Issue Date August 26, 2005 Audit Report Number 2005-LA-1008 TO: Glenda Giffee, South Team Division Director of the Financial Management Center, PEVFB Cecilia J. Ross, Director, Los Angeles Office of Public and Indian Housing, 9DPH FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA SUBJECT: Inglewood Housing Authority, Inglewood, California, Did Not Comply with the Housing Choice Voucher Program Portability Procedures and Responsibilities HIGHLIGHTS What We Audited and Why We audited Inglewood Housing Authority (Authority) in Inglewood, California, in response to a request for audit from the U.S. Department of Housing and Urban Development’s (HUD) Los Angeles Office of Public and Indian Housing. This is one of four audit reports resulting from our audit of the Authority. Our objective was to determine whether the Authority complied with the Housing Choice Voucher program’s portability procedures and responsibilities contained in HUD’s Housing Choice Voucher Guidebook and Office of Public and Indian Housing notices. What We Found Contrary to the provisions in HUD’s Housing Choice Voucher program requirements, the Authority did not comply with portability procedures and responsibilities. We reviewed the 143 portable tenant files, in which the initial public housing agency, Housing Authority of the City of Los Angeles, refused to pay the housing assistance payments because the Authority did not submit the initial bill within the required timeframe causing the Authority to exceed their budget by $1.9 million. We also found that the Authority did not submit the appropriate documentation to ensure duplicate payments were not made on behalf of the ported tenants. What We Recommend We recommend that HUD’s Financial Management Center not reimburse the Authority’s Section 8 program for the $1,991,283 in excess of its budget authority as was requested in its fiscal year 2004 yearend settlement statement. We also recommend that HUD’s Los Angeles Office of Public and Indian Housing ensures the Authority develops and implements adequate portability procedures to ensure billings and documentation are submitted on time. 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 with a draft report on July 5, 2005, and held an exit conference on July 28, 2005. The Authority provided written comments on August 11, 2005. The Authority disagreed with our report finding. The complete text of the Authority’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 Authority Did Not Comply with Portability Procedures and 5 Responsibilities Scope and Methodology 9 Internal Controls 10 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 11 B. Auditee Comments and OIG’s Evaluation 12 C. Schedule of Tenants Without Billing Records for the First Six Months 26 3 BACKGROUND AND OBJECTIVES The City of Inglewood, located at Inglewood City Hall, One Manchester Boulevard, Inglewood, California, incorporated in 1908. The city administrator is responsible for setting operational goals, implementing legislative action, making policy decisions approved by the mayor and city council, monitoring the annual operating budget, overseeing the personnel system, and providing direction to all city departments to ensure they meet the needs of the community. The Authority is a blended component unit of the Community Development Department. The governing body is comprised of members of the city council and the mayor. Among its duties are the approval of the Authority’s budget and appointment of management. The financial activities of the Authority are reported as a special revenue fund of the city. The housing manager has three levels of oversight: the director of community development, the deputy city administrator/ community development and social services, and the city administrator/executive director of the Authority. The director of community development is the housing manager’s immediate supervisor. The Housing Choice Voucher program was created under the Housing and Urban Rural Recovery Act of 1983 to enable eligible lower income families to obtain modest housing in the private sector that is decent, safe, and sanitary. An eligible family may use a tenant-based voucher to lease a unit anywhere in the United States, leaving the first (initial) public housing agency that issued the voucher for the second (receiving) public housing agency. The receiving public housing agency decides whether it will administer or absorb an incoming portable family based on its leasing rate or utilization rate, the administrative cost of billing, and the location of the public housing agency. The receiving public housing agency must then promptly inform the initial public housing agency of its decision to administer and bill the initial public housing agency for the rental assistance or absorb the family into its own program. The housing assistance payment contract is a written agreement between the public housing agency and the owner of a unit occupied by a Housing Choice Voucher program participant. Under the housing assistance payment contract, the public housing agency agrees to make housing assistance payments to the owner on behalf of a specific family leasing a specific unit. This audit report is one of four audit reports resulting from our audit of the Authority. Our objective was to determine whether the Authority complied with the Housing Choice Voucher program’s portability procedures and responsibilities contained in HUD’s Housing Choice Voucher Guidebook 7420.10G and Notice 2004-12. 4 RESULTS OF AUDIT Finding: The Authority Did Not Comply with Portability Procedures and Responsibilities Contrary to HUD’s Housing Choice Voucher program requirements, the Authority did not comply with portability procedures and responsibilities. We reviewed the 143 portable tenants for whom the initial public housing agency, Housing Authority of the City of Los Angeles, refused to pay the housing assistance payments because the Authority did not submit the initial bill to the Housing Authority of the City of Los Angeles within the six month timeframe. We also found that the Authority did not submit the family portability information form within 10 days to ensure duplicate payments were not made on behalf of tenants. This occurred because the Authority did not establish or implement procedures to ensure compliance with the portability procedures in the Housing Choice Voucher Guidebook. As a result, the Authority had to unnecessarily absorb the 143 portable tenants and incurred excess costs of $1,991,283 in housing assistance payments that exceeded the maximum allowed for fiscal year 2004. Ultimately, these families are at risk of losing their housing assistance. The Authority Did Not Submit the Initial Bill within Six Months of the Voucher Issuance Date nor Keep Records of the Initial Billings The Housing Authority of the City of Los Angeles refused to pay the housing assistance payments for 143 portable tenants because the Authority did not bill the Housing Authority of the City of Los Angeles within 180 days of the voucher issuance dates, as required by the Housing Choice Voucher Guidebook. We found that for 140 of the 143 portable tenants, the Authority billed the Housing Authority of the City of Los Angeles between 2 and 412 days late. We also determined that for 28 of the 143 absorbed tenants the Authority did not keep adequate records of the initial billings to the Housing Authority of the City of Los Angeles. Therefore, the Authority had no record of whether it actually billed the Housing Authority of the City of Los Angeles, and if it did, the date of the billing. We had to rely on records kept by the Housing Authority of the City of Los Angeles to conclude that 25 of the Authority’s initial billings were late (see appendix C). For the remaining three tenants, the Authority was unable to refute claims by the Housing Authority of the City of Los Angeles that the billings were 5 late. Consequently, the Authority had no alternative but to absorb these 28 portable tenants. These 143 tenants had to be absorbed by the Authority because it does not have procedures in place to ensure that each incoming portable tenant is processed in a timely manner. We found that it took an average of 67 days for the Housing Authority of the City of Los Angeles to port the tentants to the Authority. That left 113 days for the Authority to bill the Housing Authority of the City of Los Angeles. The Authority has several steps to do within that 113 days including issuing a voucher, approving tenancy, executing a housing assistance payments contract, and submit the bill to the initial public housing agency. The Authority must approve the assisted tenancy by ensuring that the • owner is eligible, • unit is eligible, • unit has been inspected and meets housing quality standards, • lease includes a tenancy addendum, and • rent charged to the owner is reasonable. Upon completion of these items, the owner and the Authority can execute a housing assistance payment contract. The Authority Did Not Submit Part II of Form HUD-52665 within 10 Days of the Contract Execution Date Our review also disclosed that for 142 of the 143 portable tenants, the Authority did not submit part II of the family portability information form (HUD-52665) within 10 days of the execution of the housing assistance payment contracts to the Housing Authority of the City of Los Angeles as required in the Housing Choice Voucher Guidebook and ranged from 20 to 481 days late. While the families are searching for units in the Authority’s jurisdiction they are still under housing assistance payment contracts at the Housing Authority of the City of Los Angeles. Therefore, it is important that the Authority submits the form within 10 days to assure that the current housing assistance payment contract is terminated at the right time. This eliminates the potential risk that HUD could pay housing assistance payments for the same family at both public housing agencies. We were unable to determine whether any duplicate payments were made for these tenants, however the possibility exists. The problem occurred because the Authority did not establish or implement portability procedures to ensure they complied with the portability procedures in the Housing Choice Voucher Guidebook. 6 The Authority Spent $1.9 Million In Housing Assistance Payments In Excess of the Maximum Amount Allowed As a result of the Authority’s failure to bill the Housing Authority of the City of Los Angeles in a timely manner, the Authority had to absorb the 143 tenants and cover the cost of the housing assistance payments for these tenants. The Authority already reported to HUD it was fully utilizing all 1,002 units of their baseline allocation, the maximum number of vouchers the Authority is allowed to issue. When the Authority absorbed the portable tenants, it exceeded the baseline allocation and became overleased. The Authority submitted its voucher for payment of annual contributions and operating statements, also known as their year end settlement statement, to HUD’s Financial Management Center for submission and approval of the actual amount the Authority spent on housing assistance payments for each fiscal year. We reviewed the Authority’s fiscal year 2004 year end settlement statement and determined that it is requesting reimbursement from HUD for $8,868,765 in housing assistance payments versus $6,877,482, the maximum amount allowed for the Authority to spend on housing assistance payments. Therefore, the Authority spent $1,991,283 in additional housing assistance payments and in excess of its budget authority by not following HUD’s portability procedures and should not be reimbursed for the overpayment it caused Families Are At Risk of Losing Their Housing Assistance The Authority’s failure to assure compliance with the portability requirements caused the Authority to become over leased, and ultimately the families being assisted above the Authority’s baseline allocation as at risk of losing their housing assistance. The Authority has developed an attrition list1 and plan to cancel the housing assistance payment contracts for the 143 portable tenants by the end of fiscal year 2005. 1 During our review we identified inaccuracies with the attrition list and found at least three tenants in which the housing assistance payment contract may not need to be cancelled because the Housing Authority of the City of Los Angeles has agreed to pay the housing assistance payments (two tenants) or the tenant is no longer a program participant (one tenant). The details were communicated to the Authority under separate cover. 7 Recommendations We recommend that the south team division director of the Financial Management Center 1A. Deny reimbursement to the Authority’s Section 8 program for the payment in excess of its budget authority of $1,991,283 that was requested in the fiscal year 2004 year-end settlement statement. We recommend that the director of the Los Angeles Office of Public and Indian Housing 1B. Ensure the Authority develops and implements adequate portability procedures to ensure billings and documentation are submitted on time. 8 SCOPE AND METHODOLOGY We performed the audit work from September 2004 through March 2005. The audit covered the portable tenants during the audit period of October 1, 2001, through September 30, 2003. We expanded the scope when necessary. We reviewed applicable guidance and discussed operations with management and staff personnel at the Authority and other responsible City of Inglewood officials. To determine whether the Authority was billing public housing agencies before the six-month billing deadline and whether the Authority is following HUD’s current portability procedures, we • Reviewed applicable HUD regulations at 24 CFR [Code of Federal Regulations] Part 982, Housing Choice Voucher Guidebook 7420.10G, and HUD’s Public and Indian Housing Notice 2004-12. • Selected a sample of 143 portable tenants (100 percent) that the Housing Authority of the City of Los Angeles rejected for payment and reviewed the corresponding tenant files. • Obtained additional supporting documentation from the Housing Authority of the City of Los Angeles related to the portable tenants. • Verified the Authority’s attrition list and the schedule of rejected Authority/rejected Housing Authority of the City of Los Angeles ports to absorb to the portable tenants from the Housing Authority of the City of Los Angeles report to determine whether there were portable tenants in addition to the 143 tenants included on the Authority’s list. • Tested a nonstatistical sample of five tenants, using the lease date/execution of the housing assistance payment contract obtained from the Authority’s HAPPY system, with the Multifamily Tenant Characteristic System port-in dates for tenants that ported from the Housing Authority of the City of Los Angeles to the Authority after July 19, 2004, to determine whether the Authority was following HUD’s current portability procedures. We performed our audit in accordance with generally accepted government auditing standards and included tests of management controls that we considered necessary under the circumstances. 9 INTERNAL CONTROLS Internal controls are an integral component of an organization’s management that provide 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 to ensure the Authority performs portability billing procedures in accordance with HUD regulations, • Policies and procedures to ensure the Authority is safeguarding Section 8 program resources, and • Policies and procedures to ensure the Authority has complete and accurate billing records for the tenant-based Section 8 program in accordance with HUD regulations. 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 did not establish or implement procedures to ensure that the timeframes were met for billing and submitting required forms (finding 1). 10 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/ 1A $1,991,283 1/ “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, de-obligation of funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not made, and other savings. 11 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 12 Comment 2 Comment 3 13 14 Comment 4 Comment 3 15 Comment 5 16 17 Comment 6 18 Comment 7 19 20 21 22 OIG Evaluation of Auditee Comments Comment 1 Contrary to the Authority’s claim, the billing deadline is not in direct conflict with Chapter 13.5, page 13-7. This section of the Guidebook is referring to issuing extensions to allow families more time to search for housing, not the billing that must occur within 180 days of the voucher issuance date. While we acknowledge that the Guidebook does not address the issue of an extension that exceeds the 180-day billing requirement, this was not an issue in this situation. The Authority had sufficient time to bill for the 143 portable tenants we reviewed, but did not do so. Further, as clarified in section 6 of Notice PIH 2004-12, “if the receiving public housing agency provides the family with search time beyond the expiration date of the initial public housing agency’s voucher, it must inform the initial public housing agency of the extension and should bear in mind the billing deadline provided by the initial public housing agency. Unless willing and able to absorb the family, the receiving public housing agency should ensure that any voucher expiration date would leave sufficient time to process a Request for Lease Approval, execute a housing assistance payment contract, and cover the anticipated delivery time so that it will be received by the initial public housing agency by the deadline date.” Comment 2 We agree that the Housing Authority of the City of Los Angeles ported families to the Authority after the 180-day billing deadline expired; however, the Housing Authority of the City of Los Angeles has been paying the housing assistance payments for these tenants, and these were not included in our finding. The scope of our finding only included the 143 portable tenants that the Housing Authority of the City of Los Angeles refused to pay the Authority because there was sufficient time to bill within the 180-day requirement, and either the bill was late or the billings were not recorded and maintained. 23 Comment 3 The Authority was not forced to absorb the portable families as claimed; the lack of adequate procedures caused the Authority to absorb the portable families. Had the Authority established and implemented adequate procedures to ensure compliance with the portability procedures in the Housing Choice Voucher Guidebook, the Authority would have billed within 180 days as required, and then the Housing Authority of the City of Los Angeles would have been obligated to pay the housing assistance payments and administrative costs on these tenants. HUD did not instruct the Authority to terminate families from the program. HUD instructed the Authority to ascertain the appropriate means and methods for assuring budget funds were sufficient to absorb the number of families renting. The Authority decided to rely solely on termination of families as a means of balancing the budgeted funds with the number of families being assisted through the section 8 voucher program. Notice PIH 2004-12 does not apply to the circumstances in our finding because the vouchers for the 143 portable tenants were issued during 2002 and 2003, before the July 19, 2004 issuance of the Notice. Nevertheless, we wanted to point out that the Authority’s citation in its response is incomplete and misconstrued the requirements. While the Authority correctly stated that the receiving public housing agency may absorb the family into its own program, the Authority left out the provision in the Notice that this may only be done if such a decision will not result in overleasing. Further, the Authority cited that HUD may in certain instances require the initial public housing agency to honor a billing submission that is received after the deadline. However, the Authority left out the next part of the requirement that stated that HUD may take action to address the receiving public housing agency’s failure to submit the notification timely, which may include reducing the public housing agency’s administrative fee and subsequently transferring units from the receiving public housing agency to the initial public housing agency. We also noted the Authority failed to include important provisions in Notice PIH 2004-7. The Notice also stated that federal fiscal year (FFY) 2004 appropriations do not permit the public housing agencies to over lease or continue the practice of maximized leasing. “Any costs for over leasing will be disallowed from federal fiscal years 2003 and 2004 funds on the year-end settlement. HUD has no authority to provide funds to 24 support units leased in excess of the public housing agency’s baseline and will not do so.” The federal fiscal year 2004 Appropriation Act provides very direct language concerning the use of funds. HUD is directed to ensure prudent management and is authorized to take administrative actions, including sanctions, against public housing agencies that over-lease in a manner that displays a negligent or intentional disregard for the leasing limitations set by Congress. The Authority faulted the Housing Authority of the City of Los Angeles’ Comment 4 poor recordkeeping for the billing problems. If that is the case, then that only strengthens our position that it is incumbent upon the Authority to establish and maintain a billing system that included maintaining documentation evidencing when the bills were submitted. Had the Authority done so, it would not have been required to unnecessarily absorb the 143 tenants. We disagree with the Authority’s statement that untimely billing cannot result in HUD making housing assistance payments for the same family at both public housing agencies. If the tenant has an existing contract with the initial public housing agency, the initial public housing agency must remove the tenant from their system, thereby stopping the housing assistance payments before the payments start at the receiving public housing agency. The section 8 voucher is a document allowing the family to go anywhere Comment 5 in the United States and rent a unit. By not issuing a revised voucher, the family did not have a valid voucher and cannot use the voucher to locate housing in another location. Consequently, the Authority inappropriately constrained the families’ mobility by not issuing the new voucher as required by the section 8 voucher program. Nevertheless, we agreed that in the Authority’s situation issuing another voucher may have been redundant since the families may have already located section 8 units in Inglewood. Therefore, we removed this section from our report. We did not take issue with the attrition list or the need to terminate housing assistance payment contracts to correct the overleased situation. Comment 6 Had the Authority implemented adequate billing procedures it could have avoided becoming overleased. We disagree with the Authority’s request that HUD should approve the reimbursement of funds. In our opinion, it is not appropriate that HUD Comment 7 violate Notice PIH 2004-7’s prohibition against paying for overleasing costs (see Comment 3) simply because the Authority chose to disregard the Housing Choice Voucher Guidebook requirements to comply with portability procedures. 25 Appendix C SCHEDULE OF TENANTS WITHOUT BILLING RECORDS FOR THE FIRST SIX MONTHS 1 2 3 4 5 Tenant Issue Billing Billing date Number of identification date2 due date (based on Housing days late number Authority of the City of Los Angeles’ spreadsheet) 1 1V2572 1/3/03 7/2/03 9/10/03 70 2 1V2772 3/25/03 9/25/03 3/4/04 161 3 1V2615 3/4/03 8/31/03 10/3/03 33 4 1V2573 12/12/02 6/12/03 4/29/04 322 5 1V2503 3/6/03 9/2/03 9/29/03 27 6 1V2473 3/7/03 9/7/03 9/29/03 22 7 1V2492 2/19/03 8/18/03 9/29/03 42 8 1V2577 2/20/03 8/19/03 9/10/03 22 9 6V6580 11/13/02 5/12/03 8/23/03 103 10 2V2550 3/11/03 9/11/03 9/29/03 18 11 2V2513 3/25/03 9/25/03 10/3/03 8 12 2V2543 3/6/03 9/6/03 9/15/03 9 13 1V2616 3/31/03 9/30/03 10/3/03 3 14 1V2449 1/30/03 7/29/03 9/21/03 54 15 2V2709 3/6/03 9/2/03 2/19/04 170 16 2V2486 10/25/02 4/23/03 9/2/03 132 17 2V2421 1/10/03 7/9/03 9/29/03 82 18 2V2246 8/14/02 2/10/03 11/5/03 268 19 1V2467 3/14/03 9/14/03 9/29/03 15 22 2V2622 2/25/03 8/25/03 10/9/03 45 21 1V2897 7/18/03 1/13/04 4/2/04 80 22 1V2613 1/23/03 7/22/03 10/3/03 73 23 2V2562 3/28/03 9/26/03 10/9/03 13 24 2V2832 8/19/03 2/15/04 2/19/04 4 25 ABS007 12/11/02 6/11/03 7/24/03 43 2 On dates in the appendix of this report, we numerically formatted them in the sequence month, day and year instead of spelling it out. For example, the date March 12, 2003 was formatted as 3/12/03. 26
Inglewood Housing Authority, Inglewood, California, Did Not Comply with the Housing Choice Voucher Program Portability Procedures and Responsibilities
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-08-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)