Issue Date April 18, 2005 Audit Report Number 2005-KC-1004 TO: Andrew L. Boeddeker, Director, Office of Public Housing, 7APH //signed// FROM: Ronald J. Hosking, Regional Inspector General for Audit, 7AGA SUBJECT: The Kansas City, Kansas, Housing Authority’s Controls Over Its Section 8 Program Are Adequate, Except When Conducting Quality Control Reviews of Its Routine Housing Inspections HIGHLIGHTS What We Audited and Why We reviewed the controls over the Section 8 program of the Kansas City, Kansas, Housing Authority (Authority) to determine whether the Authority is operating its Section 8 program in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. We reviewed the Authority because we had not conducted a review of its Section 8 program for more than 10 years and the Authority is one of the larger housing authorities in the Kansas City and regional area. What We Found The Authority has adequate controls over its Section 8 program, except when conducting quality control reviews of its routine Housing Quality Standards inspections. The Authority has adequate controls to ensure that its staff properly assesses tenant eligibility, assigns appropriate unit size, and calculates Section 8 subsidy payments. The Authority also has adequate controls over the inspectors’ daily practices of conducting timely and well-documented inspections and enforcing corrective action when the inspector identifies violations. However, the Authority currently conducts its quality control inspections simultaneously with the routine inspections. This gives the inspector prior knowledge of the units that will be inspected for quality control purposes. What We Recommend We recommend that the Director, Office of Public Housing, verify that the Authority amends its quality control plan to require that the Authority select and conduct quality control inspections separately from routine inspections. 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 agreed with our conclusion and recommendation, and plans to seek approval from its Board of Commissioners to amend its quality control plan to comply with HUD requirements. We provided the draft report to the Authority on April 5, 2005, and the Authority provided its written response on April 15, 2005, as requested. The complete text of the Authority’s response can be found in appendix A of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding: The Authority’s Process for Conducting Quality Control Reviews of 5 Routine Housing Inspections Is Inadequate Scope and Methodology 7 Internal Controls 8 Appendix A. Auditee Comments 9 3 BACKGROUND AND OBJECTIVES The Kansas City, Kansas, Housing Authority assists families and individuals with low and moderate incomes by providing safe, affordable, quality housing. The Authority presently administers more than 1,000 Section 8 vouchers and has a Section 8 budget of $4,325,021 for fiscal year 2005. The State of Kansas chartered the Authority on August 6, 1957. A 12-member Board of Commissioners provides oversight to the agency and its staff, and an Executive Director manages the day-to-day operations. One means of providing quality housing is through the U.S. Department of Housing and Urban Development’s (HUD) Section 8 voucher program. The voucher program is the Federal Government’s major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Housing choice vouchers are administered by public housing authorities that receive Federal funds from HUD to administer the program. Section 8 housing assistance is provided on behalf of the family or individual, and participants are responsible for locating their own housing. Participants are free to choose any housing that meets the requirements of the program. Rental units must meet minimum standards of health and safety, as determined by the public housing authority. When the voucher holder finds a unit that he or she wishes to occupy and reaches an agreement with the landlord over the lease terms, the public housing authority must inspect the dwelling and determine that the rent requested is reasonable. The public housing authority determines a payment standard that is the amount generally needed to rent a moderately priced dwelling unit in the local housing market, and that is used to calculate the amount of housing assistance (subsidy) a participant will receive. The public housing authority calculates the maximum subsidy allowable and pays the monthly subsidy directly to the landlord on behalf of the participant. The participant pays the difference between the actual rent charged by the landlord and the amount subsidized by the program. Our overall objective was to determine whether the Authority is operating its Section 8 program in accordance with HUD requirements. We conducted our review to determine whether the Authority has adequate controls to ensure its compliance with HUD requirements when assessing tenant eligibility, assigning the appropriate unit size to avoid overhousing or underhousing of tenants, and calculating tenant rent subsidy payments. We also conducted our review to determine whether the Authority has proper controls in place to ensure compliance with HUD requirements when conducting Housing Quality Standards inspections and when enforcing action to correct violations. 4 RESULTS OF AUDIT Finding: The Authority’s Process for Conducting Quality Control Reviews of Routine Housing Inspections Is Inadequate The Authority does not have a reliable quality control process in place to ensure that Housing Quality Standards inspections are conducted according to HUD requirements. The supervisor conducts quality control reviews of the inspector’s work with the inspector as the inspector conducts routine inspections. Authority management does not consider it necessary to conduct quality control inspections separately from routine inspections. Without reliable controls to ensure proper inspections, HUD and the Authority cannot be assured that the inspector’s evaluations of Section 8 units consistently meet HUD requirements and that tenants are living in decent, safe, and sanitary housing. Inspection Quality Control Process Is Not Adequate The Authority’s quality control process for inspections is inadequate and does not ensure that inspections are conducted according to HUD requirements. HUD requires housing authorities to complete quality control reviews of a sample of the routine (i.e., initial and periodic) inspections performed as part of the Authority’s normal course of business. The Authority conducts required quality control reviews; however, the Section 8 Director or other qualified staff conducts these reviews with the inspector while the inspector is inspecting the same unit as a routine inspection. Therefore, the inspector has prior knowledge of the units that will be inspected for quality control purposes. Without an adequate quality control process, HUD and the Authority cannot be assured that the inspector’s overall work is adequate and meets HUD requirements and that tenants are living in decent, safe, and sanitary housing. HUD regulation 24 CFR [Code of Federal Regulations] 985.3 provides performance indicators that public housing authorities are required to use in preparing annual certifications regarding management of their Section 8 program. One indicator assesses whether an Authority supervisor or other qualified person has reinspected a sample of units for quality control and annual recertification purposes. The regulation requires the supervisor to reinspect units in which the regular inspector has completed a routine inspection in the past 3 months. The regulation does not allow for simultaneous inspections, but instead requires quality control inspections on recently completed, routine inspections. The Authority told us that it performs the inspections simultaneously for the tenants’ convenience and to ensure that violations did not occur in the time between the initial and the quality control inspections. The Authority also told us 5 that it relies on guidance provided by Nan McKay & Associates, a well-known trainer on HUD Section 8 program requirements. The Nan McKay & Associates training manual says that one way to evaluate the performance of regular inspectors is to accompany each inspector on a sample of routine inspections and perform simultaneous quality control inspections of the unit. However, the manual points out that a weakness of this approach is that the inspector’s performance may be affected by the presence of the supervisor and the results may not be an accurate view of the inspector’s normal practices. The manual also says that a better approach is to select units that have been recently inspected (i.e., not simultaneous inspections). It should also be noted that HUD does not formally approve private training programs on Section 8 requirements, and HUD officials do not support simultaneous quality control inspections. In summary, the Authority does not use a reliable quality control process to evaluate the performance of its inspector. The current process is unreliable because the supervisor conducts quality control reviews of the regulator inspector’s work at the same time as the inspector is conducting routine inspections as part of the normal course of business. This process allows the inspector to have prior knowledge of the units that will be inspected for quality control purposes. Therefore, HUD and the Authority lack assurance that tenants are living in decent, safe, and sanitary housing and that HUD subsidies are provided only for acceptable housing. Recommendation We recommend that the Director, Office of Public Housing, verify that the Kansas City, Kansas, Public Housing Authority 1A. Amends its quality control plan for evaluating Housing Quality Standards inspections to require that the Authority select and conduct the quality control inspections separately from the routine inspections. 6 SCOPE AND METHODOLOGY We conducted our review from November 2004 through February 2005 at the Authority’s offices at 1124 N. 9th Street, Kansas City, Kansas. Our review generally covered the period from October 1, 2003, through December 31, 2004. We expanded our review to the period of a tenant’s initial tenancy when necessary. To achieve our objectives, we conducted interviews with the Authority’s staff and staff of the local Public Housing office. We also reviewed the Authority’s policies and procedures, its hardcopy and computer tenant files, records of payments to tenants and property owners, its Housing Quality Standards inspection files, and its audited financial statements. In addition, we reviewed Federal regulations, HUD’s Rental Integrity Monitoring reports, and Section 8 Management Assessment Program reports. We also conducted inspections of tenant units. To conduct our testing, we initially selected a sample of 10 tenants that received Section 8 assistance during our review period. In any area tested in which we identified deficiencies in the processing of the 10 initial tenant files, we expanded our sample to 15 tenant files. We also selected a separate sample of 10 units that had received inspections in December 2004 and conducted onsite inspections of these units to test for adequate inspections by Authority staff. We conducted our review in accordance with generally accepted government auditing standards. 7 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: • Controls over assessment of tenant admissions (eligibility) • Controls over assignment of appropriate unit size to avoid overhousing or underhousing of tenants • Controls over calculating tenant rent subsidy payments • Controls over conducting Housing Quality Standards inspections and enforcing corrective action for violations We assessed the relevant controls 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 item is a significant weakness: • The Authority’s quality control process does not ensure that inspections are conducted according to HUD requirements. Separate Communication of Minor Deficiencies During the review, we identified minor compliance errors in three tenant files. We discussed the errors with Authority management, and the Authority agreed with our analyses and corrected the errors. 8 APPENDIX Appendix A AUDITEE COMMENTS 9 10 11 12
The Kansas City, Kansas, Housing Authority's Controls Over Its Section 8 Program Are Adequate, Except When Conducting Quality Control Reviews of Its Routine Housing Inspections
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-04-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)