oversight

The Metropolitan Development and Housing Agency, Nashville, Tennessee, 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 2006-05-18.

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

                                                                   Issue Date
                                                                            May 18, 2006
                                                                   Audit Report Number
                                                                                2006-AT-1009




TO:           Karl Kucen, Director, Office of Public Housing, 4KPH


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

SUBJECT:      The Metropolitan Development and Housing Agency, Nashville, Tennessee, Did
              Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary


                                     HIGHLIGHTS


 What We Audited and Why

              Based on a risk analysis, the U.S. Department of Housing and Urban
              Development (HUD), Office of the Inspector General (OIG) audited the
              Metropolitan Development and Housing Agency’s (Agency) 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 a statistical sample of 71 Section 8 units found that 52 units (73
              percent) did not meet minimum housing quality standards. Of the 52 units, 30
              were in material noncompliance. This condition occurred because Agency
              management did not implement an effective internal control plan that ensured it
              complied with HUD requirements at all times or complied with the Agency’s
              administrative plan for inspecting units. As a result, tenants lived in units that
              were not decent, safe, and sanitary, and the Agency made housing assistance


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           payments for units that did not meet standards. We estimate that over the next
           year, the Agency will pay housing assistance payments of more than $8.7 million
           for units in material noncompliance with housing quality standards if it does not
           implement adequate controls.

What We Recommend


           We recommend that the director of the Office of Public Housing require the
           Agency to inspect the 52 units that did not meet minimum housing quality
           standards to verify that the owners took appropriate corrective action to make the
           units decent, safe, and sanitary. If appropriate actions were not taken, the Agency
           should abate the rents or terminate the housing assistance payment contracts. The
           director should also require the Agency to implement internal controls that ensure
           units meet housing quality standards and inspections meet HUD requirements to
           prevent more than $8.7 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 Agency and HUD officials during the audit. We
           provided a copy of the draft report to Agency officials on March 28, 2006, for
           their comments and discussed the report with the officials at the exit conference
           on April 4, 2006. The Agency provided its written comments to our draft report
           on April 13, 2006. The auditee stated that it has controls that provide reasonable
           assurance that units meet housing quality standards before the housing assistance
           payments contracts become effective. It acknowledged that at any given time a
           significant percentage of units will not be in compliance with standards, but
           claimed that it abates housing assistance payments for units with fail items that
           are not corrected within 30 days. The Agency also stated that its staffing reflected
           HUD’s priorities in other areas rather than in property inspections.

           The complete text of the auditee’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                                                                12

Internal Controls                                                                    15

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use               16
   B.   Auditee Comments and OIG’s Evaluation                                        17
   C.   Criteria                                                                     23
   D.   Schedule of Units in Material Noncompliance with Housing Quality Standards   24




                                              3
                     BACKGROUND AND OBJECTIVES

The Metropolitan Development and Housing Agency (Agency), formally known as the Nashville
Housing Authority, was formed in 1938 pursuant to the Tennessee Housing Authority Law. Its
primary objective is to provide safe and sanitary housing to low-income residents in and around
the City of Nashville, Tennessee, in compliance with its annual contributions contract with the
U.S. Department of Housing and Urban Development (HUD). The agency administers more
than 5,300 housing choice vouchers. The annual housing assistance payments and administrative
fees for 2005 were $26.7 million.

A seven-member board of commissioners appointed by the mayor of Nashville governs the
Agency. The Agency’s executive director is responsible for the daily administration of the
Agency.

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 71 Section 8 units showed that 52 units (73 percent) did not meet minimum
housing quality standards. Of the 52 units, 30 were in material noncompliance. Projecting the
results of the statistical sample to the population indicates at least 3,283 of the Agency’s 5,338
units did not meet minimum housing quality standards and 1,639 units were in material
noncompliance. This condition occurred because Agency management did not implement an
effective internal control plan that ensured it complied with HUD requirements at all times or
complied with the Agency’s administrative plan for inspecting units. As a result, tenants lived in
units that were not decent, safe, and sanitary, and the Agency made housing assistance payments
for units that did not meet standards.



 The Agency Will Pay More Than
 $8.7 Million for Units in Material
 Noncompliance



               Agency management did not implement an effective internal control plan that
               ensured it complied with HUD requirements at all times or complied with the
               Agency’s administrative plan for inspecting units. Thus, units were not decent, safe,
               and sanitary, and the Agency made housing assistance payments for units that did
               not meet standards. We estimate that over the next year, the Agency will pay
               housing assistance payments of more than $8.7 million for units that are in material
               noncompliance with housing quality standards if it does not implement adequate
               controls. We inspected a statistical sample of 71 units with HUD facilities
               management specialists and the Agency’s lead inspector and found that 30 units
               with 248 deficiencies were in material noncompliance with housing quality
               standards.

               Further, 31 of the 248 deficiencies existed at the time of the Agency’s most recent
               inspection, but the inspectors either did not identify the deficiencies or did not
               report them as failing conditions. These deficiencies included window and door
               problems, blocked exits, and severe mold. Appendix D provides additional
               details of the deficiencies for the 30 units that were in material noncompliance
               with standards.



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                                                 5
           The following table lists the most frequently occurring deficiencies for the 52
           units that did not meet minimum housing quality standards.

                        Type of          Number of       Number of        Percentage
                       deficiency        deficiencies      units           of units
                 Windows                      52            28                54
                 Doors                        36            22                42
                 Electrical hazards           26            15                29
                 Blocked exits                25            18                35
                 Mold                         20             9                17
                 Water leaks                  18            16                31
                 Infestation                  14            14                27


Window and Door Deficiencies
Were Predominant

           The most predominant deficiencies were windows and doors that did not operate
           properly or could not be secured.




                       The entry door had a damaged door knob assembly and
                       lock set; the tenant blocked the door with a refrigerator
                       to prevent intrusion.




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                                            6
           We found 26 instances of electrical hazards, such as exposed wires and missing
           outlet covers. Many of these were in children’s bedrooms.




                    Missing outlet cover in child’s bedroom

           We found numerous fire hazards, such as blocked exits.




                    The dresser covers the entire bedroom window,
                    preventing exit in an emergency.

                                            7
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         We found 20 instances of mold in nine units.




                Severe mold in water heater closet




                Severe mold on bathroom window




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                                         8
         We found water leaks in 16 units.




                Water leak under the kitchen sink

         Insect infestation was also a common problem.




                A roach near an infant’s toy

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                  Roaches on spatula and near “clean” dishes


The Agency Is Required To
Ensure Properties Meet
Standards


           The Agency is required by HUD and its administrative plan to inspect each
           Section 8 unit at least once a year to ensure the properties meet minimum
           conditions for compliance with standards. HUD requirements and the Agency’s
           administrative plan provide minimum conditions that must exist for a unit to be
           considered decent, safe, and sanitary. Each unit must meet minimum housing
           quality standards for the entire period of tenancy.

           We found that Agency inspectors often either did not identify or did not report
           failing conditions. Of the 248 deficiencies we found in the units that were in
           material noncompliance, 31 deficiencies clearly existed at the time of the
           Agency’s last inspection but were not reported by the inspectors. The
           deficiencies included blocked exits, severe mold, and foundation problems. Of
           the 31 preexisting deficiencies, 10 were in one unit that the Agency inspected and
           passed just 34 days before our inspection.

           The inspection staff was responsible for all inspections, reinspections, emergency
           inspections, and complaint inspections for more than 5,300 Section 8 units. The
           Agency did not have a written policy requiring it to perform an analysis to
           determine whether it employed adequate inspection staff to perform all required
           inspections. However, it did employ a consultant to review its program. In a July

                                           10
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          10, 2002, report, the consultant advised the Agency that its unit inspection
          workload was excessive. At that time, the Agency had five inspectors. The
          report states in part, “The Section 8 program has dramatically increased rental
          assistance in the metropolitan area over the last four years with accelerated
          growth resulting in an increase of over 58 percent in leased units. This has been
          accomplished with only minimal increase in Rental Assistance Department
          staffing levels from 21 to 24, an increase of less than 15 percent.” Despite the
          consultant’s analysis, the Agency did not hire additional inspectors. Further, from
          January 1, 2000, to December 31, 2005, the Agency’s allocation of Section 8
          units increased by about 47 percent; however, the Agency still had only five
          inspectors.

          Inspection staff told us that they felt rushed to get their inspections done and did
          not have time to perform a detailed inspection of all units. Thus, they “skimmed
          over” their inspections when the workload was too high, and they relied heavily
          on tenants to tell them about deficiencies. Further, because of the inspectors’ high
          workloads, they often worked at their homes in the evenings to prepare their
          inspection reports and letters to owners, notifying them of inspection deficiencies.


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

          1A. Require the Agency to inspect the 52 units that did not meet minimum
              housing quality standards to verify that the owners took appropriate
              corrective actions to make the units decent, safe, and sanitary. If appropriate
              actions were not taken, the Agency should abate the rents or terminate the
              housing assistance payment contracts.

          1B. Require the Agency to develop and implement an internal control plan that
              ensures units meet housing quality standards and inspections meet HUD
              requirements to prevent more than $8.7 million from being spent on units
              that are in material noncompliance with standards.




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                                           11
                          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 Agency’s Section 8 policies, procedures, and administrative plan.

•      Interviewed HUD and Agency management and staff.

•      Reviewed the Agency’s latest independent public accountant report and HUD program
       monitoring reviews.

•      Obtained a download of the Agency’s Section 8 housing stock for the Housing Choice
       Voucher program as of December 1, 2005.

•      Selected a statistical sample of units for inspection from the Agency’s Section 8 housing
       stock for the Housing Choice Voucher program as of December 1, 2005.

•      Reviewed previous Agency inspection reports.

•      Inspected 71 units with a facilities management specialist from the Nashville, Tennessee,
       Office of Public Housing and the Agency’s lead inspector to determine whether the units
       met housing quality standards. We performed the inspections from January 9 to 27,
       2006.

The download of the Agency’s Section 8 housing stock for the Housing Choice Voucher
program resulted in 5,338 active units. We used a statistical software program to select a random
sample of the 5,338 units. Based on a confidence level of 95 percent, a precision level of 10
percent, and an assumed error rate of 75 percent, the software returned a statistical sample of 71
units with a random selection start. We used the software to generate 29 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 12 of the replacement units because 12 of the primary units were no longer being
subsidized or the tenants were not home. We selected the replacement units in succession until
the required 71 units were inspected.

Projecting the results of the 52 failed units in our statistical sample to the population indicates

     The lower limit is 61.5 percent x 5,338 units = 3,283 units not meeting housing quality
     standards.

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     The point estimate is 73.24 percent x 5,338 units = 3,910 units not meeting housing quality
     standards.

     The upper limit is 83.0 percent x 5,338 units = 4,431 units not meeting housing quality
     standards.

Of the 52 failed units, 30 were in material noncompliance with housing quality standards. We
based our assessment on prior Agency inspection reports, tenants’ comments, and our
observation and judgment of the condition of the unit during the inspection. We judged units to
be in material noncompliance with housing quality standards because of the overall poor
condition of the unit, and/or one of the fail conditions was a 24-hour emergency deficiency,
and/or one of the fail conditions was a preexisting condition that either was not identified or not
reported at the time of the Agency’s last inspection, and/or the unit had inadequate repairs.

Projecting the results of the 30 units that were in material noncompliance with housing quality
standards to the population yields the following:

     The lower limit is 30.7 percent x 5,338 units = 1,639 units in material noncompliance with
     housing quality standards.

     The point estimate is 42.25 percent x 5,338 units = 2,255 units in material noncompliance
     with housing quality standards.

     The upper limit is 54.5 percent x 5,338 units = 2,909 units in material noncompliance with
     housing quality standards.

The Agency’s December 1, 2005, housing assistance payments register showed that the average
monthly housing assistance payment was $447. Using the lower limit of the estimate of the
number of units and the average monthly housing assistance payment, we estimated that the
Agency will annually spend at least $8,791,596 (1,639 units x $447 average payment x 12
months) for units that are in material noncompliance with housing quality standards. This
estimate is presented solely to demonstrate the annual amount of Section 8 funds that could be
put to better use on decent, safe and sanitary housing if the Agency implements our
recommendation. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate. We also considered that (1) the
Agency did not identify many of the past conditions during its most recent inspections, (2) the
units would not be scheduled for another inspection for another year under normal
circumstances, and (3) it would take the Agency at least a year to complete all inspections under
an improved inspection process.

We conducted our fieldwork from November 2005 through February 2006 at the Agency’s
offices in Nashville, Tennessee. Our audit period was from October 1, 2004, through January
31, 2006. 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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                                             14
                             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 Agency did not have adequate internal controls to ensure that Section
                      8 units met housing quality standards (see finding 1).



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                                               15
                                      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                                     $ 8,791,596
                                                                   _________
                         Total                                    $ 8,791,956


1/     “Funds to be put to better use” are estimates of amounts that could be used more
       efficiently if an Office of Inspector General (OIG) recommendation is implemented.
       This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy
       costs, costs not incurred by implementing recommended improvements, avoidance of
       unnecessary expenditures noted in preaward reviews, and any other savings which are
       specifically identified. In this instance, if the Agency implements our recommendation, it
       will cease to incur Section 8 costs for units that are not “decent, safe and sanitary,” and,
       instead will expend those funds for units that meet HUD’s standards. Once the Agency
       successfully improves its controls, this will be a recurring benefit. Our estimate reflects
       only the initial year of these recurring benefits.




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                                               16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




  Table of Contents      17
Comment 2




Comment 3



Comment 4




Comment 5




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                        18
Comment 6




Comment 7




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                        19
                       OIG Evaluation of Auditee Comments




Comment 8




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                                      20
                        OIG Evaluation of Auditee Comments




Comment 1   Our audit showed that 73 percent of the Agency’s units did not meet minimum
            housing quality standards and at least 42 percent of the units were in material
            noncompliance with standards. These results do not support the Agency’s
            claim that its internal controls were effective. Further, HUD requires units to
            meet minimum standards during the entire tenancy, not just at the time the
            housing assistance payment contract becomes effective.

Comment 2   Section 12.1 of the Agency’s administrative plan required a minimum of five
            percent of units under lease at fiscal year end be subject to quality control
            inspections. At September 30, 2004, the Agency had 5,190 units under lease.
            Thus, in accordance with its administrative plan, the Agency was required to
            conduct 260 (5,190 x .05) quality control inspections during its fiscal year
            ended September 30, 2005. However, the Agency only performed 162 quality
            control inspections during the period. While this exceeded HUD’s
            requirement, the Agency did not comply with its own requirements to review
            five percent. Further, the number of quality control inspections was well
            below the eight percent the Agency claimed it performed in its response to our
            draft report.

Comment 3   We agree that the Agency’s policies and procedures required it to abate
            housing assistance payments for units when deficiencies were not corrected.
            However, our review found the Agency did not always comply with its
            policies and procedures. Our review of twenty tenant files found the Agency
            did not abate housing assistance payments for two units. We discussed the
            deficiency with Agency staff during our audit. The Agency subsequently
            revised its procedures. Because we believed the revised procedures, if
            followed, should be adequate to reduce the likelihood of future occurrences,
            we did not include this condition in our report.

Comment 4   The Agency claimed that deficiencies arise during the year, but are identified
            during the next inspection. However, our inspections showed that 15 of the 30
            units (50 percent), that were in material noncompliance with standards had
            deficiencies that existed at the time of the Agency’s most recent inspection,
            but the inspectors either did not identify the deficiencies or did not report them
            as failing conditions. The Agency had inspected five of these 15 units within
            the last 50 days. We also found that inspectors did not consistently fail units
            that had blocked exists. We discussed this with Agency management at the
            exit conference.



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Comment 5   We agree that the Agency’s percentage of units that were in material
            noncompliance with housing quality standards is in line with those found
            during other recent OIG audits. Similarly, our recommendations are consistent
            with those audits.

Comment 6   Our report does not state that the Agency failed to implement the consultant’s
            recommendations. We did point out that the consultant advised the Agency
            that its unit inspection workload was excessive, and even though the workload
            has grown since that time, the Agency has not hired additional inspectors. We
            recognize the consultant’s report did not recommend an increase in the number
            of inspectors. Similarly, we have not recommended an increase. However,
            despite the changes the Agency implemented pursuant to the consultant’s
            report, it has still failed to meet its mission of providing decent, safe, and
            sanitary housing. We believe that in its implementation of our
            recommendations, the Agency should consider performing the suggested
            staffing analysis along with other internal control improvements that would
            enable it to better accomplish its mission and to ensure additional HUD funds
            are not spent for units that are in material noncompliance with housing quality
            standards. We added the suggested guidance in the Criteria section of the
            report.

Comment 7   In fiscal year 2003, Congress enacted changes in the Housing Choice Voucher
            Program in order to fund each public housing agency’s Housing Choice
            Voucher Program at a level that more closely reflected actual funding needs.
            For fiscal year 2004, 2005, and 2006, additional changes were enacted to
            better control the increasing costs of vouchers. Notice PIH 2004-7 advises that
            agencies must manage their programs in a prudent manner, to enable them to
            serve families within their baseline.

            While funding levels and HUD priorities may have necessitated the Agency to
            operate more efficiently, HUD did not relieve the Agency of its responsibility
            to inspect units or to provide decent, safe, and sanitary housing to eligible
            families in accordance with requirements.

Comment 8   As discussed in our Comment 1, 73 percent of the Agency’s units did not meet
            minimum housing quality standards and at least 42 percent of the units were in
            material noncompliance with standards. Further, as discussed in Comment 4,
            50 percent of the units in material noncompliance had conditions that existed
            at the time of the Agency’s last inspection. Thus, we do not believe the
            Agency’s internal controls in effect at the time of our audit provides
            reasonable assurance that units are in compliance with standards.



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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.

National Fire Protection Association 101 Life Safety Code, Chapter 24, Section 2.2.1

In any dwelling or dwelling unit of two rooms or more, every sleeping room and every living
area shall have one primary means of escape and one secondary means of escape.

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       Preexisting   Inadequate
     number      deficiencies   emergency      conditions      repairs
                                deficiencies
      1846              7             1            1
      122               4             1            4
      5093              5             1            1
      4360              6                          1             1
      3888              6            2             1
      3595              5                          2
      4030             11            2             1
      4996             10
      4790              8
      3194              9
      1736              4
      146              12
      4184              8            1
      3862              7
      4966             11            1
      3803             17                          10            1
      5044              8                                        1
      5169              8            2
      4671             10            2             1
      3434             12            1             2
      5152             13            1
      489               3                          1
      1421              6                          1



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                                     24
Sample item      Total        24-hour       Preexisting   Inadequate
  number      deficiencies   emergency      conditions      repairs
                             deficiencies
   4707               8                         2
   4271               8           2
   5225               8
   1430               9
   4895              11                         3
   4915               7           1
   2739               7
   Total            248          18             31            3




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