oversight

The Commission Improperly Managed Its Section 8 Program; Flint, Michigan

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-09-23.

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

              AUDIT REPORT




           FLINT HOUSING COMMISSION
          SECTION 8 HOUSING PROGRAM

                      FLINT, MI

The Commission Improperly Managed Its Section 8 Program

                    2005-CH-1017

                 SEPTEMER 23, 2005



               OFFICE OF AUDIT, REGION V
                   CHICAGO, ILLINOIS
                                                                Issue Date
                                                                             September 23, 2005
                                                                Audit Report Number
                                                                             2005-CH-1017




TO:        Robert E. Nelson, Director of Public Housing Hub, 5FPH


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

SUBJECT: The Commission Improperly Managed Its Section 8 Program; Flint, Michigan

                                   HIGHLIGHTS

What We Audited and Why

            We audited the Flint Housing Commission’s (Commission) Section 8 housing
            program. The audit was part of the activities in our fiscal year 2005 annual audit
            plan. We selected the Commission based upon a risk analysis that identified it as
            having a high risk Section 8 housing program. Our overall objectives were to
            determine whether the Commission managed its Section 8 housing program
            effectively and followed the U.S. Department of Housing and Urban
            Development’s (HUD) requirements. We determined whether the Commission
            had adequate procedures and controls over its inspection of units, abatement of
            housing assistance payments, and rent reasonableness determinations.

What We Found


            The Commission did not effectively manage its Section 8 housing program. Our
            inspections noted that 52 of 56 units did not meet HUD’s housing quality
            standards and/or local housing code. We determined a total of $80,457 in housing
            assistance payments and administrative fees were improperly paid for units not
            meeting HUD’s standards and/or local code. The Commission also did not abate
            $50,506 in housing assistance payments based on units that failed inspections
            performed by the Commission’s inspector. In addition, the Commission did not
            properly complete rent reasonableness certifications and maintain adequate
            records of market rate units for rent reasonableness comparisons.
What We Recommend

           We recommend that the director of HUD’s Public Housing Hub, Detroit Field
           Office, require the Commission to reimburse its Section 8 housing program for
           the inappropriately used funds, and implement procedures and controls to correct
           the deficiencies 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 Commission’s interim
           executive director and HUD’s staff during the audit. We held an exit conference
           with the Commission’s interim executive director on September 12, 2005.

           We asked the Commission’s interim executive director to provide comments on
           our discussion draft audit report by September 17, 2005. The Commission’s
           interim executive director provided written comments dated September 16, 2005.
           The interim executive director agreed to implement corrective action to address
           our findings. The complete text of the written comments can be found in
           appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objectives                                                     4

Results of Audit
        Finding 1: Section 8 Units Did Not Meet Housing Quality Standards     5

        Finding 2: The Commission Did Not Properly Abate Housing Assistance
                   Payments                                                   12

        Finding 3: Rent Reasonableness Requirements Were Not Followed         14

Scope and Methodology                                                         16

Internal Controls                                                             18

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use        20
   B.   Auditee Comments                                                      21
   C.   Units with Preexisting Violations                                     26
   D.   Summary of Abatement Review Results                                   28
   E.   Criteria                                                              30




                                              3
                      BACKGROUND AND OBJECTIVES

The Flint Housing Commission (Commission) was established by the City of Flint (City) on July
27, 1964, by City ordinance under the laws of the State of Michigan pursuant to the U.S. Housing
Act of 1937, as amended. The Commission’s primary objective is to provide low-income housing
to the citizens within the City and the surrounding area of Genesee County. The Commission had
authority to administer 963 Section 8 housing units. However, based on the U.S. Department of
Housing and Urban Development’s (HUD) Notice 2005-1, “Implementing the Fiscal Year 2005
Appropriations Act,” HUD lowered the Commission’s Section 8 funding for housing assistance
payments for calendar year 2005 to a maximum of $3,549,710 and its administrative fees to a
maximum of $422,358. Therefore, the Commission did not have sufficient monies to fund all 867
units under contract as of January 1, 2005. Normal attrition and portability of Section 8 vouchers
reduced the number of units by 43, but the Commission decided to terminate 215 contracted Section
8 units to have sufficient funds to meet its obligations for the remaining Section 8 tenants. As of
May 1, 2005, the Commission had 609 units under Section 8 contract.

A five-member board of commissioners appointed by the City’s mayor governs the Commission.
HUD placed the Commission on its list of troubled housing authorities in 2001 after an
evaluation. After two years of unsatisfactory progress, HUD threatened to take over the
Commission in March 2003 unless a new board was appointed. HUD forced the board to
remove the Commission’s former executive director in March 2003. HUD also required the
Commission to sever most ties with the City during 2002 and 2003. A new board was
established in July 2003, and the former executive director was brought back to address HUD’s
demands until June 2004 when a new executive director was appointed.

Effective November 2004, HUD declared that the Commission was no longer troubled due to a
public housing assessment system score of 73 and a passing Section 8 management assessment
program review for fiscal year 2004. The newly appointed executive director served until June
2005, when he was fired by the board for undisclosed reasons. The Commission’s former
executive director was appointed again as interim executive director.

Our objectives were to determine whether the Commission had adequate procedures and controls
over its inspection of Section 8 housing units, abatement of housing assistance payments, and
rent reasonableness determinations.




                                                 4
                                     RESULTS OF AUDIT

Finding 1: Section 8 Units Did Not Meet Housing Quality Standards
The Commission’s Section 8 housing units did not meet HUD’s housing quality standards and/or
local housing code. Our appraiser identified seven units that had repeat violations, and 40 other
units with violations that existed prior to the last inspections by the Commission’s inspector.
Violations existed because the Commission lacked an established, adequate quality control
process over its inspections. As a result, the Commission’s tenants were subjected to conditions
that were hazardous to their health and safety, and at least $80,457 in HUD funds was not used
efficiently and effectively. Improved procedures and controls will help the Commission to ensure
that $701,712 in future housing assistance payments will be made for units that are decent, safe, and
sanitary.



 Units Did Not Meet HUD’s
 Standards and/or Local Code

               Our appraiser inspected 56 Section 8 units and found 675 violations that did not
               meet HUD’s housing quality standards and/or local housing code.

                                                                          Number of   Number of
                                  Category of violations                    units     violations
              Window condition                                                44         147
              Smoke detectors                                                 45         139
              Electrical hazards                                              36          77
              Security                                                        29          69
              Wall condition                                                  27          51
              Ceiling condition                                               17          25
              Access to unit                                                  23          23
              Exterior surfaces                                               20          20
              Stairs, rails, and porches                                      15          15
              Interior and exterior lead-based paint                           5          14
              Floor condition                                                 11          14
              Plumbing (kitchen and bathroom sink, bathtub, and toilet)       12          12
              Site and neighborhood conditions                                11          11
              Electricity/illumination                                         8          10
              Range and refrigerator                                          10          10
              Water heater                                                     7           7
              Ventilation, cooling, and interior air quality                   7           7
              Foundation                                                       6           6
              Safety and adequacy of heating equipment                         5           5
              Roofs/gutters                                                    4           4
              Garbage/debris                                                   3           3
              Infestation                                                      2           2
              Fire exits and other interior hazards                            2           2
              Chimney                                                          1           1
              Space for food storage, preparation, and serving                 1           1
                                           Total                                         675



                                                          5
  Window Condition Violations

                  One hundred forty-seven window condition violations were present in 44 of the
                  Commission’s Section 8 units inspected. The following items are examples of
                  window condition violations: holes in window screens, mold, broken window
                  frames, broken or cracked glass pane on windows, windows that do not stay up
                  without being propped up due to missing counterweights, and broken locks on
                  windows.

Window has no counterweights
and does not stay up. Bottle
keeps window propped up for
the unit located at 3905
Proctor.




The unit at 5601 Dupont has
holes in a window’s exterior
glass pane.




                                                  6
Smoke Detector Violations


               One hundred thirty-nine smoke detector violations were present in 45 of the
               Commission’s Section 8 units inspected. A total of 110 of the smoke detector
               violations involved no smoke detectors in bedrooms. Local housing code requires
               a working smoke detector in each bedroom. The Commission’s administrative
               plan also recognized this safety precaution since it required compliance with the
               local code.

Smoke detector battery and
cover are missing from unit
located at 4121 Fleming.




Electrical Hazard Violations

               Seventy-seven electrical hazard violations were present in 36 of the
               Commission’s Section 8 units inspected. The following items are examples of the
               electrical hazard violations: broken or missing receptacle and switch cover plates,
               open junction boxes, open knock outs into panel, power strip connected to an
               ungrounded receptacle in a hazardous location, electric panel box with exposed
               wires and no fixed cover, improper electrical wire connection to panel, and
               unsecured electric disconnect box and wires spliced outside of disconnect box.




                                                7
Electrical panel box in
basement has exposed wires
and no fixed cover in unit
located at 6193 Neff.




Power strip connected to an
ungrounded receptacle near
sink in unit located at 3813
Kellar.




Units with Repeat Violations


                The Commission had seven units in which our appraiser identified the same
                violations that were cited by the Commission’s inspector—who passed the units
                on a followup inspection. The repeat violations included the following:

                    •    Electrical panel without a fixed panel cover;
                    •    Living room ceiling damage;
                    •    No smoke detector in second floor hall stairway;
                    •    Cracked window pane in kitchen;
                    •    Abandoned vehicle in yard; and
                    •    Basement wall cracked, leaking, moldy, and peeling.

                As a result of the Commission not identifying these violations during the followup
                inspection, the Commission improperly made housing assistance payments for

                                                 8
                   seven units that should have had rents abated since the units continued to have the
                   same violations. The Commission will need to abate the housing assistance
                   payments for the period the repeat violations existed. According to the
                   Commission’s administrative plan, abatements of housing assistance payments
                   are supposed to occur on the first day of the month following a 30-day period
                   provided to landlords to fix any violations.

                   The amount that the Commission should have abated for the seven units totalled
                   $16,457, and the Commission received associated administrative fees of $1,365
                   for managing the units. The following chart shows a list of the units and
                   associated abatement periods:

                                                   Last unit
                                      Housing     inspection                     Housing
                                     assistance        by        Abatement assistance
                   Unit address       payment Commission1           period       payment Total fees
                   6193 Neff            $504    12/7/2004        2/1/05 - 5/1/05   $2,016   $156
                   2110 Proctor          445    11/29/2004       1/1/05 - 5/1/05    2,225    195
                                                Failed on
                                                10/11/2004, re-
                   1157                         inspected on
                   Holtslander           500    1/18/2005       12/1/04 - 5/1/05    3,000    234
                   4207
                   Greenlawn              117     2/25/2005        4/1/05 - 5/1/05       234      78
                                                  Failed on
                   129 Green              467     11/18/2004       1/1/05 - 2/1/05       934      78
                                                  Re-inspected
                   129 Green              500     on 1/10/2005     3/1/05 - 5/1/05     1,500     117
                   1610 Garland           566     10/1/2004       11/1/04 - 5/1/05     3,962     273
                   3713 Lawndale          431     10/21/2004      12/1/04 - 5/1/05     2,586     234
                                                Totals                               $16,457   $1,365


    Units with Preexisting
    Conditions

                   Our appraiser identified 40 other units with violations that existed at the time of
                   the prior inspection by the Commission, but the Commission’s inspector passed
                   the units. These housing quality standards and/or local housing code violations
                   were noted by our appraiser during unit inspections conducted in May 2005. The
                   conditions included

                        •   No smoke detector in each bedroom,
                        •   Cracked front sidewalk and driveway,
                        •   Open ground on receptacles inside unit,
                        •   Missing first floor bedroom and kitchen window locks,
                        •   No handrail on basement stairs and exterior stairs,
                        •   Leaky basement and leaky foundation walls in basement,

1
    Numerical dates are shown in month, day, and year sequence.

                                                         9
              •   Peeling paint on kitchen and bathroom ceilings and walls,
              •   Deteriorated wall and cracked plaster,
              •   No window screens or torn screens,
              •   Bathroom and bedroom window peeling,
              •   Bedroom window damaged or deteriorated,
              •   Exposed fuse connections and wires in basement,
              •   Large cracks and holes and fascia gaps in exterior walls,
              •   Large gap on front porch stairs,
              •   No ventiliation in bathroom,
              •   Only two heat registers in house (inadequate heat),
              •   Board used as handrail (unacceptable),
              •   Handrails too short for length of stairs,
              •   Missing cover on switch box, and
              •   No pressure relief valve pipe or pipe too short for hotwater heater.

           As a result, the Commission should not have made housing assistance payments
           on these units due to the housing quality standards and/or local housing code
           violations found by our appraiser. The chart in appendix C of this report lists the
           40 units, the ineligible period after the Commission’s last inspection, and $57,136
           in housing assistance payments that should not have been paid by the
           Commission. In addition, the Commission should not be entitled to the associated
           administrative fees of $5,499.

The Commission Did Not
Provide Adequate Quality
Control Reviews of the
Inspection Process

           The Commission’s management failed to exercise proper supervision and
           oversight of the inspection process by monitoring followup inspections on failed
           units and conducting quality control reviews of inspections. We reviewed the
           schedule of all unit inspections for 2004 and determined that followup inspections
           were late in nearly 50 instances. In addition, quality control reviews of unit
           inspections were not performed by the Commission during the last six months of
           2004 in accordance with the Commisson’s quality control inspection policy. As a
           result, management did not have timely information on the reliability of recent
           unit inspections. In addition, the Commission’s inspector did not receive
           feedback on whether housing quality standards and/or local housing code
           violations were adequately identified.

           To increase the Commission’s ability to inspect Section 8 units, the former
           executive director decided to contract out inspection services in March 2005. The
           contract was awarded to U.S. Inspection Group, effective June 1, 2005. The
           Commission plans to perform quality control reviews of this firm’s unit
           inspections.



                                           10
Conclusion


             Because the Commission failed to implement adequate controls over reviewing
             the inspection process, it passed units as meeting housing quality standards that
             were in material noncompliance with the standards. Unless corrections in the
             inspection process are realized, we estimate that the Commisson could make
             $701,712 in future housing assistance payments for units that are not decent, safe,
             and sanitary. We determined this amount by multiplying 132 units (estimate that
             would be in material noncompliance with housing quality standards and/or local
             housing code if appropriate actions are not taken by the Commission) times the
             average monthly cost of each housing unit ($443). This amount was then
             annualized to give the total estimate of $701,712 of funds to be put to better use.

Recommendations


             We recommend that the director of HUD’s Public Housing Hub, Detroit Field
             Office, require the Commission to

             1A.    Notify landlords and tenants of units failing HUD’s housing quality
                    standards and/or local housing code and provide copies of inspection reports
                    and written notices when the violations should be corrected.

             1B.    Conduct followup inspections in a timely manner on housing units that failed
                    inspection to determine whether violations still exist and abate housing
                    assistance payments to landlords accordingly.

             1C.    Implement a quality control plan to ensure all units meet HUD’s housing
                    quality standards and local code within the next 12 months to prevent an
                    estimated $701,712 in Section 8 funds from being spent on units in material
                    noncompliance with housing quality standards and/or local housing code.

             1D.    Reimburse its Section 8 housing program $17,822 from nonfederal funds
                    ($16,457 for housing assistance payments and $1,365 in associated
                    administrative fees) for the seven units that contained the same violations
                    from the units’ prior inspections by the Commission.

             1E.    Reimburse its Section 8 housing program $62,635 from nonfederal funds
                    ($57,136 for housing assistance payments and $5,499 in associated
                    administrative fees) for the 40 units that contained preexisting violations not
                    identified in the Commission’s latest inspection reports.




                                              11
Finding 2: Commission Did Not Properly Abate Housing Assistance
                            Payments
The Commission did not properly abate housing assistance payments to landlords who failed to
fix housing quality standards violations in a timely manner after unit inspections conducted by
the Commission. This occurred because the Commission lacked a system to track housing units
that fail annual inspections so that followup inspections can be performed and necessary
abatements can be made. As a result, the Commission inappropriately paid $50,506 in housing
assistance payments to owners of dwelling units that did not meet housing quality standards and
improperly earned administrative fees of $5,504 on these failed units.



 Few Failed Section 8 Units
 Had Housing Assistance
 Payments Abated


              Our review identified 62 units inspected by the Commission during calendar year
              2004 that failed a second unit inspection. We examined the tenant case files for
              these units and determined that proper housing assistance payment abatement
              actions were not taken for 50 of the 62 units—totaling $50,506. This resulted in
              the Commission receiving improper administrative fees of $5,504 for these units.
              As a result, we questioned a total of $56,010 that the Commission needs to
              reimburse its Section 8 housing program for units that did not meet HUD’s
              housing quality standards.

              Appendix D of this report contains a chart showing the amount that should have
              been abated for each of the 50 units, the amount abated by the Commission, and
              the difference identified as ineligible housing assistance payments and related
              administrative fees.

 Management Did Not
 Adequately Track Failed Unit
 Inspections

              The Commission’s management was not adequately tracking Section 8 housing
              units that failed housing quality standards and scheduling followup inspections.
              This was needed to verify the correction of any violations, and promptly identify
              units that should have had housing assistance payments abated before the next
              scheduled monthly payments to owners were issued.

              According to the Commission’s Section 8 housing manager, an assistant Section 8
              manager was hired in December 2004. One of the manager’s responsibilities was
              to oversee failed unit inspections by promptly scheduling followup inspections on
              the units, and then abating the housing assistance payments when the units do not
              pass the followup inspection. However, the Commission lacked a system to

                                              12
          systematically track all inspections requiring followup inspections to determine
          whether abatement was required. The Commission’s management needs to
          implement a system to track failed unit inspections to ensure that appropriate
          followup inspections are done and any needed abatement actions occur.

          By not closely tracking failed unit inspections, we determined that the
          Commission paid ineligible housing assistance payments of $50,506 to owners on
          behalf of tenants for dwelling units that did not meet HUD’s housing quality
          standards. Likewise, the Commission received improper administrative fees of
          $5,504 for these units. We discussed these amounts with the Section 8 housing
          manager and the manager generally agreed with our determination. The
          Commission needs to take appropriate actions in these cases to ensure that owners
          comply with HUD's Section 8 regulations.

Recommendations

          We recommend that the director of HUD’s Public Housing Hub, Detroit Field
          Office, require the Commission to

          2A.     Reimburse its Section 8 housing program $56,010 from nonfederal funds
                  ($50,506 for improper housing assistance payments and $5,504 for Section 8
                  administrative fees collected by the Commission) for units in which housing
                  assistance payments should have been abated.

          2B.     Implement a system for tracking housing units that fail housing quality
                  standards inspections so that followup inspections can occur in a timely
                  manner, and any needed abatements of housing assistance payments may be
                  made.




                                           13
Finding 3: Rent Reasonableness Requirements Were Not Followed
The Commission did not follow rent reasonableness procedures for units entering its Section 8
housing program and units receiving subsequent rent increases. This occurred when the
Commission’s rent reasonableness database became obsolete because the Commission lacked
procedures to maintain and update its rent reasonableness database. By not determining rent
reasonableness, the Commission assumed a risk of paying higher than reasonable contract rents.



 Rental Market Database for
 Rent Reasonableness
 Determinations Was
 Inadequate

              Rent reasonableness determinations were not adequately performed by the
              Commission. Out of 42 tenant case files reviewed for rent reasonableness
              documentation, only 26 files required rent reasonableness determinations. We
              found eight files contained the required documentation of a landlord certification,
              a Commission certification signed and dated by Section 8 staff, and
              documentation on three comparable unassisted rental units. The remaining 18
              cases were required to have a rent reasonableness certification during 2004, but
              did not contain the proper documentation.

              These 18 files lacked proper documentation because HUD determined that the
              Commission’s rent reasonableness certification method was inadequate. This was
              due to the database used by the Commission not being truly representative of the
              entire Section 8 program area, and the rental market data was outdated. During
              HUD’s confirmatory review in September 2004, HUD determined the
              Commission’s database lacked current data and did not include enough
              information on unassisted units. In response, the Commission discontinued rent
              reasonableness determinations in September 2004 until it could update the
              database.

              In an effort to update its database, the Commission sought proposals for a rent
              reasonableness study on March 4, 2005. On April 19, 2005, its board approved a
              contract for a rent reasonableness study with the Nelrod Company. According to
              the Commission’s Section 8 program manager, the contractor was required to
              prepare a database for rent reasonableness reviews. By not maintaining its
              database, the Commission may have incurred higher contract rents than necessary.


 Recommendations

              We recommend that the director of HUD’s Public Housing Hub, Detroit Field
              Office, require the Commission to

              3A.     Ensure that the database prepared by its contractor meets HUD’s
                      requirements for making rent reasonableness determinations, and can be

                                               14
      used to address data previously missing on new Section 8 units and for
      existing units for which increases in the contract rent requested by the
      owners were approved.

3B.   Implement procedures and controls to ensure that the database for making
      rent reasonableness determinations is properly maintained to include
      current information that can be used to support rent increases and certify
      that unassisted units in the premises and in the neighborhood are
      comparable to the assisted units.




                               15
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed the following:

   ƒ   24 CFR [Code of Federal Regulations] 5, 85, 966, 982, and 985;
   ƒ   HUD’s “One Strike and You’re Out” policy;
   ƒ   HUD’s Public and Indian Housing Notices 2003-11 and 2005-1;
   ƒ   Office of Management and Budget Circulars A-87 and A-133;
   ƒ   HUD’s Voucher Program Guidebook 7420.10;
   ƒ   January 2003 through April 2005 meeting minutes of the Commission’s board of
       commissioners;
   ƒ   A representative sample of Section 8 tenant files;
   ƒ   The Commission’s Section 8 administrative plan and its procedures related to its Section
       8 program;
   ƒ   HUD’s files for the Commission; and
   ƒ   The Commission’s independent public accountant report for the period ending June 30,
       2003.

Our appraiser inspected 56 statistically selected units to determine whether they met HUD’s
housing quality standards and local housing code. The inspections were performed during May
2005, and the results were provided to the director of HUD’s Public Housing Hub, Detroit Field
Office, and the Commission’s interim executive director on July 25, 2005. We performed a
detailed review of a representative sample of 42 Section 8 tenant files to determine whether the
Commission appropriately determined the tenants’ eligibility and correct level of housing
assistance. We also obtained a general understanding of the Commission’s information
technology system and performed limited tests of the accuracy of its electronic data. We
interviewed HUD’s staff and the Commission’s management and staff.

 Statistical Sample Selection and
 Methodology


              We obtained a download of all of the Commission’s current units from the
              housing assistance payments register for March 2005. There were 838 units as of
              March 1, 2005. We sorted the units by inspection date and determined that 400
              units were recently inspected and passed by the Commission between October 1,
              2004, and March 23, 2005. Since the Commission was planning to terminate 215
              Section 8 tenant families due to a funding shortfall, we eliminated a portion of
              these units (97) that were part of the 400 recently inspected units. As a result, we
              identified 303 recently inspected units still receiving housing assistance payments.
              Based on a confidence level of 90 percent, a precision level of 10 percent, and an
              assumed error rate of 50 percent, we established a sample size of 56 units. We
              used the U.S. Army Audit Agency’s statistical sampling system to generate a
              larger sample of 70 units with a random selection start to allow 14 additional
              sample units to be used as replacements, if needed.

              We determined that 52 of the 56 unit inspections failed HUD’s housing quality
              standards and/or local housing code. Based on our judgment, we determined that

                                               16
30 of the 52 units were in material noncompliance with the standards and/or local
code because they had violations involving health and safety hazards, and had 10
or more violations. Based on this information, we estimated that 132 of the 303
units in our sampled population were in material noncompliance with the housing
quality standards and/or local housing code.

Since rent reasonableness is an important factor in determining accurate housing
assistance payments, we also used statistical random sampling for selecting tenant
files for reviewing the accuracy of housing assistance payments. Based on a
population of 865, a confidence level of 90 percent, a precision level of 10
percent, and an assumed error rate of 20 percent, our statistical software
determined a sample size of 42 tenant files to review.

We conducted our field work from January through June 2005 at the
Commission’s main office. Our audit period was from January 1, 2003, through
December 31, 2004. We expanded our audit period as needed to accomplish our
objectives. We performed our audit in accordance with generally accepted
government auditing standards and included tests of internal controls that we
considered necessary under the circumstances.




                                17
                              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.

              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.


 Significant Weaknesses

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

              •   The Commission lacked adequate procedures to ensure units were decent, safe,
                  and sanitary (see finding 1).

                                                18
•   The Commission did not have a system to track housing units that failed housing
    quality standards inspections to ensure housing assistance payments were only
    used for eligible units (see finding 2).

•   The Commission lacked procedures to ensure its rental database was current and
    only reasonable rents were paid to landlords (see finding 3).




                                19
                                   APPENDIXES
Appendix A

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

                   Recommendation                          Funds to be put to
                       number             Ineligible 1/      better use 2/
                          1C                                   $701,712
                          1D                $17,822
                          1E                 62,635
                          2A                 56,010
                         Totals            $136,467            $701,712


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
     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.




                                              20
Appendix B

             AUDITEE COMMENTS




                    21
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23
24
25
Appendix C

                    UNITS WITH PREEXISTING VIOLATIONS
                                                                                         Ineligible   Ineligible
                                         Housing                                          housing      admini-
                                        assistance     Last unit                        assistance     strative
          Unit address                   payment     inspection
                                                                 2
                                                                      From     To       payments         fees
          310 West Piper                  $450        3/2/05          5/1/05 5/31/05         $450           $39
          5282 Cedar Shores#101            421       11/29/04         1/1/05 2/28/05           842           78
                                           419                        3/1/05 5/31/05         1,257          117
          330 E. Grace                     450        3/21/05         5/1/05 5/31/05           450           39
          5702 Marlowe                     473        1/11/05         3/1/05 5/31/05         1,419          117
          3201 Winona                      142        10/7/04        12/1/04 2/28/05           426          117
                                           450                        3/1/05 5/31/05         1,350          117
          602 Austin                       345        2/22/05         4/1/05 5/31/05           690           78
          4121 Fleming                     500       10/15/04        12/1/04 5/31/05         3,000          234
          315 Taylor                       455        12/8/04         2/1/05 5/31/05         1,820          156
          2517 N. Stevenson                600        10/4/04        12/1/04 5/31/05         3,600          234
          5309 Susan                       154       10/13/04        12/1/04 12/31/04          154           39
                                           301                        1/1/05 5/31/05         1,505          195
          2404 Adams                       550        3/21/05         5/1/05 5/31/05           550           39
          4808 Warrington                  294        1/3/05          3/1/05 5/31/05           882          117
          778 E. Alma                      500       11/23/04         1/1/05 5/31/05         2,500          195
          3905 Proctor                     560        10/6/04        12/1/04 5/31/05         3,360          234
          3205 Burgess                     500        12/9/04         2/1/05 5/31/05         2,000          156
          1829 Owens                       119        2/25/05         4/1/05 5/31/05           238           78
          6814 Cecil                       361        2/1/05          4/1/05 5/31/05           722           78
          3901 Race                        509       12/16/04         2/1/05 5/31/05         2,036          156
          4013 Milbourne                   600        3/2/05          5/1/05 5/31/05           600           39
          1143 Holtslander                 274        11/4/04         1/1/05 5/31/05         1,370          195
          1915 Prospect                    485        1/24/05         3/1/05 5/31/05         1,455          117
          1722 Broadway                    500        1/26/05         3/1/05 3/31/05           500           39
                                           535                        4/1/05 5/31/05         1,070           78
          909 East Marengo                 475        11/1/04         1/1/05 5/31/05         2,375          195
          800 East Court #124              370        3/8/05          5/1/05 5/31/05           370           39
          601 Mary                         303        3/21/05         5/1/05 5/31/05           303           39
          401 West Carpenter #5            367        10/5/04        12/1/04 5/31/05         2,202          234
          3457 Rangely                     317        11/2/04         1/1/05 5/31/05         1,585          195
          1309 North Stevenson             405        3/11/05         5/1/05 5/31/05           405           39
          5300 Cedar Shores, #104          393        1/5/05          3/1/05 5/31/05         1,179          117
          2726 Seneca                      196       11/22/04         1/1/05 1/31/05           196           39
                                           286                        2/1/05 5/31/05         1,144          156
          2061 Mill Road #1                420         3/3/05         5/1/05 5/31/05           420           39




2
    Numerical dates are shown in month, day and year sequence.

                                                          26
UNITS WITH PREEXISTING VIOLATIONS (continued)
                                                                   Ineligible   Ineligible
                     Housing                                        housing      admini-
                    assistance    Last unit                       assistance     strative
Unit address         payment     inspection    From      To       payments         fees
3303 Stonegate        $243        2/9/05       4/1/05   5/31/05       $486           $78
952 Huron              358       11/24/04      1/1/05   5/31/05       1,790          195
3813 Kellar            350        1/31/05      4/1/05   5/31/05         700           78
5601 Dupont            329       10/14/04     12/1/04   5/31/05       1,974          234
6087 Harwood           214        3/9/05       5/1/05   5/31/05         214           39
6149 Titan             367        12/9/04      2/1/05   5/31/05       1,468          156
2809 East Pierson      459        1/13/05      3/1/05   5/31/05       1,377          117
1414 Pasadena          365        10/8/04     12/1/04   5/31/05       2,190          234
8224 Meadow Wood       404       11/24/04      1/1/05   3/31/05       1,212          117
                       650                     4/1/05   5/31/05       1,300           78
                        Totals                                      $57,136       $5,499




                                      27
Appendix D

              SUMMARY OF ABATEMENT REVIEW RESULTS
                                                                                   Ineligible   Ineligible
                                                        Amount                      housing      admini-
                                   Abatement          that should   Amount that   assistance     strative
           Address                 period(s)3          be abated    was abated    payments         fees
2130 West Home Street           7/1/04 - 10/26/04          $1,267            $0       $1,267        $151
906 East Ruth                     2/1/04 - 2/9/04             100             0          100           0
3386 Spring Valley               12/1/03 - 3/9/04           1,949             0        1,949         128
2642 Proctor                     3/1/04 - 5/20/04           1,403           526          877         103
3702 Winona                      1/1/04 - 3/25/04           1,544             0        1,544         110
2324 Lapeer Road #1509            2/1/04 - 6/8/04           1,254           636          618         167
                                 1/1/05 - 1/17/05             162             0          162           0
249 East Sherman                12/1/03 - 2/10/05           5,371         1,484        3,887         562
4808 Warrington                  2/1/04 - 7/11/04           1,574           400        1,174         209
2315 Oren                        1/1/04 - 5/18/04           1,695           580        1,115         219
3012 North Chevrolet              5/1/04 - 6/7/04             546             0          546          48
712 East Marengo                  4/1/04 - 5/1/04             230             0          230          78
2018 Cadillac                   11/1/04 - 11/16/04            198             0          198           0
2324 Lapeer Road #405           12/1/03 - 1/21/04             496             0          496          67
8207 Kearsley Creek              5/1/04 - 5/19/04             389             0          389           0
3325 Spring Valley               7/1/04 – 11/1/04             895             0          895         158
6505 Allison                      3/1/04 - 3/7/04              98             0           98           0
309 East Baltimore               5/1/04 - 7/15/04             894           174          720          98
358 East Ruth                    9/1/04 – 11/2/04             930           480          450          81
2122 Frances                      6/1/04 - 2/5/05           4,950             0        4,950         320
117 Westmoreland                5/1/04 – 10/27/04           1,984             0        1,984         231
217 West 13th Street            11/1/03 - 9/21/04           4,548             0        4,548         419
2317 Adams                       5/1/04 -5/31/04              521             0          521          39
122 East Austin                   6/1/04 - 7/6/04             409             0          409          47
8224 Meadowwood                 11/1/04 - 11/23/04            432             0          432           0
4121 LeErda                      9/1/04 - 1/10/05           1,461           570          891         170
2010 Clement                      2/8/04 - 3/3/04             239             0          239           0
2702 Concord                    11/1/04 - 11/3/04              58             0           58           0
814 West Dartmouth #2             3/1/04 – 3/3/04              22             0           22           0
564 Welch                       9/1/04 - 10/25/04             994             0          994          72
3505 Comstock                    7/1/04 – 9/15/04           1,038             0        1,038          98
2521 Mount Elliot               9/11/04 - 10/10/04            445           145          300          39
5476 Kellar                      4/1/04 – 4/11/04             194             0          194           0
1610 Garland                     9/1/04 - 9/30/04             566             0          566          39
3001 Lawndale                     3/1/04 – 3/4/04              49             0           49           0
6228 Hilton                      8/1/04 – 11/8/04           1,405           545          860         128




3
    Numerical dates are shown in month, day and year sequence.

                                                        28
   SUMMARY OF ABATEMENT REVIEW RESULTS (continued)
                                                                               Ineligible   Ineligible
                                                     Amount                     housing      admini-
                                 Abatement         that should   Amount that   assistance    strative
       Address                     period           be abated     was abated   payments        fees

4113 Leerda Street             8/1/04 - 10/3/04         $705             $43       $662          $82
6105 Harwood                  8/1/04 – 11/21/04         1,665            765         900         145
                              10/1/03 -10/12/03           127              0         127           0
162 East Stewart               8/1/04 – 10/3/04         1,084              0       1,084          82
4124 Winona                   11/1/03 - 7/12/04         2,625              0       2,625         329
                              12/1/04 - 2/10/05           997            574         423          91
3610 Keys                     11/1/04 - 11/16/04          240              0         240           0
626 East Lorado               8/1/04 – 10/27/04         1,677              0       1,677         114
1628 Broadway                 11/1/04 - 11/15/04          331              0         331           0
2512 Seneca                    3/1/04 - 3/15/04            86              0          86           0
129 Green Street                1/1/05 - 1/9/05           136              0         136           0
3522 Lawndale                 12/1/03 - 6/15/04         1,363            943         420         255
2733 East Pierson             12/1/03 - 3/23/04         1,744              0       1,744         148
1217 East Hobson               7/1/04 – 10/6/04         1,351              0       1,351         125
4520 Edwards                   7/1/04 - 7/26/04           356              0         356           0
1157 Holtslander              12/1/04 - 1/17/05           774              0         774          61
741 Marengo                    2/1/04 - 9/12/04         2,960            160       2,800         290
                     Totals                           $58,531         $8,025     $50,506      $5,504




                                                     29
Appendix E

                                    CRITERIA


FINDING 1:
         Housing requirements. According to 24 CFR [Code of Federal Regulations]
         982.1(a), Section 8 housing units must be decent, safe, and sanitary. Part
         982.401(a)(1) states Section 8 housing units must comply with HUD’s housing
         quality standards, both at initial occupancy of the unit and during the term of the
         assisted lease. Part 982.152(d) permits HUD to reduce or offset any Section 8
         administrative fee to a housing agency if the agency fails to perform its
         administrative responsibilities adequately, such as not enforcing HUD’s housing
         quality standards.

         Section 8 administrative plan. The Commission’s Section 8 administrative plan,
         section V, paragraphs 1 and 2, requires that Section 8 housing units be inspected
         before a lease is approved and annually to assure that the owner is maintaining the
         units in accordance with housing quality standards as specified in 24 CFR [Code of
         Federal Regulations] 982.401. Paragraph 8 of the plan states that Section 8
         inspectors will use local code requirements for proper corrective action by owners of
         any defects related to health and/or safety of the occupants.

FINDING 2:
         HUD’s regulations. According to 24 CFR [Code of Federal Regulations] 982.305,
         a public housing agency is prohibited from making housing assistance payments for
         a housing unit that does not meet housing quality standards. Part 982.404 states the
         public housing agency must take prompt action to enforce the owner’s
         responsibilities for maintaining the property, which includes suspension,
         termination, or reduction of housing assistance payments to the owner. The public
         housing agency must not make housing assistance payments for a dwelling unit that
         does not meet HUD’s housing quality standards unless the owner corrects the
         violations within the period specified by the public housing agency—and it verifies
         the correction. Life threatening defects must be corrected within 24 hours—and
         within 30 calendar days for all other defects—unless the public housing agency
         approves a time extension.

         Section 8 administrative plan. The Commission’s Section 8 administrative plan
         requires that for all housing units that fail a second scheduled inspection, the
         housing assistance payments contract should be terminated with the landlord and
         the tenant issued a new Section 8 voucher to look for another housing unit. The
         landlord can only execute a housing assistance payments contract with a new
         tenant after the housing unit with a second failed inspection passes a Section 8
         inspection.


                                           30
FINDING 3:
         HUD’s requirements and the Commission’s Section 8 administrative plan.
         According to 24 CFR [Code of Federal Regulations] 982, public housing agencies
         are required to take specific actions regarding rent reasonableness. Rents are
         supposed to be reasonable in accordance with part 982.503 regarding published
         fair market rents for the area and the local public housing agency’s payment
         standards. Part 982.54(d)(15) requires the Commission’s Section 8 administrative
         plan to cover its method for determining that the rent to owner is a reasonable rent
         initially and during the housing assistance payment contract term. Further
         requirements are provided in 24 CFR [Code of Federal Regulations] 982.507,
         such as

             •   Rent reasonableness determinations,
             •   Comparability, and
             •   Owner certifications.

         In the housing assistance payments contract, Form HUD-52641, part B, paragraph 8,
         under owner certifications, it states that owners, by accepting each monthly housing
         assistance payment, certify that the rent to owner is not more than rent charged for
         comparable unassisted units on the premises.

         The Commission’s Section 8 administrative plan on rent reasonableness restates
         HUD’s regulations but more clearly defines when a landlord certification is
         required—and when certain procedures must be performed.




                                          31