oversight

The Columbus Metropolitan Housing Authority, Columbus, Ohio, Did Not Effectively Operate Its Section 8 Housing Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                Issue Date
                                                                         July 6, 2006
                                                                Audit Report Number
                                                                         2006-CH-1011




TO:        Thomas Marshall, Director of Public Housing Hub, 5DPH



FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The Columbus Metropolitan Housing Authority, Columbus, Ohio, Did Not
           Effectively Operate Its Section 8 Housing Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Columbus Metropolitan Housing Authority’s (Authority) Section
             8 Housing Choice Voucher program (program). The audit was part of the
             activities in our fiscal year 2005 annual audit plan. We selected the Authority
             based upon a risk analysis that identified it as having a high-risk program. Our
             objective was to determine whether the Authority managed its program in
             accordance with the U.S. Department of Housing and Urban Development’s
             (HUD) requirements. This is the first of two audit reports on the Authority’s
             program.

 What We Found

             The Authority’s program administration regarding housing unit conditions,
             timeliness of annual housing unit inspections, and adequate documentation to
             support housing assistance payments was inadequate. Of the 67 housing units
             statistically selected for inspection, 47 did not meet HUD’s housing quality
             standards and 34 had 164 violations that existed at the time of the Authority’s
             previous inspection. The 34 units had between 1 and 17 preexisting violations per
             unit. Based on our statistical sample, we estimate that over the next year HUD
             will pay more than $7.5 million in housing assistance payments on units with
             material housing quality standards violations.
           The Authority failed to ensure that its housing unit inspections were conducted
           timely. Of the 8,976 unit inspections conducted by the Authority in calendar year
           2005, 966 (10.8 percent) inspections were not conducted within the required one
           year of the previous inspection. The number of days late ranged from 1 to 144
           and 93.5 percent of the late inspections were less than 30 days late. The
           Authority also failed to ensure that its tenant files contained required
           documentation to support its payment of housing assistance. Of the 76 files
           statistically selected for review, 35 (46 percent) did not contain the documentation
           required by HUD and the Authority’s program administrative plan. The
           Authority also incorrectly calculated housing assistance payments resulting in
           more than $12,000 in overpayments and more than $11,300 in underpayments
           from January 2003 through December 2005.

What We Recommend

           We recommend that the director of HUD’s Cleveland Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of more than $83,000 in program funds, provide documentation or
           reimburse its program more than $332,000 from nonfederal funds for the
           unsupported housing assistance payments and administrative fees, ensure that
           program housing units inspected during this audit are repaired to meet HUD’s
           housing quality standards, and implement adequate procedures and controls to
           ensure program units meet housing quality standards to prevent an estimated $7.5
           million from being spent on units with material housing quality standards
           violations.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence issued because of the audit.

Auditee’s Response

           We provided our discussion draft audit report to the Authority’s executive
           director, its board chairman, and HUD’s staff during the audit. We held an exit
           conference with the Authority’s executive director on June 6, 2006.

           We asked the Authority’s executive director to provide comments on our
           discussion draft audit report by June 23, 2006. The Authority’s executive director
           provided written comments dated June 22, 2006. The Authority disagreed with
           our findings and recommendations. The complete text of the written comments,
           along with our evaluation of that response, can be found in appendix B of this
           report except for 284 pages of documentation that was not necessary for
           understanding the Authority’s comments. A complete copy of the Authority’s
           comments plus the documentation was provided to the director of HUD’s
           Cleveland Office of Public Housing.


                                            2
                              TABLE OF CONTENTS

Background and Objective                                                        4

Results of Audit

        Finding 1: Controls over Housing Quality Standards Need Improvement     5

        Finding 2: Controls over Housing Assistance Payments Were Inadequate   12

Scope and Methodology                                                          16

Internal Controls                                                              18

Appendixes

   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use         20
   B.   Auditee Comments and OIG Evaluation                                    21
   C.   Criteria                                                               30
   D.   Results of Tenant File Reviews                                         33
   E.   Housing Assistance Payment Errors                                      34




                                              3
                      BACKGROUND AND OBJECTIVE

The Columbus Metropolitan Housing Authority (Authority) is a nonprofit governmental entity
created by the State of Ohio Board of Housing on May 8, 1934, to provide decent, safe, and
sanitary housing. The Authority’s jurisdiction encompasses Franklin County, Ohio, with the
exception of seven townships. A five-member board of commissioners governs the Authority.
The mayor of the City of Columbus, the Franklin County Common Pleas Court, the Franklin
County Probate Court, and the Franklin County Board of County Commissioners appoint one
member each to the Authority’s board to five-year staggered terms. The Authority’s executive
director is appointed by the board of commissioners and is responsible for coordinating
established policy and carrying out the Authority’s day-to-day operations.

The Authority administers a Section 8 Housing Choice Voucher program (program) funded by
the U.S. Department of Housing and Urban Development (HUD). The Authority provides
assistance to low and moderate-income individuals seeking decent, safe, and sanitary housing by
subsidizing rents with owners of existing private housing. As of April 17, 2006, the Authority
had 10,755 units under contract with annual housing assistance payments totaling more than $57
million in program funds.

Our objective was to determine whether the Authority operated its program according to HUD’s
requirements. This is the first of two audit reports on the Authority’s program.




                                               4
                                RESULTS OF AUDIT

Finding 1: Controls over Housing Quality Standards Need
                            Improvement
The Authority did not adequately enforce HUD’s housing quality standards. Our inspections
found that 47 of 67 program units statistically selected for inspection did not meet minimum
housing quality standards. Also, the Authority did not always perform its annual program unit
inspections within one year. The violations existed because the Authority failed to exercise
proper supervision and oversight of its program unit inspections. The Authority also lacked
adequate procedures and controls to ensure that its program units met HUD’s housing quality
standards. As a result, $44,855 in program funds was not used efficiently and effectively. Also,
program tenants lived in units that were not decent, safe, and sanitary. Based on our statistical
sample, we estimate that over the next year HUD will pay more than $7.5 million in housing
assistance payments on units with material housing quality standards violations.



 HUD’s Housing Quality
 Standards Not Met

               From the 3,492 program units that were inspected by the Authority between July
               1 and November 30, 2005, we statistically selected 67 units for inspection by
               using the U.S. Army Audit Agency’s Statistical Sampling System software. The
               67 units were inspected to determine whether the Authority ensured that its
               program units met HUD’s housing quality standards. Our appraiser inspected the
               67 units between January 9 and January 27, 2006.

               Of the 67 units inspected, 47 (70 percent) had 312 housing quality standards
               violations. In addition, 34 of the 47 units had 164 violations that existed before
               the Authority’s previous inspections and 23 units were considered to be in
               material noncompliance since they had multiple violations and/or a violation was
               noted in the Authority’s previous inspections but not corrected. Of the 312
               violations, 13 of the 47 units had 148 violations that could not be determined
               whether the violations pre-existed at the Authority’s latest inspections and were
               not identified on the Authority’s inspection reports. Seven units had 12 violations
               that were identified by the Authority during its previous inspections and were
               shown on the Authority’s inspection reports. The following table categorizes the
               312 housing quality standard violations in the 47 units.




                                                5
                                                                 Number of
                                Category of violations           violations
                          Electrical                                 85
                          Window                                     23
                          Exterior surface                           19
                          Wall                                       18
                          Range/refrigerator                         16
                          Stairs, rails, and porches                 16
                          Smoke detectors                            16
                          Security                                   15
                          Floor                                      15
                          Lead-based paint                           14
                          Roof/gutters                               12
                          Ceiling                                    10
                          Fire exits                                 9
                          Foundation                                 6
                          Evidence of infestation                    5
                          Flush toilet in enclosed space/fixed
                          wash basin or lavatory in unit             5
                          Chimney/heating equipment                  4
                          Access to Unit                             4
                          Water heater                               3
                          Garbage and debris                         3
                          Space for preparation, storage, and
                          serving of food                            3
                          Tub or shower in unit/sink                 3
                          Other interior hazards                     2
                          Site and neighborhood conditions           2
                          Interior stairs and common halls           2
                          Ventilation/plumbing                       2
                                           Total                    312

We provided our inspection results to the director of HUD’s Cleveland Office of Public Housing
and the Authority’s executive director on March 14, 2006.

 Electrical Violations


              Eighty-five electrical violations were present in 34 of the Authority’s program
              units inspected. The following items are examples of electrical violations listed in
              the table: outlets with open grounds, no cover on junction box, ground fault
              circuit interrupters do not trip, and loose wires. The following pictures are
              examples of the electrical-related violations identified in the Authority’s program
              units inspected.




                                                   6
Unit #030570: Missing
the cover for the
electrical panel in the
unit’s basement.




Unit #027975: Exposed
bare wires present on the
unit’s basement wall.




Window Violations

                Twenty-three window violations were present in 15 of the Authority’s program
                units inspected. The following items are examples of window violations listed in
                the table: window does not lock, peeling paint, loose glazing, and rotting
                windows. The following pictures are examples of the window violations
                identified in the Authority’s program units inspected.




                                                7
Unit #014598: Loose
glazing on a bedroom
window sash.




 Unit # 028984: Warped
 bedroom window sash
 and window cannot be
 locked without extreme
 force applied to the sash.




Exterior Surface Violations

               Nineteen exterior surface-related violations were present in 16 of the Authority’s
               program units inspected. The following items are examples of exterior surface-
               related violations listed in the table: missing handrails, loose main fuse box cover
               plate, exposed contacts on outdoor electrical panel, and power line across the
               backyard. The following pictures are examples of the exterior surface-related
               violations.




                                                 8
Unit #005674: Electric
power line from the
utility pole to the
neighbor’s house on
the backyard ground
and draped over the
fence.




Unit #026820: Basement
stairway exit without a
handrail and filled with
debris.




Annual Inspections Not
Performed in a Timely Manner

               The Authority did not always perform its annual inspections within one year. Of
               the 8,976 units inspected by the Authority in calendar year 2004, 1,309 (14.5
               percent) were not conducted in accordance with the annual requirement. Of the
               1,309 late annual inspections, 1,278 were less than 30 days late. There were 31
               annual inspections more than 30 days late. The latest inspection was 172 days
               overdue. For the 8,976 unit inspections performed in calendar year 2005, 966
               (10.7 percent) were conducted late. Of the 966, 903 were less than 30 days late
               and 63 were more than 30 days late. The latest inspection was 144 days overdue.


                                               9
             Of the 31 late annual inspections in 2004, nine units materially failed to meet
             HUD’s housing quality standards when they received their annual inspection. A
             total of $5,658 in housing assistance payments was paid to the owners of the nine
             units. For the 63 late annual inspections in 2005, 16 materially failed to meet
             HUD’s housing quality standards when they received their annual inspection. A
             total of $14,944 in housing assistance payments was paid to the owners of the 16
             units that did not meet HUD’s housing quality standards at the time of their
             annual inspection in 2005. The total paid to units that were inspected late and
             failed to meet housing quality standards in 2004 and 2005 was $20,602 ($5,658
             plus $14,944) plus $5,846 in administrative fees paid to the Authority.

             The Authority’s program director said the reason for the late annual inspections
             was that annual inspection notifications were issued at the same time the
             Authority issued the tenant certification notifications. The annual inspections
             were conducted in relationship to certifications and not the date when the last
             annual inspection was conducted. However, there was no program requirement
             for certifications and inspections to be conducted at the same time. The
             Authority’s program inspection department manager said the Authority did not
             track whether annual inspections were conducted annually, only whether they
             were performed within a given time frame after the inspection was assigned to an
             inspector.

Causes for Violations

             The housing quality standards violations existed because the Authority failed to
             exercise proper supervision and oversight of its program unit inspections. The
             Authority also lacked adequate procedures and controls to ensure that its program
             units met HUD’s housing quality standards. It did not ensure that supervisors and
             housing inspectors received adequate housing quality standards training; skills,
             knowledge, and ability requirements were followed when hiring new inspectors;
             quality control reviews were selected randomly; and its administrative plan was
             updated to include information included in HUD Guidebook 7420.10 issued in
             April 2001.

             The late annual inspections occurred because the Authority lacked adequate
             controls to track the timeliness of inspections and it performs its annual
             inspections to coincide with annual certifications, instead of the previous annual
             unit inspection.

Conclusion

             The Authority’s tenants were subjected to health and safety-related violations and
             the Authority did not properly use its program funds when it failed to ensure that
             units complied with HUD’s housing quality standards. In accordance with 24
             CFR [Code of Federal Regulations] 982.152(d), HUD is permitted to reduce or
             offset any program administrative fees paid to a public housing authority if it fails

                                              10
          to enforce HUD’s housing quality standards. The Authority disbursed $41,099 in
          program housing assistance payments for the 23 units that materially failed to
          meet HUD’s housing quality standards and received $3,756 in program
          administrative fees.

          If the Authority implements adequate procedures and controls over its unit
          inspections to ensure compliance with HUD’s housing quality standards, we
          estimate that more than $7.5 million in future housing assistance payments will be
          spent for units that are decent, safe, and sanitary. We determined this amount by
          multiplying 1,187 units (estimate that would be in material noncompliance with
          housing quality standards if appropriate actions are not taken by the Authority) times
          $529 (average monthly subsidy of each housing unit). This amount was then
          annualized to give the total estimate.

Recommendations

          We recommend that the director of HUD’s Cleveland Office of Public Housing
          require the Authority to

          1A.     Certify along with the owners of the 47 program units cited in this finding
                  repaired the applicable housing quality standards violations.

          1B.     Reimburse its program $44,855 from nonfederal funds ($41,099 for
                  housing assistance payments and $3,756 in associated administrative fees)
                  for the 23 units that materially failed to meet HUD’s housing quality
                  standards.

          1C.     Implement adequate procedures and controls to ensure that all units meet
                  HUD’s housing quality standards within the next 12 months to prevent
                  $7,535,076 in program funds from being spent on units that are in
                  noncompliance with the standards.

          1D.     Reimburse its program $26,448 from nonfederal funds ($20,602 in
                  housing assistance payments for the units that were more than 30 days late
                  in receiving their annual inspection and failed to meet HUD’s housing
                  quality standards when they were inspected and the $5,846 in associated
                  administrative fees) for the 25 units that materially failed to meet HUD’s
                  housing quality standards and were late in receiving their annual
                  inspections.

          1E.     Implement procedures and controls to ensure that inspection supervisors
                  efficiently and effectively assure that program units are inspected at least
                  annually to meet HUD’s housing quality standards before disbursing
                  housing assistance payments. The procedures and controls should include
                  but not be limited to developing reporting procedures to ensure that
                  management and inspection supervisors can track and monitor when
                  annual inspections are due and when they are completed.

                                            11
Finding 2: Controls over Housing Assistance Payments Were
                             Inadequate
The Authority failed to comply with HUD’s regulations and its program administrative plan
regarding housing assistance payments. The Authority lacked documentation to support issuing
housing assistance payments to program landlords and incorrectly calculated housing assistance
payments because it did not have adequate procedures and controls to ensure HUD’s regulations
and the Authority’s administrative plan were appropriately followed. As a result, the Authority
was unable to support $304,265 in housing assistance payments made, overpaid $12,012 in
housing assistance payments, and underpaid $11,308 in housing assistance payments.


 The Authority Lacked
 Documentation to Support
 More Than $304,000 in Housing
 Assistance Payments


              The Authority lacked documentation to support housing assistance payments
              totaling $304,265, for the period January 2003 through December 2005. Of the
              76 tenant files statistically selected for review, 35 (46 percent) had the following
              missing or incomplete documents:

                  ¾ 16 were missing the original personal declaration,
                  ¾ 15 housing assistance payment contracts and leases were not signed within
                    60 days of each other,
                  ¾ 10 were missing rent reasonableness certifications,
                  ¾ 10 were missing disclosures of information on lead-based paint,
                  ¾ 8 were missing HUD Form 52517, Request for Tenancy Approval,
                  ¾ 7 were missing or had incomplete lease agreements,
                  ¾ 5 were missing HUD Form 9886, Authorization for the Release of
                    Information and Privacy Act Notice,
                  ¾ 4 were missing or had incomplete housing assistance payment contracts,
                  ¾ 4 were missing or had incomplete signed certifications of citizenship,
                  ¾ 1 was missing photograph identification, and
                  ¾ 1 was missing proof of Social Security numbers.

              The 35 files did not include documentation required by HUD’s regulations nor
              were the files consistent with the Authority’s program administrative plan. Fifty-
              six files contained at least one of the following incorrect calculations: income,
              housing assistance payments, total tenant payments, utility allowance payments,
              and/or utility allowances. The Authority failed to conduct timely certifications for
              14 tenants for one or more years and one certification was not performed. Only
              one tenant file reviewed contained evidence that the Authority conducted a
              criminal records check. Appendix D of this report shows the results of our tenant
              file reviews.



                                               12
           HUD performed a rental integrity monitoring review in 2002 and a rental integrity
           monitoring re-review in 2003. The 2002 review identified that the Authority’s
           tenant files contained errors similar to the ones cited in this finding. HUD’s 2003
           re-review revealed that the Authority’s tenant files still included errors. HUD and
           the Authority have been aware of the tenant file errors since November 2002. As
           previously discussed, the Authority’s maintenance of required documentation in
           its tenant files is still a problem.

           The Authority has failed to correct this issue for more than three years. HUD
           identified errors with 36 files (65 percent) out of a sample of 55 files in 2002.
           When HUD reviewed the same files in its rental integrity monitoring re-review of
           2003, 18 of the 36 files still contained the errors identified in 2002. Also, HUD
           observed that other tenant files were missing a number of documents and the files
           were not in an auditable condition. HUD directed the Authority to review all of
           its tenant files and reenter the documents into the active tenant files to bring them
           into compliance.

The Authority Incorrectly
Calculated Housing Assistance
Payments


           The Authority incorrectly calculated housing assistance payments resulting in
           overpayments of $12,012 and underpayments of $11,308 from January 2003
           through December 2005. To determine whether the Authority correctly
           calculated the housing assistance payments, we reviewed annual certifications
           conducted between January 2003 and December 2005 from 76 program tenant
           files statistically selected for review. The Authority incorrectly calculated
           housing assistance payments in 40 of the 76 tenant files (53 percent) for one or
           more of the annual certifications. The Authority correctly calculated housing
           assistance payments for 21 tenant files. For the remaining 15 tenant files, the
           Authority lacked sufficient documentation to support the calculation of the
           housing assistance payments. The 40 files contained the following errors:

                  ¾ 37 had annual income calculation errors for one or more years,
                  ¾ 13 annual income determinations contained missing or incomplete
                    documentation,
                  ¾ 30 had incorrect utility allowances,
                  ¾ 56 had total tenant payment calculation errors for one or more years,
                  ¾ 13 had total tenant payment determinations based on missing or
                    incomplete documentation,
                  ¾ 11 had utility assistance payments calculation errors for one or more
                    years, and
                  ¾ 11 utility assistance payment determinations were based on missing
                    documentation.

           The errors occurred because the Authority did not use the appropriate annual
           income figures, program voucher payment standards, and/or utility allowances.

                                            13
             Therefore, overpayments and underpayments of housing assistance occurred. As
             a result, HUD and the Authority lacked assurance that housing assistance
             payments were accurate. Appendix E of this report details the housing assistance
             payment errors that resulted from the Authority’s incorrect calculations.

The Authority’s Procedures
and Controls Had Weaknesses


             The weaknesses regarding missing documentation and incorrect calculations
             occurred because the Authority lacked adequate procedures and controls to ensure
             that HUD’s regulations and the Authority’s program administrative plan were
             appropriately followed. The Authority did not ensure that HUD’s regulations and
             the Authority’s administrative plan were fully implemented and tenant
             certifications and file management procedures were standardized. The
             Authority’s administrative plan also did not address how tenants would be
             reimbursed when an underpayment of housing assistance payment occurs.

Conclusion

             The Authority did not properly use its program funds when it failed to comply
             with HUD’s regulations. In accordance with 24 CFR [Code of Federal
             Regulations] 982.152(d), HUD may reduce or offset any administrative fee to a
             public housing authority, in the amount determined by HUD, if the public housing
             authority fails to perform its administrative responsibilities correctly or
             adequately under the program.

             As previously mentioned, the Authority disbursed $304,265 in housing assistance
             payments without proper documentation, overpaid $12,012 in housing assistance
             payments, and underpaid $11,308 in housing assistance payments. In addition,
             the Authority received $27,805 in program administrative fees related to the
             unsupported, overpaid, and underpaid housing assistance payments.

Recommendations

                We recommend that the director of HUD’s Cleveland Office of Public
                Housing require the Authority to

                2A.     Provide supporting documentation or reimburse its program $332,070
                        from nonfederal funds ($304,265 in housing assistance payments and
                        $27,805 in associated administrative fees) for the unsupported housing
                        assistance payments and associated administrative fees related to the
                        35 tenants cited in this finding.

                2B.     Implement adequate procedures and controls to ensure all required
                        documentation is maintained in the Authority’s current tenant files to

                                             14
      support housing assistance payments and ensure calculations are
      correct.

2C.   Reimburse its program $12,012 for the overpayment of housing
      assistance payments cited in this finding from nonfederal funds.

2D.   Reimburse the appropriate tenants $11,308 for the underpayment of
      housing assistance payments from program funds.

2E.   Revise its program administrative plan to address how tenants will be
      reimbursed when an underpayment of housing assistance occurs.




                           15
                        SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed:

              •   Applicable laws; regulations; the Authority’s program administrative plan
                  effective January 23, 2004; and HUD’s program requirements at 24 CFR [Code
                  of Federal Regulations] Parts 5, 35, 982, and 984; HUD’s Public and Indian
                  Housing Notices 2004-12 and 2005-9; and HUD’s Housing Choice Voucher
                  Guidebook 7420.10.

              •   The Authority’s accounting records; annual audited financial statements for
                  2002, 2003, and 2004; general ledgers; checks; tenant files; computerized
                  databases; policies and procedures; board meeting minutes for 2004 and 2005;
                  organizational chart; and program annual contributions contract.

              •   HUD’s files for the Authority.

We also interviewed the Authority’s employees, HUD staff, and program tenants.

We statistically selected 67 of the Authority’s program units to inspect using the U.S. Army
Audit Agency’s Statistical Sampling software from the 3,492 units that were inspected by the
Authority from July 1 through November 30, 2005. The 67 units were selected to determine
whether the Authority ensured that its program units met HUD’s housing quality standards. Our
sampling criteria used a 95 percent confidence level, 50 percent estimated error rate, and a
precision of plus or minus 10 percent.

Our sampling results determined that 23 of 67 units (34 percent) materially failed to meet HUD’s
housing quality standards. This was within our 50 percent estimated error rate; thus we did not
need to adjust our sample size. Materially failed units were those units in which the identified
violation was not cited the last time the Authority conducted its inspection.

The Authority’s July through November 2005 housing assistance payment registers showed that
the average monthly housing assistance payment was $529. Using the lower limit of the estimate
of the number of units and the average housing assistance payment, we estimated that the
Authority will annually spend $7,535,076 (1,187 units times $529 average payment times 12
months) for units that are in material noncompliance with HUD’s housing quality standards.
This estimate is presented solely to demonstrate the annual amount of program funds that could
be put to better use on decent, safe, and sanitary housing if the Authority implements our
recommendation. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate. We also considered that (1) the
Authority did not identify many of the preexisting violations during its most recent inspections,
(2) the units would not be scheduled for another inspection for another year under normal
circumstances, and (3) it would take the Authority at least a year to complete all inspections
under an improved inspection process.




                                               16
Using our lower precision limit, we projected this error rate to the population of 3,492 units
inspected and passed by the Authority over a three month period. We estimated that the
Authority spent more than $7.5 million in housing assistance payments for 1,187 units that
materially failed to meet housing quality standards, computed as 1,187 units times the average
annual housing assistance payment of $6,348.

We performed our onsite audit work between October 2005 and April 2006 at the Authority’s
central office located at 880 East 11th Avenue, Columbus, Ohio. The audit covered the period
from January 1, 2004, through September 30, 2005, but was expanded when necessary to include
other periods.

We performed our audit in accordance with generally accepted government auditing standards.




                                               17
                             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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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 objective:

              •       Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               18
Significant Weakness

           Based on our review, we believe the following item is a significant weakness:

           •   The Authority lacked sufficient procedures and controls to ensure compliance
               with HUD’s regulations and/or the Authority’s program administrative plan
               regarding unit inspections, tenant files, and housing assistance payments (see
               findings 1 and 2).




                                            19
                                     APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE

          Recommendation                                               Funds to be put
              number             Ineligible 1/        Unsupported 2/    to better use 3/
                 1B                   $44,855
                 1C                                                        $7,535,076
                 1D                    26,448
                 2A                                         $332,070
                 2C                    12,012
                 2D                                                            11,308
                Totals                $83,315               $332,070       $7,546,384


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 the 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/   “Funds to be put to better use” are estimates of amounts that could be used more
     efficiently if an Office of Inspector General (OIG) recommendation is implemented.
     This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy
     costs, costs not incurred by implementing recommended improvements, avoidance of
     unnecessary expenditures noted in preaward reviews, and any other savings which are
     specifically identified. In this instance, if the Authority implements our recommendation,
     it will cease to incur program costs for units that are not “decent, safe, and sanitary,” and,
     instead will expend those funds for units that meet HUD’s standards. Once the Authority
     successfully improves its controls, this will be a recurring benefit. Our estimate reflects
     only the initial year of these recurring benefits.




                                                 20
Appendix B

         AUDITEE COMMENTS AND OIG EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3



Comment 4

Comment 5




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 6



Comment 7


Comment 8

Comment 9

Comment 10


Comment 11




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 13




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 14



Comment 15


Comment 16




Comment 17




Comment 18




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 19




                         26
                          OIG Evaluation of Auditee Comments

Comment 1   We revised the title of finding 1 in this report.

Comment 2   We agree the auditor that accompanied the appraiser during the housing quality
            standards inspections did interview tenants in an effort to determine when a
            specific housing quality standards violation occurred. However, the appraiser
            made the determination that 34 of the 47 units had 164 violations that existed
            before the Authority’s previous inspections based upon the condition of the
            violations. The inspection reports provided to the Authority do not contain any
            reference to whether violations were caused by a tenant or a lack of maintenance.

Comment 3   We identified and removed seven violations from this report. This adjustment did
            not affect the number of failed units identified by our appraiser or the number of
            units that materially failed inspection. The seven violations removed were:
            asbestos for unit number 141713 and missing globes at unit numbers 4116,
            100151, 116755, 122991, 134246, and 159750.

Comment 4   Page 10-10 of HUD’s Housing Choice Voucher Guidebook states that handrails
            are required when four or more steps are present, and protective railings are
            required when porches, balconies, and stoops are 30 inches or more off the
            ground.

Comment 5   According to HUD’s regulations at 24 CFR [Code of Federal Regulations]
            982.401(f), electrical outlets need to be in proper operating condition. A non-
            functioning ground fault circuit interrupter is not in proper operating condition.
            We believe that the Authority’s direction to staff to test this type of outlet in the
            future is an indication of the importance to ensure that all electrical outlets are in
            proper operating condition.

Comment 6   As previously stated in Comment 3, we adjusted the number of violations for
            missing globes by six. The remaining 12 instances of missing globes included
            exposed, uninsulated, or frayed wires which pose electrical hazards.

Comment 7   Page 10-10 of HUD’s Housing Choice Voucher Guidebook states the dwelling
            unit must be free from dangerous air pollutant levels from carbon monoxide,
            sewer gas, fuel gas, dust, and other harmful pollutants. Mold was determined to
            be a harmful pollutant.

Comment 8   The adjustments described in Comment 3 resulted in a reduction of two violations
            (1.2 percent) that existed at the time of the Authority’s previous inspections and a
            total of five violations (3.4 percent) that could not be determined whether the
            violations existed at the time of the Authority’s latest inspections and were not
            identified on the Authority’s inspection reports.




                                              27
Comment 9     We disagree that our photographs dramatically overstate the issues and that the
              violations did not exist at the time of the Authority’s latest inspections. The
              condition of the violations clearly shows that they existed at the time of the
              Authority’s previous inspections.

Comment 10 We tried our best to be clear in stating minor violations and units that were in
           material noncompliance. The fact remains that HUD’s regulations are clear and
           we used those as a basis for reporting while being as clear as possible in what the
           regulations mean. The number of violations was reduced by 1.2 percent for
           violations that existed at the time of the Authority’s previous inspections and 3.4
           percent for violations that could not be determined whether the violations existed
           at the time of the Authority’s previous inspections and were not identified on its
           inspection reports. We disagree that this reduction raises any question of the
           fairness and accuracy of HUD’s housing quality standards.

Comment 11 The Authority did not recognize that annual inspections are to be conducted
           within one year of the previous inspections. The requirement to perform housing
           quality standard inspections annually is nationally accepted as a specific one year
           period.

Comment 12 The recommendations in this report were adjusted to reflect the Authority’s
           comments and documentation. We were able to remove the following 10 tenants
           from finding 1: 119088, 137050, 141193, 148879, 151040, 151219, 152341,
           154478, 161685, and 165481.

Comment 13 We disagree with the Authority. The finding addresses both required
           documentation to issue housing assistance payments and the calculations setting
           the amount of housing assistance payments. The Authority’s procedures and
           controls in these areas were inadequate.

Comment 14 We requested information pertinent to the scope of our audit and in accordance
           with HUD’s requirements for tenant files. Lead based paint certifications have
           been a requirement since HUD issued Public Housing Notice 96-92 on December
           11, 1996.

Comment 15 The Authority is required to maintain complete and accurate accounts and other
           records for the program during the term of each assisted lease and for at least
           three years thereafter in accordance with HUD’s regulations at 24 CFR [Code of
           Federal Regulations] 982.158(a). Since the Authority could not provide the
           required documentation, it could not demonstrate that program funds essentially
           served their purpose by purchasing shelter for an eligible family.

Comment 16 Perhaps the Authority should consider a more rigid policy with regards to
           providing housing assistance payments to owners that have not signed the housing
           assistance contract. A policy where no payments are provided without a signed



                                              28
              contract may be an incentive for an owner to comply with the applicable program
              requirements.

Comment 17 The Authority is correct that a statement was made during the exit conference that
           the monetary amounts for overpayments and underpayments essentially cancelled
           the monetary effect to the Authority. However, there is a monetary effect to the
           tenants that received underpayments of housing assistance, as well as to the
           owners that received the overpayments of housing assistance.

Comment 18 Recommendation 2A was revised based upon additional documentation provided
           by the Authority.

Comment 19 The Authority failed to provide adequate documentation to ensure sufficient
           procedures and controls are in place ensuring compliance with HUD’s regulations
           and/or the Authority’s program administrative plan regarding unit inspections,
           tenant files, and housing assistance payments. The Authority’s comments
           reduced the number of housing quality standard violations by seven and verified
           that the Authority does not attempt to perform annual inspections within one year
           of the previous inspections as required. As previously mentioned, the Authority’s
           maintenance of required documentation in its tenant files has been and still is an
           area of concern. Also, the Authority failed to correctly calculate housing
           assistance payments for 40 (53 percent) of the 76 tenant files reviewed, this
           equates to more than 5,000 households with housing assistance calculations
           incorrectly performed. Therefore, the Authority does have significant weaknesses
           in its procedures and controls.




                                             29
Appendix C
                                         CRITERIA


Finding 1
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.152(d) states that HUD may
reduce or offset any administrative fee to a public housing authority, in the amount determined
by HUD, if the authority fails to perform its administrative responsibilities correctly or
adequately under the program, such as not enforcing HUD’s housing quality standards.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.305(a) state that the public
housing authority may not give approval for the family of the assisted tenancy or execute a
housing assistance contract until the authority has determined that all the following meet
program requirements: (1) the unit is eligible, and (2) the unit has been inspected by the authority
and passes HUD’s housing quality standards.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.401 require that all program
housing must meet HUD’s housing quality standards performance requirements both at
commencement of assisted occupancy and throughout the tenancy.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.404 require owners of program
units to maintain the units in accordance with HUD’s housing quality standards. If the owner
fails to maintain the dwelling unit in accordance with HUD’s housing quality standards, the
authority must take prompt and vigorous action to enforce the owner’s obligations. The
authority’s remedies for such breach of the housing quality standards include termination,
suspension, or reduction of housing assistance payments and termination of the housing
assistance payment contract. The authority must not make any housing assistance payments for
a dwelling unit that fails to meet the housing quality standards unless the owner corrects the
defect within the period specified by the authority and the authority verifies the correction. If a
defect is life threatening, the owner must correct the defect within 24 hours. For other defects,
the owner must correct them within 30 calendar days.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.405(a) require public housing
authorities to perform unit inspections before the initial move-in and at least annually. The
authority must inspect the unit leased to a family before the term of the lease, at least annually
during assisted occupancy, and at other times as needed to determine whether the unit meets
housing quality standards.

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.230(a) require each member of
the family of an assistance applicant or participant who is at least 18 years of age and each
family head and spouse regardless of age to sign one or more consent forms.



                                                30
HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.901(a) include requirements that
apply to criminal conviction background checks by public housing authorities that administer
Section 8 and public housing programs when they obtain criminal conviction records, under the
authority of section 6(q) of the 1937 Act (United States Code 42.1437d(q)), from a law
enforcement agency to prevent admission of criminals to public housing and Section 8 housing
and to assist in lease enforcement and eviction.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.5(B)(4) state that if the
payment standard amount is increased during the term of the contract, the increased payment
standard amount shall be used to calculate the monthly housing assistance payment for the
family beginning at the effective date of the family’s first regular reexamination on or after the
effective date of the increase in the payment standard amount.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.153 state that the public
housing authority must comply with the consolidated annual contributions contract, the
application, HUD regulations and other requirements, and its program administrative plan.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.158(a) state that the public
housing authority must maintain complete and accurate accounts and other records for the
program in accordance with HUD requirements in a manner that permits a speedy and effective
audit. The authority must prepare a unit inspection report. During the term of each assisted
lease and for at least three years thereafter, the authority must keep (1) a copy of the executed
lease, (2) the housing assistance payment contract, and (3) the application from the family. The
authority must keep the following records for at least three years: records that provide income,
racial, ethnic, gender, and disability status data on program applicants and participants; unit
inspection reports; lead-based paint records as required by part 35, subpart B of this title; records
to document the basis for authority determination that rent to owner is a reasonable rent (initially
and during the term of a contract); and other records specified by HUD.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.305(c) outline when the
housing assistance payment contract is executed. This includes that the public housing authority
must use best efforts to execute the contract before the beginning of the lease term. The contract
must be executed no later than 60 calendar days from the beginning of the lease term. The
public housing authority may not pay any housing assistance payment to the owner until the
contract has been executed. If the contract is executed during the period of 60 calendar days
from the beginning of the lease term, the authority will pay housing assistance payments after
execution of the contract (in accordance with the terms of the contract) to cover the portion of
the lease term before execution of the contract (a maximum of 60 days). Any contract executed
after the 60-day period is void, and the authority may not pay any housing assistance payment to
the owner.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.508(a) state that eligibility for
assistance or continued assistance under a Section 214-covered program is contingent upon a
family’s submission to the responsible entity of the documents described in paragraph (b) of this
section for each family member. If one or more family members do not have citizenship or
eligible immigration status, the family members may exercise the election not to contend to have


                                                 31
eligible immigration status as provided in paragraph (e) of this section, and the provisions of
5.516 and 5.518 shall apply. (b) Each family member, regardless of age, must submit the
following evidence to the responsible entity:

(1) For U.S. citizens or U.S. nationals, the evidence consists of a signed declaration of U.S.
citizenship or U.S. nationality. The responsible entity may request verification of the declaration
by requiring presentation of a United States passport or other appropriate documentation, as
specified in HUD guidance.

(2) For noncitizens who are 62 years of age or older or who will be 62 years of age or older and
receiving assistance under a Section 214-covered program on September 30, 1996, or applying
for assistance on or after that date, the evidence consists of a signed declaration of eligible
immigration status and proof of age document.

(3) For all other noncitizens, the evidence consists of a signed declaration of eligible immigration
status, one of the documents referred to in 5.510, and a signed verification consent form.

(c) Declaration: (1) For each family member who contends that he or she is a U.S. citizen or a
noncitizen with eligible immigration status, the family must submit to the responsible entity a
written declaration, signed under penalty of perjury, by which the family member declares
whether he or she is a U.S. citizen or a noncitizen with eligible immigration status. For each
adult, the declaration must be signed by the adult. For each child, the declaration must be signed
by an adult residing in the assisted dwelling unit who is responsible for the child. For Housing
covered programs, the written declaration may be incorporated as part of the application for
housing assistance or may constitute a separate document.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.516(a)(1) require the authority
to conduct a reexamination of family income and composition at least annually. The authority
must obtain and document in the tenant file third party verification of the following factors or
must document in the tenant file why third party verification was not available: (i) reported
family annual income, (ii) the value of assets, (iii) expenses related to deductions from annual
income, and (iv) other factors that affect the determination of adjusted income. At any time, the
authority may conduct an interim reexamination of family income and composition. Interim
examinations must be conducted in accordance with policies in the authority’s administrative
plan. As a condition of admission to or continued assistance under the program, the authority
shall require the family head and such other family members as the authority designates, to
execute a HUD-approved release and consent form (including any release and consent as
required under 5.230 of this title) authorizing any depository or private source of income or any
federal, state or local agency to furnish or release to the authority or HUD such information as
the public housing authority or HUD determines to be necessary. The authority and HUD must
limit the use or disclosure of information obtained from a family or from another source pursuant
to this release and consent to purposes directly in connection with administration of the program.




                                                32
Appendix D

                          RESULTS OF TENANT FILE REVIEWS
                                                                                           Housing
                                   HUD Form                                               assistance
                                      9886        Certificatio                            payment                    Request
                                   Authorizatio   n claiming                 Housing      and lease                     for
                                    n for the        to be                  assistance     signed                    tenancy     Lead
                       Drivers     Release of       United       Lease       payment      within 60                  approval,   base       Rent         Housing
                                                                                                                                                        assistance
           Social      license/    Information      States       present     contract      days of      Original       HUD       paint     reason-      payments
 Tenant    Security   photograph   and Privacy      citizen,      and       present and     each        personal      Form       form     ableness         not
 number    number identification   Act Notice     Form 214       signed         signed      other.     declaration    52517      signed   certificate   supported
 146667                                                                                                                            X                       $11,509
 140273                                 X                                                                  X                                               12,408
 140840       X           X             X             X            X             X                         X                                               10,105
 111392                                                                                       X                                                              8,829
 129446                                                                                       X                                                              4,207
 161597                                                X                                                                                                   10,393
 142935                                                                                                    X            X         X           X            10,585
 143430                                                                                       X                                                              2,562
 149893                                                                                                    X                                               10,582
 135113                                                                                       X                                    X                         7,549
 128084                                                                                                    X                                                 5,440
 131060                                                X                                                                X         X           X              6,666
 154076                                                           X,X                         X                         X         X           X              5,755
 182312                                                                                       X                                                              1,700
 157890                                                                                       X                                                              1,989
 117807                                                                                                    X                                               15,552
 130057                                                X                                                   X                                               16,428
 137083                                                            X              X           X                         X         X           X              1,695
 121634                                                                                       X            X                                               17,323
 159348                                                                           X           X                                                              2,219
 143634                                                                                                                                       X              8,022
 110744                                                                                       X            X                                               17,226
 131308                                 X                                                                  X            X         X           X            13,938
 180995                                                                                                                                       X              4,310
 138707                                 X                        X,X,X            X                        X            X          X          X              5,806
 142650                                 X                                                                                                                    2,631
 104830                                                                                                    X                                               15,571
 148116                                                                                                    X                                               12,246
 156755                                                                                       X                                                              2,768
 122543                                                                                       X                                                              7,954
 152379                                                                                       X                                                              1,212
 120615                                                                                                    X            X         X           X             12,198
 162369                                                                                       X                                                             10,832
 127565                                                                                                    X                                                18,729
 141741                                                                                                    X            X          X          X              7,326
  Totals      1           1             5              4           7              4          15           16            8         10         10          $304,265


Note: An “X” identifies the items that are missing from the tenant’s file. More than one “X”
represents information missing in multiple years.

                                                                           33
Appendix E

          HOUSING ASSISTANCE PAYMENT ERRORS
                Total 2003       Total 2004       Total 2005      Total interim
                 housing          housing          housing          housing
                assistance       assistance       assistance       assistance
                payments         payments         payments         payments
 Tenant       overpayment/     overpayment/     overpayment/     overpayment/
 number      (underpayment)   (underpayment)   (underpayment)   (underpayment)
 111958             $0                $0             ($57)             $0
 146667           ($100)              $0               $0              $0
 183226             $0             ($684)              $0              $0
 140273             $0              ($12)             ($6)             $0
 111392           ($228)              $0              $42              $0
 163694             $0                $0               $0            ($693)
 136035           ($276)              $0              $95              $0
 143430             $0             ($231)           ($261)             $0
 140849            N/A              ($77)            ($21)             $0
 149893           ($288)              $0               $0             $552
 168563             $0              $528            ($282)             $0
 135113             $0               $12               $0              $0
 162642            $156             $240              $54              $0
 128084           ($414)              $0              N/A              $0
 165481           ($300)              $0               $0              $0
 131060           $1,120              $0               $0            $2,007
 182312             $0                $0              $45              $0
 180466             $0                $0               $0            ($258)
 157890             $0             ($650)              $0              $0
 119088           $1,212              $0               $0              $0
 130057             $0                $0            ($100)             $0
 137083             $0            ($1,800)             $0              $0
 121634             $0              $320               $0             $144
 159348             $0                $0             $252              $0
 141193             $0             ($140)          ($1,458)            $0
 146069             $0              $372               $0              $0
 110744             $0              $300            $1,440             $0
 131308             $0                $0             $138              $0
 181002             $0                $0             $120              $0
 171935             $0                $0              $51              $0
 155687             $0                $0             ($32)             $0
 181255             $0             ($162)              $0             $136
 147742           ($238)              $0               $0            ($238)




                                     34
 HOUSING ASSISTANCE PAYMENT ERRORS (CONTINUED)
                   Total 2003        Total 2004       Total 2005      Total interim
                    housing           housing          housing          housing
                   assistance        assistance       assistance       assistance
                   payments          payments         payments         payments
Tenant number    overpayment/      overpayment/     overpayment/     overpayment/
                (underpayment)    (underpayment)   (underpayment)   (underpayment)
   122543             $144               $0             ($720)             $0
   169379              $0              $2,532             $0               $0
   151219              $0              ($770)             $0               $0
   154478              $0                $0               $0             ($140)
   127565              $0                $0             ($144)             $0
   181536             N/A              ($168)             $0
   165180             N/A              ($360)
    Total
Overpayment          $2,632             $4,304          $2,237          $2,839
    Total
Underpayment        ($1,844)           ($5,054)        ($3,081)        ($1,329)
            Total housing assistance payments overpaid                 $12,012
           Total housing assistance payments underpaid                 $11,308




                                       35