Issue Date
March 29, 2005
Audit Report Number
2005-FW-1007
TO: Dan Rodriguez
Program Center Coordinator, Office of Public Housing, 6EPH
FROM:
James D. McKay
Acting Regional Inspector General, 6AGA
SUBJECT: The Housing Authority of the City of Houston’s Contractor, Houston, TX,
Did Not Ensure Section 8 Assisted Units were Decent, Safe, and
Sanitary.
HIGHLIGHTS
What We Audited and Why
As part of the Office of Inspector General’s (OIG) Annual Audit Plan
focus on Section 8 Rental Assistance Programs, we audited the Housing
Authority of the City of Houston (Authority’s) Section 8 Housing Choice
Voucher Program. Our audit objective was to determine whether the
Authority’s Contractor was performing inspections to ensure Section 8
Housing Choice Voucher assisted units were decent, safe, and sanitary
before tenants moved in and annually thereafter as U.S. Department of
Housing and Urban Development (HUD) and Authority policies required.
What We Found
In most cases, the Authority’s Contractor performed annual and initial
inspections as required. However, since a majority, 88 out of 118 units,
failed our Housing Quality Standards inspections, the Contractor’s
inspections did not ensure the units were decent, safe, and sanitary. The
significant failure rate occurred because the Contractor appeared to be more
focused on performing a large quantity of inspections than on the quality of
those inspections.
Projecting the results of the statistical sample to the population indicates at
least 9,088 of the Authority’s 13,524 units do not meet standards. In
addition, our inspections showed that 39 of the 88 units had either
uncorrected items from previous inspections or conditions that had existed
for more than a year. Thus, our results indicate the Authority expended
$26.1 million on 3,503 units, which have failed items that have existed for a
year or more. Further, since the Authority’s Contractor did not ensure the
units met standards, its tenants lived in units that were not decent, safe, or
sanitary.
What We Recommend
We recommend that the Program Center Coordinator, Houston Office of
Public Housing (HUD) require the Authority to ensure all 88 failed units
we identified meet standards. Further, the Authority needs to inspect all of
its remaining units within the next 12 months to ensure those units also
meet standards since our results indicated at least 67 percent will not. If
the units cannot be made decent, safe, and sanitary, the Authority should
either abate the rent or terminate the tenant’s voucher. If the Authority
corrects its inspection program, it will avoid paying an estimated
$26.1 million on indecent, unsafe, and unsanitary units in the next year.
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
The Authority’s Executive Director generally agreed with the findings and
indicated the Authority is taking action to correct the problems. The
complete text of the auditee’s response, along with our evaluation of that
response, can be found in Appendix B of this report. However, we did not
include the attachments because they were voluminous and contained
tenant personal identification information.
2
TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding A Majority of the Authority’s Section 8 Units Failed Housing Quality 5
Standards Inspections
Scope and Methodology 13
Internal Controls 15
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 16
B. Auditee Comments and OIG’s Evaluation 17
C. Criteria 23
D. Units with Previous Failed Items Not Repaired and/or Failed Item Existed for 24
More Than a Year
3
BACKGROUND AND OBJECTIVES
The City of Houston established the Housing Authority of the City of Houston
(Authority) in 1938. The Mayor appoints a five-member Board of Commissioners
(Board) to govern the Authority. The Board hires an Executive Director to manage the
Authority’s day-to-day operations. The Authority keeps its records at its central office at
2640 Fountainview, Houston, Texas.
The Authority has operated its Section 8 Rental Assistance Program since 1975. For
June 2004, the Authority paid for 13,524 Section 8 units in the Housing Choice Voucher
Program. For fiscal years 2003 and 2004, the U.S. Department of Housing and Urban
Development (HUD) paid the Authority $202 million to fund its Housing Choice
Voucher Program, including $14.9 million for administrative expenses.
During 2001, HUD designated the Authority “troubled” and gave it a low Section 8
Management Assessment Program score. The Authority contracted with Quadel
Consulting (Contractor) in December 2001 to manage and improve its Section 8 Program
performance. The Contractor formed a subsidiary, Houston Housing Assistance
Partnership, to perform the contract work. The Contractor improved the Authority’s
score, taking it out of the “troubled” category. The Authority paid the Contractor 85
percent of its administration fee to operate the Section 8 Program. It paid its Contractor
more than $12.6 million to administer the Authority’s Section 8 Program during 2003 and
2004.
This audit is part of an ongoing review of the Authority. This audit reviewed whether the
Authority’s Contractor was performing inspections to ensure Section 8 assisted units
were decent, safe, and sanitary. We did not review the Authority’s controls over the
Contractor for ensuring the units met standards. The Authority’s controls will be
reviewed as part of another audit. The Authority terminated the Contractor’s contract in
October 2004 based, in part, on our audit of overhoused tenants. Additional audits are
underway.
4
RESULTS OF AUDIT
Finding: A Majority of the Authority’s Section 8 Units Failed
Housing Quality Standards Inspections
Our inspections showed the Authority’s Section 8 units contained numerous health and
safety violations. A majority, 88 out of 118 (75 percent) of the Authority’s Section 8
units did not meet HUD’s Housing Quality Standards. This significant failure rate
occurred because the Contractor appeared to be more focused on performing a large
quantity of inspections than on the quality of those inspections. Projecting the result of
the statistical sample to the population of 13,524 units indicates that at least 9,088 Section
8 units do not meet Housing Quality Standards. Consequently, the Authority made
housing assistance payments for units that did not meet Housing Quality Standards.
Additionally, the Authority’s tenants lived in units that were not decent, safe, or sanitary.
Authority’s Units are Unsafe
and Unsanitary Due to
Numerous Violations
Our inspections found a total of 665 Housing Quality Standards violations
in 88 of the 118 Section 8 units we inspected with the Contractor’s
inspectors. The following table shows the number of violations found per
unit. Some units contained an excessively high number of violations.
Number of Total Number of
Violations Failed Units
20-51 6
10-19 14
5-9 28
1-4 40
In addition, the inspection results showed that not only did 88 units fail
HUD’s Housing Quality Standards, but also 39 units had violations that
had existed for more than a year or had previous failed items that were not
repaired. The table at Appendix D details these results.
5
The photographs below illustrate some of the conditions we found in the
Authority’s units.
Leaking garbage disposal and rotted cabinet.
Wall damage and buckled tiles in a unit’s bathroom.
6
Inspectors Did Not Ensure
Failed Items Were Properly
Corrected
The Contractor’s inspectors did not ensure items that failed to meet
Housing Quality Standards were properly corrected. In some cases, the
failed items were never corrected. However, the inspectors passed these
failed items during later inspections. For example, one inspector failed the
unit pictured below because a tripping hazard existed in the main
entryway hall. Another inspector later passed the failed item. Our
inspection found the hazard, pictured below, still existed.
Inspectors Did Not Ensure
Underlying Problems Were
Repaired
The Contractor’s inspectors did not ensure underlying conditions were
repaired. Instead, they allowed cosmetic repairs that did not correct the
problem. For example, the owners of one unit in our sample made
cosmetic repairs by painting over mold in the unit instead of addressing
the underlying moisture issue that was causing the mold to grow. As the
following photograph shows, at the time of our inspection, the mold was
growing above and through the new paint.
7
Bedroom has mold growing above and through new paint because the owner did not
correct the underlying moisture cause.
Inspectors Did Not Fail Long-
Term Exterior Hazards
The Contractor’s inspectors did not fail units that had exterior hazards that
had apparently existed for some time. The following photographs contain
some examples of exterior hazards. We also identified other exterior
hazards such as low-hanging electrical wires, electrical wires entangled in
tree limbs, and outdoor electrical boxes unsecured or without covers.
8
Improperly supported main sewer drain line leaking under the house. Sewage had been
leaking out so long it was pooling under the house, in the backyard and affecting the
house’s foundation.
Unsafe stairs to a unit, which contained risers that were rotted and rusted free from the
supports.
9
Water damaged and rotted porch ceiling. Further, the support column, shown in the
lower left, has slipped forward and is not properly supporting the weight of the porch.
Inspectors Did Not Fail Obvious
Defects
The Contractor’s inspectors did not fail units with obvious defects. We
saw instances in which an inspector would comment on an issue rather
than fail it. For example, the inspector commented on the inspection
report for the unit below that the shower wall was missing the soap dish.
However, the inspector passed the unit. We found the soap dish was still
missing, and we failed the unit because water from the shower was
penetrating behind the tiles and damaging the wall.
10
Contractor Emphasized
Quantity Over Quality in the
Inspection Process
Although the Contractor performed initial and annual inspections as
required, the inspections were of a poor quality. A majority of the
Contractor’s inspectors believed the quality of the inspection was
sacrificed due to the quantity of inspections required. One inspector stated
that the Contractor was more focused on quantity than quality, and the
penalty for a poor quality inspection was “a slap on the hand.” The
Contractor was focused on performing a large quantity of inspections
because it only had ten inspectors performing inspections and two quality
control inspectors, a number that was apparently not sufficient based on
our results, the inspector’s comments, and the fact that more inspectors
and quality control inspectors have been hired.
Authority Has Taken Steps to
Correct the Problems
The Authority terminated its Contractor in October 2004, 2 months after
our joint inspections, and assumed responsibility for the inspection
process. As a result of the significant Housing Quality Standards
inspection failure rate noted in this audit, the Authority’s Executive
Director reorganized the inspection department, hired additional
inspectors, doubled inspection quality control reviews, and placed an
emphasis on quality inspections, including adding stiff penalties for poor
quality inspections.
Conclusion
Because the Contractor did not perform quality inspections, the
Authority’s Section 8 tenants were forced to live in units that were not
decent, safe, and sanitary. Further, we estimated the Authority paid
housing assistance payments totaling more than $26.1 million on 3,503
units, which had failed items that had existed for a year or more. The
Authority has taken corrective steps and should be commended for taking
prompt action. However, HUD needs to ensure that the Authority’s new
procedures, policies, and controls are implemented and consistently
followed to prevent additional Section 8 housing assistance payments
being spent on units that do not meet HUD standards.
11
Recommendations
We recommend that the Program Center Coordinator, Houston Office of
Public Housing:
1A. Require the Authority to ensure all 88 failed units meet Housing
Quality Standards. If the units cannot be made decent, safe, and
sanitary, either abate the rent or terminate the tenant’s voucher.
1B. Require the Authority to inspect all of its Section 8 Housing Choice
Voucher assisted units in the next 12 months and ensure the units
meet Housing Quality Standards.
1C. Monitor the Authority to ensure it has implemented controls and
procedures to prevent spending at least $26.1 million for units that
do not meet standards in the next year.
12
SCOPE AND METHODOLOGY
Our audit objective was to determine whether the Authority’s Contractor was performing
inspections to ensure Section 8 assisted units were decent, safe, and sanitary before
tenants moved in and annually thereafter as HUD and Authority policies required. To
accomplish the objective, we:
• Obtained and reviewed relevant HUD regulations and Authority guidelines
contained in the Authority’s Administrative Plan. See Appendix C.
• Selected a statistical sample of units from the Authority’s June 2004 Housing
Assistance Payment Register. See statistical sample selection and
methodology below.
• Obtained and reviewed the Contractor’s previous 118 inspection reports to
ensure the unit had been inspected within the last 12 months and passed its
last inspection. Further, we researched HUD’s Multifamily Tenant
Characteristic System to determine whether the Contractor inspected eight
units for which it could not provide an inspection report.
• Inspected 118 units with the HUD-Office of Inspector General (OIG)
inspector and the Contractor’s inspector to determine whether the units met
Housing Quality Standards. HUD-OIG inspected the 118 units from July 19
through August 16, 2004.
• Interviewed the Authority’s Inspection Manager and ten inspectors to discuss
the inspection results and determine the cause of the failures since the
Authority retained the majority of the Contractor’s staff when the Authority
terminated the Contractor in October 2004.
Statistical Sample Selection and
Methodology
We obtained a download of all of the Authority’s current tenants’ units
from the Housing Assistance Payment Register for the month of June
2004. The universe size showed there were 13,524 current tenants’ units
as of June 2004. We used the Defense Contract Audit Agency’s EZ-
Quant software to select a simple random statistical sample from the
13,524 current tenants’ units. Based on a confidence level of 90 percent, a
precision level of 10 percent, and an assumed error rate of 10 percent, the
EZ Quant software returned a statistical sample of 118 current tenants’
units with a random selection start. We also used EZ-Quant to generate 82
additional samples for replacements in case we did not have access to the
units or the tenants moved out. We inspected 11 of the replacement
samples (numbers 119 through 129) because we found that 11 tenants out
of the original 118 had moved out of their units.
13
Projecting the results of the 88 failed units in our statistical sample to the
population indicates:
The lower limit is 67.2 percent X 13,524 = 9,088 units not meeting HQS
The point estimate is 74.58 percent X13,524 = 10,086 units not meeting HQS
The upper limit is 81.0 percent X 13,524 = 10,954 units not meeting HQS
Projecting the results of the 39 failed units that had violations that had
existed for more than a year or had previous failed items that were not
repaired, to the population indicates:
The lower limit is 25.9 percent X 13,524 = 3,503 units not meeting HQS
The point estimate is 33.05 percent X 13,524 = 4,470 units not meeting HQS
The upper limit is 40.8 percent X 13,524 = 5,518 units not meeting HQS
We conducted our fieldwork between July and December 2004 at the
Authority’s offices in Houston, Texas. Our audit work concerns the
period from June 1, 2003, to June 30, 2004.
We conducted the audit in accordance with generally accepted
governmental auditing standards.
14
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
• Effectiveness and efficiency of operations;
• Reliability of financial reporting; and
• Compliance with applicable laws and regulations.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our audit
objectives:
Policies and procedures that the Contractor put into place to
reasonably ensure that Section 8 assisted units were decent, safe, and
sanitary before tenants moved in and annually thereafter as HUD and
Authority policies required.
We did not review the Authority’s controls over the Contractor for
ensuring the units met standards as they were outside the scope of this
audit objective. The Authority’s controls will be reviewed as part of
another audit.
Significant Weaknesses
Based on our review, we believe the following item was a significant
weakness:
• The Authority’s Contractor did not establish effective internal
controls to ensure that tenants’ units met HUD’s Housing Quality
Standards.
15
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds To Be Put
Number To Better Use 1/
1C $26,132,380
1/ “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.
16
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
17
Comment 1
Comment 2
Comment 3
18
19
Comment 1
20
21
OIG Evaluation of Auditee Comments
The Authority’s Executive Director generally agreed with the findings.
Comment 1 The Authority agreed it did not detect that its Contractor was not
conducting inspections utilizing sound and consistent judgment and
indicated the Authority is taking action to correct the problems. We
appreciate the Authority admitted problems existed and is taking
action to correct them.
Comment 2 The Executive Director noted the Authority recognizes the highly
subjective and judgmental nature of the inspection process and the
underlying regulations. Although we agree the inspection process
involves the judgment and opinion of the inspector, the Contractor’s
inspectors participated in the inspections performed by the OIG
Inspector and were present when the OIG Inspector passed or failed
those units.
Comment 3 The Authority requested all of OIG’s inspection reports. However, we
have already provided the Authority detailed summary information
and photos of all failed units.
22
Appendix C
CRITERIA
24 CFR [Code of Federal Regulations] 982.401(3), “Section 8 Tenant Based
Assistance: Housing Choice Voucher Program, Housing Quality Standards.”
All program housing must meet the Housing Quality Standards performance
requirements both at commencement of assisted occupancy and throughout the assisted
tenancy.
24 CFR [Code of Federal Regulations] 982.405(a), “Section 8 Tenant Based
Assistance: Housing Choice Voucher Program, PHA [public housing authority] Initial
and Periodic Unit Inspection.”
The public housing authority must inspect the unit leased to a family before the initial
term of the lease, at least annually during assisted occupancy, and at other times as
needed, to determine whether the unit meets the Housing Quality Standards.
The Housing Authority of the City of Houston, Administrative Plan for Section 8
Housing Programs, “Housing Quality Standards and Inspections.”
The Authority is required by HUD regulations to inspect the unit to ensure it meets
Housing Quality Standards. No unit shall be initially placed under the contract in the
Housing Choice Voucher Program unless the standards are met. Units must also continue
to meet Housing Quality Standards as long as the family continues to receive housing
assistance in the assisted unit.
23
Appendix D
Units with Previous Failed Items Not Repaired
and/or Failed Item Existed for More Than a Year
Previous
Failed
Previous Items Items Existed
Inspection Not More Than a
Sample Failed Repaired Year
1 2 Y X
2 4 Y X
3 10 N X
4 11 N X
5 23 N X X
6 24 Y X
7 28 N X
8 31 N X
9 38 Y X
10 39 Y X
11 40 Y X
12 121 N X
13 44 Y X
14 51 Y X X
15 56 N X
16 59 Y X
17 60 Y X
18 64 Y X
19 66 N X
20 69 N X
21 123 Y X X
22 71 Y X
23 124 Y X
24 75 N X
25 76 N X
26 78 Y X
27 80 Y X
28 82 N X
29 83 N/A X
30 86 Y X
31 91 Y X X
32 126 Y X X
33 103 Y X
34 104 N X
35 106 Y X
36 109 Y X
37 112 Y X
38 115 Y X
39 118 N X
24
Housing Authority of the City of Houston's Contractor, Houston, TX, Did Not Ensure Section 8 Assisted Units were Decent, Safe, and Sanitary
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-03-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)