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)