oversight

The Housing Authority of the County of Marin, San Rafael, CA, Inappropriately Administered $2.8 Million in Section 8 Project-Based Vouchers

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-05-20.

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

  AUDIT REPORT




HOUSING AUTHORITY OF THE

    COUNTY OF MARIN

       2005-LA-1004

       MAY 20, 2005



       OFFICE OF AUDIT
    PACIFIC/HAWAII REGION
   LOS ANGELES, CALIFORNIA




              1
                                                                Issue Date
                                                                    May 20, 2005
                                                                Audit Report Number
                                                                    2005-LA-1004




TO:           Melina Whitehead, Acting Director, Office of Public Housing, 9APH



FROM:         Joan S. Hobbs, Regional Inspector General for Audit, Pacific/Hawaii Region,
               9DGA

SUBJECT:     The Housing Authority of the County of Marin, San Rafael, CA,
              Inappropriately Administered $2.8 Million in Section 8 Project-Based
              Vouchers


                                   HIGHLIGHTS

 What We Audited and Why

      We audited the Housing Authority of the County of Marin’s (Authority) Section 8
      project-based voucher program because of U.S. Department of Housing and Urban
      Development (HUD) concerns regarding the Authority’s administration of its Section 8
      project-based voucher program. HUD expressed concerns about whether the Authority
      (1) performed rent reasonableness determinations and (2) executed housing assistance
      payments without HUD-required contracts.

      The objective of the audit was to determine whether the Authority administered its
      Section 8 project-based voucher program in accordance with HUD rules and regulations.

 What We Found

      The Authority did not administer $2.8 million in Section 8 project-based vouchers in
      accordance with HUD rules and regulations. The Authority did not perform rent
      reasonableness determinations to ensure Section 8 tenants’ rent was reasonable before
      entering into housing assistance payment contracts. The Authority also used tenant-based
      contracts and unenforceable memorandums of understanding to issue housing assistance

                                             2
     payments under its Section 8 project-based program instead of the appropriate project-
     based voucher contracts. The Authority’s actions could have unnecessarily placed it at
     risk for potential legal actions by the tenants. We attributed these conditions to the
     Authority not having policies and procedures in effect to properly administer the project-
     based program or safeguard Section 8 resources.

     The Authority agreed it did not administer its program in accordance with HUD rules and
     regulations and is creating a new Section 8 project-based program.

What We Recommend


     We recommend that HUD’s director of the Office of Public and Indian Housing require
     the Authority to (1) develop and implement Section 8 procedures in accordance with
     HUD regulations and (2) reimburse HUD $318,139 in unearned Section 8 administrative
     fees.

     For each recommendation without a management decision, please respond and provide
     status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us
     copies of any correspondence or directives issued because of the audit.


Auditee’s Response

     We provided the Authority a draft report on April 21, 2005, and held an exit conference
     with the Authority’s officials on May 6, 2005. The Authority provided written comments
     on May 18, 2005. The Authority agreed with the audit finding and recommendations.

     The complete text of the auditee’s response, along with our evaluation of that response,
     can be found in appendix C of this report.




                                              3
                            TABLE OF CONTENTS

Background and Objectives                                                            5

Results of Audit
      Finding 1: The Authority Inappropriately Administered $2.8 Million in Section 8 6
                 Project-Based Vouchers

Scope and Methodology                                                                10

Internal Controls                                                                    11

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                 12
   B. Schedule of Section 8 Project-Based Funds Administered                         13
   C. Auditee Comments and OIG’s Evaluation                                          14




                                             4
                     BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Marin (Authority) was established in 1942 under the
provisions of the Housing Act of 1937 to administer federal funds to assist low-income families
in obtaining decent, safe, and sanitary housing. The Authority receives funding from the U.S.
Department of Housing and Urban Development (HUD), the state of California, and local
government entities. HUD provides more than 90 percent of the Authority’s total funding. The
Authority owns and operates three nonfederally funded developments.

The Authority administers its Section 8 program under HUD’s housing choice voucher program.
The housing choice vouchers allow very low-income families to obtain safe, decent, and
affordable privately owned rental housing. The Authority implemented both tenant- and project-
based voucher programs. The main difference between the two programs is that under the
tenant-based voucher program, the family may take the voucher anywhere vouchers are
accepted. Under the project-based voucher program, the voucher is tied to a specific unit for a
specified term. Tenants may not take the voucher with them if they move from the designated
unit.

The Authority’s Section 8 project-based voucher program existed from August 1, 2002, to
July 31, 2004. HUD terminated the program due to noncompliance with HUD rules and
regulations. During this period, the Authority issued 4,437 vouchers totaling more than $2.8
million to owners to provide affordable housing to Section 8 tenants.

The objective of our audit was to address HUD’s concerns over the Authority’s administration of
its Section 8 project-based program. We determined whether the Authority (1) performed rent
reasonableness determinations for its Section 8 tenants and (2) executed housing assistance
payments without HUD-required contracts.




                                               5
                                 RESULTS OF AUDIT

Finding 1: The Authority Inappropriately Administered $2.8 Million in
            Section 8 Project-Based Vouchers
The Authority administered $2.8 million in project-based vouchers without following HUD
requirements. The Authority did not perform rent reasonableness to assure Section 8 tenants’
rents were reasonable in comparison to market-rate rents. In addition, the Authority issued
housing assistance payments to owners using unenforceable memorandums of understanding and
tenant-based voucher contracts instead of the required project-based voucher contracts. These
practices occurred because the Authority did not have policies and procedures in effect to
properly administer the project-based program or safeguard Section 8 resources. As a result, the
Authority jeopardized funds needed to provide Section 8 program recipients with safe, decent,
and affordable housing. Further, the Authority’s practice of using tenant-based voucher
contracts instead of project-based voucher contracts to issue project-based housing assistance
payments may have given the tenants the false impression that they were allowed to use the
vouchers anywhere vouchers are accepted. In addition, the Authority received more than
$318,000 in Section 8 administrative fees while inappropriately administering its Section 8
program.


 Section 8 Tenants Were Not
 Assured Reasonable Rents

       From August 1, 2002, to July 31, 2004, the Authority failed to determine whether rent
       charged to Section 8 tenants was reasonable in comparison to rent charged to unassisted
       tenants before entering into housing assistance payment contracts. Our review of the
       Authority’s procedures showed it did not follow HUD’s requirements in determining rent
       reasonableness for its project-based units, including the use of state-certified appraisers to
       determine the appropriateness of the initial Section 8 unit rents. The Authority
       acknowledged it did not perform rent reasonableness or use a state-certified appraiser.

       The Code of Federal Regulation, 24 CFR 985.256, requires housing authorities to
       determine the initial rent to be reasonable before entering into any housing assistance
       payment contract. The regulation also requires housing authorities to determine whether
       the rent to an owner is reasonable when compared to that of an unassisted unit. The
       regulation states housing authorities must consider the following: 1) location; 2) quality;
       3) size; 4) unit type; 5) age of the contract unit; and 6) any amenities, housing services,
       maintenance, and utilities to be provided by the owner in accordance with the lease.
       Further, housing authorities are required to use a qualified state-certified appraiser with
       no direct ties to the property to determine whether the initial rents are reasonable.




                                                 6
     The Authority did not comply with these requirements. As a result, the Authority
     provided no assurance Section 8 tenants were not paying higher rates than tenants of
     market rate units.


Housing Assistance Payments
Issued without Appropriate
Contracts

     From August 1, 2002, to July 31, 2004, the Authority issued 4,437 project-based
     vouchers totaling more than $2.8 million to owners without entering into the appropriate
     housing assistance payment contracts (see appendix B). During this period, the Authority
     failed to use HUD-required project-based voucher contracts to issue payments to all 14
     owners participating in this program. Instead, it used unenforceable memorandums of
     understanding and inappropriate tenant-based voucher contracts. We attributed the
     Authority’s inappropriate practices to it not having policies and procedures in effect to
     properly administer the project-based program or safeguard Section 8 resources.

     The Code of Federal Regulations, 24 CFR 983.151, requires public housing authorities to
     enter into a housing assistance payment contract, HUD form 52530B, with the owner.
     After the housing assistance payment contract starts, the housing authority must make the
     monthly housing assistance payments in accordance with the executed contract for each
     unit occupied by the family on the lease agreement.

     The Authority did not comply with this requirement. As a result, the Authority exposed
     itself to unnecessary monetary and legal risks. In addition, the Authority’s use of
     memorandums of understanding weakened the owners’ responsibilities in following
     HUD rules and requirements for the Section 8 program.

     The Authority’s memorandums of understanding failed to include a description of the
     contract units, did not specify the number of units by unit size, and did not identify the
     applicable initial rent to the property owner. They also lacked information about the
     services, maintenance, and utilities to be provided by the owner. In addition, the
     memorandums of understanding lacked provisions designed to protect Section 8 tenants
     and the Authority, such as occupancy and payment, rent to owner, and conflict of interest.

     The Authority agreed that it should have executed project-based voucher contracts with
     owners to issue housing assistance payments to participants in the program.

     To supplement the inappropriate memorandums of understanding, the Authority prepared
     contracts with the owners applicable to each tenant. However, the Authority used tenant-
     based housing assistance payment contracts, HUD Form 52641, instead of the
     appropriate project-based housing assistance payment contracts. Therefore, the Authority
     violated Code of Federal Regulations requirements under part 983.151, which required
     the use of the HUD form 52530B to issue project-based housing assistance payments to
     the owners participating in the program. The Authority’s practice of using the wrong

                                             7
     type of voucher would have given Section 8 tenants the impression that they were under
     the tenant-based voucher program, which would allow them to use the vouchers
     anywhere a landlord would accept them.

More Than $318,000 in
Unearned Administrative Fees
Received


     The Authority received fees from HUD that it did not properly earn due to its
     inappropriate administration of the Section 8 program. From August 1, 2002, to July 31,
     2004, the Authority received $318,139 in administrative fees for administering more than
     $2.8 million in project-based vouchers. These fees benefited the Authority while it
     ignored and violated HUD’s requirements regarding the program’s implementation.

     HUD pays public housing authorities an administrative fee for administering housing
     assistance payments under the Section 8 program. These administrative fees are earned
     on a monthly per-unit basis. HUD informs public housing authorities of the appropriate
     rate to use in calculating the administrative fees due for the fiscal year. The rates used to
     calculate the administrative fees are provided by HUD through the Federal Register,
     which is published on an annual basis.

     The Authority received $318,139 in administrative fees applicable to the project-based
     program. However, the duties the Authority must perform to earn the administrative fees
     include ensuring rents are reasonable and appropriate housing assistance payment
     contracts are generated, and as discussed above, the Authority did not perform these
     functions.

                      Total administrative fees received for 2002 to 2004

                        Year1                       Total administrative fees received
                        2002                                     $57,201
                        2003                                   $166,834
                        2004                                     $94,104
                        Total                                  $318,139
        1
            The Authority initiated its Section 8 project-based voucher program in August 2002, and it was
            terminated in July 2004.

     The Code of Federal Regulation, 24 CFR 982.155, allows HUD to recapture the
     Authority’s administrative fees if its Section 8 program is not adequate. If public housing
     authorities do not adequately administer the Section 8 program, HUD may prohibit the
     use of funds and may direct the Authority to use funds in the reserve to improve
     administration of the program or to reimburse ineligible expenses.




                                                     8
     HUD’s recapturing of administrative fees prevents public housing authorities from
     mismanaging the Section 8 program. Further, this practice ensures public housing
     authorities meet the goals of the program to provide tenants with safe, decent and
     affordable housing.

Conclusion


     The Authority executed its Section 8 project-based program without following HUD
     rules and regulations. This occurred because the Authority did not have policies and
     procedures in effect to properly administer the project-based program or safeguard
     Section 8 resources. These actions could have given participating tenants false
     impressions concerning how they were allowed to use these vouchers. The Authority
     unnecessarily jeopardized funds needed to provide Section 8 program recipients
     affordable housing. In addition, the Authority received $318,139 in Section 8
     administrative fees while inappropriately administering its Section 8 program.


Recommendations


     We recommend that the director, Office of Public and Indian Housing, require the
     Authority to

     1A. Develop and implement Section 8 procedures in accordance with HUD regulations.

     1B.     Reimburse HUD $318,139 from its administrative reserves for inappropriately
             administering the Section 8 program.




                                              9
                         SCOPE AND METHODOLOGY


To accomplish our objective, we reviewed

   •   Applicable HUD regulations at 24 CFR (Code of Federal Regulations) Parts 982, 983,
       and 985;

   •   Authority and HUD documents including audited financial statements, housing assistance
       payments files, project files, minutes from board meetings, and HUD correspondence;
       and

   •   Selected owner entities’ rent rolls.

We interviewed appropriate Authority and HUD Office of Public and Indian Housing
management staff.

We performed onsite work at the Authority’s administrative office at 4020 Civic Center Drive,
San Rafael, California, from November 2004 through February 2005. The audit covered the
period of August 1, 2002, through July 31, 2004. We extended our review, when appropriate, to
include other periods.

We performed our review in accordance with generally accepted government auditing standards.




                                              10
                              INTERNAL CONTROLS

Internal controls are 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, or 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 internal controls over the following areas were relevant to our audit
       objectives:

       •   Administration of the project-based Section 8 program in compliance with HUD
           regulations,
       •   Maintaining complete and accurate records for the project-based Section 8 program,
           and
       •   Safeguarding Section 8 program resources.

       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, the following internal control is considered a significant weakness:

       •   The Authority did not have policies and procedures in effect to properly administer
           the project-based program or safeguard Section 8 resources (finding 1).




                                                11
                                   APPENDIXES

Appendix A

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

                         Recommendation number           Ineligible 1/

                                     1B                   $318,139


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.




                                            12
Appendix B

      SCHEDULE OF SECTION 8 PROJECT-BASED VOUCHERS
                     ADMINISTERED


            Month/year                         Section 8 amount                Housing assistance payment
                                                                                    vouchers issued
           August 20021                              $82,509                               147
          September 2002                             $83,086                               148
           October 2002                              $93,681                               164
          November 2002                              $95,393                               167
          December 2002                             $97,782                                169
           January 2003                              $96,842                               167
           February 2003                            $105,015                               176
            March 2003                              $134,156                               200
             April 2003                             $155,069                               243
             May 2003                               $190,132                               264
             June 2003                              $104,593                               167
             July 2003                              $105,617                               169
            August 2003                             $111,154                               174
          September 2003                            $112,113                               175
           October 2003                             $115,240                               177
          November 2003                             $117,939                               181
          December 2003                             $121,238                               183
           January 2004                             $124,525                               196
           February 2004                            $124,710                               195
            March 2004                              $131,654                               198
             April 2004                             $131,147                               196
             May 2004                               $134,199                               200
             June 2004                              $132,949                               198
             July 20042                             $122,204                               183
               Total                               $2,822,947                            4,437
1
    The Authority initiated its project-based Section 8 program on August 1, 2002.
2
    HUD terminated the Authority’s project-based Section 8 program on July 31, 2004.




                                                        13
Appendix C

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments

Comment 1




                         14
15
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed with the audit finding and recommendations.




                                           16