damages, and other settlements resulting from violations (or
            alleged violations) are not allowable expenses if paid with federal funds.
            Therefore, the Authority would normally be required to reimburse its public
            housing program with non-federal funds for the payment of any fines.
            However, we recommended that the Authority first attempt to seek relief from
            the City based on language contained in its cooperation agreement. If this is
            not a viable alternative, the Authority needs to reduce its fiscal year 2006
            operating subsidy.

Comment 7   We understand that in some instances tenants may be responsible for some of
            the deficiencies noted in our inspection reports. Based upon comments
            received from the Authority and HUD, we adjusted the number of deficiencies
            cited to exclude tripping hazards and missing smoke detectors. However, we
            still provided 24-hour notices to HUD and the Authority for any appropriate
            actions needed.

Comment 8   We recognize and commend the Authority for the continued improvements it
            is making to enhance the housing units, but it is also our responsibility to
            report on all deficiencies found during our inspections.

Comment 9   We are aware of the changes taking place at the Authority and with the
            constraints on available funding. By ensuring the Authority has rental licenses
            for all of its units is a step in the right direction, and shows the commitment
            the Authority has for its tenants. Our objective was to ensure the Authority is
            providing housing that is in good repair, order and condition. Additionally,
            our role is to provide balanced reporting by answering our audit objectives
            either positively or negatively—depending on the audit results.




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Appendix C

     UNITS CHARGED FOR LACKING A VALID RENTAL
        LICENSE FROM THE CITY OF KANKAKEE
            BUILDING                         ADDRESS             CITY         COMMENT
  Wildwood Complex (Scattered Sites)   1495 East Pine          Kankakee   Applied for on 9/9/04
  Wildwood Complex (Scattered Sites)   2052 Patrick            Kankakee   Applied for on 8/11/04
  Wildwood Complex (Scattered Sites)   543 South Gordon        Kankakee   Applied for on 9/9/04
  Wildwood Complex (Scattered Sites)   637 South Gordon        Kankakee   Applied for on 9/9/04
  Wildwood Complex (Scattered Sites)   703 (802) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   705 (804) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   709 (808) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   711 (810) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   713 (812) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   715 (814) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   717 (816) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   719 (818) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   721 (820) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   723 (822) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   725 (824) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   727 (826) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   729 (828) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   731 (830) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   733 (832) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   735 (834) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   737 (836) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   739 (838) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   741 (840) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   851 (850) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   853 (852) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   855 (854) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   857 (856) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   859 (858) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   861 (860) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   863 (862) West Harbor   Kankakee   Applied for on 5/7/04
  Wildwood Complex (Scattered Sites)   865 (864) West Harbor   Kankakee   Applied for on 5/7/04
  Locust Complex (Scattered Sites)     1044 North Chicago      Kankakee   Applied for on 8/12/04
  Locust Complex (Scattered Sites)     1046 North Chicago      Kankakee   Applied for on 8/12/04




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