Issue Date
January 18, 2006
Audit Case Number
2006-AT-1005
TO: Michael A. Williams, Director, Office of Public Housing, 4FPIH
FROM:
James D. McKay
Regional Inspector General for Audit, 4AGA
SUBJECT: The Housing Authority of the City of Winston-Salem,
Winston-Salem, North Carolina,
Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary
HIGHLIGHTS
What We Audited and Why
As part of the U.S. Department of Housing and Urban Development (HUD),
Office of the Inspector General’s (OIG) strategic plan, we audited the Housing
Authority of the City of Winston-Salem’s (Authority) inspection of Section 8
units under the Section 8 Housing Choice Voucher program. Our audit objective
was to determine whether Section 8 units met housing quality standards in
accordance with HUD requirements.
What We Found
Our inspection of 67 Section 8 units found that 51 units (76 percent) did not meet
minimum housing quality standards. Of the 51 units, 26 were in material
noncompliance with housing quality standards. As a result, tenants lived in units
that were not decent, safe, and sanitary, and HUD made housing assistance
payments for units that did not meet standards. We estimate that over the next year,
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HUD will pay housing assistance payments of more than $6.4 million for units in
material noncompliance with housing quality standards.
What We Recommend
We recommend that the director of the Office of Public Housing require the
Authority to inspect all of the 51 units that did not meet minimum housing quality
standards to verify that the landlords took appropriate corrective actions to make
the units decent, safe, and sanitary. If appropriate actions were not taken, the
Authority should abate the rents or terminate the tenants’ vouchers. The director
should also require the Authority to implement an internal control plan and
incorporate it into the Authority’s Section 8 administrative plan to ensure units
meet housing quality standards and inspections meet HUD requirements to
prevent an estimated $6.4 million from being spent on units that are in material
noncompliance with standards.
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 discussed the findings with the Authority and HUD officials during the audit.
We provided a copy of the draft report to Authority officials on December 14,
2005, for their comments and discussed the report with the officials at the exit
conference on December 21, 2005. The Authority provided its written comments
to our draft report on January 5, 2006. The Authority generally concurred with
the finding and has begun taking corrective actions.
The complete text of the Authority’s response, along with our evaluation of that
response, can be found in appendix B of this report.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary 5
Scope and Methodology 13
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 17
B. Auditee Comments and OIG’s Evaluation 18
C. Criteria 21
D. Schedule of Units in Material Noncompliance with Housing Quality Standards 22
3
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of Winston-Salem (Authority) was formed in 1941 pursuant
to the North Carolina Housing Authorities Law. Its primary objective is to provide safe and
sanitary housing to low-income residents in the Winston-Salem, North Carolina, area in
compliance with its annual contributions contract with the U.S. Department of Housing and
Urban Development (HUD). The Authority administers more than 4,200 housing choice
vouchers. The annual housing assistance payments and administrative fees for 2005 were $21
million.
A nine-member board of commissioners appointed by the mayor of Winston-Salem governs the
Authority. The Authority’s executive director resigned during our audit; therefore, the board
appointed an interim executive director.
HUD’s Greensboro, North Carolina, Office of Public Housing is responsible for overseeing the
Authority.
Our audit objective was to determine whether Section 8 units met housing quality standards in
accordance with HUD requirements.
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RESULTS OF AUDIT
Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and
Sanitary
Our inspection of 67 units showed that 51 units (76 percent) did not meet minimum housing
quality standards. Of the 51 units, 26 were in material noncompliance with housing quality
standards. Projecting the results of the statistical sample to the population indicates at least
2,813 of the Authority’s 4,255 units did not meet minimum housing quality standards and 1,230
units were in material noncompliance with housing quality standards. This occurred because
Authority management failed to implement an effective internal control plan that ensured units
met minimum housing quality standards and inspections complied with requirements. As a
result, tenants lived in units that were not decent, safe, and sanitary, and HUD made housing
assistance payments for units that did not meet standards. Based on the sample, we estimate that
over the next year, HUD will pay housing assistance payments of more than $6.4 million for
units in material noncompliance with housing quality standards.
HUD Will Pay More Than $6.4
Million for Units in Material
Noncompliance
We estimate that over the next year, HUD will pay housing assistance payments
of more than $6.4 million for units that are in material noncompliance with
housing quality standards if the Authority does not institute better controls. We
inspected a statistical sample of 67 units with a HUD facilities management
specialist, an engineering specialist, and the Authority’s lead inspector. We found
that 26 units with 132 deficiencies were in material noncompliance with housing
quality standards. Authority inspectors did not identify 45 of the 132 deficiencies
during their most recent inspections. Appendix D provides additional details of
the deficiencies for the 26 units.
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The following table lists the most frequently occurring deficiencies for all 67 units
we inspected:
Type of Number of Number of Percentage
deficiency deficiencies units of units
Health and safety 49 29 43
Fire hazard 36 24 36
Electrical hazard 20 18 27
Security 11 10 15
Significant water 18 15 22
leak
Infestation 9 9 13
Other 48 26 39
The Authority either did not identify the deficiencies or reported them as having
been corrected when they were not.
Health and Safety Hazards
Predominant
The most predominant deficiencies were health and safety hazards, including
stairs or porches needing handrails or repairs to handrails, broken glass, and
tripping hazards.
Cutting hazard on screen door that Authority
did not report during June 24, 2005, inspection.
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Clothes, toys, luggage, and other rubbish
accumulated throughout the basement, causing
poor interior air quality, mold, dust, and mildew-
like odors. This deficiency existed for several
years.
We also found a number of fire hazards, such as blocked exits and inoperable
smoke detectors.
Blocked emergency exit in bedroom not reported
by Authority during July 21, 2005, inspection.
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We found electrical hazards, such as exposed wire and missing outlet covers.
Burned kitchen light fixture with exposed wiring.
Tenant stated that this deficiency had existed for
more than two years.
Missing outlet cover, creating an electrical shock
hazard.
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We found other deficiencies including rotted wood and holes
in foundations.
Holes and rotting wood in floor where kitchen
meets back porch.
Hole in foundation that Authority did not report as
a deficiency during its May 10, 2005, inspection.
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The Authority Did Not
Implement Effective Internal
Controls
Authority management did not maintain adequate internal controls to assure that
its units met minimum housing quality standards. Federal Regulations at 24 CFR
[Code of Federal Regulations] 982.54 required the Authority to adopt a written
administrative plan that established local policies for administration of the
program in accordance with HUD requirements and administer its Section 8
program in accordance with its administrative plan. The Authority’s
administrative plan required inspectors to report 12 categories of deficiencies as
emergency deficiencies that owners had to correct within 24 hours. The 24-hour
emergency deficiencies included electrical problems that could result in shock or
fire, obstacles that prevent tenants’ entrance or exit, and inoperable smoke
detectors.
The Authority’s inspectors seldom reported deficiencies found during their
inspections as 24-hour emergency deficiencies. We reviewed 120 of the
Authority’s inspection reports for the 67 Section 8 units in our sample. We found
that inspectors only reported two 24-hour emergency deficiencies. Our review of
the reports identified an additional 52 deficiencies that met the criteria in the
administrative plan for 24-hour emergency deficiencies. While the inspectors
reported the 52 deficiencies, they did not classify them as 24-hour emergency
deficiencies. Thus, owners were allowed the standard 30 days for nonemergency
deficiencies to make the necessary repairs.
The 52 misclassified deficiencies included 13 inoperable and/or missing smoke
detectors. Authority management attempted to remove smoke detectors from its
administrative plan’s list of 12 categories of emergency deficiencies because it
believed the requirement to reinspect the units within 24 hours would require
additional personnel. However, HUD’s North Carolina director of public housing
disallowed the change to the administrative plan saying it created a
life-threatening condition for tenants.
While the Authority’s administrative plan required removal within 24 hours of an
obstacle that prevents tenants’ entrance or exit, Authority inspectors only required
one alternate exit point per floor in addition to the entrance door. However,
HUD’s North Carolina Office of Public Housing required the Authority to follow
North Carolina fire and residential building codes, which required that in addition
to the entrance door, there be one alternate exit point to the exterior of the
building per sleeping room and basement with habitable space. We found 16
units with obstacles preventing exit at alternate points.
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The Authority Stated It Needs
More Inspectors
Authority management stated that one reason for the deficiencies was that it
needed to hire more inspectors. In addition to a lead inspector who was
responsible for performing quality control inspections, the Authority employed
five inspectors who were responsible for inspecting more than 4,200 Section 8
units. The inspection staff was responsible for all inspections, reinspections,
emergency and complaint inspections, and the delivery of violation notices to
landlords. The inspectors were also responsible for inspecting 1,085 public
housing units. Further, according to the lead inspector, because there were not
enough inspectors to meet the workload requirements, he sometimes helped
conduct inspections.
The Authority wants to increase the time allotted for each inspection from 30 to
45 minutes to allow adequate time to travel to and inspect each unit. However,
the Authority believes it needs to hire two more inspectors before it can
implement the 45-minute allotment for each inspection. While the Authority
stated it needs to hire additional staff, it did not perform the required analysis to
determine whether it employed adequate inspection staff to perform all necessary
inspections.
The Authority Made
Procedural Changes
The Authority changed its inspection procedures during our audit. The
Authority’s lead inspector who accompanied us during our inspections realized
his inspectors did not identify many deficiencies. As a result, the Authority
implemented procedures that put more emphasis on following inspection
procedures in the administrative plan. The lead inspector believes there is now a
better feedback process through which inspectors more openly discuss the
requirements and deficiencies they find. In addition, the Authority advised us it
changed its procedures to adopt the North Carolina fire and residential building
codes regarding exit points. The Authority also implemented a procedure
whereby owners can self-certify that they have corrected 24- hour emergency
deficiencies, such as inoperable smoke detectors.
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Additional Improvements
Needed
While the Authority has made some improvements, additional improvements are
needed. Management must emphasize the importance of housing quality
standards and implement policies and procedures that ensure it complies with
HUD requirements and give tenants the opportunity to live in decent, safe, and
sanitary housing. The policies and procedures must be incorporated into the
Authority’s Section 8 administrative plan. By continuing to make necessary
improvements, the Authority will ensure that at least $6.4 million in Section 8
funds are put to better use.
Recommendations
We recommend that the director of Office of Public Housing
1A. Require the Authority to inspect the 51 units that did not meet minimum
housing quality standards to verify that the landlords took appropriate
corrective actions to make the units decent, safe, and sanitary. If appropriate
actions were not taken, the Authority should abate the rents or terminate the
tenants’ vouchers.
1B. Require the Authority to develop and implement an internal control plan and
incorporate it into its Section 8 administrative plan to ensure units meet
housing quality standards and inspections meet HUD requirements to
prevent an estimated $6,435,360 from being spent on units that are in
material noncompliance with standards.
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SCOPE AND METHODOLOGY
Our audit objective was to determine whether Section 8 units met housing quality standards in
accordance with HUD requirements. To accomplish our objective, we did the following:
• Reviewed applicable laws, regulations, and other HUD program requirements.
• Reviewed the Authority’s Section 8 policies and procedures and administrative plan.
• Interviewed HUD and Authority management and staff.
• Reviewed the Authority’s latest independent public accountant report and HUD program
monitoring reviews.
• Obtained a download of the Authority’s Section 8 housing stock for the Housing Choice
Voucher program as of July 2005. We then performed limited tests of the reliability of
the data, such as the tenant information, housing assistance payments, and inspection
results. Based on the tests, we assessed the data as sufficiently reliable, given our
objective and intended use.
• Selected a statistical sample of units for inspection from the Authority’s Section 8
housing stock for the Housing Choice Voucher program as of July 2005.
• Reviewed previous Authority inspection reports.
• Inspected 67 units with a facilities management specialist and an engineering specialist
from the Greensboro, North Carolina, Office of Public Housing and the Authority’s lead
inspector to determine whether the units met housing quality standards. We performed
the inspections from July 25 to September 12, 2005.
The download of the Authority’s Section 8 housing stock for the Housing Choice Voucher
program resulted in 4,255 active units. We used a statistical software program to select a random
sample of the 4,255 units. Based on a confidence level of 90 percent, a precision level of 10
percent, and an assumed error rate of 50 percent, the software returned a statistical sample of 67
units with a random selection start. We used the software to generate 43 additional sample units
to be used as replacements if needed.
We used statistical sampling because each sampling unit is selected without bias from the audit
population, thereby allowing the results to be projected to the population.
We inspected seven of the replacement units because five units in the initial sample were vacant
and two units were no longer being subsidized. We selected the next consecutive units (68
through 74) as replacement units; however, the tenant for one replacement unit (number 71) was
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no longer in a subsidized unit. Thus, we inspected the next consecutive sample item (number
75).
Projecting the results of the 51 failed units in our statistical sample to the population indicates
The lower limit is 66.1 percent x 4,255 units = 2,813 units not meeting housing quality
standards.
The point estimate is 76.1 percent x 4,255 units = 3,239 units not meeting housing quality
standards.
The upper limit is 84.3 percent x 4,255 units = 3,587 units not meeting housing quality
standards.
Of the 51 failed units, 26 were in material noncompliance with housing quality standards. We
based our assessment on prior Authority inspection reports, tenant comments, and our
observation and judgment of the condition of the unit during the inspection. Based on our
judgment, we determined 26 units were in material noncompliance with housing quality
standards because they had at least two deficiencies, one of which was a 24-hour emergency
deficiency. In addition, at least one of the deficiencies had to have been overlooked by the
Authority during its last inspection or found by the Authority but not corrected.
Projecting the results of the 26 units that were in material noncompliance with housing quality
standards to the population yields the following:
The lower limit is 28.9 percent x 4,255 units = 1,230 units in material noncompliance with
housing quality standards.
The point estimate is 38.8 percent x 4,255 units = 1,650 units in material noncompliance
with housing quality standards.
The upper limit is 49.5 percent x 4,255 units = 2,106 units in material noncompliance with
housing quality standards.
To be conservative, we used the lower limit to project to the population.
Using the lower limit and the average annual housing assistance payments for the population
based on the Authority’s October 2005 housing assistance payments, we estimated the Authority
spent at least $6,435,360 for 1,230 units that were in material noncompliance with housing
quality standards. The estimate is not a statistical projection and is used only for the purpose of
determining funds that can be put to better use.
We conducted our fieldwork from April through November 2005 at the Authority’s offices in
Winston-Salem, North Carolina. Our audit period was from October 1, 2003, through July 31,
2005. We expanded our audit period as needed to accomplish our objectives.
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We conducted the audit in accordance with generally accepted government auditing standards
and included tests of management controls that we considered necessary under the
circumstances.
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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:
• Compliance with laws and regulations - Policies and procedures that
management has implemented to reasonably ensure resource use is
consistent with laws and regulations.
• Safeguarding of resources – Policies and procedures that management has
implemented to reasonably ensure resources are safeguarded against waste,
loss, and misuse.
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 have adequate internal controls to ensure that
Section 8 units met housing quality standards (see finding 1).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Funds to be put
Recommendation to better use 1/
1B $ 6,435,360
_________
Total $ 6,435,360
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 later 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.
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
18
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Comment 1
Comment 2
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OIG Evaluation of Auditee Comments
Comment 1 We revised the number of failed units from 52 in the draft to 51 because a
minor deficiency that caused one unit to fail was corrected at the time of the
inspection. We also revised our statistical sample results as appropriate to
reflect 51 failed units. Further, based on concerns expressed by the Authority at
the exit conference, we revised the caption under the picture of a missing outlet
cover. The draft report stated the Authority reported this deficiency and passed
the unit on reinspection July 7, 2005. The Authority was concerned that perhaps
a tenant removed the cover between the time of its inspection and our inspection
on August 2, 2005.
Comment 2 While we recognize the Authority has taken some actions, the director of
HUD’s Greensboro, North Carolina, Office of Public Housing in consultation
with the Authority and the OIG will determine if the actions are appropriate.
The director will also determine when appropriate actions have been
completed.
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Appendix C
CRITERIA
Federal Regulations at 24 [Code of Federal Regulations] 982.54(a)(c)
Housing authorities must adopt a written administrative plan that establishes local policies for
administration of the program in accordance with HUD requirements. The housing authorities
must administer the program in accordance with their administrative plan.
Federal Regulations at 24 [Code of Federal Regulations] 982.401(a)(3)
All program housing must meet housing quality standards performance requirements, both at
commencement of assisted occupancy and throughout the assisted tenancy.
Federal Regulations at 24 [Code of Federal Regulations] 982.405(a)
The public housing authority must inspect the unit leased to a family before the initial term of the
lease, at least annually during assisted occupancy, and at other times as needed to determine
whether the unit meets housing quality standards.
HUD Handbook 7420.10g, Chapter 10, Section 10.6
The handbook provides guidance the public housing authority should consider in determining
how many total inspections will need to be scheduled and completed each year. After estimating
the number of required unit inspections, the public housing authority should determine the
number of staff needed to complete required inspections. It should take into account the
following factors:
• Number of days employees conduct inspections each year (exclude time in office,
training days, vacation, sick days, and approximate number of days lost to weather
conditions for the area) and
• Number of inspections each employee completes per day.
This analysis will indicate the number of inspections each inspector must have scheduled and
completed each day. The public housing authority should determine the amount of time required
for an inspector to complete thorough inspections, taking into account the type of unit and the
number of bedrooms. The public housing authority should also consider travel time.
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Appendix D
SCHEDULE OF UNITS IN MATERIAL NONCOMPLIANCE
WITH HOUSING QUALITY STANDARDS
Sample item Total 24-hour Number of Number of
number deficiencies emergency deficiencies deficiencies found
deficiencies missed by by Authority but
Authority not corrected
3298 7 4 3
1009 4 3 2
184 3 2 2
2867 2 1 1 1
2794 5 2 1
903 3 2 2
103 6 1 5
2132 2 1 1
3199 8 2 1
3663 8 4 5
209 4 1 2
2257 2 1 1 1
1557 3 1 1
108 5 4 2
1638 3 3 1
1284 5 1 1
1054 4 3 2
3203 2 1 1
1819 6 1 1
2527 10 3 1 1
458 11 4 1 2
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Sample item Total 24-hour Number of Number of
number deficiencies emergency deficiencies deficiencies found
deficiencies missed by by Authority but
Authority not corrected
1022 6 1 4
1481 3 2 1
4175 7 3 1
1736 5 4 2
1132 8 3 3 1
Total 132 58 45 9
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The Housing Authority of the City of Winston-Salem, Winston-Salem, North Carolina
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-01-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)