Issue Date July 27, 2006 Audit Report Number 2006-AT-1015 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 Bayamon Housing Authority, Bayamon, 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 Bayamon Housing Authority’s (Authority) 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 66 Section 8 units found that 58 units (88 percent) did not meet minimum housing quality standards. Of the 58 units, 15 were in material noncompliance with housing quality standards. As a result, tenants lived in units that were not decent, safe, and sanitary, and the Authority made housing assistance payments for units that did not meet standards. We estimate that over the next year, the Authority will disburse housing assistance payments of more than $1.4 million for units in material noncompliance with housing quality standards. Table of Contents What We Recommend We recommend that the director of the Office of Public Housing require the Authority to inspect all of the 58 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 that units meet housing quality standards and inspections meet HUD requirements to prevent an estimated $1.4 million from being spent on units that are in material noncompliance with standards. For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. Auditee’s Response We discussed the findings with the Authority and HUD officials during the audit. We provided a copy of the draft report to Authority officials on June 26, 2006, for their comments and discussed the report with the officials at the exit conference on July 10, 2006. The Authority provided its written comments to our draft report on July 13, 2006. The Authority generally disagreed with the finding. However, the Authority identified a number of actions it has taken to improve its controls. The Authority’s response, except for 12 attachments, along with our evaluation of that response, can be found in appendix B of this report. The attachments are available upon request. Table of Contents 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary 5 Scope and Methodology 13 Internal Controls 16 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 17 B. Auditee Comments and OIG’s Evaluation 18 C. Criteria 32 D. Schedule of Units in Material Noncompliance with Housing Quality Standards 33 3 BACKGROUND AND OBJECTIVES The Municipality of Bayamon Housing Authority (Authority) administers approximately 1,800 housing choice vouchers in Bayamon, Puerto Rico, and its vicinity. The annual assistance payments and administrative fees approach $13 million. The Authority’s housing department was assigned the responsibility of administering the Section 8 program. The Authority’s records for the Section 8 program are maintained at Marginal Virgilio Davila, Bayamon, Puerto Rico. The objective of our audit was to determine whether the Authority’s Section 8 units met housing quality standards in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. Table of Contents 4 RESULTS OF AUDIT Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary Our inspection of 66 units showed that 58 units (88 percent) did not meet minimum housing quality standards. Of the 58 units not meeting standards, 15 were in material noncompliance with housing quality standards. Projecting the results of the statistical sample to the population indicates at least 1,475 of the Authority’s 1,813 units did not meet minimum housing quality standards and 261 units were in material noncompliance with housing quality standards. This occurred because the Authority did not implement an effective internal control plan that ensured units met minimum housing standards and inspections complied with requirements. As a result, tenants lived in units that were not decent, safe, and sanitary, and the Authority made housing assistance payments for units that did not meet standards. Based on the sample, we estimate that over the next year, the Authority will disburse housing assistance payments of more than $1.4 million for units in material noncompliance with housing quality standards. Health and Safety Hazards Were Predominant We inspected a statistical sample of 66 units with an Office of Inspector General (OIG) housing inspector and the Authority’s inspectors and found that 15 units with 149 deficiencies were in material noncompliance with housing quality standards. Appendix D provides details on the 15 units. The following table lists the most frequently occurring deficiencies for all 66 units we inspected. Number of Number of Percentage of Type of deficiency deficiencies units units Illumination and electrical 169 52 78.8 Structure and materials 42 26 39.4 Water supply 35 25 37.9 Smoke detectors 12 12 18.2 Other 39 23 34.8 Total deficiencies 297 Table of Contents 5 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 resting on plywood sheet above metal roof, creating an electrical shock hazard. Breaker panel in kitchen with no internal fixed cover and with exposed electrical contacts, creating an electrical shock hazard. The tenant stated that this deficiency had existed since move- in, around October 2003. Table of Contents 6 Improper wiring of water heater with exposed wire connections, creating an electrical shock hazard. In addition, the pressure relief valve has no discharge pipe. The tenant stated that this deficiency existed at the time of the last Authority inspection. Hole in the bedroom wall (next to bed) and missing outlet cover, creating an electrical shock hazard. Table of Contents 7 Improper wiring of a secondary breaker box to primary breaker. This deficiency was not reported by the Authority during its June 7, 2005, inspection. Unauthorized and improperly installed shower heater, creating an electrical shock hazard. Table of Contents 8 We also found other health and safety hazards, including water leaks, stairs or porches needing handrails, vermin or rodent infestation, bedrooms with no windows, and missing or inoperable smoke detectors. Pealing paint due to water leak on living room ceiling. Second floor porch has no guardrails. The tenant stated that this deficiency had existed since move-in, around June 2002. This deficiency was not reported by the Authority during its January 31, 2006, inspection. Table of Contents 9 Front entrance porch has no guardrail and handrail. The tenant informed us that this condition had existed since move-in, around May 2003. This deficiency was not reported by the Authority during its February 9, 2006, inspection. Rusted out hole in the bottom of bathroom tub, creating a cutting hazard. Table of Contents 10 Signs of rodent infestation (droppings) inside sink cabinet in kitchen. View of bedroom that has no window and does not provide adequate air circulation, except for wind driven ventilator next to the ceiling fan. This deficiency was not reported by the Authority during its January 30, 2006, inspection. Table of Contents 11 The Authority Is Required to Ensure Properties Meet Standards The Authority is required by HUD and its administrative plan to inspect Section 8 units at least once a year to ensure that the properties meet minimum conditions for compliance with standards. HUD requires and the Authority’s administrative plan provides 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 225 deficiencies that existed at the time of the Authority’s most recent inspection, but the inspectors did not identify or did not report them. Damage from water leaks, missing guardrails, bedrooms with no windows, and improper electrical installations were some of the deficiencies not reported by inspectors. Authority inspectors informed us that some of the deficient inspections were attributed to oversight or their unfamiliarity with HUD requirements. Conclusion Because the Authority did not implement adequate internal controls, it 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. 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, we estimate the Authority will prevent more than $1.4 million in Section 8 funds from being spent on units that are in material noncompliance with standards. Recommendations We recommend that the director of the Office of Public Housing 1A. Require the Authority to inspect the 58 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 Authority should abate the rents or terminate the housing assistance payment contracts. 1B. Require the Authority to develop and implement an internal control plan that ensures units meet housing quality standards and inspections meet HUD requirements to prevent more than $1.4 million from being spent on units that are in material noncompliance with standards. 12 Table of Contents SCOPE AND METHODOLOGY Our audit objective was to determine whether Section 8 units met housing quality standards in accordance with HUD requirements. To accomplish our objective, we did the following: • Reviewed applicable laws, regulations, and other HUD program requirements. • Reviewed the Authority’s Section 8 policies, procedures, and administrative plan. • Interviewed HUD and Authority management and staff. • Reviewed the Authority’s latest independent public accountant report and HUD program monitoring reviews. • Obtained a download of the Authority’s Section 8 housing stock for the Housing Choice Voucher program as of February 6, 2006.1 • Selected a statistical sample of units for inspection from the Authority’s Section 8 housing stock for the Housing Choice Voucher program as of February 6, 2006. • Reviewed previous Authority inspection reports. • Inspected 66 units with an OIG housing inspector and the Authority inspectors to determine whether the units met housing quality standards. We performed the inspections from April 3 to 20, 2006. The download of the Authority’s Section 8 housing stock for the Housing Choice Voucher program resulted in 1,813 active units in Puerto Rico. We used a statistical software program to calculate the sample size. 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 66 units. We used the Audit Command Language software to select a random sample from the 1,813 units and to generate 60 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 had moved to new units. We selected the replacement units in succession until the required 66 units were inspected. 1 To achieve our audit objectives, we relied in part on computer-processed data contained in the Authority’s database. Although we did not perform a detailed assessment of the reliability of the data, we did perform a minimal level of testing and found it to be adequate for our purposes. 13 Table of Contents Projecting the results of the 58 failed units in our statistical sample to the population indicates the following: The lower limit is 81.39 percent x 1,813 units = 1,475 units not meeting housing quality standards. The point estimate is 87.88 percent x 1,813, units = 1,594 units not meeting housing quality standards. The upper limit is 94.37 percent x 1,813 units = 1,710 units not meeting housing quality standards. Of the 58 failed units, 15 units were in material noncompliance with housing quality standards. We based our assessment on prior Authority inspection reports, tenants’ comments, and our observation and judgment of the condition of the unit during inspection. We judged units to be in material noncompliance with housing quality standards because of the overall poor condition of the unit, one of the fail conditions was a preexisting condition that either was not identified or not reported at the time of the Authority’s last inspection, one of the fail conditions was a 24- hour emergency deficiency, and/or the unit had inadequate repairs. Projecting the results of the 15 units that were in material noncompliance with housing quality standards to the population yields the following: The lower limit is 14.40 percent x 1,813 units = 261 units in material noncompliance with housing quality standards. The point estimate is 22.73 percent x 1,813 units = 413 units in material noncompliance with housing quality standards. The upper limit is 31.06 percent x 1,813 units = 563 units in material noncompliance with housing quality standards. The Authority’s February 6, 2006, housing assistance payments register showed that the average monthly housing assistance payment was $458. Using the lower limit of the estimate of the number of units and the average monthly housing assistance payment, we estimated that the Authority would annually spend at least $1,434,456 (261 units x $458 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 Authority implements our recommendations. 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 Authority did not identify many of the past conditions during its most recent inspections and (2) the units would not be scheduled for another inspection for another year under normal circumstances. 14 Table of Contents We conducted our fieldwork from February through May 2006 at the Authority’s offices in Bayamon, Puerto Rico. Our audit period was from July 1, 2004, through January 31, 2006, but 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. Table of Contents 15 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: • Effectiveness and efficiency of operations, • Reliability of financial reporting, and • Compliance with applicable laws and regulations. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: • Compliance with laws and regulations – Policies and procedures that management has implemented to reasonably ensure resource use is consistent with laws and regulations. • Safeguarding of resources – Policies, and procedures that management has implemented to reasonably ensure resources are safeguarded against waste, loss, and misuse. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. Significant Weaknesses Based on our review, we believe the following item is a significant weakness: • The Authority did not have adequate internal controls to ensure that Section 8 units met housing quality standards (see finding 1). Table of Contents 16 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Funds to be put Recommendation to better use 1/ 1B $ 1,434,456 _________ Total $ 1,434,456 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 Authority implements our recommendations, 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 Authority successfully improves its controls, this will be a recurring benefit. Our estimate reflects only the initial year of this recurring benefit. Table of Contents 17 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Table of Contents 18 Comment 2 Table of Contents 19 Comment 3 20 Table of Contents Comment 4 Comment 5 Table of Contents 21 Comment 6 Comment 7 Table of Contents 22 Comment 8 Comment 9 Comment 10 Table of Contents 23 Comment 11 Comment 12 Table of Contents 24 Comment 13 25 Table of Contents Comment 14 Comment 15 26 Table of Contents Comment 16 Table of Contents 27 Comment 17 Comment 18 Table of Contents 28 Evaluation of Auditee Comments Comment 1 Our report does not state or imply that all Section 8 units did not meet housing quality standards. The audit report showed that 58 units (88 percent) of the units we inspected did not meet housing quality standards, and that 15 of these units were in material noncompliance with standards. Comment 2 The measures taken by the Authority should help to improve procedures and controls over its unit inspections. As the Authority pointed out in its response, these efforts were taken as the result of the deficiencies found during our audit. Our audit showed the Authority did not identify many of the violations from our inspections, and most were recurring violations. The $1.4 million figure represents a reasonable and conservative estimate of the dollar impact avoided by implementing the recommendation. We believe the conclusion, recommendation, and definition of funds to be put to better use in appendix A clearly communicates what this number represents. Comment 3 Our report does not state that all of the deficiencies found in the Section 8 units were present at the time of the Authority’s inspections. Our report clearly states that 225 deficiencies existed at the time of the Authority’s most recent inspection, but the inspectors did not identify or did not report them. Comment 4 Ground fault circuit interrupter does not trip - We agree that ground fault circuit interrupters are not required by HUD’s housing quality standards as the Authority pointed out in its response. However, if ground fault current interrupters are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f), which states that electrical outlets must be in proper operating condition. Improperly working ground fault circuit interrupters poses a potential hazardous condition. Comment 5 Lack of breaker box cover or loose cover, holes in breaker box, missing breakers - Our appraiser did not count as a violation breaker panels with no doors. The items were cited as a violation because the breaker panels had exposed electrical contacts, creating an electrical shock hazard. Comment 6 Cracked switches and outlets plates - We agree that a hairline crack in cover plates does not violate the housing quality standards as the Authority pointed out in its response. We adjusted our report to eliminate this previously cited violation in file numbers 382CV, 702-CV, and 1376CV. In the remaining four cases, cover plates were broken and remain as cited violations. Table of Contents 29 Comment 7 Missing lens on lamps, expose wires - HUD’s Housing Choice Voucher Program Guidebook, Chapter 10, addresses housing quality standards, including illumination and electricity standards. Specifically, it states that authorities must be satisfied that the electrical system is free of hazardous conditions, including: exposed, uninsulated, or frayed wires, improper connections, improper insulation or grounding of any component of the system, overloading of capacity, or wires lying in or located near standing water or other unsafe places. Globes were not cited as a violation unless the light was hanging by a wire without adequate support, improperly connected, exposed to the elements, or there were exposed wires that pose a potential electrical hazard. Comment 8 Exposed wire connections for lamps, fans and other electrical connections - Uncovered “Romex” type electrical wires were not cited as a violation unless the wire was not covered by rubber or plastic insulation, frayed, or improperly installed creating an electrical shock hazard. In all four cases cited by the Authority, the violations we cited included the use of regular lamp cord (not “Romex”) as part of the permanent wiring of the unit, with improper electrical connections or exposed wires. Comment 9 Open ground outlet - We agree that grounded outlets are not required by HUD’s housing quality standards as the Authority pointed out in its response. However, if grounding type outlets are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f), which states that electrical outlets must be in proper operating condition. An improperly grounded outlet poses a potential hazardous condition. Comment 10 Deteriorated paint - We agree that lead-base paint hazard requirements apply when units are occupied by minors as the Authority pointed out in its response. The deteriorated paint was not cited as a lead-based paint violation in the four units pointed out by the Authority. Our appraiser cited the items as violation because scaling, peeling, chipping, or loose paint was (a) above an area used for preparation of meals, or (b) caused by water leaks in the unit. In one of the units we cited the violation, the Authority’s inspector also reported the same condition we found; ultimately the tenant was instructed to vacate the unit. Comment 11 File number 485CV - Our appraiser did not count as a violation breaker panels with no doors. The items were cited as a violation because the breaker panels had exposed electrical contacts, creating an electrical shock hazard. Our inspection showed the dwelling unit did not meet applicable standards. Comment 12 File number 553CV - If ground fault current interrupters are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f). Globes were not cited as a violation unless the light was hanging by a wire 30 Table of Contents without adequate support, improperly connected, exposed to the elements, or there were exposed wires that pose a potential electrical hazard. Our inspection showed the dwelling unit did not meet applicable housing standards. Comment 13 File number 033CV - If ground fault current interrupters are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f). We agree that dead vermin does not violate the housing quality standards as the Authority pointed out in its response. We adjusted our report to eliminate this previously cited violation. Our inspection showed the dwelling unit did not meet applicable housing standards. Comment 14 File number 150V - If grounded type outlets are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f). Our appraiser did not count as a violation breaker panels with no doors. The items were cited as a violation because the breaker panels had exposed electrical contacts, creating an electrical shock hazard. Our inspection showed the dwelling unit did not meet applicable standards. Comment 15 File number 399CV - Our appraiser did not count as a violation breaker panels with no doors. The items were cited as a violation because the breaker panels had exposed electrical contacts, creating an electrical shock hazard. Our inspection showed the dwelling unit did not meet applicable standards. Comment 16 File number 614V - If grounded type outlets are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f). Our inspection showed the dwelling unit did not meet applicable standards. Comment 17 File number 667V - If ground fault current interrupters are present in a unit, our appraiser determined if they were working properly. This is consistent with requirements contained in 24 CFR [Code of Federal Regulations] 982.401(f). Our inspection showed the dwelling unit did not meet applicable housing standards. Comment 18 We evaluated the Authority’s response. We adjusted our report to eliminate four previously cited violations, but made no other changes. Therefore, there was no need to issue a revised draft report. Table of Contents 31 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. Table of Contents 32 Appendix D SCHEDULE OF UNITS IN MATERIAL NONCOMPLIANCE WITH HOUSING QUALITY STANDARDS Types of violations** File Illumination Structure and Water Lead-based Smoke Interior air number and electrical materials supply paint detectors quality 505-V 0 0 1 0 0 1 230-V 1 1 1 0 0 0 632-CV 7 1 2 0 0 0 1072-CV 8 0 1 5 0 0 486-CV 4 1 1 0 0 0 1337-CV 2 0 4 3 0 0 684-CV 7 3 0 0 1 0 007-CV 3 4 0 0 0 0 209-CV 4 1 1 0 1 0 175-CV 3 3 0 0 1 0 1166-CV 3 1 1 0 0 0 754-V 11 4 1 5 0 0 1100-CV 6 2 1 0 1 1 514-CV 8 2 1 0 0 0 903-CV 7 4 1 5 0 0 ** The table does not indicate all violations we found in the unit. We only included the most frequently occurring and serious violations. Table of Contents 33
The Municipality of Bayamon Housing Authority, Bayamon, 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 2006-07-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)