oversight

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)

                  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