oversight

The Housing Authority of the City of Tacoma Could Improve Its Section 8 Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-05-24.

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

       AUDIT REPORT




    HOUSING AUTHORITY OF THE

          CITY OF TACOMA

             2005-SE-1005

             MAY 24, 2005



OFFICE OF AUDIT, NORTHWEST/ALASKA REGION
           SEATTLE, WASHINGTON
                                                                     Issue Date
                                                                          May 24, 2005

                                                                     Audit Report Number
                                                                          2005-SE-1005
                                    .



TO:         Harlan Stewart, Director, Northwest Office of Public Housing, 0APH



FROM:
            Joan S. Hobbs, Regional Inspector General for Audit, Northwest/Alaska Region,
               0AGA

SUBJECT: The Housing Authority of the City of Tacoma Could Improve Its Section 8
           Program, Tacoma, WA


                                     HIGHLIGHTS

 What We Audited and Why

             As part of the Inspector General’s Annual Audit Program, we audited the tenant-
             based Section 8 program of the Housing Authority of the City of Tacoma
             (Authority). We wanted to determine whether the Authority has adequate internal
             controls to operate its housing choice voucher program and its quality control
             program in accordance with U.S. Department of Housing and Urban Development
             (HUD) requirements.

 What We Found


             The Authority generally has adequate internal controls to operate its housing
             choice voucher program in accordance with HUD requirements. Our review
             determined that the Authority’s internal controls provide reasonable assurance
             that it correctly determines tenant eligibility, satisfactorily verifies tenant-adjusted
             income, accurately calculates housing assistance payments, effectively maintains
             HUD housing quality standards, and properly manages its portability program.
             However, we found that the Authority could improve its ability to provide Section
             8 assistance by recovering and using excess housing assistance payments, or by
           returning those funds to HUD. Authority records show more than $30,000 in
           such excess payments in fiscal year 2004 that could have been used to provide
           housing assistance to needy families. This occurred because the Authority does
           not have an effective process to account for excess housing assistance payments.
           We also found that the Authority does not document its Section 8 Management
           Assessment Program quality control reviews, because it does not have a formal
           Section 8 Management Assessment Program.

What We Recommend


           We recommend that you require the Authority to implement a process to account
           for excess housing assistance payments, and institute a Section 8 Management
           Assessment Program plan that meets HUD quality control review requirements.

           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 requested the Authority’s response on May 16, 2005, and received the
           Authority’s written comments on May 18, 2005. The Authority’s letter is dated
           May 16, 2005. The Authority generally disagreed with our report. 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 1: The Authority Did Not Fully Reconcile Its Fiscal Year 2004 Section   5
      8 Funds
      Finding 2: The Authority Does Not Document Its Section 8 Management             7
      Assessment Program Quality Control Reviews
Scope and Methodology                                                                 9

Internal Controls                                                                     11

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                  13
   B. Auditee Comments and OIG’s Evaluation                                           14
   C. Housing Quality Standards Quality Control Reinspection Dates                    18




                                             3
                     BACKGROUND AND OBJECTIVES

                       Housing Authority of the City of Tacoma
The Housing Authority of the City of Tacoma (Authority) was created in 1940 by the City of
Tacoma to provide housing opportunities for eligible individuals within the city. The mayor of
the City of Tacoma appoints a five-member board of commissioners that directs the affairs and
activities of the Authority. In fiscal year 2004, the U.S. Department of Housing and Urban
Development (HUD) paid the Authority $25,272,900 to operate 3,524 Section 8 units.

                     Section 8 Housing Choice Voucher Program
The housing choice voucher program is the federal government’s major program for assisting
very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary
housing in the private market. Participants are free to choose any housing that meets program
requirements. Public Housing agencies administer the HUD-funded housing choice vouchers
that pay a housing subsidy directly to the landlord on behalf of the participating family, who then
pays the difference between the actual rent and the subsidy amount. Public Housing agencies
determine family eligibility based on income and family size, and determines the amount of
tenant subsidy. Annually, the agency verifies family income and composition, and also ensures
the unit meets minimum housing quality standards.

Our objective was to determine whether the Authority has adequate internal controls to operate
its tenant-based Section 8 program in accordance with HUD requirements, specifically to
determine whether the Authority has adequate internal controls to:
1.     Assist only eligible families;
2.     Verify tenant income;
3.     Calculate and pay tenant subsidies accurately;
4.     Maintain HUD housing quality standards;
5.     Recoup housing assistance payments if required; and
6.     Manage its voucher portability program in accordance with HUD requirements.

We also reviewed the Authority’s quality control program.




                                                4
                                 RESULTS OF AUDIT

Finding 1: The Authority Did Not Fully Reconcile Its Fiscal Year 2004
Section 8 Funds
The Authority did not fully reconcile its Section 8 funds at the year-end settlement. In fiscal year
2004, the Authority did not return more than $30,000 in excess housing assistance payments to
HUD as required. As a result, these funds were not available to assist needy families. This
occurred because the Authority does not have an effective process to account for excess housing
assistance payments.



 The Authority Did Not Return
 More Than $30,000 in Excess
 Section 8 Payments to HUD


               The Authority did not fully reconcile its fiscal year 2004 Section 8 funds and did not
               return more than $30,000 in excess housing assistance payments to HUD at the
               annual settlement, as required.

               The housing choice voucher program requires housing authorities to prepare year-
               end settlement reports to reconcile any differences between the estimated Section 8
               funds requisitioned during the year and the actual program expenditures. This
               reconciliation may result in an overpayment due HUD or an underpayment due the
               housing authority.

               In operating its Section 8 program, the Authority sometimes inadvertently makes
               excess housing assistance payments to landlords. For example, an excess payment
               may occur when a tenant vacates a unit without informing the Authority. Once
               aware of the discrepancy, the Authority’s computer system automatically recoups
               the excess payment from the next check to the landlord. However, if there is no next
               check, the Authority does not always recoup the excess payment. Since these excess
               payments do not provide assistance for eligible tenants, they are ineligible expenses,
               and any amount the Authority does not recoup is an overpayment due HUD at the
               year-end reconciliation. In fiscal year 2004, the Authority did not return $33,012 in
               excess housing assistance payments to HUD at the annual settlement.

               This occurred because the Authority does not have an adequate process to account
               for excess housing assistance payments to landlords. As a result, these funds are not
               available to provide housing assistance to needy families.




                                                 5
Recommendations



          We recommend that you:

          1A. Require the Authority to implement a process to account for excess payments to
          landlords.

          1B. Require the Authority to repay the $33,012 in fiscal year 2004 ineligible
          housing assistance payments.




                                            6
Finding 2: The Authority Does Not Document Its Section 8
Management Assessment Program Quality Control Reviews
The Authority does not document its Section 8 Management Assessment Program quality control
reviews. As a result, HUD cannot independently verify that the Authority operates its Section 8
program in accordance with HUD requirements. The Authority does not have the required
documentation because it does not have a formal quality control program.



    The Authority Cannot Prove It
    Required Quality Control
    Reviews


                   The Authority does not document its Section 8 Management Assessment Program
                   quality control reviews as required.

                   Under the Section 8 Management Assessment Program, HUD sets performance
                   standards for key areas of Section 8 program management to measure whether a
                   housing authority administers its Section 8 program properly and effectively. For
                   the key areas of waiting list selection, rent reasonableness, adjusted income
                   determination, housing quality standards quality control reinspections, and housing
                   quality standards enforcement, housing authorities must select and review a quality
                   control sample to determine whether the documented work in those areas conforms
                   to program requirements. Housing authorities then compare the results of their
                   quality control sample reviews to the performance standards and certify the results to
                   HUD.

                   Housing authorities must also document their quality control sample reviews so
                   HUD can carry out its responsibility of verifying the Section 8 Management
                   Assessment Program certifications, as required by 24 CFR [Code of Federal
                   Regulations] Part 985.105. However, Authority staff told us they keep no
                   documentation of their quality control sample reviews for waiting list selection, rent
                   reasonableness, adjusted income determination, and housing quality standards
                   enforcement. We reviewed Authority records of housing quality standards quality
                   control reinspections conducted on 10 different dates. Our nonstatistical sample1 of
                   14 of 41 of these reinspections found that only two met the Section 8 Management
                   Assessment Program requirement that the reinspections be conducted on units that
                   had been inspected within the preceding three months (see appendix C).



1
    See the Scope and Methodology section for the sampling methodology.

                                                        7
          Therefore, the Authority does not have the required documentation of its fiscal year
          2004 Section 8 Management Assessment Program quality control sample reviews.
          The Authority does not have this documentation because it does not have a formal
          Section 8 Management Assessment Program. As a result, HUD cannot use the
          Section 8 Management Assessment Program to assess whether the Authority
          operates its Section 8 program to help eligible families afford decent housing at the
          correct cost.

Recommendations



          We recommend that you:

          2A. Require the Authority to implement a Section 8 Management Assessment
          Program that meets HUD requirements.

          2B. Perform an onsite confirmatory review to verify the Authority’s Section 8
          Management Assessment Program certifications.




                                            8
                          SCOPE AND METHODOLOGY

Our review covered the period of July 1, 2003, through June 30, 2004 (fiscal year 2004).

To accomplish our objectives, we reviewed Authority financial records and client files and
interviewed Authority and HUD program staff. We performed our fieldwork at the Authority’s
office in Tacoma, Washington, from December 2004 through March 2005.

We used 100 percent sampling to ensure the Authority used the correct payment standards and
utility allowances in its calculations. We checked all 24 payment standards and all 338 utility
allowance computer inputs against the Authority’s established payment standards and utility
allowances. We used the results to analyze the Authority’s internal controls for calculating
housing assistance payments, tenant contributions, and utility allowances.

We used a 100 percent sampling to determine whether HUD made any excess housing assistance
payments paid for any of the nine portability tenants who had left the Section 8 program in fiscal
year 2004. We used the results in our analysis of the Authority’s internal controls over its
portability program.

We used 100 percent sampling to determine if the Authority properly abated the housing
assistance payments for the 17 housing quality standards abatements. We used the results in our
analysis of the Authority’s internal controls over its housing quality standards program.

We used statistical sampling for our review of the Authority’s internal controls over the
operation of its housing choice voucher program because we wanted to reach a conclusion based
on projections from the sample. We compared information in selected tenant files against HUD
requirements to determine if the Authority detemined tenant eligibility, verified tenant adjusted
income, accurately calculated housing assistance payments, maintained housing quality
standards, and managed its portability program We found that the Authority has adequate
internal controls to operate its housing choice voucher program in accordance with HUD
requirements. We designed our samples with a confidence level of 90 percent and a critical error
rate of 10 percent.

We used nonstatistical sampling for our review of the Authority’s Section 8 Management
Assessment Program housing quality standards quality control inspections. Our review checked
the Authority’s reinspection documentation against the inspection records in the tenant files.
Nonstatistical sampling is an efficient means of determining whether the Authority’s
documentation of its reinspections meets HUD requirements. The Authority provided the
records of 41 reinspections done on 10 dates as supporting documentation for their fiscal year
2004 housing quality standards quality control reinspections. We reviewed all available tenant
files for the reinspections done on January 22, 2004, and the first readily available tenant file for
one reinspection done on each of the other nine days, for a total of 14 of the 41 reinspections.
Since this is a “go/no-go” test of the documentation, any discrepancies will mean the


                                                  9
documentation does not meet HUD requirements. While we did not project our results on the
universe, we used our results to determine whether the documentation met HUD requirements
(see finding 2).

 We conducted the audit 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, 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 objective:

   •   Effectiveness and efficiency of program operations - Policies and procedures that
       management implemented to reasonably ensure that a program meets its objectives.
   •   Validity and reliability of data - Policies and procedures that management implemented
       to reasonably ensure valid and reliable data are obtained.
   •   Compliance with laws and regulations - Policies and procedures that management
       implemented to reasonably ensure resources are used consistent with laws and
       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 items (as reported in the findings) are
               significant weaknesses:

               The Authority does not have adequate internal control processes for:




                                                11
•   Recouping or reconciling excess housing assistance payments (finding 1)

•   Documenting Section 8 Management Assessment Program quality control
    reviews (finding 2)




                            12
                                    APPENDIXES

Appendix A

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

 Recommendation           Ineligible 1/    Unsupported      Unreasonable or      Funds to Be Put
       Number                                       2/       Unnecessary 3/      to Better Use 4/
              1B              $33,012


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/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that would be incurred by a prudent person in conducting a competitive
     business.

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




                                              13
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         15
Ref to OIG Evaluation   Auditee Comments




                         16
                         OIG Evaluation of Auditee Comments

Comment 1   We disagree. On the Year-End Settlement Statement (form HUD-52681), the
            Authority certified that “housing assistance payments have been or will be made
            only in accordance with Housing Assistance Payments Contracts or Rental
            Voucher Contracts in the form prescribed by HUD and in accordance with HUD
            regulations and requirements.” Our position is that the excess payments are
            ineligible and as such, should not be charged to HUD. HUD regulations at 24
            CFR [Code of Federal Regulations] 982.311(a) state that “(h)ousing assistance
            payments may only be paid to the owner during the lease term, and while the
            family is residing in the unit.” The Authority documents upon which we based
            our eligibility determination show that the Authority made housing assistance
            payments for units where the lease was no longer in effect, for units in which the
            families were not residing, or for tenants who did not meet eligibility
            requirements. Regarding the Authority’s contention that the excess payments are
            not due to HUD until they are recovered, we believe the Authority should discuss
            this with HUD during the resolution process.

Comment 2   We believe the $33,012 is the correct amount of excess payments. At the exit
            conference, the Authority provided a spreadsheet with the amounts due for the
            fiscal year 2004 excess payments. The total of that spreadsheet, $56,853, equals
            the amount in the computer printout of fiscal year 2004 excess payments the
            Authority provided during the audit. The spreadsheet and other documentation
            provided by the Authority show voided checks to landlords for $22,969. After
            deducting this amount from the total and making other adjustments justified by
            Authority documentation, we determined that the amount of fiscal year 2004
            housing assistance payments is $33,012. We will provide the documents to HUD
            program staff.




                                            17
Appendix C

  HOUSING QUALITY STANDARDS QUALITY CONTROL
             REINSPECTION DATES




                       Quality control     Previous
                        reinspection      inspection   Meets 3-month
         Client ID #        date             date       requirement
         126152          01/22/2004       10/02/2003   Yes
         132151          01/22/2004       09/09/2003   No
         134332          01/22/2004       09/11/2003   No
         130018          01/22/2004       10/02/2003   Yes
         119116          01/22/2004       03/14/2003   No
         111085          08/28/2003       03/25/2003   No
         135964          11/20/2003       03/13/2003   No
         135803          03/04/2004       04/22/2003   No
         129857          12/04/2003       03/20/2003   No
         121122          10/23/2003       03/13/2003   No
         100689          10/09/2003       03/07/2003   No
         111559          09/18/2003       03/06/2003   No
         108992          09/04/2003       10/10/2002   No
         126433          10/02/2003       03/05/2003   No




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