oversight

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)

                                                             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