oversight

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)

                                                                 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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                                             2
                              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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                                               4
                                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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                                               5
            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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                                              6
                        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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                                         9
 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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                                             11
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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                                           12
                         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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                                             15
                             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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                                               16
                                       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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                                                 17
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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                    19
                         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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                                            20
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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                                                21
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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                                         22
 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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