oversight

The Municipality of San Juan Housing Authority, San Juan, Puerto Rico, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-02-23.

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

                                                                 Issue Date
                                                                              February 23, 2006
                                                                 Audit Report Number
                                                                              2006-AT-1006




TO:        Olga I. Saez, Director, Public and Indian Housing, San Juan Field Office,
            4NPH


FROM:      James D. McKay
           Regional Inspector General for Audit, 4AGA

SUBJECT:   The Municipality of San Juan Housing Authority, San Juan, Puerto Rico,
           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
           Municipality of San Juan Housing Authority’s (Authority) Section 8 Housing
           Choice Voucher program. The review was initiated in response to a request from
           HUD’s San Juan Office of Public and Indian Housing. The San Juan office
           advised that it was not satisfied with the Authority’s overall performance in
           administering its Section 8 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 63 units (94 percent) did not meet
           minimum housing quality standards. Of the 63 units, 25 were in material
           noncompliance with housing quality standards. As a result, tenants lived in units




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           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,
           HUD will pay housing assistance payments of more than $5.8 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 63 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 $5.8 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 January 24, 2006,
           for their comments and discussed the report with the officials at the exit
           conference on January 27, 2006. The Authority provided its written comments to
           our draft report on February 7, 2006. In its response, the Authority generally
           agreed with the findings.

           The complete text of the Authority’s 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                                                                14

Internal Controls                                                                    16

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use               17
   B.   Auditee Comments                                                             18
   C.   Criteria                                                                     20
   D.   Schedule of Units in Material Noncompliance with Housing Quality Standards   21




                                              3
                     BACKGROUND AND OBJECTIVES

The Municipality of San Juan Housing Authority (Authority) administers approximately 4,000
housing choice vouchers in San Juan, Puerto Rico, and its vicinity. The annual assistance
payments and administrative fees approach $24 million. The Authority’s Subsidized Housing
Office was assigned the responsibility of administering the Section 8 program. The Authority’s
books and records for the Section 8 program are maintained at 1205 Ponce de Leon Avenue, San
Juan, Puerto Rico.

We audited the Authority’s Section 8 Housing Choice Voucher program in response to a request
from the U.S. Department of Housing and Urban Development’s (HUD) San Juan, Puerto Rico,
Office of Public and Indian Housing. The San Juan office advised that it was not satisfied with
the Authority’s overall performance in administering its Section 8 program. The San Juan office
conducted several reviews during the past few years that continually identified weaknesses in the
Authority’s procedures.

This is the second Office of Inspector General (OIG) audit of the Authority. Audit report 2005-
AT-1015, issued September 29, 2005, pointed out that the Authority did not have adequate
controls to ensure tenants received the proper voucher size, assistance payments were correct,
files were properly documented, and participants were properly selected from the waiting list.
HUD is working with the Authority to resolve the findings in that report.

The objective of our audit was to determine whether the Authority’s 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 63 units (94 percent) did not meet minimum housing
quality standards. Of the 63 units not meeting standards, 25 were in material noncompliance
with housing quality standards. Projecting the results of the statistical sample to the population
indicates at least 3,666 of the Authority’s 4,105 units did not meet minimum housing quality
standards and 1,136 units were in material noncompliance with housing quality standards. This
occurred because the Authority’s 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 $5.8 million for units in material noncompliance with housing quality standards.



 Health and Safety Hazards Were
 Predominant


               We inspected a statistical sample of 67 units with a HUD public housing
               revitalization specialist, an OIG housing inspector, and the Authority’s inspectors.
               We found that 25 units with 359 deficiencies were in material noncompliance
               with housing quality standards. Appendix D provides details on the 25 units.

               The following table lists the most frequently occurring deficiencies for all 67 units
               we inspected.

                                                            Number of      Number     Percentage
                              Type of deficiency            deficiencies   of units    of units
                   Illumination and electrical                  198           57          85%
                   Structure and materials                      150           38          57%
                   Smoke detectors                               70           49          73%
                   Access                                        56           33          49%
                   Water supply                                  41           32          48%
                   Sanitary facilities                           17           17          25%
                   Food preparation and refuse disposal          15           13          19%
                   Other                                         29           25          37%




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          The most predominant deficiencies were electrical hazards, including exposed
          wiring, missing outlet covers, improper wiring of water heaters, inoperable
          outlets, and unshielded electrical wires.




             Main electrical connection hanging from pole within reach,
             creating an electrical shock hazard. The deficiency was not
             reported by the Authority during its July 12, 2005 inspection.




             Improper wiring of water heater. The tenant stated that this
             deficiency existed at the time of the last Authority inspection.


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             Unshielded electrical wire not reported by the Authority during
             its August 5, 2005, inspection.




             Missing outlet cover, creating an electrical shock hazard.
             There were also signs of roach infestation in the unit.




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                                          7
              We also found other health and safety hazards including water leaks, stairs or
              porches needing handrails or repairs, vermin or rodent infestation, rubbish
              accumulation, and missing or inoperable smoke detectors.




             Hole in kitchen ceiling with signs of serious water leaks.




             Second floor porch with missing handrails. The tenant stated
             that this deficiency had existed since move-in, around
             September 2004.


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             Tools, toys, and other rubbish accumulated throughout room.
             The tenant stated that this room is used by the owner as storage
             space.




             Inoperable smoke detector.




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                                          9
             Unsecured propane gas tank outside of kitchen wall, placed
             over loose and broken tiles.




             Unauthorized and improperly installed shower heater, creating
             an electrical shock hazard. This deficiency was not reported by
             the Authority during its August 5, 2005 inspection.




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                                         10
The Authority Did Not
Implement Effective Internal
Controls


            Authority management did not maintain adequate internal controls to ensure that
            its units met minimum housing quality standards and inspections complied with
            requirements. As a result, the Authority either did not identify the deficiencies
            found during our inspections or reported them as having been corrected when they
            were not. In addition, the Authority did not perform required inspections.

            Several deficiencies existed at the time of the Authority’s most recent inspection,
            but the inspectors did not report them. Damage from water leaks, damaged doors,
            inoperable electrical outlets, missing smoke detectors, and improper electrical
            installations were some of the deficiencies not reported by inspectors.
            Additionally, we found one instance in which inspectors reported deficiencies as
            having been corrected when they were not. Authority inspectors informed us that
            the deficient inspections were attributed to an excessive workload or a lack of
            familiarity with HUD requirements. This was not an acceptable explanation for
            not performing an integral component of its Section 8 Housing Choice Voucher
            program responsibilities.

            We also found that the Authority did not conduct all required inspections. Federal
            regulations at CFR [Code of Federal Regulations] 932.405 require the Authority
            to inspect all leased units at least annually. It had not inspected 23 of the 67 units
            in our sample, 34 percent, within the most recent 12 months. Of the 23 units, the
            Authority had not inspected nine for more than three years.




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                     File         Date of last Authority   Days elapsed since last Authority
                   Number               inspection                   inspection*
                    5042               Dec. 9, 2000                     1,701
                    4064              Aug. 21, 2001                     1,449
                     975              Sept. 27, 2001                    1,413
                    2409              Sept. 27, 2001                    1,413
                    7193              Oct. 16, 2001                     1,394
                    2099              Oct. 17, 2001                     1,393
                    6603              Dec. 17, 2001                     1,333
                    9293              Feb. 22, 2002                     1,268
                    9576               June 6, 2002                     1,164
                    1946              Aug. 29, 2002                     1,081
                    6637              Sept. 09, 2002                    1,071
                    4006               Oct. 3, 2002                     1,047
                    9587              Oct. 24, 2002                     1,026
                     527              Oct. 29, 2003                      661
                    2373               Jan. 21, 2004                     579
                    9020               Feb. 3, 2004                       567
                     853              May 28, 2004                       452
                    9543               June 2, 2004                       448
                     381               June 3, 2004                       447
                      39               July 6, 2004                       414
                   PI-033             July 15, 2004                       405
                    4163              July 20, 2004                      400
                    9148              Aug. 10, 2004                      380
                *
                  Up to August 30, 2005

             In March 2005, HUD contracted with a private consultant to provide technical
             assistance to the Authority. The consultant reported to HUD in June 2005 that the
             Authority was not conducting inspections within the prescribed time and that it
             had a backlog of more than 3,000 units. Authority officials informed us that the
             backlog was the result of inadequate supervision and that it had assigned
             additional resources to correct the condition. The Authority estimates that the
             backlog was reduced to 1,000 units as of November 2005.


Conclusion

             Because Authority management failed to implement adequate internal controls,
             HUD made housing assistance payments for units that did not meet housing
             quality standards. The Authority did not maintain adequate controls to ensure that
             inspections met HUD requirements. The Authority needs to improve its
             inspection process. Management must emphasize the importance of housing
             quality standards and implement policies and procedures that ensure it complies
             with HUD requirements and gives tenants the opportunity to live in decent, safe,
             and sanitary conditions. By making the necessary improvements, the Authority
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          will ensure that at least $5.8 million in Section 8 funds are put to better use.

Recommendations


          We recommend that the director of the Office of Public Housing:

          1A. Require the Authority to inspect the 63 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 $5.8 million from being spent on units that are in
              material noncompliance with standards.




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                                            13
                         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 Administrative Plan’s policies and procedures.

•      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 August 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 August 2005.

•      Reviewed previous Authority inspection reports.

•      Inspected 67 units with a HUD public housing revitalization specialist, an OIG housing
       inspector, and the Authority inspectors to determine whether the units met housing
       quality standards. We performed the inspections from August 29 to September 8, 2005.

The download of the Authority’s Section 8 housing stock for the Housing Choice Voucher
program resulted in 4,105 active units in Puerto Rico. We used a Microsoft Excel spreadsheet
designed to calculate sample sizes. 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. We used the software to select a random sample from the 4,105 units and to
generate 33 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 four of the replacement units because four tenants in the initial sample were not
available at the time of our inspections. We selected the next consecutive units (68 through 71)
as replacement units.


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Projecting the results of the 63 failed units in our statistical sample to the population indicates the
following:

     The lower limit is 89.31 percent x 4,105 units = 3,666 units not meeting housing quality
     standards.

     The point estimate is 94.03 percent x 4,105 units = 3,860 units not meeting housing quality
     standards.

     The upper limit is 98.75 percent x 4,105 units = 4,053 units not meeting housing quality
     standards.

Of the 63 failed units, we determined that 25 units were in material noncompliance with housing
quality standards. We defined these units as being in extremely poor condition, resulting from
(1) a deficiency that had existed for an extended period of time, (2) a deficiency noted in a prior
inspection but not corrected, and/or (3) deferred maintenance that consistently failed the unit.
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.

Projecting the results of the 25 units that were in material noncompliance with housing quality
standards to the population yields the following:

     The lower limit is 27.67 percent x 4,105 units = 1,136 units in material noncompliance with
     housing quality standards.

     The point estimate is 37.31 percent x 4,105 units = 1,532 units in material noncompliance
     with housing quality standards.

     The upper limit is 46.95 percent x 4,105 units = 1,927 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 August 2005 housing assistance payments, we estimated the Authority
will pay at least $5,834,496 for 1,136 units that were in material noncompliance with housing
quality standards.

We conducted our fieldwork from August through December 2005 at the Authority’s offices in
San Juan, Puerto Rico. Our audit period was from July 2003 through August 2005. We
expanded our audit period as needed to accomplish our objectives.


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.
                                                  15
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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                                     $ 5,834,496
                                                                 _________
                        Total                                   $ 5,834,496


1/   “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 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




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                    19
Appendix C

                                         CRITERIA


Federal Regulations at 24 [Code of Federal Regulations] 982.54(a)(c)

Housing agencies must adopt a written administrative plan that establishes local policies for
administration of the program in accordance with HUD requirements. The housing agencies
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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                                                20
Appendix D

       SCHEDULE OF UNITS IN MATERIAL NONCOMPLIANCE
             WITH HOUSING QUALITY STANDARDS



                                                     Types of violations**
    File      Illumination and       Structure and         Smoke                       Water         Sanitary
  number          electrical           materials          detectors      Access        supply        facilities
   6603                1                    0                 1              0            0                0
    364                3                   10                 1              1            4                0
   9600                3                   15                 1              0            1                1
   6583               12                    2                 2              1            1                0
   9148                2                    2                 0              0            1                1
   6988                5                    2                 0              1            0                1
   6501                8                   14                 1              0            1                1
    527                2                    0                 1              1            1                0
   6461                1                    2                 1              0            0                1
   6357                1                    5                 1              3            1                0
   1534                4                    2                 2              0            1                0
   2409                6                    1                 2              2            2                0
   9293                1                    1                 1              0            0                0
   5093                4                    1                 1              2            1                0
   1946                1                    6                 1              3            2                0
   2373               11                   20                 1              4            1                0
   4163                9                    4                 2              2            1                0
  PI033               8                    7                  2              1            1                1
   6262                7                    2                 2              1            0                1
    381                1                    1                 1              0            0                0
   9049                3                    4                 0              0            2                0
   9576                3                    4                 2              2            0                1
   6435               12                    1                 1              1            1                0
  MB137                6                    9                 2              2            0                1
   1745                6                    0                 0              3            1                1
  **
   The table does not indicate all violations we found in the unit. We only included the most frequently
   occurring and serious violations.



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