oversight

Corrective Action Verification Review of the Housing Authority of Baltimore City, Baltimore, MD, Section 8 Certificate and Voucher Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-12-04.

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

                                                                             Issue Date
                                                                                  December 21, 2004
                                                                             Audit Report Number
                                                                                  2005-PH-1004




TO:            William D. Tamburrino, Director, Office of Public Housing, Baltimore HUB,
                3BPH



FROM:          Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic Region,
                3AGA

SUBJECT: Corrective Action Verification Review of the Housing Authority of Baltimore
         City, Baltimore, MD, Section 8 Certificate and Voucher Programs,1 Audit
         Report Number 2001-PH-1003


                                           HIGHLIGHTS

    What We Audited and Why

                 In accordance with HUD Handbook 2000-06, REV- 3, we performed a Corrective
                 Action Verification review of the actions the Housing Authority of Baltimore City
                 (Authority) had taken to implement key recommendations2 cited in Audit Report
                 2001-PH-1003, issued March 28, 2001. The U.S. Department of Housing and
                 Urban Development (HUD) Handbook places the responsibility on HUD’s Office
                 of Inspector General (OIG) to perform selected corrective action verifications of
                 significant audit recommendations when final actions are completed. The original
                 audit report contained 11 recommendations, 5 of which we determined were
                 significant for our review. As of September 22, 2003, final actions on all of our
                 prior recommendations were determined by HUD to be fully implemented.


1
  Effective October 1, 2001, the Section 8 Certificate and Voucher Program was changed to the Housing Choice
Voucher Program.
2
  The recommendations reviewed during our audit were 1A, 1D, 2A, 3C, and 4A.
                   Our overall objective was to determine whether the Authority implemented our
                   key audit recommendations and corrected the deficiencies we identified in our
                   previous audit report. Based on the Authority’s progress in implementing these
                   recommendations, we also determined whether it is appropriate to reopen
                   recommendation 1A. In this recommendation, we recommended that HUD take
                   appropriate administrative actions against the Authority for not performing
                   according to the terms of its Consolidated Annual Contributions Contract.

    What We Found


                   The Authority had not yet fully implemented all key OIG recommendations. This
                   in part resulted because the severity of the problems in the Section 8 Program
                   required more time to correct than the Authority had originally anticipated. The
                   Authority was not able to make significant progress until early 2003, after it
                   implemented its Section 8 management information system. This was more than
                   2 years from the date we issued our report. However, once the Authority was able
                   to get its management information system operational, it satisfactorily completed
                   a number of key recommendations3 and substantially improved its program
                   administration. These recommendations included developing and implementing a
                   new management information system; maintaining an accurate up-to-date
                   Housing Assistance Program register; increasing the level of supervision to
                   provide better quality control oversight; and maintaining Section 8 rosters,
                   employee training records, and staff assignments. We no longer believe
                   administrative sanctions need to be imposed on the Authority.

                   However, the delays the Authority experienced in implementing its management
                   information system adversely affected its ability to fully implement the other key
                   recommendations.4 We found the Authority had not yet fully developed and
                   implemented all the financial system controls necessary to ensure its books and
                   records were maintained in accordance with HUD requirements, adequate
                   procedures to improve its administration of its Section 8 Program, and procedures
                   to fully budget and use its available Section 8 resources. Although HUD had
                   closed these recommendations, we found the Authority was still developing and
                   implementing appropriate processes to address and resolve these remaining
                   issues.

                   Because of the Authority’s delay in fully implementing our recommendations, it
                   was not able to effectively and efficiently manage its Section 8 Program to ensure
                   it fully used its available Section 8 funding from HUD from 2001 through 2004.
                   For example, for the 3-year period beginning in fiscal year 2001 and ending in
                   fiscal year 2003, the Authority’s average annual budget utilization rate was only
                   at the 80 percent level. Further, in fiscal year 2002, HUD recaptured $42 million
3
    Recommendations 2A, parts 1, 3, and 4, and 4A have been fully implemented.
4
    Recommendations 1D; 2A, parts 2, 5, and 6; and 3C have not been fully implemented.

                                                         2
                   of unused Section 8 funds, and since then, another $38 million of unused Section
                   8 funds has accrued in the Authority’s program reserve account. At the same
                   time, the Authority had more than 15,000 individuals on its Section 8 waiting list.
                   HUD expects a housing authority to use at least 95 percent of its available
                   funding. We also found the Authority incurred $70,430 of ineligible costs.

    What We Recommend


                   Based on the cited deficiencies, we will reopen the recommendations5 that
                   required corrections in the areas of financial system controls, administration of the
                   Section 8 Program, and budget administration of its Section 8 resources. We also
                   recommend that HUD immediately recapture $25.1 million of the $38 million in
                   the Authority’s reserve account and require the Authority to repay or reimburse
                   the program for the $70,430 of ineligible expenses we identified from our audit.
                   Further, if the Authority fully implements the recommendations, we estimate it
                   could put more than $5.5 million to better use each year by providing eligible
                   families with housing opportunities.

                   Also, based on the progress that the Authority has made since April 2003, we
                   concur that it was appropriate to close out recommendation 1A and not impose
                   administrative sanctions on the Authority. However, to ensure the Authority
                   continues to make progress in improving the administration of its Section 8
                   Program by implementing the remaining recommendations, we recommend that
                   HUD routinely monitor the Authority’s program operations.

                   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
                   review.

    Auditee’s Response


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




5
    We are recommending that recommendations 1D; 2A, parts 2, 5, and 6; and 3C be reopened.

                                                        3
                            TABLE OF CONTENTS

Background and Objectives                                                               5

Results of Audit
      Finding 1: Delays in Fully Implementing the Recommendations Impaired the          7
      Authority’s Ability to Effectively and Efficiently Manage Its Section 8 Program

         - The Authority Has Not Yet Fully Implemented All the Financial Controls       7
           and Procedures Needed To Ensure It Accurately Accounts for Its Section 8
           Funding
         - The Authority Needs To Further Develop Procedures To Improve Its             11
           Operation of the Section 8 Program
         - Weaknesses in the Authority’s Program Administration Continue To             14
           Impact Its Ability To Assist Eligible Families

Scope and Methodology                                                                   19

Internal Controls                                                                       21

Follow up on Prior Audits                                                               23

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use                    24
   B. Auditee Comments and OIG’s Evaluation                                             25




                                              4
                     BACKGROUND AND OBJECTIVES

On March 28, 2001, we issued Audit Report 2001-PH-1003 as a result of our audit of the
Housing Authority of Baltimore City’s (Authority) Section 8 Program. Our audit noted four
significant findings in the areas of financial management, program operations, use of program
resources, and management information system. Because of the serious nature of the four
findings, we recommended that HUD take appropriate administrative actions against the
Authority as prescribed in section 15 of the Annual Contribution Contract. We also made
additional recommendations designed to improve management controls and correct deficiencies
in the four areas of financial management, program operations, use of program resources, and
management information system. These recommendations are as follows:

   •   Recommendation 1A - Take appropriate administrative actions as detailed in section 15
       of the Annual Contributions Contract for the Section 8 Rental Certificate and Rental
       Voucher Program.

   •   Recommendation 1D - Implement financial system controls and procedures to ensure
       books and records are maintained according to HUD requirements and year-end reports
       are complete and accurate. At a minimum, these procedures should provide for (1)
       reconciliation of monthly housing assistance payments to owners and tenants to a master
       housing assistance register, (2) accurate calculation of administrative fee revenue, and (3)
       supervision to ensure quality control oversight.

   •   Recommendation 2A - Ensure the Authority develops and implements procedures to
       improve its operation of the Section 8 Program. The Authority needs to

       (1) Maintain a complete and accurate updated housing assistance payments register and
           ensure this critical information is entered into HUD’s Multifamily Tenants
           Characteristics System.

       (2) Maintain tenant files for every unit in its Section 8 Program. A tenant file
           maintenance system should be developed, and files should be controlled to ensure
           they are not lost or misplaced. Additionally, files should provide supporting
           documentation that clearly documents that tenants were recertified according to HUD
           requirements.

       (3) Maintain Section 8 rosters and staff assignments. This critical information should
           facilitate management oversight of the Section 8 Program.

       (4) Maintain employee training records and ensure staff is adequately trained in program
           requirements and the operation of its management information system when
           implemented.



                                                5
       (5) Ensure housing quality standards inspections are performed according to HUD
           requirements and units failing inspections are reinspected to ensure cited deficiencies
           have been corrected.

       (6) Administer its waiting list according to HUD requirements and ensure it bills for
           Section 8 portable units appropriately and in a timely manner. Additionally, the
           Authority should follow up and collect disputed receivables as appropriate.

   •   Recommendation 3C - Ensure the Authority implements procedures to fully budget
       Section 8 resources provided by HUD and assists as many families as possible. These
       procedures should provide for a thorough analysis of the cost of its units under lease and
       the need to issue additional vouchers to compensate for anticipated turnover.

   •   Recommendation 4A - Closely monitor the Authority’s implementation of its
       management information system to ensure the Authority (1) meets revised timelines for
       system implementation and (2) begins to reconstruct program data to ensure complete
       and accurate data entry. If the Authority is unable to meet its revised goals and
       demonstrate tangible progress toward the implementation of a functional management
       information system, take appropriate administrative action.

As of September 22, 2003, final actions for all the recommendations cited in our report were
determined by HUD to be fully implemented. Once final action has been completed, HUD
Handbook 2000-06, REV- 3, places the responsibility on HUD-OIG to perform selected
corrective action verifications of significant audit recommendations to determine whether the
corrective actions are completed and satisfactorily implemented. Based on this requirement, we
selected the recommendations noted above for review.

Our overall objective was to determine whether the Authority implemented the audit
recommendations and corrected the deficiencies we identified in our previous audit report.
Based on the Authority’s progress in implementing these recommendations, we also determined
whether HUD should reopen recommendation 1A. In this recommendation, we recommended
that HUD take appropriate administrative actions against the Authority for not performing
according to the terms of its Consolidated Annual Contributions Contract with HUD.




                                                 6
                                 RESULTS OF AUDIT

Finding 1: Delays in Fully Implementing the Recommendations
Impaired the Authority’s Ability to Effectively and Efficiently Manage
Its Section 8 Program
Due to the poor condition of the Section 8 Program, it took the Authority longer than it had
anticipated to implement the OIG audit recommendations. In fact, the Authority did not make
significant progress in implementing our recommendations until early 2003, after it implemented
its Section 8 management information system. This was more than 2 years from the date we
issued our report. Once the Authority was able to get its management information system
operational, it was able to satisfactorily complete a number of key recommendations and
substantially improve its program administration. Therefore, we no longer believe
administrative sanctions need to be imposed on the Authority.

However, the delays adversely affected the Authority’s ability to implement the other
recommendations. We found the Authority had not yet developed and implemented adequate
financial controls to ensure its books and records were maintained in accordance with HUD
requirements; adequate procedures to effectively administer its Section 8 tenant recertifications,
housing quality standards inspections, and waiting list; and fully budgeted its Section 8
resources. Although HUD had closed these recommendations, we found the Authority was still
developing and implementing appropriate processes to address and resolve these remaining
issues.

Because of the delays in fully implementing the recommendations, the Authority was not able to
effectively and efficiently manage its Section 8 Program to ensure it fully used its available
Section 8 funding from HUD from 2001 through 2004. For example, for the 3-year period
beginning in fiscal year 2001 and ending in fiscal year 2003, the Authority’s average annual
budget utilization rate was only at the 80 percent level. Further, in fiscal year 2002, HUD
recaptured $42 million of unused Section 8 funds, and since then, another $38 million of unused
Section 8 funds has accrued in the Authority’s program reserve account. At the same time, the
Authority had more than 15,000 individuals on its Section 8 waiting list. HUD expects a housing
authority to use at least 95 percent of its available funding. We also found the Authority incurred
$70,430 of ineligible costs.



The Authority Has Not Yet Fully Implemented All the Financial Controls and
   Procedures Needed To Ensure It Accurately Accounts for Its Section 8
                                 Funding



                                                 7
In our prior audit, we identified fundamental weaknesses in the Authority’s overall financial
management of its Section 8 Program6. These included weaknesses in gathering, recording, and
reporting accurate data to HUD; disbursing housing assistance payments to owners accurately
and in a timely manner; and accounting for program receipts and disbursements. To correct
these deficiencies, we recommended the Authority implement a financial system of controls and
procedures to ensure the books and records are maintained according to HUD requirements and
year-end reports submitted to HUD are complete and accurate.

Although we noted the Authority made progress in developing and implementing procedures for
better managing financial aspects of its Section 8 Program, we identified several deficiencies that
still need to be corrected. Administrative revenue is not being calculated correctly because of
inaccurate unit counts, and proper support documentation is not being maintained to ensure year-
end reports submitted to HUD are accurate. In addition, the Authority made a number of
payments that were contrary to HUD requirements and the Authority’s own policy. As a result,
the Authority incurred $70,430 in ineligible expenses. The majority of these deficiencies
occurred because the Authority failed to fully address the prior financial management system
issues discussed in our 2001 report.

    Administrative Revenue Was
    Not Calculated Correctly

                  During our review, we noted the Authority had developed and implemented
                  procedures for calculating administrative revenues. However, it lacks procedures
                  to ensure that the administrative revenue is adjusted when a tenant moves out of
                  the program.

                  In reviewing the March 1, 2004, housing assistance payment register, we selected
                  the 15 largest deductions made to owners, totaling $55,258, to determine whether
                  the Authority has implemented procedures for adjusting subsidy payments and
                  unit count for tenants once they move out. Our review showed that the Authority
                  appropriately made deductions to recapture the rent overpayments to owners once
                  it was notified that the tenants had moved out. However, the Authority did not
                  make adjustments for the total unit count in proportion to the number of months
                  the owner was overpaid due to the tenants moving out. Thus, the administration
                  revenue received from HUD for the management of these units was inaccurate.
                  For 13 of the 15 deductions reviewed, we found these deductions were made
                  anywhere from 4 to 23 months after the tenant moved out. Overall, we estimate
                  for these 13 payments, the Authority received $5,630 in excess administrative
                  revenue.




6
    Recommendation 1D from Audit Report 2001-PH-1003

                                                       8
Adequate Documentation Did
Not Always Support Housing
Payments to Owners

           During our review of the March 1, 2004, housing assistant payment adjustments
           and deductions, we noted the Authority did not maintain documentation
           supporting the calculation of the adjustments and deductions made to the owner as
           required by HUD. Section 14(a) of the Annual Contributions Contract requires a
           housing authority to maintain complete and accurate books of accounts and
           records for its program in accordance with HUD requirements to permit a speedy
           audit. However, Authority officials stated that they do not keep copies of the
           adjustments and deductions worksheet. Instead, the new management
           information system has a built-in calculation worksheet to complete the month-
           end closing process. However, after the month-end closing procedures are
           completed, the prior month calculation worksheet is replaced by a current month
           worksheet. The only record available as a backup is the housing assistance
           payment and utility allowance payment adjustment file. As a result, we were not
           able to verify which housing assistance payment schedule or adjustment rate was
           used in calculating the adjustments and deductions. The Authority needs to
           maintain a copy of the adjustment and deduction worksheet and keep it in the
           tenant files to support its calculation.


Payments Made Contrary to
HUD Requirements and
Authority Policy

           Our review showed the Authority made a number of payments contrary to HUD
           requirements and its own policy. We found the Authority did not make prompt
           housing assistance payments to owners as required, retroactively paid owners for
           the period of time the rent was abated due to housing quality standards violations,
           retroactively paid owners while tenants were terminated, and overpaid owners
           after the tenants moved out.

           The Authority Did Not Make Prompt Housing Assistance Payments to
           Owners When Due

           In our prior review, we noted the Authority did not make timely housing
           assistance payments to the owners. During our current review, we noted that this
           condition still exists. We reviewed the 25 largest housing assistance payment
           adjustments the Authority made to owners during March 1, 2004, totaling
           $111,881, to determine if the Authority made timely and accurate housing
           assistance payments to owners when due. Of the 25 adjustments reviewed, we
           found 10 (40 percent) totaling $38,108 were one-time retroactive adjustments for

                                            9
housing assistance payments to owners. These payments were made as late as 4
to 31 months after they were due. By making these untimely payments, the
Authority continues to violate HUD requirements.

The Authority Retroactively Paid Owners for the Abated Period and While
Tenants Were Terminated

During our review of the adjustments made to the March 1, 2004, housing
assistance payment register, we found the Authority was retroactively paying
owners for the period rent should have been abated. We reviewed 25 adjustments
totaling $111,881. We found nine adjustments (36 percent) totaling $42,657 were
retroactively paid to owners for the period when a unit did not comply with
housing quality standards. The Authority’s policy calls for owners to not receive
payment when the units they own do not meet housing quality standards. The
policy prohibits retroactive payments to owners for the period even after the unit
is brought up to meet housing quality standards.

We also noted five adjustments (20 percent) totaling $22,143 were retroactively
paid to owners for the period the tenant was terminated from the program to the
time the tenant was subsequently reinstated. These payments are against the
housing assistance payment contract, which only allows housing assistance
payments to the owner while the tenant is residing in a contracted unit. Since
these adjustments appear to be violations of the Authority’s policy and/or the
housing assistance payment contract, we question the entire $64,800 as ineligible.

The Authority Overpaid Owners After the Tenants Moved Out

As in our previous audit, we found the Authority overpaid a number of owners for
tenants that had moved out of their units. We reviewed the 15 largest deductions
the Authority made on the March 1, 2004, housing assistance payment register
that totaled $55,258. We found 13 (87 percent) totaling $43,745 were for a one-
time deduction made to recapture an overpayment made to the owners. This
recapture took place anywhere from 4 to 23 months after the tenant moved out.

The overpayment to owners occurred in part because the Authority was not
performing timely recertification of tenants and conducting unit inspections when
due. If these two actions had been completed in a timely manner, the Authority
likely would have identified the problem much sooner and prevented making the
overpayments. We discuss our concerns with the recertification and inspection
processes in greater detail below.




                                10
         The Authority Needs To Further Develop Procedures To Improve Its
                        Operation of the Section 8 Program
The Authority failed to satisfactorily implement parts of the recommendation covering the
operation of the Section 8 Program7. We found the Authority did not (1) maintain complete
documentation for every tenant that clearly supports tenants were recertified, (2) ensure units
administered under the program were inspected for housing quality standards in a timely manner,
and (3) administer its waiting list in compliance with HUD requirements. However, the
Authority did satisfactorily complete and implement parts of the recommendation. We found the
Authority is now maintaining (1) a housing assistance payment register and has a Multifamily
Tenants Characteristics System reporting rate of 92 percent, which exceeds the minimum 85
percent required by HUD; (2) Section 8 rosters and assignment reports designed to facilitate
management oversight of the Section 8 Program; and (3) employee training records supporting
staff training in program requirements and the operations of its new management information
system. The Authority also adopted a policy of absorbing port-in tenants, which eliminates the
process of billing, following up, and setting up account receivables for the originating authority.

    Documentation Supporting
    Tenant Recertifications Was
    Not Maintained

                   In our prior audit, we recommended the Authority develop and implement
                   procedures to ensure it maintained tenant files for every unit in its Section 8
                   Program. At a minimum, the files should provide supporting documentation that
                   clearly documents tenants were recertified according to HUD requirements. HUD
                   requires that at least on an annual basis, the Authority conduct a reexamination of
                   family income and composition, and document in the tenant file third-party
                   verification of the reported family annual income. However, we found the
                   Authority did not satisfactorily complete and implement this recommendation.

                   We randomly selected 119 tenants from the March 1, 2004, housing assistance
                   payment register and reviewed the tenant files to determine whether there was a
                   tenant file for every unit and the files contained proper documentation to show
                   that the tenants were properly recertified. Although the Authority is now
                   maintaining files for almost every tenant assisted under the Section 8 Program, we
                   found the files did not contain adequate documentation to support the annual
                   recertification was completed. The Authority was able to provide us tenant files
                   for 118 of the 119 we selected for review. However, for these 118 files, 13 files
                   (11 percent) did not contain current tenant recertifications, and 69 files (58
                   percent) did not have initial income or background verifications. As a result, for
                   the 69 files reviewed, the Authority cannot provide assurance that tenants


7
    Recommendation 2A, parts 2, 5, and 6 from Audit Report 2001-PH-1003

                                                      11
          currently assisted under the program continued to be eligible for assistance under
          the Section 8 Program.

          At our exit conference in November 2004, the Acting Program Director stated it
          was the Authority’s policy to archive the income and background information
          after a tenant had been in the program for more than 3 years. However, during the
          audit, the Authority’s staff never informed us of this procedure. Further, since we
          provided the Authority our sample in March 2004, it had more than 8 months to
          obtain the requested information.


HQS Inspections Were Not
Performed According to HUD
Requirements


          In our prior audit, we recommended that the Authority develop and implement
          procedures to ensure housing quality standards inspections are properly
          performed. In addition, for units failing housing quality standards inspections, the
          Authority should ensure they are reinspected to verify cited deficiencies have
          been corrected. HUD requires authorities to inspect each unit before the initial
          term of the lease, at least annually during the assisted occupancy, and at other
          times as needed to determine whether the unit meets the housing quality
          standards. However, we found the Authority did not satisfactorily complete and
          implement this recommendation.

          We randomly selected 119 tenants and reviewed initial and annual inspection
          reports for their units to determine whether the Authority ensured the units were
          inspected to meet housing quality standards. Of the 119 selected, we found 6
          units (5 percent) did not have an initial housing quality standards inspection
          completed. Also, we found 53 units (45 percent) had housing quality standards
          inspections performed annually; 24 units (20 percent) had current inspections;
          however, the inspections were not performed annually; and 42 units (35 percent)
          either had overdue inspections or had failed inspections without a proper current
          reinspection. During our review, the Authority updated its inspections for 27 of
          the 42 units with overdue or failed annual inspections. However, we question the
          timeliness of the inspections, which range from 4 to 36 months late. As a result,
          there was no assurance that all units assisted and administered under the program
          met the housing quality standards required by HUD.

          At the exit conference, Authority officials explained that they had implemented a
          new system to assist them in monitoring the housing quality standards inspection
          process. We found this new system is part of the management information system
          that was implemented in April 2003. However, staff at the Authority did not learn



                                           12
           how to use the module until October 2004. We did not test this component within
           the management information system because our fieldwork had already ended.


Waiting List Was Not
Administered According to
HUD Requirements


           In our prior audit, we recommended that the Authority develop and implement
           procedures to ensure the administration of its waiting list according to HUD and
           Authority requirements. HUD requires a housing authority to maintain
           information that permits the authority to select participants from the waiting list in
           accordance with admission policies. The Authority’s admission policy is to use a
           single waiting list for admission to its Section 8 Tenant-Based Assistance
           Program. The Authority’s policy also states it will maintain information for each
           applicant, such as applicant name, family size, and date and time of application,
           that permits proper selection from the waiting list. However, we found HUD
           requirements and the Authority’s own policy has not been followed.

           To determine whether the Authority maintained applications and ranking sheets to
           support tenant selection from the waiting list, we reviewed 118 files the Authority
           was able to provide us from 119 tenants we randomly selected. We found the
           Authority did not maintain adequate documentation to support its tenant selection
           and did not organize the waiting list according to HUD requirements or its own
           policy. Thirty-eight files (32 percent) had no application on file, 25 files (21
           percent) had applications that were not stamped and dated when received, and 74
           files (63 percent) did not have a ranking sheet supporting the tenant selection.
           The Acting Program Director explained that many of these items were missing
           because the Authority’s policy is to maintain only 3 years of data in a file, while
           the rest of the information is archived.

           However, when we randomly selected 64 applicants from the March 1, 2004,
           waiting list to review, we found the Authority could not provide Section 8
           applications for 10 (16 percent) of the applicants. Of the 54 applicant files that
           were provided, we found 18 (33 percent) where either not stamped and dated
           when received or the date that was stamped on the application was not consistent
           with the date listed in the waiting list. Since the Authority could not provide
           accurate data for the current waiting list, it continues to demonstrate that it has
           problems in administrating its waiting list.




                                            13
    Weaknesses in the Authority’s Program Administration Continue To Impact
                       Its Ability To Assist Eligible Families

In our prior audit, we found the Authority was not effectively administering its Section 8
Program to ensure that the program funds were fully used8. Thus, we recommended that the
Authority implement procedures to ensure the Section 8 Program resources are fully budgeted
and used to assist as many families as possible. We also recommended that the Authority
implement procedures to ensure costs of its units under lease are thoroughly analyzed. During
our current review, we found the Authority had not implemented our recommendations fully or
in a timely manner. This impeded the Authority’s ability to fully use its available program
funding. In fiscal year 2002, HUD recaptured $42 million of unused Section 8 funds, and since
then, another $38 million9 of unused Section 8 funds has accrued in the Authority’s program
reserve account. As of June 2004, the Authority had 4,236 vouchers available for use and a
waiting list of more than 15,000 applicants for Section 8 housing.


    Program Resources Are Still
    Underutilized

                  To determine whether the Authority had fully used its available Section 8
                  resources, we reviewed its year-end settlement statements submitted to HUD for
                  fiscal years 2001 to 2003 and the draft fiscal year 2004 statement. As of June
                  2004, the Authority had approximately 14,609 total authorized vouchers, with an
                  average of 10,373 of the vouchers being used, leaving 4,236 available vouchers.
                  Using these base line units, the Authority is achieving approximately a 71-percent
                  unit utilization rate.10 To be a standard performer, HUD expects an authority to
                  achieve a utilization rate of 95 percent.

                  By not fully using its available vouchers, the Authority has accumulated an
                  excessive amount of reserved funds. As a result, in fiscal year 2002 HUD
                  recaptured approximately $42 million from the Authority’s reserve account.
                  Further, the Authority’s reserve has continued to increase, and as of June 2004, it
                  is more than $38 million.11 Having a poor leasing rate and excessive funds
                  available in the reserve account demonstrates that the Authority needs to better
                  manage its Section 8 Program.




8
  Recommendation 3C from Audit Report 2001-PH-1003
9
   As of June 30, 2004
10
   There are two ways utilization rate can be calculated; use of budgeted funds or use of available units. For this
audit’s purposes, we are calculating the utilization rate using the available units method.
11
   Of this $38 million, $7.4 million has been set aside to pay for court-related decrees, and $5.5 million represents 1
month of housing assistance payment allowable reserve. Thus, $25.1 million remains as available reserves.

                                                          14
The Authority Was Late in
Developing a Section 8 Leasing
Strategy

            When we started our review in early March 2004, we asked the Authority for the
            plan that had been implemented to improve its Section 8 utilization. While the
            Authority continually stated that there was a plan, it was unable to produce one
            until a month after we started our review. When we obtained a copy of the
            document in April 2004, it was not dated and appeared to show a more aggressive
            strategy starting with fiscal year 2005 and forward. In further review, we found
            the leasing schedule showed no attempt at an aggressive voucher issuance until
            February 2004, when the Authority planned to issue 200 vouchers. As of June
            2004, the Authority had only issued 393 vouchers for its entire fiscal year.

            In total, the Authority managed to issue approximately 3,321 additional vouchers
            between 2001 and 2004. However, the majority of these vouchers were issued as
            the result of the need to provide vouchers to tenants who were in units where a
            landlord had opted out of a housing authority program (including HOPE VI
            development). For the HOPE VI developments, the Authority was required to
            provide housing for the tenants who were displaced, and issuing Section 8
            vouchers was one of the options used to assist in completing this task. In
            addition, the Authority’s implementation of the audit recommendations helped in
            increasing the number of vouchers used.

 Authority’s Justification for
 Poor Utilization

            The Authority claimed it was not able to fully use its available vouchers because
            of the lack of quality housing in the City of Baltimore. The Executive Director
            admitted that he could easily lease the units; however, he has adopted a strategy
            of issuing additional vouchers only for units that will meet the housing quality
            standards. This theory is contrary to how the program was intended to work.
            Typically, a voucher is issued, and then the tenant attempts to look for a suitable
            unit. In addition, according to the 2000 Census data, there are 42,481 vacant
            housing units available in the City of Baltimore, a majority of which represents
            rental vacant housing units.

            The Authority also said it had hoped to solve its utilization problem by entering
            into HUD’s Moving to Work Program. Under this program, the Authority would
            be able to keep the funding associated with its unused Section 8 vouchers and use
            them to fund other alternative activities. The Authority submitted a proposal to
            HUD to enter into the program; however, HUD rejected the proposal due to
            incomplete documentation.

                                             15
     Two Court Consent Decrees
     Will Impact the Authority’s
     Section 8 Program

                    As explained above, as of June 2004, the Authority’s base line number of
                    vouchers is 14,609. However, there are two separate court consent decrees,
                    Thompson and Bailey that require the Authority to designate a certain portion of
                    the vouchers for two separate purposes. Under the Thompson Consent Decree,
                    1,988 vouchers have been set aside to assist households in impacted areas. Under
                    the Bailey Consent Decree,12 1,350 vouchers will be set aside for nonelderly
                    disabled households. According to HUD’s rules, since these 3,338 units have
                    been set aside by specific court orders, they cannot be used to affect the utilization
                    of the Authority. Thus, taking these units into account, the Authority has to use
                    11,271 of its vouchers to be fully utilized. As of June 2004, the Authority has
                    issued an average of 10,373 vouchers. However, even if we take these units into
                    account, the Authority has only reached 92 percent utilization, falling short of
                    HUD’s requirement of 95 percent. Using this data, we estimate that if the
                    Authority does not fully implement proper management over its Section 8
                    resources, there will be $5.5 million in funds that could be put to better use.

     Other Issues

                    In our prior review, we also determined the Authority was not properly
                    accounting for the costs of the units under lease. For the 119 tenants randomly
                    selected, we reviewed the 118 files the Authority provided for rent comparability
                    assessments to determine whether the Authority maintained documentation that
                    clearly supports the cost of the unit was thoroughly analyzed. Our review showed
                    the Authority did not always analyze the cost of units under lease. Sixty-two files
                    (53 percent) did not contain a rent comparability assessment. As a result, there
                    was no assurance that rent paid to owners on behalf of the tenant was reasonable.

                    Overall, our review of the Authority’s utilization plan and the steps taken from the
                    time of the 2001 report showed that the Authority has failed to satisfactorily
                    complete and implement our recommendations. By failing to implement the
                    recommendations, the Authority lost an opportunity to assist some of the 15,209
                    families on its waiting list.




12
  The Bailey Consent Decree has not taken affect as of September 30, 2004; however, we are including these units
as part of our calculation because they will be used in the future.

                                                       16
Recommendations

          Based on the results of our review, we reopened the following recommendations
          from our previous audit report 2001-PH-1003:

          Recommendation 1D. Implement financial system controls and procedures to
          ensure books and records are maintained according to HUD requirements and year-
          end reports are complete and accurate.

          Recommendation 2A. Develop and implement procedures to improve its operation
          of the Section 8 Program. The Authority needs to

             •    Ensure tenant recertifications are performed according to HUD
                  requirements,
             •    Ensure housing quality standards inspections are performed according to
                  HUD requirements, and
             •    Administer its waiting list according to HUD requirements.

          Recommendation 3C. Ensure the Authority implements procedures to fully budget
          Section 8 resources provided by HUD to assist as many families as possible.

          In addition, under this report we recommend the Baltimore Office of Public and
          Indian Housing require the Authority to

          1A. Develop and implement procedures to ensure unit counts are adjusted
              according to the number of months that have passed after the tenant has
              moved out and ensure the calculation of the administrative fee is adjusted
              accordingly.

          1B. Repay or reimburse the Department $5,630 for ineligible administrative
              revenue received.

          1C. Develop and implement procedures to ensure documentation is maintained
              supporting adjustments and deductions.

          1D. Implement procedures to ensure timely payment of housing assistance
              payments to owners and/or receiving housing authorities.

          1E. Repay or reimburse the program a total of $64,800 for ineligible payments
              to owners for the period rent should have been abated due to housing quality
              standards violations and for the period after tenants were terminated.




                                           17
1F. Follow its own policy, or HUD requirements, prohibiting retroactive
    payments for the period rent was abated due to housing quality standards
    violations and after tenants no longer live in the contracted unit.

We recommend the Baltimore Office of Public and Indian Housing:

1G. Recapture $25.1 million of the $38 million of unused Section 8 funding from
    the Authority’s program reserve account.

1H. Routinely monitor the Authority to ensure that it implements a new Section 8
    leasing plan to ensure it fully uses its available vouchers by its target date of
    fiscal year 2005. By ensuring the Authority implements and continuously
    monitors its aggressive leasing plan, we estimated the Authority could put to
    better use $5.5 million of Section 8 funding it would receive from HUD in the
    next fiscal year.




                                 18
                        SCOPE AND METHODOLOGY

To achieve our review objectives we reviewed

   •   Applicable laws, regulations, and other HUD program requirements;

   •   HUD-OIG audit follow-up files;

   •   HUD management files, including the Multifamily Tenants Characteristics System report
       and Section 8 Management Assessment Program certification;

   •   Authority policies and procedures;

   •   Authority’s program files, including fiscal years 2001, 2002, 2003, and 2004 Year-End
       Settlement Statements, and Strategic Leasing Plan;

   •   Authority’s March 1, 2004, waiting list; and

   •   Authority’s March 1, 2004, housing assistance payment register, including housing
       assistance payment adjustments.

We randomly selected 119 tenants from the Authority’s March 1, 2004, housing assistance
payment register and reviewed the application and ranking sheets, initial income and background
verifications, recertifications, cost comparability assessments, and unit inspection reports to
determine whether the Authority implemented effective procedures to ensure improvement in the
operations of its Section 8 Program.

We also randomly selected 64 applicants from the Authority’s March 1, 2004, waiting list and
reviewed applicants’ files to determine whether the Authority administered the waiting list
according to HUD requirements.

Using the Authority’s fiscal year 2003 Year-End Settlement Statement to HUD, we traced
program receipts and operating expenditures reported to the Authority’s book of accounts and
related records to determine whether they were maintained according to HUD requirements and
whether program receipts and operating expenditures were supported and accurately reported.
We used the Authority’s Year-End Settlement Statement for fiscal year 2003 because the
Authority had not yet submitted a Year-End Settlement Statement to HUD for fiscal year 2004.
When appropriate, we interviewed HUD and Authority officials.

We performed our fieldwork between March and September 2004. The majority of our work
was conducted at the Authority offices located at 417 Fayette Street and 300 Cathedral Street,
both in Baltimore, MD. Our review covered corrective actions taken after we issued our audit
report on March 28, 2001, to June 30, 2004, but was expanded when necessary to include other


                                               19
periods. We performed our review in accordance with generally accepted government auditing
standards.




                                            20
                             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:

              •   Procedures over financial management and reporting
              •   Procedures for improving program administration
              •   Procedures over use of program resources
              •   Procedures over validity and reliability of data

              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 items are significant weaknesses:

              •   The Authority did not have a system in place to ensure books of account and
                  related records were complete and accurate and in compliance with HUD
                  requirements (see discussion for re-opening recommendation 1D).




                                               21
•   The Authority did not have an effective system in place to ensure (1) current
    participants continued to be eligible for assistance under the program; (2) units
    occupied by active tenants met decent, safe, and sanitary standards required by
    HUD; and (3) tenants were selected from its waiting list according to HUD
    requirements (see discussion for re-opening recommendation 2A, parts 2, 5, and
    6).

•   The Authority did not have an effective system in place to ensure program
    resources were used to assist as many families as possible (see discussion for re-
    opening recommendation 3C).




                                  22
                   FOLLOW UP ON PRIOR AUDITS


Prior Report Title and Number


           This audit is a follow up on a review completed by the Office of Inspector
           General of the Housing Authority of Baltimore City Section 8 Certificate and
           Voucher Programs, issued on March 28, 2001 (Audit Report 2001-PH-1003).




                                           23
                                    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/
                        1B                 $ 5,630
                        1E                 $ 64,800
                        1G                                     $25,110,263
                        1H                                     $ 5,500,000
                      TOTAL                $ 70, 430           $30,610,263



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
     polices or regulations.

2/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     OIG recommendation is implemented, resulting in reduced expenditures at a later time
     for the activities in question. This includes costs not incurred, deobligation of funds,
     withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
     loans and guarantees not made, and other savings.




                                              24
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




Comment 5




Comment 6




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 7




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 3



Comment 4




Comment 4




Comment 8



Comment 9




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11




                         31
Ref to OIG Evaluation   Auditee Comments



Comment 7


Comment 12




Comment 13
Comment 14




Comment 15




Comment 16




                         32
Ref to OIG Evaluation   Auditee Comments




                         33
Ref to OIG Evaluation   Auditee Comments




                         34
                            OIG Evaluation of Auditee Comments

Comment 1

As of September 2003, the HUD Field Office did indeed close out all of the OIG
recommendations related to the findings from our previous audit report that was issued in March
2001. However, the purpose in completing a Corrective Action Verification on significant audit
recommendations is to verify whether the action taken by the Department and the Authority
actually corrected the deficiencies to justify closing the findings. This is done in accordance
with HUD Handbook 2000.06, REV-3.

Comment 2

The Authority is misconstruing the issue. The OIG simply stated that under the program,
vouchers are issued to eligible households who then try to locate suitable units that meet HUD’s
housing quality standards. Further, the Authority’s statement that the OIG is advocating the
Authority violate HUD regulations by doing business with slumlords is entirely inappropriate
and is made only to sidetrack the real issue related to why the Authority has not been more
aggressive in leasing-up its remaining vouchers. In one meeting with the OIG, the Executive
Director of the Authority specifically stated that the Authority could easily lease-up all
remaining units if they wanted to; however, they deliberately chose not to issue the remaining
vouchers because they had made an application to HUD to participate in a number of alternative
programs, such as the Moving to Work Demonstration Program. Under this program, the
Authority would be allowed retain any unused Section 8 funds to fund alternative activities.

Comment 3

Congress has agreed to recapture any unused funds. However, if the Authority had properly
administered the program then these funds would not have been available for recapture.

Comment 4

Upon review of the additional documentation, we adjusted the report to take into account the
additional $1.36 million. As for the $5 million discussed in the Authority’s response, this
appears to be a projection of what funds would be needed if all units are leased during fiscal year
2005. However, the Authority is now required to manage the Housing Choice Voucher Program
under the new HUD guidelines enacted in 2004. Under these new guidelines, the Authority
receives funding for actual units currently under lease; for any additional leases issued during the
year, the Authority would need to request these funds from HUD. Thus, under these new
requirements the maximum amount of funds allowed to be maintained in the Authority’s reserve
account is what would be needed for one month’s housing assistance payment costs.




                                                35
Comment 5

As explained in Comment #1, the OIG conducted a Corrective Action Verification to determine
if the Authority had actually taken appropriate action to support the HUD Field Office’s decision
to close out the recommendations we made in the previous report.

Comment 6

Throughout the report, we acknowledge the Authority has, and continues to make progress in
improving the administration of the Housing Choice Voucher Program and thus, we did not
recommend administrative sanctions be imposed on the Authority. However, as we point out in
this report, it has taken the Authority more than 3 years to implement many of the improvements
it had made thus far, and the Authority still has a number of remaining issues to address.

Comment 7

Although we acknowledge that many of the files we reviewed related to tenants who were
enrolled in the program prior to 2001, we contend that as long as the tenant remains enrolled
under the program, the Authority has the responsibility to perform an annual re-examination of
the tenant’s continuing eligibility and to perform annual housing quality standard inspections of
the units occupied by the tenant. Documents supporting that these responsibilities are
completed must be included in the tenant’s files. However, our review of the tenant files showed
they were not always properly updated.

Comment 8

We disagree with the Authority’s position. Our review of the established criteria clearly shows
that the questioned expenditures were ineligible. As stated in the report, the questioned costs
relate to paying landlords for homes that do not meet housing quality standards. This is clearly a
violation of the Authority’s own policy and HUD requirements.

Comment 9

As stated in the report, if the Authority properly administers the Housing Choice Program, then
approximately $5.5 million in funds would be available for eligible families.

Comment 10

Our intention in selecting the 25 adjustments was not to conduct a statistical sample that could be
projected. Instead, we wanted to determine if deficiencies noted under the previous audit are still
taking place. The information as presented in the report is accurate as to what was found for the
25 items selected.




                                                36
Comment 11

The Authority’s policy in place at the time of our review was not to retroactively pay landlords
when the units failed inspections. In addition, the Authority’s files did not contain any
documentation to support the justification for these adjustments. The Authority has the right to
adjust its administrative policies, however, HUD must approve these policies prior to
implementing these changes.

Comment 12

In addition to testing the older data under the 119 files, we also tested 64 current applicants
awaiting entry into the Housing Choice Voucher Program. Our review of the current applicants
showed that the problems within the management of the Authority’s waiting list still exist.

Comment 13

Our calculation of 393 vouchers was based upon the Authority’s records submitted to HUD.
We do not know how the Authority came up with their estimate.

Comment 14

We acknowledge the Authority’s statement that the utilization rate is not a regulatory
requirement, and as such deleted the word “requirements” from the report.

Comment 15

Although the Authority has several reasons as to why the utilization rate has not increased over
time, we question whether any attempt was made to aggressively lease-up the units. The leasing
schedule we reviewed during our review demonstrates that the Authority did not develop a plan
until April 2004. In fact, if it not for the Court Consent Decrees the Authority would not even be
at a 90 percent utilization rate.

Comment 16

In the report, we acknowledge the Authority has issued over 3,321 vouchers from 2001 to 2004.
However, it should be noted a significant number of these vouchers were issued to accommodate
public housing tenants who were displaced when the Authority imploded a number of projects
under its HOPE VI Program.




                                               37