AUDIT REPORT
Hartford Housing Authority, Hartford, Connecticut, Had
Housing Choice Voucher Program Deficiencies Resulting in
More Than $2.6 Million in Cost Exceptions
2006-BO-1005
March 10, 2006
OFFICE OF AUDIT, REGION 1
Boston, MA
__________________________________________________________________
Issue Date : March 10, 2006
Audit Report Number 2006-BO-1005
TO: Donna J. Ayala, Director, Office of Public Housing, Boston, MA, Regional
Office, 1APH
FROM: for John A. Dvorak, Regional Inspector General for Audit, 1AGA
SUBJECT: Hartford Housing Authority, Hartford, Connecticut, Had Housing Choice
Voucher Program Deficiencies Resulting in More Than $2.6 Million in Costs
Exceptions
HIGHLIGHTS
What We Audited and Why
As part of our fiscal year 2005 annual audit plan, we reviewed the Housing
Choice Voucher program at the Hartford Housing Authority (Authority). Our
audit objective was to determine whether the Authority properly administered its
Section 8 Housing Choice Voucher program (Voucher program) in accordance
with its annual contributions contracts and U.S. Department of Housing and
Urban Development (HUD) requirements.
What We Found
The Authority did not properly administer its Voucher program in compliance
with its annual contributions contracts and HUD requirements. As a result, we
identified questioned costs and opportunities for funds to be put to better use (see
appendix A) totaling more than $2.6 million because the Authority
• Inaccurately reported leasing and cost data to HUD and incorrectly
received more than $841,000 in funding.
• Improperly charged more than $714,000 in administrative costs to the
Voucher program.
• Approved unreasonable rents, resulting in ineligible and prospective
ineligible costs totaling more than $595,000.
• Improperly awarded and managed its housing inspection contract and also
paid the contractor $158,492 in unreasonable costs.
• Failed to ensure subsidized housing met minimum standards and paid for
substandard housing.
• Did not account for its portable voucher receivables and failed to collect
past-due receivables.
What We Recommend
We recommend that the Office of Public Housing, Boston, Massachusetts, require
the Authority to
• Implement procedures to properly track and report housing assistance
payments and administrative fees and repay HUD $841,245,) of which
$425,725 was repaid during our review.
• Repay the Voucher program $714,678 and properly allocate administrative
costs, thereby reducing future expenses by $177,542.
• Repay the Voucher program $1,395 for unreasonable rents and establish
quality controls to ensure rents are reasonable, which may reduce subsidized
rent payments by $594,270 this year.
• Repay the Voucher program $158,491 for unreasonable inspection costs and
perform housing inspections in house, which should reduce program
expenses by $119,723 this year.
For each recommendation in the body of the report without a management
decision, please respond and provide status reports in accordance with HUD
Handbook 2000.06, REV-3. Also, please furnish us copies of any
correspondence or directives issued because of the audit.
Auditee’s Response
The auditee generally agreed with our findings and is the processes of
implementing corrective actions that should eliminate the conditions noted in this
report. The auditee’s response, along with our evaluation of that response, can be
found in appendix B of this report.
2
TABLE OF
CONTENTS
Background and Objectives 4
Results of Audit
Finding 1 The Authority Inaccurately Reported Units Leased and Cost Data 5
to HUD and Incorrectly Received $841,245 in Funding
Finding 2 The Authority Improperly Charged the Voucher Program $714,678 8
in Administrative Costs
Finding 3 The Authority Approved Unreasonable Rents That Resulted in 11
Ineligible Costs and Could Potentially Cost More Than $594,000
Finding 4 The Authority Did Not Properly Award and Efficiently Manage a 14
Housing Inspection Contract and Paid $158,492 in Unreasonable
Costs
Finding 5 Housing Did Not Meet Minimum Standards, and the Authority 17
Paid for Substandard Housing
Finding 6 The Authority Did Not Account for Its Portable Voucher 20
Receivables or Collect Amounts Owed
Scope and Methodology 22
Internal Controls 23
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 25
B. Auditee Comments and OIG’s Evaluation 26
3
BACKGROUND AND OBJECTIVES
The Hartford Housing Authority (Authority) was created under the United States Housing Act of
1937 and section 8-40 of the Connecticut General Statutes to provide low-income public housing
for qualified individuals. The Authority is headed by an executive director and governed by a board
of commissioners. The Authority’s long-time former executive director retired in March of 2005.
It hired a new executive director in October of 2005.
The Authority administers one of the largest Housing Choice Voucher programs (Voucher
program) in Connecticut. It received more than $49 million in Voucher program funds from the
U.S. Department of Housing and Urban Development (HUD) to support more than 2,000
families in fiscal years 2002 through 2005.
The Authority must operate its Voucher program according to the rules and regulations
prescribed by HUD in accordance with the United States Housing Act of 1937, as amended, and
its annual contributions contract.
Our overall audit objective was to determine whether the Voucher program was administered
according to the annual contributions contracts and HUD program requirements. The specific
audit objectives were to determine whether the Authority
• Accurately reported leasing and cost data to HUD.
• Properly charged administrative and insurance costs to the Voucher program.
• Ensured that subsidized rents were reasonable.
• Obtained inspection services from the lowest responsible bidder.
• Ensured that subsidized housing units complied with HUD’s housing quality standards.
• Properly accounted for its portable voucher accounts receivable.
4
RESULTS OF AUDIT
Finding 1: The Authority Inaccurately Reported Units Leased and Cost
Data to HUD and Incorrectly Received $841,245 in Funding
The Authority misreported units leased and cost data for the housing assistance and
administrative fee payments received during fiscal years 2002, 2004, and 2005. This occurred
because the Authority did not ensure lease and cost data reports presented to HUD for payment
were accurate or maintain its books and records in accordance with HUD’s requirements.
However, HUD relied on the Authority’s inaccurate reports in providing Voucher program
funds. As a result, the Authority incorrectly received $841,245 in additional Voucher program
funds that could have assisted other public housing agencies.
Overfunding of $396,661
Congress requires that housing authorities accurately report leasing and cost data
to HUD on the Voucher Management System. In fiscal year 2005, Congress also
required that HUD provide funds to housing authorities in 2005 based on leasing
and cost data averaged for the months of May, June, and July of 2004. The
Authority’s records showed that during this three-month period, it overstated the
assistance payments made on the behalf of program participants by $160,426 (see
the chart below).
Voucher Management System
housing assistance payments overstatements
$86,600
$100,000
$80,000
$60,000
$35,766 $38,060
$40,000
$20,000
$0
May-04 Jun-04 Jul-04
The overstatement occurred because the Authority did not reconcile its Voucher
program records to the Voucher Management System reports to ensure the reports
were accurate. In addition, the Authority did not reconcile Voucher program
records with its general ledger to ensure cost and leasing data reported to HUD for
5
reimbursement were accurate and complete. As a result, HUD relied on the
Authority’s inaccurate reports and provided the Authority $396,661 in funds that
the Authority was not entitled to receive.
Overfunding for Portable
Vouchers of $425,725
In addition, the Authority received a duplicate payment for portable vouchers in
fiscal year 2004. This occurred because the Authority incorrectly included the
portable voucher payments in its Voucher Management System reports. This
resulted in the Authority incorrectly receiving $425,725 in Voucher program
funding that could have assisted other public housing agencies. However, the
Authority repaid HUD for the duplicate payment after our review verified that it
had to be repaid.
Inaccurate Program and
Accounting Records
The Authority received unearned administrative fees in fiscal years 2002 and
2004. This occurred because the Authority misinterpreted its monthly
performance reports and made improper adjustments to the number of program
units under lease. As a result, the Authority overstated the number of units under
lease on its year-end settlement statements (form HUD 52681) and Voucher
Management System reports. HUD overpaid the Authority $18,859 based on the
overstated number of units under lease. The Authority also failed to maintain its
books and records in accordance with HUD’s requirements. We asked the
Authority to provide support for Voucher program funds received during fiscal
years 2002 through June of 2005. The Authority took more than three months to
provide adequate support. This occurred because the Authority did not maintain a
housing assistance payment register as required by HUD.
Conclusion
The Authority inaccurately reported units leased and cost data to HUD on the
Voucher Management System and on its year-end settlement statements (form HUD
52681). This occurred primarily due to the lack of procedures to properly track and
report housing assistance payments and administrative fees. As a result, the
Authority incorrectly received more than $841,000 for housing assistance and
administrative fee payments during fiscal years 2002, 2004, and 2005.
6
Recommendations
We recommend that the director of the Office of Public Housing
1A. Require the Authority to develop and implement procedures to properly
track, document, and report housing assistance payments and administrative fees.
1B. Require the Authority to repay HUD $396,661 for ineligible housing
assistance payments received in fiscal year 2005 from nonfederal funds or
through reductions in future housing assistance funding.
1C. Verify the $425,725 repayment for ineligible portability housing assistance
payments in fiscal year 2004 was properly credited.
1D. Require the Authority to repay HUD $18,859 for unearned administrative
fees received in fiscal years 2002 and 2004 or or establish a repayment plan to
repay HUD with future excess administrative fees.
1E. Require the Authority to restate Voucher Management System reports for
fiscal year 2005 to reflect the actual amount of housing assistance payments and
units under lease.
7
RESULTS OF AUDIT
Finding 2: The Authority Improperly Charged the Voucher Program
$714,678 in Administrative Costs
The Authority improperly charged to the Voucher program $614,593 for employee salaries and
benefits and $100,085 for automobile insurance. This occurred because the Authority’s
accounting procedures were inadequate and failed to allocate reasonable and necessary expenses
to the benefiting programs. As a result, $714,678 was not available for other program needs. In
addition, implementing procedures to properly allocate costs will reduce Voucher program
expenses by an estimated $177,542.
Improper Salary Allocations
Totaled $614,593
The Authority’s Annual Contributions Contracts with HUD allow that only
Voucher program costs can be charged to the Voucher program.1 The review
showed that the Authority’s policy of charging administrative (indirect) costs
resulted in the Authority overcharging salaries and benefits to the Voucher
program. This occurred because salaries and benefits charged were based on the
number of housing units, and did not accurately reflect the time spent on
administrative functions that benefited the Voucher program. As a result, the
Authority improperly charged the Voucher program $614,593 for salary costs
during the period of January 1, 2002, to September 30, 2005, as follows:
Year Amount Audited Amount
charged allocation overcharged
2002 $320,330 $134,145 $186,185
2003 $291,970 $122,269 $169,701
2004 $301,426 $126,229 $175,197
2005 $ 83,510
Total $614,593
Ineligible Insurance Charges
Totaled $100,085
In addition, the Authority improperly charged the Voucher program $100,085 for
automobile insurance during fiscal years 2002 through 2004. This occurred
because the Authority allocated more than 40 percent of its automobile insurance
1
Consolidated Annual Contributions Contract, Section 11, “Use of Program Receipts.”
8
costs to the Voucher program based on the number of housing units. However,
the Voucher program used only 3 percent of the Authority’s vehicles, and,
therefore, only 3 percent of the costs should have been charged as follows:
Year Amount Audited Amount
charged allocation overcharged
2002 $35,211 $2,693 $32,518
2003 $35,211 $2,648 $32,563
2004 $37,491 $2,487 $35,004
Total $100,085
The Authority agreed with our finding and developed a new cost allocation plan.
Applying the new allocation plan to fiscal year 2005 expenditures, the comptroller
repaid the Voucher program $83,510 in administrative costs and reduced the
amount of future automobile insurance costs by $38,358. The comptroller also
agreed to repay the Voucher program for administrative and automobile insurance
overcharges in fiscal years 2002 through 2004. The plan should ensure the proper
future allocations of administrative costs once formally established and properly
implemented. Implementing proper allocation procedures would further reduce
Voucher program administrative expenses by $177,542.2
Conclusion
The Authority overcharged more than $714,000 in expenses to the Voucher
program due to inadequate allocation procedures. The Authority needs to repay
the misallocated costs and implement an allocation plan to properly allocate costs
to its federal programs. We estimate that by implementing proper allocation
procedures, the Authority can reduce Voucher program costs by $177,542.
Recommendations
We recommend that the director of the Office of Public Housing require the
Authority to
2A. Reimburse its Voucher program $714,678 for ineligible administrative and
insurance expenses, of which $83,510 has been repaid. The remaining $631,168
should be reimbursed from the appropriate benefiting program(s).
2
This includes a $27,827 reduction in costs for October through December 2005, and a $159,705 reduction in costs
for the Authority’s fiscal year 2006.
9
2B. Establish and implement formal written procedures that properly allocate
costs to the benefiting programs, which would reduce Voucher program expenses,
resulting in $177,542 in funds to be put to better use (reduced outlays).
10
RESULTS OF AUDIT
Finding 3: The Authority Approved Unreasonable Rents That Resulted
in Ineligible Costs and Could Potentially Cost More Than $594,000
The Authority approved rents without performing proper rent reasonableness determinations.
This occurred because it lacked adequate procedures to make rent reasonableness determinations
when required, did not compare subsidized rents to similar unassisted rents in the market place,
and lacked a quality control process to verify contractor determinations. As a result, the
Authority approved $1,395 in unreasonable rents and had fewer Voucher program funds
available to house families. If the condition is not corrected, it will result in excessive rent
payments totaling $594,270 for the year.
Inadequate Procedures and
Quality Controls
Federal regulations require the Authority to ensure subsidized rents are reasonable
before approving leases and rent increases. This determination involves two
comparisons: (1) the Authority must compare the subsidized rent to rents for
similar unassisted rents in the market place, and (2) the subsidized rent must be
compared to rents charged for similar units on the premises.3 Without
determinations, the Authority cannot show rents for its units were reasonable.
Our sample of 35 tenant files showed the Authority approved two leases and five
rent increases without determining whether the rent charged was reasonable and
may have approved another 28 leases and 136 rent increases without a rent
reasonableness determination. This occurred because the Authority’s procedures
did not comply with federal regulations and did not compare similar units. For
example, rents charged for subsidized units of minimal quality were compared
with market rate rents charged for units in good or excellent condition, and rents
charged for the Authority’s units were incorrectly compared with market rents
charged in another area. Additionally, the tenant files failed to show that
subsidized rents were comparable to rents charged for similar unassisted units on
the premises.
These deficiencies persisted because the Authority did not have an effective
quality control review program. For example, the Authority reviewed only 2 of
1,997 determinations completed by its contractor in fiscal year 2004. Without
adequate procedures and reviewing an adequate number of rent reasonableness
determinations, the Authority could not ensure rents charged by owners were
3
24 CFR [Code of Federal Regulations] 982.507, “Rent to Owner, Reasonable Rent,” and HUD Handbook
7420.10g, chapter 9, “Rent Reasonableness.”
11
reasonable. The Authority agreed with our review and hired a consultant to
establish new rent reasonableness procedures. The new procedures must comply
with federal requirements and include an effective quality control and review
program to ensure they are properly implemented.
Subsidized Rents Exceeding
Market Rents
Our statistical sample of 35 tenant files also showed rents for 10 subsidized units
exceeded market rents by a total of $1,395.
Voucher Subsidized Audited Ineligible
rent comparable rent
rent
V0346 $1,037 $964 $73
V0350 $840 $723 $117
V0426 $1074 $864 $210
V0584 $1,016 $864 $152
V0588 $1,041 $864 $177
V5975 $1,019 $964 $55
V6608 $1,016 $814 $202
V8273 $1,031 $864 $167
V8780 $924 $864 $60
V9622 $1,046 $864 $182
Total $1,395
Based on our sample, we estimate that 18.7 percent or 355 rents were not
reasonable and that the subsidized rents might exceed market rents by $594,270
this year4 if this condition is not corrected.
Conclusion
The Authority failed to make proper rent reasonableness determinations for some
of its units. The proper determinations were not made because the Authority’s
procedures did not provide for reasonableness determinations in accordance with
HUD requirements. As a result, the subsidized rents exceeded market rents by
$1,395 for 10 units. If this condition persists, subsidized rents may exceed market
rents by $594,270 this year.
4
Projecting the results from our statistical sample of 35 units, there would be 355 units per month at $139.50 per
unit for 12 months or a total of $594,270 in excessive rent payments.
12
Recommendations
We recommend that the director of the Office of Public Housing require the
Authority to
3A. Develop and implement adequate procedures and quality controls to ensure
subsidized rents are reasonable and in accordance with HUD requirements, which
should result in funds to be put to better use of $594,270 annually.
3B. Repay the Voucher program $1,395 for unreasonable and ineligible rents
from nonfederal funds.
13
RESULTS OF AUDIT
Finding 4: The Authority Did Not Properly Award and Efficiently
Manage a Housing Inspection Contract and Paid $158,492 in
Unreasonable Costs
The Authority did not award a housing inspection contract to the lowest bidder. This occurred
because the Authority did not have adequate contracting procedures. As a result, the Authority
paid the contractor $158,492 too much for inspection services. In addition, the Authority did
not efficiently manage its contracted housing inspection costs while maintaining two in-house
inspectors. This occurred because the Authority conducted some initial inspections in-house that
were the types of inspections provided for under the inspection contract. The Authority agreed
its inspectors were not efficiently used and canceled its inspection contract (see finding 5). This
change reduced the annual inspection costs by $119,723.
The Authority’s Procurement
Procedures Were Inadequate
Federal regulations5 require the Authority to conduct procurements in a manner that
provides for full and open competition and maintain sufficient records to support the
procurement. However, the Authority’s solicitation for inspection services failed to
provide for full and open completion because did not identify the number of required
inspections. As a result, none of the four companies bidding based their proposal on
the same number of inspections. Two of the companies also indicated their
proposed fixed price might be adjusted downward depending on the number of
inspections performed. The disparity of bids and the unnecessary costs that resulted
were due to the Authority’s failure to clearly identify the number of inspections
required, which also made the bids difficult to evaluate.
The Authority Did Not Properly
Evaluate Proposals
The Authority’s evaluation of bid proposals failed to show that bidders were
treated equally and the contract awarded was cost effective. The Authority did
not maintain (1) a list of qualified or potentially qualified bidders, (2) a
memorandum of negotiation objectives, (3) best and final offers received from the
bidders, or (4) a negotiation memorandum to justify the selection of the winning
bidder. Since the Authority had not established procedures to adequately
5
24 CFR [Code of Federal Regulations] 85.36 and HUD Handbook 7460.8, REV-1.
14
document procurement activities, it could not justify why the contract was not
awarded to the lowest responsible bidder.
The Authority Overpaid
$158,492 for Inspections
Our review also disclosed that the Authority’s failure to select the lowest
responsible bid resulted in unnecessary costs. The Authority received a low-cost
bid to perform comparable inspections for $27 each inspection. However, the
Authority selected a higher priced bidder’s proposal without justification and
awarded a fixed-price contract to perform an estimated 6,000 inspections per year
for $235,000.6 Using the number of annual inspections from the awarded
contract, we determined that the Voucher program paid an additional $158,492 in
unreasonable and ineligible costs over a 26-month period as follows:
Amount
$235,000 Annual contracted cost
(161,850) Less proposal to perform 6,000 inspections @ $27 each
$ 73,150 Equals the additional costs per year
$6,095.83 Divided by 12 months
26 Times months in the contract (Sept. 1, 2003-Oct. 31,
2005)
$158,492 Additional costs
The Authority agreed that services were not received from the lowest responsible
bidder. They later revised their contracting policies and procedures to address the
deficiencies noted above. The new competitive proposal procedures, when
implemented, should ensure compliance with HUD requirements.
Inspection Costs Were Not
Efficiently Managed
The Authority also paid more than $200,000 for two in-house inspectors during
the period September 2, 2003, through October 31, 2005. The Authority’s
inspectors performed initial inspections; however, the costs were not an efficient
use of program funds because the Authority also was paying the contractor
mentioned above to perform all the required inspections. The Authority agreed its
inspectors were not fully used, canceled its inspections contract (after multiple
deficient inspections were identified; see finding 5) and decided to perform
6
This results in a cost of $39 per inspection ($235,000/6,000).
15
housing inspections in house. We determined that these actions should reduce
Voucher program costs by as much as $119,723 annually.
Conclusion
The Authority charged the Voucher program more than $158,000 in unreasonable
inspection costs due to inadequate contracting procedures. The Authority also did
not efficiently manage housing inspection costs when it contracted for all
inspections while still maintaining two in-house inspectors. The Authority
canceled its inspections contract to conduct the inspections in house and reduced
its annual inspection costs by $119,723.
Recommendations
We recommend that the director of the Office of Public Housing require the
Authority to
4A. Implement the newly developed contracting procedures to ensure effective
competitive contracting procedures.
4B. Repay $158,491 to the Voucher program administrative fee reserve account
from nonfederal funds or through reductions in future administrative fees for
unreasonable inspection costs, and conduct the inspections in house, which will
result in funds to be put to better use of $119,723.
16
RESULTS OF AUDIT
Finding 5: Housing Did Not Meet Minimum Standards, and the
Authority Paid for Substandard Housing
The Authority did not always ensure subsidized housing units met HUD’s minimum housing
quality standards. This occurred because the Authority failed to implement effective quality
control procedures to monitor its contract inspectors and identify when its contractor failed to
identify serious deficiencies. Further, the Authority did not abate $11,604 in payments to owners
when owners failed to correct deficiencies within required timeframes. As a result, tenants did
not always live in housing that was decent, safe, and sanitary. In addition, we determined that
the Authority may make an additional $37,758 in ineligible payments for substandard housing
this year if this condition is not corrected.
The Authority Lacked
Adequate Quality Controls
HUD requires that housing authorities complete quality control inspections for a
sample of its initial and annual housing inspections to ensure the reliability of
inspection results. Under these requirements, the Authority was required to
conduct a minimum of 30 quality control inspections to ensure the reliability of its
inspection results. However, the Authority’s quality control procedures did not
ensure substandard housing conditions were detected and corrected. The
Authority’s records showed only 4 of the 30 inspections were conducted in fiscal
year 2004. This occurred primarily because the Authority did not implement a
system to track the number of inspections conducted or evaluate the quality of
inspector’s work. Without conducting an adequate number of quality control
inspections, the Authority could not ensure the reliability of inspection results or
ensure subsidized housing was decent, safe, and sanitary.
The Contractor Did Not
Identify Serious Deficiencies
As a result of our audit, the Authority conducted 10 quality control inspections on
July 20, 2005. Six of the inspections found numerous deficiencies that were not
identified during the contractor’s inspection. In one instance, the Authority
performed a quality control inspection on the same day the contractor completed a
follow-up inspection. The contractor certified that all the repairs were completed
and advised the Authority to lift the abatement. However, the Authority’s quality
control inspection cited 15 deficiencies, including the following health and safety
hazards:
17
• All smoke detectors are missing batteries.
• Ground fault interrupter did not work.
• Ceiling in bedroom is falling down and needs paint.
• Windows in the bedroom need locks.
The contractor passed two other units on their annual inspections. However, the
Authority’s quality control inspections cited 16 deficiencies, including the following
serious health and safety hazards:
• Smoke detector not functioning properly.
• Ground fault interrupter not working.
• Rodent and cockroach infestation.
• Broken windows in the kitchen and bedroom.
The Authority agreed with our finding, canceled its inspection contract, and on
November 1, 2005, started performing all housing inspections itself.
The Authority Failed to Abate
Payments
Federal regulations require prompt and vigorous action to abate assistance
payments for housing that fails to meet minimum quality standards.7 Five of the
ten units receiving quality control inspections in July of 2005 required abatement.
However, the Authority continued making assistance payments for four of the five
units that required abatement. In addition, our statistical sample of 35 tenant files
showed the Authority did not stop payment for another four tenants when their
housing units did not meet minimum quality standards. These improper payments
continued because the Authority had not established procedures that ensured rents
were abated according to federal regulations and its own administrative plan,
resulting in $11,604 in payments made for ineligible substandard housing as
follows:
7
24 CFR [Code of Federal Regulations]982.404(a)(3), “Maintenance: Owner and Family Responsibility; PHA
[Public Housing Authority] Remedies.”
18
Voucher Date failed Date passed Amount
unabated
V9427 Mar, 17, 2005 Lease terminated $ 912
V0588 Dec. 16, 2005 Mar. 17, 2005 552
V0911 Mar. 1, 2004 Sept. 23, 2005 4,423
PV200-0008 Mar. 17, 2005 Aug. 5, 2005 234
V6858 Mar. 24, 2005 July 15, 2005 1,054
V1155 Mar. 15, 2005 July 31, 2005 1,234
V0345 Mar. 9, 2005 July 31, 2005 2,205
V-0158 Apr. 19, 2005 July 20, 2005 990
Total $11,604
Based on the sample results that identified four unabated substandard units, we
determined that 5.1 percent or 96 tenants’ housing units were not abated when
required. In addition, the Authority could pay as much as $37,758 this year for
substandard housing if corrective action is not taken.
Conclusion
The housing inspections did not always identify serious housing deficiencies, and
some tenants were living in housing that was not decent, safe, and sanitary. These
deficiencies occurred because the Authority failed to implement effective quality
controls for its housing inspection program to ensure that serious deficiencies were
detected and corrected. Also, the Authority lacked effective procedures to ensure
that rent payments were abated when owners failed to correct deficiencies within
the required timeframes.
Recommendations
We recommend that the director of the Office of Public Housing require the
Authority to
5A. Develop and implement an effective quality control process to ensure reliable
inspections, correction of substandard housing, and abatement of payments for
housing that does not meet HUD’s standards, which will reduce payments for
substandard housing by a minimum of $37,758 this year.
19
RESULTS OF AUDIT
Finding 6: The Authority Did Not Account for Its Portable Voucher
Receivables or Collect Amounts Owed
The Authority did not properly account for its receivables for portable vouchers. Its accounting
records indicated that $31,039 in receivables was past due and other authorities may have
overpaid the Authority. These deficiencies occurred because the Authority failed to establish
accounting procedures for its portability voucher billings and to notify payees when payments
were due. As a result, the Authority did not know whether it had collected its receivables and
may have lost the opportunity to collect $31,039 in overdue payments.
Authorities Must Track
Portable Voucher Payments
HUD requires that initiating housing authorities make payment for portability
tenants within 30 days of receiving a bill and pay monthly thereafter. Also, the
receiving authorities must promptly notify initiating authorities when payment has
not been received by the fifth working day of the month.8 However, the Authority
failed to track the amounts billed to other authorities, which resulted in
incomplete and inaccurate accounts receivable. For example, the Authority’s
accounting records indicated that the Authority received $74,987 more in
portability payments than it billed. This amount was inaccurate because not all
billings were recorded as accounts receivable. The Authority’s records also
showed that at least $31,039 in receivables was more than 61 days past due on
August 31, 2005. However, the Authority was not actively following up on
uncollected receivables. Without active pursuit of these accounts, the Authority
could lose $31,039 in voucher income.
Conclusion
The Authority failed to bill or actively pursue collection of payment for
portability vouchers because it did not have procedures to ensure accurate
accounts receivable records or timely collections of its accounts receivable. As a
result, the Authority may not be able to collect funds for its portable vouchers that
are owed.
8
24 CFR [Code of Federal Regulations] 982.355 and HUD Public and Indian Housing Notice 2004-12, paragraph 8.
20
Recommendations
We recommend that the director of the Office of Public Housing require the
Authority to
6A. Establish procedures implementing HUD’s Public and Indian Housing Notice
2004-12, reconcile all portability bills with receipts, reimburse authorities for any
overpayments, and follow up on past due accounts, thereby resulting in funds to be
put to better use totaling $31,039.
21
SCOPE AND METHODOLOGY
We performed our review in accordance with generally accepted government auditing standards.
We conducted the audit between March and December 2005 and covered the Authority’s fiscal
years 2002 through 2005. Our fieldwork was completed at the Authority’s office located at 180
Overlook Terrace in Hartford, Connecticut. Our audit covered the period January 1, 2002,
through December 31, 2005. To accomplish our audit objectives, we
• Reviewed program requirements including federal laws and regulations, Office of
Management and Budget circulars, and the consolidated annual contributions contract
between the Authority and HUD.
• Reviewed the Authority’s financial statements and independent public accountant’s reports.
• Interviewed Authority and HUD personnel and officials and reviewed meeting minutes from
the Authority’s board.
• Analyzed the Authority’s records for fiscal years 2002 through 2005.
• Selected a statistical sample of Voucher program tenant files, which we reviewed for
compliance with program requirements. The purpose of our testing was to ensure
program participants were eligible, housing assistance payments were properly supported
and calculated, housing deficiencies were corrected in a timely manner, and rents paid
were reasonable. To accomplish this, we selected randomly 35 tenant files from a
universe of 1,898 Voucher program tenants as of March 3, 2005, to perform detailed
attribute testing. Our sample resulted in a confidence level of 90 percent and a precision
of 10 percent. Based on the errors we found in our sample files, we used the lower
confidence limit to estimate the error rate for the universe of 1,898 files.
• Compared the amount of funds HUD provided with the amount of funds that should have
been provided using accurate cost data.
• Summarized the results of our analyses.
22
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:
• Controls over tenant eligibility; calculating housing assistance payments,
tenant payments, and utility allowances;
• Controls over rent reasonableness;
• Controls over voucher use;
• Controls over housing quality standards inspections;
• Controls over expenditures to ensure they were necessary and reasonable;
• Controls over Section 8 program accounting and reporting;
• Controls over accounting for portable voucher accounts.
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.
23
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• Accounting procedures were not adequate to ensure cost and units leased
data reported to HUD were accurate (see finding 1).
• Allocation procedures did not adequately ensure that expenses were
charged to the appropriate programs (see finding 2).
• Rent reasonableness procedures were not adequate to ensure that contract
rents were reasonable (see finding 3).
• Contracting procedures were not adequate to ensure housing inspection
services were obtained and performed in a cost-effective manner (see
finding 4).
• Quality control procedures were not effective to ensure that subsidized
housing met minimum housing quality standards (see finding 5).
• Accounting procedures were not adequate to properly account for portable
voucher receipts (see finding 6).
24
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Unreasonable or Funds to be put
number 2/ unnecessary 3/ to better use 4/
1B $396,661
1C $425,725
1D $18,859
2A $714,678
2B $177,542
3A $594,270
3B $1,395
4B $158,491 $119,723
5A $37,758
6A $31,039
Subtotal $1,557,318 $158,491 $960,332
Total $2,676,141
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.
2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of audit. Unsupported costs
require a decision by HUD program officials. This decision, in addition to obtaining
supporting documentation, might involve a legal interpretation or clarification of
departmental policies and procedures.
3/ Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
prudent, relevant, and/or necessary within established practices. Unreasonable costs
exceed the costs that would be incurred by a prudent person in conducting a competitive
business.
4/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
expenditures at a later time for the activities in question. This includes costs not incurred,
deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
unnecessary expenditures, loans and guarantees not made, and other savings.
25
Appendix B
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
26
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 2
Comment 3
Comment 4
Comment 5
27
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 6
Comment 7
Comment 8
28
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 9
Comment 10
29
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 11
30
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 12
31
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 13
Comment 14
Comment 15
32
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
33
AUDITEE COMMENTS AND OIG’s EVALUATION
OIG Evaluation of Auditee Comments
Ref to Auditee
Response OIG Evaluation
Comment 1 The total amount of cost exceptions reported included ineligible expenditures
and fund receipts totaling $1,557,318, unreasonable costs $158,491, and
opportunities for funds put to better use in the future totaling $960,332 (see
Appendix A). The $841,245 in over funding is included with the total
ineligible costs of $1,568,922 because the use of the funding was not allowable
by law, contract, or regulation and repayment is required. In addition,
although the funds put to better use are costs that were not incurred, they are a
quantifiable saving if the recommendations are implemented and therefore, the
Authority would not incur or have to repay any of these funds if the corrective
actions described in the recommendations are implemented.
Comment 2 The Authority agreed with recommendation 1A, and the new procedures when
properly implemented should ensure cost and leasing data is properly tracked
and reported to HUD.
Comment 3 The Authority agreed with recommendation 1B but proposed an alternative
repayment method whereby they would offset the amount of ineligible housing
assistance overpayments received in fiscal year 2005 by the amount of
underpayments received in fiscal year 2003. However, the offset is not
authorized because the enacting appropriations law prohibits it. According to
the appropriations as enacted, funds for fiscal year 2003 were available until
expended; and as all funds have been expended a valid payable from HUD
cannot be established.
Further, although the Authority stated they should only repay the difference
between the amounts received from HUD less the actual housing assistance
payments to landlords, the Authority was not entitled to receive the $396,661
by law and as cited in the 2005 Consolidated Appropriations Act. Therefore,
the entire amount must be repaid.
Comment 4 The Authority agreed with our recommendation 1C that $425,725 in ineligible
housing assistance payment funds required repayment. However, the
Authority’s statement that the ineligible payments were immediately repaid
was inaccurate. The Authority received $1,096,021 from HUD as part of its
year end settlement on April 29, 2005 and did not repay HUD until July 27,
2005, almost three full months later. Further, repayment was made only after
our audit advised the Authority that repayment was required.
34
AUDITEE COMMENTS AND OIG’s EVALUATION
OIG Evaluation of Auditee Comments
Ref to Auditee
Response OIG Evaluation
Comment 5 The Authority agreed with recommendation 1D that it was overpaid $18,859
for unearned administrative fees in 2002 and 2004 and requested the amount
be offset by $137,553 in under funding of administrative fees in fiscal year
2003. We agree the Authority was under funded $133,974 for in
administrative fees in 2003 because the Authority under reported the number
of units under lease. However, the offset is not authorized under the enacting
appropriations law. According to the appropriations as enacted, funds for
fiscal year 2003 were available until expended; and as all funds have been
expended, a valid payable from HUD cannot be established.
Comment 6 The Authority agreed with recommendation 1E, and the corrective actions
when properly implemented should ensure the leasing and cost data properly
tracked and reported to HUD.
Comment 7 Although the Authority said they disagreed with the finding, their reduction in
the amount of salaries charged to the Voucher program during 2005 was
responsive to recommendation 2A. Further, although the Authority contends
that HUD approved their allocation plan, the Authority could not show that
several management employees, whose salaries were being charged to the
Voucher program, provided significant services to the Voucher program.
Therefore, the Authority's revised allocation procedures should ensure that
they only charge the Voucher program for employees that provide services for
the Voucher program, and the Authority should make retroactive adjustments
to fiscal years 2002 through 2004 and provide the adjustments to HUD for
verification.
Comment 8 The Authority was responsive to recommendation 2B, and the new allocation
plan when properly implemented should ensure the Voucher program is
charged an appropriate amount of expenses. It should be noted that $177,542
in funds put to better use are prospective costs that may be avoided each year
if the Authority properly charges expenses to the Voucher program.
Comment 9 The Authority was responsive to our recommendation 3A by hiring a
consultant to improve rent reasonableness procedures. Although the Authority
had some rent reasonableness procedures, the procedures were not effective
and contract rents exceeded comparable market rents (see comment 10 below).
Therefore, if the Authority revises its procedures to ensure rents are approved
in accordance with 24 CFR 982.507, the rents that exceed market rents by
35
AUDITEE COMMENTS AND OIG’s EVALUATION
OIG Evaluation of Auditee Comments
Ref to Auditee
Response OIG Evaluation
$594,270 will be adjusted, these are Voucher program funds will be better
used each year to house eligible participants.
Comment 10 The Authority did not agree with the finding that rents were not reasonable or
recommendation 3B. However, the Authority did not present any evidence to
show that subsidized rents were reasonable. In addition, the Authority did not
use its contractor's rent reasonableness determinations to ensure that
subsidized rents were reasonable and had its own rent reasonableness
procedures. However, the Authority's procedures were not effective because
subsidized rents exceeded rents for comparable unassisted units (see the chart
in finding 3). Further, the Authority's statement that the rental survey did not
rate and rank unassisted units is inaccurate. Although the Authority did not
use the contract surveys, the surveys clearly indicated the size, type, location,
and quality of unsubsidized housing units in Hartford Connecticut. Our review
compared the subsidized rents the Authority approved with the highest
comparable unsubsidized rent listed on the contractor's independent rental
survey plus all possible utility allowances. Therefore, the Authority should
fully implement recommendation 3A to ensure that it approves reasonable
rents in accordance with 24 CFR 982.507.
Comment 11 The Authority was responsive to recommendation 4A, and the proposed
contracting procedures when properly implemented should ensure that
contracts are properly competed and awarded.
Comment 12 The Authority's comments were responsive to the recommendation and we
changed recommendation 4B to include an alternative for the Authority to
repay the Voucher program through reductions in future administrative fees.
Although the Authority objected to our estimate of future cost savings, they
presented no evidence to dispute that $199,000 a year would be saved by
bringing all inspections in-house.
Comment 13 The Authority's comments were responsive to recommendation 5A, and the
proposed corrective actions when properly implemented should ensure
compliance with HUD's housing quality standards, and satisfy
recommendation 5A.
36
AUDITEE COMMENTS AND OIG’s EVALUATION
OIG Evaluation of Auditee Comments
Ref to Auditee
Response OIG Evaluation
Recommendation 5B for recovery of HAP payments was removed from the
Comment 14 report because HUDOIG policy is to question a portion of the administrative
fee rather than improper HAP payments for uncorrected HQS violations.
However, due to the minimal amount of administrative fees, there are no
questioned costs because it would not be cost effective to determine and
recover of the fees for these improper payments.
The Authority's proposed corrective actions, when properly implemented,
Comment 15 should ensure it properly tracks and collects portable voucher receivables, and
satisfy recommendation 6A.
37
Hartford Housing Authority, Hartford, Connecticut, Had Housing Choice Voucher Program Deficiencies Resulting in More Than $2.6 Million in Cost Exceptions
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-03-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)