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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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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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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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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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.
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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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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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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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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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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
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Comment 2
Comment 3
Comment 4
Comment 5
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Comment 6
Comment 7
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OIG Evaluation of Auditee Comments
Comment 8
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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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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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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)