oversight

Housing Authority of the City of Houston Section 8 Abatement and Termination Policies and Procedures

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-07-20.

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

                                                                            Issue Date
                                                                                         July 20, 2005
                                                                            Audit Case Number
                                                                                         2005-FW-1012




TO:            Dan Rodriguez
               Program Center Coordinator, Office of Public and Indian Housing, 6EPH


FROM:          Frank E. Baca
               Regional Inspector General for Audit, 6AGA

SUBJECT: The Housing Authority of the City of Houston Did Not Follow Its Section 8
         Abatement and Termination Policies and Procedures


                                           HIGHLIGHTS

    What We Audited and Why

                 Because the results of our housing quality standards (HQS) audit1 of the Housing
                 Authority of the City of Houston (Authority) indicated the Authority’s Contractor
                 may not have been following its abatement and termination policy, we initiated an
                 additional audit. Our objective was to determine whether the Authority enforced
                 its policy to deduct (abate) rental payments to owners and/or terminate tenants
                 whose Section 8-assisted units repeatedly failed HQS inspections. Specifically,
                 we reviewed the Authority’s and its Contractor’s policies and procedures and
                 tested to determine if the Authority’s Contractor followed them.

    What We Found


                 Neither the Authority nor its Contractor ensured that staff followed its abatement
                 and termination policies and procedures in eight of the ten cases reviewed.
                 Although the Authority terminated the Contractor in October 2004, similar
                 problems could continue to occur since the Contractor’s staff are now employees
                 of the Authority. If the Authority does not improve its abatement and termination

1
     Office of Inspector General (OIG) Audit Report number 2005-FW-1007, issued on March 29, 2005, Section 8
     Housing Quality Standards at the Housing Authority of the City of Houston, Texas.
           policies, procedures and practices, we estimate it will expend $1 million to
           $6.9 million in inappropriate Section 8 assistance. In addition, the Authority
           needs to revise some of its abatement and termination policies and procedures to
           address ambiguous and contradictory provisions, or a lack of policies and
           procedures.

What We Recommend


           We recommend that the program center coordinator of the Houston Office of
           Public and Indian Housing require the Authority to ensure that its employees
           follow its abatement and termination policies and procedures and impose
           penalties on employees if they do not. In addition, the Authority should be
           required to revise its abatement policies and procedures to address deficiencies.
           These corrective measures would result in more than $1 million in Section 8
           funds being put to better use by ensuring only eligible units and tenants are
           allowed to participate in the program.

           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 generally agreed with the audit and indicated it would revise its
           abatement and termination policies, procedures and practices with due speed. The
           complete text of the auditee’s response, along with our evaluation of that
           response, can be found in Appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                        4

Results of Audit
      Finding: The Housing Authority of the City of Houston Did Not Follow Its   5
      Abatement and Termination Policies and Procedures

Scope and Methodology                                                            10

Internal Controls                                                                12

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             13
   B. Auditee Comments and OIG’s Evaluation                                      14




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                       BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Houston (Authority) has operated its Section 8 rental
assistance program since 1975. The U.S. Department of Housing and Urban Development
(HUD) designated the Authority “troubled” in 2001. 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 and improved the Authority’s score, taking it out of the “troubled”
category. Even though the Authority hired the Contractor to manage and operate its Section 8
program, it is ultimately responsible to HUD for program operations.

For fiscal years 2003 and 2004, HUD paid the Authority $202 million to fund its Housing
Choice Voucher Program, including $14.9 million for administrative expenses. The Authority’s
contract stated it would pay the Contractor 85 percent of its administration fee, and during 2003-
2004, the Authority paid its Contractor more than $12.6 million. In June 2004, the Authority
paid for 13,524 Section 8 units in the Housing Choice Voucher Program.

This audit is part of an ongoing comprehensive review of the Authority. An additional audit is
still underway. The Authority terminated the Contractor in October 2004 based, in part, on our
audit of overhoused tenants.2 Previously, we audited to determine whether the Authority’s
Contractor was performing inspections to ensure that Section 8-assisted units were decent, safe,
and sanitary. While performing that audit, we noted that ten of the 118 units we inspected had
previously failed the Contractor’s inspection process two or more times. We began this audit to
determine whether the Authority enforced its policy to abate rental payments to owners and/or
terminate tenants whose Section 8-assisted units repeatedly failed HQS inspections.
Specifically, we reviewed the Authority’s and its Contractor’s policies and procedures and tested
to determine if the Authority’s Contractor followed them since the Contractor operated the
Authority’s Section 8 Housing Choice Voucher Program during most of our audit period. We
also reviewed the Authority’s current policies and procedures since the Authority assumed
operations in October 2004. We did not review the Authority’s controls over the Contractor as
that is being reviewed as part of another audit.




2
    Office of Inspector General (OIG) Audit Report number 2004-FW-1010, issued September 29, 2004, Housing
    Choice Voucher Subsidy Standards at the Housing Authority of the City of Houston, Texas.

                                                     4
                                        RESULTS OF AUDIT

Finding: The Authority Did Not Follow Its Termination and Abatement
Policies and Procedures
Neither the Authority nor its Contractor ensured that staff followed its existing abatement and
termination policies and procedures in eight of ten cases reviewed. Although the Authority
terminated the Contractor in October 2004, similar problems could continue to occur since the
Contractor’s staff are now employees of the Authority. As a result, a unit that should not have
been admitted to the Section 8 program was admitted. Also, tenants were not relocated in a
timely manner from units that were not decent, safe, or sanitary or promptly notified and/or
terminated from the program. If the Authority does not correct its abatement and termination
policies, procedures and practices, we estimate it will expend $1 million to $6.9 million in
inappropriate Section 8 assistance. In addition, the Authority needs to revise its abatement
policies and procedures to address ambiguous and contradictory provisions or a lack of policies
and procedures.



    Authority and Its Contractor
    Did Not Follow Policies and
    Procedures


                   Although the Authority did abate rental payments to owners for failure to meet HQS
                   for six out of ten tenant files we reviewed, for eight of the ten files the Authority and
                   its Contractor did not follow its existing abatement and termination policies and
                   procedures. Some examples include3:

                   •   For two tenants, the Contractor performed more inspections than its or the
                       Authority’s policy allowed in an effort to be tenant friendly and allow the
                       tenant to occupy or stay in a unit. This practice resulted in a unit being
                       admitted to the Section 8 program that should not have been and allowed the
                       tenant to live in an indecent, unsafe, and unsanitary unit. Further, the practice
                       was not necessarily tenant friendly, as one tenant relocated due to repeated
                       HQS inspection failures less than seven months after moving in.

                   •   For one tenant, the Contractor performed five inspections after the owner
                       indicated repairs would not be made. The five inspections were contrary to its
                       policy of relocating the tenant if the owner declined to make repairs and
                       allowed the tenant to continue to live in a substandard unit.

                   •   For one tenant, the Contractor relocated the tenant to a new unit although the
                       tenant had outstanding HQS failed items and should have been terminated

3
      Some tenants had more than one of the violations listed.

                                                           5
               from the program according to the Contractor’s and Authority’s policies and
               procedures. Consequently, the Authority continued to pay assistance for a
               tenant who should have been terminated.

           •   For one tenant, although the Contractor correctly abated the previous owner’s
               rent due to HQS failures, it retroactively paid assistance to the new owner of
               the same unit for the months the unit was in abatement. In addition, in one
               instance the Contractor paid both owners for the same month’s rent. These
               practices resulted in the Authority making $1,960 in assistance overpayments.

           •   For two tenants, the Contractor did not issue termination letters in accordance
               with its policy of issuing a termination notice when the unit failed inspection
               because the tenant did not allow entry after a previous failed inspection. The
               Authority staff stated they ignored this policy when only the owner had
               violations, because they felt the policy unfairly penalized the tenant.
               However, by not taking action against the tenant, the Authority is not taking
               proactive steps to ensure that indecent, unsafe, and unsanitary conditions are
               promptly corrected.

The Authority’s Policies and
Procedures Need Improvement


           Although the Authority and Contractor generally had abatement and termination
           policies and procedures, we found instances where the policies and procedures were
           ambiguous and contradictory, or where there was a lack of policies and procedures.

           For example, regarding termination of a tenant’s assistance, the Authority’s and
           the Contractor’s policies, procedures, and practices contradicted each other. The
           Authority’s Administrative Plan called for tenants to receive a thirty day written
           termination notice. However, the Contractor’s termination procedure did not
           include a specific date period but provided the following confusing example,
           which implies that termination should have been completed in fourteen days:

                  “Termination dates differ from abatement dates. Note the following:
                  Unit failed the 2nd inspection or no entry was allowed on March 14.
                  The date of termination will be March 28. The date of scheduled 3rd
                  inspection would be March 28.”

           Five of the ten tenants we reviewed had effective termination dates that averaged
           fifty days after the second failed inspection. The Authority stated this was in line
           with their actual practice of issuing a termination letter after the second fail with a
           termination date of the last day of the month following the month of inspection.
           Thus, a tenant whose unit failed on March 14 would receive a termination notice
           effective April 30. Yet, this practice was not consistently applied to all five of the
           tenants.




                                              6
           Other examples of ambiguous and contradictory policies or lack of policy include:

           •   The Contractor's procedure states that if a unit fails the second re-inspection, a
               final fail letter is generated. The policy states the tenant will be issued a
               voucher provided no tenant violations are outstanding but does not state what
               the Authority or Contractor will do if there are tenant violations outstanding.

           •   The Contractor’s termination procedure does not state (is silent) that it will
               terminate a tenant's assistance for two failed HQS inspections where the
               violations are the fault of the tenant.

           •   The Authority’s policy states that if a unit fails twice, rent will be abated. The
               Contractor's procedure stated that the owner’s contract would be terminated
               after a second re-inspection (third fail). The Authority, though, says its policy
               allows it to perform more than three inspections since the owner has ninety
               days to bring the unit into compliance while the rent is abated.

           •   The Contractor’s procedure states that rent will be abated if the unit fails the
               second inspection and a combination of the owner and tenant is responsible to
               correct the violation. However, the Authority has stated its practice is not to
               count a no entry fail (not allowing the inspector entry into the unit) as a first
               fail even though it is recorded in the inspection system as a fail. Thus, for
               abatement to occur, two fail inspections have to occur after a no entry fail.

           •   The Contractor’s procedure states that a tenant's assistance would be
               terminated for a no entry fail following a failed first inspection, including
               tenant fails and failure to allow entry for owner fails. However, the
               Authority’s and the Contractor's actual practice was not to issue termination
               notices for owner-only fail items.

Authority Acknowledged
Procedures Were Not Always
Followed

           We discussed the various violations with Authority staff, including the
           Contractor’s previous inspection manager. Although the inspection manager and
           other Authority staff admitted a few errors had occurred, they disagreed that other
           violations were errors. Instead, they stated they ignored the Authority’s and
           Contractor’s policies and procedures because they: (1) wanted to be tenant
           friendly in some cases and perform additional inspections beyond what their
           policies allowed; (2) believed the policies and procedures were contradictory; or
           (3) believed the policy should not be followed. In our opinion, the Authority
           needs to ensure its policies are clear and consistent, and that staff adheres to the
           policies. The Authority also indicated it had implemented a new abatement
           standard operating procedure but was still following the Contractor’s termination
           procedure. However, the Authority’s revised standard operating procedure



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             contains ambiguities similar to those in the Contractor’s abatement procedure and
             it does not cover the tenant termination process.


Conclusion


             Although the Authority terminated the Contractor in October 2004 and assumed
             full responsibility for its Section 8 Housing Choice Voucher Program, similar
             problems could occur in the Authority’s abatement and termination of assistance
             since it retained a majority of the Contractor’s employees. In order to ensure that
             abatements and terminations of assistance are handled consistently and equitably,
             the Authority needs to make sure that its policies and procedures are clear,
             consistent, and adequate and that staff adheres to its policies and procedures.

             Four of the ten tenant files we reviewed contained assistance payments that could
             have been avoided and paid to other eligible owners or participants if good
             termination and abatement policies and procedures were followed. Based on a
             statistical sample, we estimate that problems found in the four worst cases exist in
             at least 162, and as many as 1,027, of the Authority’s 13,524 Section 8-assisted
             units as of June 2004. If the Authority corrects deficiencies in its abatement and
             termination policies and procedures, we estimate it will annually avoid spending
             $1 million to $6.9 million in inappropriate Section 8 assistance.




                                              8
Recommendations



          We recommend that the program center coordinator of the Houston Office of
          Public and Indian Housing require the Authority to:

          1A. Revise its Administrative Plan and operating procedures to include clear,
              consistent, and adequate abatement and termination policies for failure to
              comply with HQS by owners and tenants, which would put more than $1
              million in Section 8 funds to better use by ensuring only eligible units and
              tenants are allowed to participate in the program.

          1B. Implement policies and procedures to ensure that its employees follow its
              abatement and termination policies.

          1C. Recover the $1,960 improperly paid when a unit that had repeated failures
              transferred to a new owner.




                                           9
                           SCOPE AND METHODOLOGY

We conducted the audit at the Authority’s offices in Houston, Texas, and the local U.S.
Department of Housing and Urban Development Houston office from January through May
2005. We performed the following steps:

•     Obtained and reviewed criteria that control the Authority’s Section 8 Housing Choice
      Voucher Program and its abatement and termination processes. The criteria included HUD’s
      regulations in the Code of Federal Regulations; the Authority’s Administrative Plan, revised
      in January 2004; the Contractor’s written termination and abatement policies and procedures;
      the “Housing Choice Voucher Section 8 Guidebook”; and the Authority’s new standard
      operating procedure for abatements, issued in January 2005.

•     Interviewed HUD Office of Public and Indian Housing staff in the Houston field office and
      headquarters to obtain clarification on abatement and termination procedures and processes.

•     Reviewed the Authority’s tenant files for ten tenants previously identified by our HQS audit
      (see below) as having two or more failed inspections, and obtained screen prints from the
      Authority’s computer system showing its inspection results to determine whether the
      Contractor followed its and the Authority’s policies and procedures.

•     Interviewed Authority staff members, including those formerly employed by the Contractor,
      to determine their actual practices versus their policies and to determine why specific errors
      occurred.

Our original audit period was from June 2003 to June 2004. However, we expanded our scope to
April 2005 to cover failed inspections that were not resolved until after June 2004 and to allow
us to compute funds to be put to better use for four tenants who should either have been placed in
another unit or should not have been receiving assistance.


    Statistical Sample Selection and
    Methodology


We based our testing on the statistical sample that was part of our HQS audit. During that audit,
we obtained a download of all of the Authority’s current Section 8-assisted 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 of 33665481. We used EZ-Quant to
generate eighty-two additional samples for replacements in case we did not have access to the
units or the tenants moved out. We inspected eleven of the replacement samples because we
found that eleven tenants out of the original 118 had moved out of their units.


                                                  10
A review of the Authority’s records showed that ten out of the 118 units inspected had two or more
failed inspections performed by the Contractor. During this audit, we reviewed the tenant files to
determine whether the Contractor appropriately followed its and the Authority’s policies and
practices. We then used EZ-Quant to project our error rates to the population.

We conducted our audit in accordance with generally accepted government auditing standards.




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                                 INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations;
   •   Reliability of financial reporting; 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 Control


              We determined the following internal control was relevant to our audit objectives:

                  •    Policies and procedures that the Contractor and the Authority put into place
                       to reasonably ensure that Section 8-assisted units that fail two consecutive
                       HQS inspections are being abated and tenant assistance is being terminated.

              We assessed the relevant control identified above.

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


 Significant Weaknesses


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

              •       The Authority and its Contractor did not follow its or the Contractor’s
                      abatement and termination policies and procedures in a majority of the cases
                      reviewed.

              •       The Authority’s and the Contractor’s policies and procedures are
                      contradictory, ambiguous, and do not reflect actual practices.




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                                     APPENDIXES

Appendix A

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



                  Recommendation          Ineligible 1/     Funds to be Put
                      Number                                to Better Use 2/
                          1A                                      $1,102,162
                          1C                       $1,960




1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law, contract, or federal, state, or local
     policies or regulations.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     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.




                                              13
Appendix B

        AUDITEE COMMENTS AND OIG'S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         14
Comment 1

Comment 2




Comment 3


Comment 3




            15
Comment 4




Comment 4




Comment 4




            16
Comment 5




Comment 6


Comment 6




            17
18
19
20
                         OIG Evaluation of Auditee Comments

Comment 1   Although the Authority is correct in asserting their Section 8 Housing Choice
            Voucher Program was operated by the Contractor for most of the period under
            audit, the Authority was and is ultimately responsible to HUD for proper
            operation of its program. The Authority admits two of the eight cases occurred
            while it was assuming management of its program. Thus, if the Authority does
            not correct its policies, procedures and practices, the Authority will continue to
            have cases where it is not complying with its abatement and termination policies
            and procedures.

Comment 2   We disagree that the report overstated the potential downside to retaining some of
            the Contractor’s personnel. The report merely stated that similar problems could
            continue to occur since the Contractor’s staff are now employees of the Authority.
            If the Authority does not take action, its staff, who used to be Contractor staff,
            will continue to operate as they have in the past, including ignoring existing
            policies and procedures.

Comment 3   We appreciate that the Authority agrees they deviated from their practices, but we
            disagree that only one case was an exception and we do not agree that the
            problems identified were merely procedural. At the exit conference, we informed
            the Authority that for four of the ten tenants, its policies and procedures required
            that the tenant either be terminated or relocated or the unit should not have been
            admitted to the program. Further, our report indicates in one case being sensitive
            to the needs of the tenant did not in fact help the tenant as the tenant had to
            relocate from a substandard unit that should not have been admitted to the
            program.

Comment 4   We appreciate that the Authority will clarify it written procedures. We also agree
            that the Authority can allow itself discretion in dealing with abatement and
            termination issues. However, its policies should clearly define when and how
            such discretion can be used and such cases should be clearly documented. We
            should point out that the Authority’s response to the third bullet omits that the
            Authority’s Administrative Plan currently states, “Units will be re-inspected
            once.” Thus, if the Authority wishes to perform more inspections, it will need to
            delete this statement from its Administrative Plan.

Comment 5   We commend the Authority for taking steps to improve its abatements and
            terminations.

Comment 6   We disagree that the report conveys the wrong impression concerning the $1
            million to $6.9 million in projected inappropriate housing assistance payments.
            The report clearly identifies the funds as future amounts because they are a
            statistical projection of what the Authority will expend in inappropriate Section 8
            assistance if it does not improve its abatement and termination policies and
            procedures.



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