oversight

The Housing Authority of the County of Cook, Chicago, Illinois, Needs to Improve Its Section 8 Housing Program Administration

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-11.

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

                                                                   Issue Date
                                                                            July 11, 2006
                                                                   Audit Report Number
                                                                            2006-CH-1012




TO:         Steven E. Meiss, Director of Public Housing Hub, 5APH

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

SUBJECT: The Housing Authority of the County of Cook, Chicago, Illinois, Needs to
           Improve Its Section 8 Housing Program Administration

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of the County of Cook’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 of the Authority’s program.

 What We Found

             The Authority needs to improve its program administration regarding housing unit
             conditions, claiming of household dependents, and the reasonableness of program
             rents. Quality control reviews were not effective in identifying housing
             violations. Of the 83 housing units statistically selected for inspection, 64 did not
             meet HUD’s housing quality standards and 61 had 279 violations that existed at
             the time of the Authority’s previous inspection. The 61 units had between 1 and
             17 preexisting violations per unit.

             The Authority improperly permitted 18 of 31,587 individuals reviewed to be
             claimed as dependents in more than one program unit. This resulted in more than
             $20,000 in overpayments of program housing assistance. The Authority also
           failed to determine the reasonableness of program rents before approving housing
           assistance payment contracts for 11 of the 20 tenant files reviewed and lacked
           documentation to support when its rent reasonableness database was last updated.

           As a result, program funds were not used efficiently and effectively, and fewer
           funds were available to assist low and moderate-income families on the
           Authority’s waiting list.

What We Recommend

           We recommend that the director of HUD’s Chicago Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of more than $123,000 in program funds, ensure that program
           housing units inspected during this audit are repaired to meet HUD’s housing
           quality standards, and implement procedures and controls to address the findings
           cited in this audit report. These procedures and controls should help ensure that
           nearly $10.1 million in program funds are spent on housing units that meet
           HUD’s requirements.

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

Auditee’s Response


           We provided our discussion draft audit report to the Authority’s former executive
           director, its former board chairman, and HUD’s staff during the audit. We held
           an exit conference with the Authority’s former executive director on May 19,
           2006.

           We asked the Authority’s former executive director to provide comments on our
           discussion draft audit report by June 15, 2006. The Authority’s former executive
           director provided written comments dated June 14, 2006. The Authority
           disagreed with findings 1 and 2, but agreed with finding 3. The complete text of
           the written comments, except for four attachments that were not necessary to
           understand the former executive director’s comments, along with our evaluation
           of that response, can be found in appendix B of this report. We provided HUD’s
           acting director of the Chicago Office of Public Housing with a complete copy of
           the Authority’s written comments plus the four attachments.




                                            2
                              TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit

        Finding 1: Housing Quality Standards Were Not Adequately Enforced         5

        Finding 2: The Authority Needs to Enhance Its Controls over Individuals
                   Claimed as Dependents by Program Tenants                       12
        Finding 3: The Authority’s Rent Reasonableness Process Was Inadequate     15

Scope and Methodology                                                             17

Internal Controls                                                                 19

Appendixes

   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use            21
   B.   Auditee Comments and OIG’s Evaluation                                     22
   C.   Criteria                                                                  35
   D.   Units with Preexisting Violations                                         37




                                               3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Cook (Authority) is the second largest public housing
authority in Illinois. It is a municipal corporation established in 1946 under the Illinois Housing
Act to engage in the acquisition, development, leasing, and administration of a low-rent housing
program and other federally assisted programs.

The Authority administers a Section 8 Housing Choice Voucher program (program) funded by
the U.S. Department of Housing and Urban Development (HUD) in 122 suburban communities
in Cook County, Illinois. 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 March 1, 2006, the Authority had 11,705 units under contract
with annual housing assistance payments totaling more than $101.2 million in program funds.

Our objective was to determine whether the Authority managed its program in accordance with
HUD’s requirements. This is the first of two audit reports of the Authority’s program.




                                                 4
                                 RESULTS OF AUDIT

Finding 1: Housing Quality Standards Were Not Adequately Enforced
The Authority did not adequately enforce HUD’s housing quality standards. Our inspections
found that 64 of the 83 program units did not meet minimum housing quality standards and 61
had violations that existed before the Authority’s last inspection. The violations existed because
the Authority lacked effective procedures and controls over its unit inspections. As a result,
nearly $101,000 in program funds was not used efficiently and effectively to provide units that
were decent, safe, and sanitary.



 HUD’s Housing Quality
 Standards Not Met

               From the Authority’s 3,325 program units that passed its inspection between July
               and September 2005, we statistically selected 83 units for inspection by using the
               U.S. Army Audit Agency’s Statistical Sampling System software. The 83 units
               were inspected to determine whether the Authority ensured that its program units
               met HUD’s housing quality standards. Our appraiser inspected the 83 units
               between October 17 and November 10, 2005.

               Of the 83 units, 64 (77 percent) had 376 housing quality standards violations. Of
               the 376 violations, 10 were identified by the Authority during its previous
               inspection and were shown on the Authority’s inspection reports. In addition, 61
               of the 64 units had 279 violations that existed before the Authority’s previous
               inspections and 38 units were considered to be in material noncompliance since
               they had health and safety violations that predated the Authority’s previous
               inspection. The following table categorizes the 376 housing quality standard
               violations in the 64 units.




                                                5
                                                                          Number of
                             Category of violations                       violations
                Electrical                                                    89
                Security                                                      51
                Windows                                                       51
                Floor                                                         27
                Interior walls                                                21
                Smoke detectors                                               20
                Exterior surface                                              18
                Lead-based paint                                              15
                Ceiling                                                       14
                Fire exits                                                    11
                Range/refrigerator                                            9
                Sink                                                          8
                Tub/shower unit                                               7
                Hot water heater                                              6
                Roof                                                          5
                Space for food storage and preparation                        5
                Exterior stairs                                               4
                Ventilation                                                   3
                Flush toilet in enclosed room                                 2
                Infestation                                                   2
                Interior stairs                                               2
                Other potential hazardous features                            2
                Access to unit                                                1
                Foundation                                                    1
                Safety of heating equipment                                   1
                Site and neighborhood (rotted fence with exposed nails)       1
                                          Total                              376

             We provided our inspection results to the former director of HUD’s Chicago
             Office of Public Housing and the Authority’s former executive director on
             December 16, 2005.

Electrical Violations

             Eighty- nine electrical violations were present in 45 of the Authority’s program
             units inspected. The following items are examples of electrical violations listed in
             the table: outlets with open grounds, light fixtures hanging from wires, no cover
             on junction box, ground fault circuit interrupters not tripping, holes and gaps in
             the breaker box, and exposed wires. The following pictures are examples of
             electrical violations identified in the program units inspected.




                                                   6
 Unit for household
 #44248 had exposed
 wires in unsecured
 electrical junction box.




Unit for household #14195
had a fan lamp hanging
from wires in the kitchen.




 Security Violations

                 Fifty-one security violations were present in 31 of the Authority’s program units
                 inspected. The following items are examples of security violations listed in the
                 table: locks on exterior doors not working, blocked fire exits, broken door jams,
                 deadbolt locks on bedrooms, and the use of unacceptable double-keyed deadbolt
                 locks. The following pictures are examples of the security violations identified in
                 the program units inspected.




                                                  7
Unit for household #28119 had
a damaged door jam and loose
screen door latch.




Unit for household #26042
had a porch door blocked
by a refrigerator. This door
constitutes the secondary
means of exit from the unit.




  Window Violations

                  Fifty-one window-related violations were present in 28 of the Authority’s
                  program units inspected. The following items are examples of window-related
                  violations listed in the table: windows not able to open, window locks not
                  working properly, mold on window sills and sashes, and cracked window panes.
                  The following pictures are examples of window-related violations.




                                                 8
Unit for household #18698
had mold on a bedroom
window sash and sill.




Unit for household
#7925 had a broken lock
on bedroom window.




 HUD Funds Not Effectively
 Used

                The Authority did not effectively use program funds when it failed to fully
                enforce HUD’s housing quality standards. Our appraiser identified 61 units with
                housing quality standards violations that existed at the time of the Authority’s
                previous inspection. However, the Authority’s inspectors passed the 61 units.
                Our appraiser noted these preexisting housing quality standards violations on the
                applicable inspection reports that we provided to the Authority and HUD.




                                                 9
            The Authority should not have made housing assistance payments on the 61 units
            due to the preexisting violations. The table in appendix D of this report lists the
            61 units, the period after the Authority’s previous inspection (beginning after 21
            days from the time of the failure) that the unit did not meet HUD’s housing
            quality standards, and $92,916 in housing assistance payments that should not
            have been paid by the Authority. In addition, the Authority should not be entitled
            to the associated administrative fees of $8,054.

Causes for Violations

            Unit violations were not properly identified by the Authority’s inspectors because
            the Authority lacked written procedures for supervising and overseeing the
            performance of program inspections. The Authority was performing quality
            control inspections, but only one of its three field offices (Arlington Heights) was
            documenting the results of the quality control inspection log for the purpose of
            discussing violations with the original inspector. The other two field offices
            (Evanston and Harvey) lacked documentation (quality control inspection log)
            showing evidence of feedback provided to inspectors who missed violations. The
            Authority needs to establish effective procedures and controls to ensure that all
            field offices document the quality control inspections so that any misinterpretation
            or oversight of housing quality standards by the inspectors is corrected.

            While observing the Authority’s inspections during the audit survey, we noted
            that the Authority’s annual inspections did not always include examinations of the
            mechanical, plumbing, heating, and electrical systems and structure and roofing
            of the units. For example, an Evanston field office inspector concluded her
            inspection after inspecting only the interior of the unit. The inspector made no
            attempt to inspect the furnace, water heater, and electrical box that were located in
            the basement and required access from the outside of the unit. This inspector also
            failed to inspect the furnace, water heater, and electrical box in other units
            observed. During our observation of the Authority’s Harvey field office
            inspectors, we were informed that for multifamily buildings, items such as the
            furnace and water heater not in the individual units were only inspected before a
            tenant moved in.

            The Authority’s three field offices were not consistent in their application and
            interpretation of housing quality standards, which resulted in missed violations.
            For example, the Authority’s Arlington Heights and Harvey field office inspectors
            had outlet testers, but the Evanston field office inspectors did not. The Arlington
            Heights field office inspector was the only one that we observed inspecting the
            exterior of units. Also, the Arlington Heights field office inspector was the only
            one observed asking questions of each tenant related to housing quality standards.




                                             10
Conclusion

             The Authority’s tenants were subjected to health and safety-related violations
             resulting in program units that failed HUD’s housing quality standards. If the
             Authority implements adequate procedures and controls over its unit inspections to
             ensure compliance with HUD’s housing quality standards, we estimate that
             $10,095,840 in future housing assistance payments will be spent for units that are
             decent, safe, and sanitary. We determined this amount by multiplying 1,230 units
             (estimate that would be in material noncompliance with housing quality standards if
             appropriate actions are not taken by the Authority) times $684 (average monthly
             subsidy of each housing unit). This amount was then annualized to give the total
             estimate of funds to be put to better use.

Recommendations

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

             1A.    Conduct followup housing quality standards inspections on housing units
                    that failed inspection to determine whether violations still exist and abate
                    housing assistance payments to landlords accordingly.

             1B.    Reimburse its program $100,970 from nonfederal funds ($92,916 for
                    housing assistance payments and $8,054 in associated administrative fees)
                    for the 61 units that contained preexisting violations not identified in the
                    Authority’s previous inspection.

             1C.    Implement adequate procedures and controls to ensure that program
                    inspections are performed adequately and that all units meet HUD’s
                    housing quality standards. By implementing adequate procedures and
                    controls, the Authority should help ensure that $10,095,840 in program
                    funds support units that are decent, safe, and in sanitary condition over the
                    next year.




                                              11
Finding 2: The Authority Needs to Enhance Its Controls over
        Individuals Claimed as Dependents by Program Tenants
The Authority needs to enhance its controls over individuals claimed by program households as
dependents. It permitted 18 of 31,587 individuals reviewed to be claimed as program dependents
by multiple households. This occurred because the Authority lacked adequate procedures and
controls to review its tenant database to determine whether individuals were already claimed as
dependents in another household. As a result, the Authority provided excessive housing
assistance.



 Dependents Claimed in Two
 Households

              Weaknesses in the Authority’s procedures and controls for reviewing program
              tenant information allowed 18 individuals to be claimed as dependents in multiple
              households. According to HUD’s regulations at 24 CFR [Code of Federal
              Regulations] 982.551, the family must promptly notify the Authority if any family
              member no longer resides in the unit. Program dependents can only be claimed
              by one head of household and the head of household must be able to demonstrate
              that the dependent resided in the unit more than 50 percent of the time.

              The Authority provided information on its active program participants and their
              family members/dependents as of September 7, 2005, from its Emphasis
              computer system, which included 31,587 individuals. Using computer-assisted
              auditing techniques, we searched for duplicate Social Security numbers for the
              program participants and family members/dependents more than six years of age.
              Eighteen individuals were identified as being claimed as dependents in multiple
              households. While the error rate was small, this problem could increase if the
              Authority fails to implement adequate procedures and controls to eliminate the
              same dependent from being claimed by multiple households.

 Current Procedure for
 Checking Social Security
 Numbers


              As of April 30, 2006, the Authority’s Emphasis computer system has the ability to
              identify duplicate Social Security numbers for program heads of households but
              not their remaining family members/dependents. When adding additional family
              members/dependents to its program, the Authority’s intake department uses a
              manual system, looking up Social Security numbers in the Emphasis computer
              system. If a duplicate number is found, the Authority’s staff informs the
              renewal/adjustment department. However, this process was not efficient for
              reviewing the Authority’s entire program database. The Authority’s director of
              rent assistance said the Authority did not have the necessary computer software to




                                              12
             detect duplicate Social Security numbers for family members/dependents but
             hopes to have the software in the near future. The director also said that
             sometimes there is a temporary overlap in dependents when one household loses a
             dependent and requests an interim rental certification and another household adds
             the same dependent.

             The following table shows the 14 households (18 individuals) that inappropriately
             claimed dependents and the amount of excessive housing assistance, utility
             allowance, and/or utility reimbursement. It also includes one household that paid
             too much in rent since the household improperly claimed a dependent and the
             dependent had Social Security income.

                             Excessive       Excessive         Excessive
               Household      housing          utility          utility
                number       assistance      allowance      reimbursement       Total
                013061              $2,952        $1,872             $2,304      $7,128
                009398                 168              0                  0        168
                029785                  48              0                  0         48
                032012                  60             10                  0         70
                014028               2,450            195                  0      2,645
                030427                 600            295                395      1,290
                014778               5,010            506             1,298       6,814
                051838                 192              0                  0        192
                051274                  80              0                 16         96
                702313                  84              0                  0         84
                027314             (1,140)              0              (760)    (1,900)
                029799                   0              0                 72         72
                013065                  24              0                  0         24
                051823               1,827            154                  0      1,981
                028232               1,112            176                248      1,536
                 Totals           $13,467         $3,208             $3,573    $20,248

             The utility allowance is calculated for each household based on the Authority’s
             schedule of average utility consumption by program unit size. The utility
             reimbursement represents the housing assistance payment exceeding the
             landlord’s rent that the Authority sends to the head of household or utility
             company.

Conclusion

         For the tenant files in which the duplicate dependents were found, the head of
         household was either the dependent’s mother, grandmother, or an individual who
         obtained custody through a court. The Authority’s Section 8 staff allowed
         dependents to be claimed by a parent at the same time other individuals obtained
         custody through the courts. This occurred because the Authority’s staff did not
         search the database of active program tenants for duplicate Social Security
         numbers. As a result, the Authority provided $22,148 in excessive housing
         assistance to 14 households.




                                               13
Recommendations

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

          2A.     Reimburse its program $22,148 from nonfederal funds for the housing
                  assistance improperly provided to the 14 households cited in this finding.

          2B.     Implement adequate procedures and controls to ensure program dependent
                  allowances meet HUD’s regulations.




                                           14
Finding 3: The Authority’s Rent Reasonableness Process Was
                             Inadequate
The Authority’s rent reasonableness was inadequate. The Authority did not always determine
the reasonableness of program rents before housing assistance payment contracts were approved
and lacked documentation to support when its rent reasonableness database was last updated.
These problems occurred because the Authority lacked adequate procedures and controls over its
rent reasonableness process. As a result, HUD and the Authority lacked assurance the contract
rents were reasonable.



 The Authority Did Not Verify
 the Reasonableness of Rents

              Contrary to HUD’s regulations, the Authority did not always verify the
              reasonableness of program rents before renewing housing assistance payment
              contracts. Of the 20 randomly selected tenant files that had their housing
              assistance payment contracts renewed between April 2004 and August 2005, 11
              were not verified for rent reasonableness before contract renewals (five had no
              evidence of rent reasonableness verifications). We reviewed the Authority’s
              documentation that showed the 11 contract rents were reasonable.

              According to 24 CFR [Code of Federal Regulations] 982.507, the Authority may
              not approve a lease until it determines that the initial program rent is reasonable.
              Further, HUD’s Housing Choice Voucher Guidebook 7420.10, chapter 9, requires
              housing authorities to ensure that rents charged by owners to program participants
              are reasonable. Since the Authority did not verify the reasonableness of rents in
              every case, the Authority and HUD lacked assurance that paid rents were
              reasonable.

 The Authority Did Not
 Document Database Updates

            The Authority did not have written procedures explaining how often and what
            methods were to be used for updating comparable rents in its rent reasonableness
            database. In addition, the Authority lacked documentation to support when
            comparable rents were collected and loaded into its database.

            According to chapter 9 of HUD’s Housing Choice Voucher Guidebook 7420.10,
            there should be written guidance describing how the database will be maintained
            and how rent reasonableness determinations will be made and documented.
            Chapter 9 also requires housing authorities to document the date of the rent
            reasonableness data collection so users know how old the data are when using or
            updating the data. Since the Authority did not document when and how the rent




                                               15
        reasonableness database was updated, it could not ensure that all rents used to
        determine rent reasonableness reflected current rents in the marketplace.

Recommendation

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

        3A.      Implement adequate procedures and controls over its rent reasonableness
                 process to include, but not limited to verifying the reasonableness of rents
                 before executing housing assistance payment contracts with owners and
                 maintaining documentation to support the quality and timeliness of its rent
                 reasonableness database.




                                          16
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed:

               •   Applicable laws; regulations; and the Authority’s Section 8 administrative plan
                   effective May 2000, and its operations manual; and HUD program requirements
                   at 24 CFR [Code of Federal Regulations] Parts 5, 35, 960, 982, and 984; HUD
                   Public and Indian Housing Notice 2005-9; and HUD’s Housing Choice Voucher
                   Guidebook 7420.10.

               •   The Authority’s accounting records, annual audited financial statements for the
                   periods ending March 31, 2004 and 2005, general ledgers, bank statements and
                   cancelled checks for April 2004 through August 2005, tenant files, policies and
                   procedures, board meeting minutes for April 2004 through August 2005,
                   organizational chart, and Section 8 annual contributions contract with HUD.

               •   Downloaded tenant data for the Authority’s program as of September 7, 2005.

               •   HUD’s reports and files relating to the Authority.

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

We statistically selected 83 of the Authority’s program units to inspect, using the U.S. Army
Audit Agency’s Statistical Sampling software from the Authority’s 3,325 units that passed its
inspection conducted from July through September 2005. The 83 units were selected to
determine whether the Authority ensured its program units met HUD’s housing quality
standards. Our sampling criteria used a 90 percent confidence level, 50 percent estimated error
rate, and a precision of plus or minus 9 percent.

Our sampling results determined that 38 of 83 units (46 percent) materially failed 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 with health and safety
issues that preceded the Authority’s previous inspection.

The Authority’s August through October 2005 housing assistance payments registers showed
that the average monthly housing assistance payment was $684. 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 $10,095,840 (1,230 units times $684 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 rescheduled for another inspection for another year under normal




                                                 17
circumstances, and (3) it would take the Authority at least a year to complete all inspections
under an improved inspection process.

Using our lower precision limit, we projected this error rate to the population of 3,325 units
inspected and passed by the Authority over a three-month period. We estimated that the
Authority spent $10,095,840 in housing assistance payments for 1,230 units that materially failed
housing quality standards, computed as 1,230 units times the average annual housing assistance
payment of $8,208.

We performed our onsite audit work from September 2005 to March 2006 at the Authority’s former
office located at 310 South Michigan, Chicago, Illinois. The audit covered the period April 1, 2004,
through August 31, 2005. This period was expanded as necessary to accomplish our objective.

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




                                                18
                             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 audit 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.




                                               19
Significant Weakness


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

           •   The Authority failed to exercise proper supervision and oversight of its
               program unit inspections (see finding 1).




                                            20
                                     APPENDIXES

Appendix A

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

                 Recommendation                               Funds to be put
                     number               Ineligible 1/        to better use 2/

                        1B                 $100,970
                        1C                                       $10,095,840
                        2A                   22,148
                       Totals              $123,118              $10,095,840


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/   “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.




                                              21
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         24
Ref to OIG Evaluation   Auditee Comments




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 7




                         27
Ref to OIG Evaluation   Auditee Comments




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 8




                         29
Ref to OIG Evaluation   Auditee Comments




                         30
                              OIG Evaluation of Auditee Comments


Comment 1   Our appraiser did not count individual violations twice. For example, if a paint
            violation is listed under wall, ceiling, window, or door, the violation would still
            have to be listed under lead-based paint if it met the criteria—that is, built
            before 1978 and occupied by a child under the age of six.

Comment 2   Chapter 10 of the Housing Choice Voucher Program Guidebook,” Housing
            Quality Standards,” page 10-2, states that not all areas of housing quality
            standards are exactly defined. While acceptability criteria specifically state the
            minimum standards necessary to meet housing quality standards, inspector
            judgment or tenant preference may also need to be considered in determining
            whether a unit meets minimum standards. Our appraiser did not cite exterior
            doors for having deadbolt locks. Rather, the appraiser considered it a security
            violation if the exterior door had an inside keyed lock since it must be
            accessible to the outside per form HUD-52580-A, and serve as a primary fire
            exit. Our appraiser also cited as a security violation bedrooms that had keyed
            deadbolt locks and also served as secondary fire exits. The appraiser did not
            cite as a violation a keyed lock on a bedroom door if it was not needed as an
            alternate exit.

Comment 3   We agree that ground fault circuit interrupters are not required by HUD’s
            housing quality standards. However, if ground fault current interrupters are
            present in a unit, our appraiser determined if they were working properly. An
            improperly grounded outlet poses a potentially hazardous condition.
            Regarding reversed hot and neutral connections, our appraiser did not fail these
            items, but rather annotated them as pass with comment. Globes were not cited
            as violations unless the light was hanging by a wire without adequate support
            or there were exposed wires which pose a potential electrical hazard. We
            eliminated any other violations that only include a missing globe. Regarding
            tenant-owned items, housing quality standards do not distinguish between
            items belonging to a landlord or tenant, so if a violation existed, our appraiser
            appropriately cited it.

Comment 4   The Authority had adequate controls over heads of households in terms of
            checking for duplicate Social Security numbers, but lacked similar controls
            over their dependents. Although the margin of error was very small—only 18
            dependents were found to be claimed by more than one household—the
            condition still warrants corrective action by the Authority to prevent it from
            getting any worse. The Authority recognized the risk that its data contained
            duplicate Social Security numbers by initiating steps to identify the duplicates
            through the use of a computer matching technique. The Authority’s
            implementation of this control should eliminate or significantly reduce the risk
            of dependents being claimed by more than one household.




                                        31
                             OIG Evaluation of Auditee Comments


            The Authority provided a spreadsheet of its calculation of $11,520 in total
            housing assistance overpayments as a result of the duplicate dependent claims.
            This differed from our total calculation of $22,148 in overpayments. Our audit
            scope was April 1, 2004, through August 31, 2005, whereas the Authority went
            back as much as five years for its calculation. In addition, the Authority only
            counted an annual overpayment of $12 for eight of the tenants reviewed since
            its policy provides that a household claiming a dependent for which they are
            not entitled must forfeit $12 in housing assistance per year. Our methodology
            quantified the total impact on the housing assistance payments for our audit
            scope.

            Regarding the three households who complied with the policy on family
            composition at the time of their renewal, we still counted them since they were
            not in compliance during the scope of our audit. In addition, utility allowances
            claimed were not duplicative. The excessive utility allowances and
            reimbursements were in addition to the excessive housing assistance payments
            made. We furnished supporting schedules to the Authority. We agree with the
            Authority that the household who erroneously claimed a dependent should not
            be entitled to reimbursement from the Authority, regardless of whether that
            dependent’s income caused them to pay more in rent. Therefore, we
            eliminated the recommendation to reimburse the household from this audit
            report.

Comment 5   The Authority cited references that have since been rescinded or were not
            applicable. HUD Handbook 7420.7, “HUD’s Public Housing Agency
            Administrative Practices Handbook for the Section 8 Existing Housing
            Program”, was rescinded on November 29, 2001. In addition, the housing
            quality standards that the Authority referred to at 24 CFR [Code of Federal
            Regulations] 882.109, 882.210, and 882.211 are not applicable to the Section 8
            Housing Choice Voucher program. The applicable regulations are at 24 CFR
            [Code of Federal Regulations] 982.401.

Comment 6   As a guideline for conducting the unit inspections, our appraiser followed 24
            CFR [Code of Federal Regulations] 982.401 on housing quality standards and
            explanations found on form HUD -52580-A, “Inspection Form, Housing
            Choice Voucher Program.” Although our appraiser has extensive experience,
            he did not use Section 8 new construction and substantial rehab program
            standards as suggested by the Authority. Nothing cited by our appraiser should
            impact the supply of housing to low and moderate income households. The
            Authority’s program administrative plan recognizes local code requirements
            when brought to the Authority’s attention by a local municipality. As a result,
            we instructed our appraiser not to inspect in accordance with local code
            requirements since we determined that only housing quality standards would
            be used as the minimum standards for our audit.




                                       32
                             OIG Evaluation of Auditee Comments


Comment 7   HUD’s Housing Choice Voucher Program Guidebook was written to advise
            public housing authorities regarding the administration of tenant-based subsidy
            programs (for example, the Section 8 program). It discusses program
            requirements in detail, and provides helpful operating practices. Chapter 10
            addresses housing quality standards, and page 10-8 discusses illumination and
            electricity. Specifically, it states that authorities must be satisfied that the
            electrical system is free of hazardous conditions, including: exposed,
            uninsulated, or frayed wires, improper connections, improper insulation or
            grounding of any component of the system, overloading of capacity, or wires
            lying in or located near standing water or other unsafe places. Other
            unacceptable conditions include hanging light fixtures or outlets from electric
            wiring, missing cover plates on switches and outlets, badly cracked outlets or
            cover plates, exposed fuse box connections, and overloaded circuits.

            One way to test for potential electrical hazards is through the use of a circuit
            tester. During our observations of the Authority’s inspectors, we noticed that
            some inspectors were using circuit testers to test if outlets were working
            properly.

            Our appraiser cited unlocked junction boxes as a violation if exposed wires
            were present. For the violations noted, we provided photos to HUD and the
            Authority to support the cited violations.

            HUD’s Housing Choice Voucher Program Guidebook also addresses stairs
            without a handrail. On page 10-10, it states that handrails are required when
            four or more steps (risers) are present, and protective railings are required
            when porches, balconies, and stoops are thirty inches off the ground. The
            violations cited by our appraiser for units assigned to household numbers
            52287, 50711, 14195, and 43816 were consistent with this criteria.

Comment 8   We agree that worn carpeting or other worn floor covering does not violate the
            housing quality standards as the Authority pointed out in its response. This is
            consistent with Section 1.8 of form HUD-52580-A. We adjusted our report to
            eliminate this previously cited violation.

            Regarding mold, we disagree with the Authority’s position, but understand that
            HUD has not specifically addressed this problem. Because of the potential
            health hazards of mold, and without knowing those hazards absent any testing,
            our appraiser cited conditions that showed a moderate to high instance of mold.




                                        33
        OIG Evaluation of Auditee Comments


We agree with the Authority’s position that minor water leaks do not violate
the housing quality standards, in accordance with section 3.11 and 3.12 of form
HUD-52580-A. However, in the instance cited in our inspection report, the
condition represented broken faucet controls which resulted in water flowing
from the faucet that exceeded a “dripping faucet.”

Regarding second bathrooms, our appraiser would normally only be looking
for security and electrical conditions, as long as the primary bathroom met all
the requirements of section 3 on form HUD-52580-A.

We agree with the Authority’s position on broken kitchen cabinet doors and
drawers not violating housing quality standards when it is minor and does not
pose any risk to the occupant. In our example, there was a missing drawer and
the damage was considered more than a minor defect.

We agree with the Authority that smoke detectors are not required in common
hallways, per housing quality standards. We did not include this as a violation
in our report.

We do not agree with the Authority’s position regarding exposed, insulated
wires in junction boxes. In HUD’s Housing Choice Voucher Program
Guidebook, Chapter 10, it states that exposed fuse box connections are
unacceptable.




                           34
Appendix C
                                         CRITERIA

Finding 1
HUD’s regulations 24 CFR [Code of Federal Regulations] 982.152(d) state that HUD may
reduce or offset any administrative fee to the 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 24 CFR [Code of Federal Regulations] 982.401(a)(3) state all program
housing must meet the housing quality standards performance requirements both at
commencement of assisted occupancy and throughout the assisted tenancy.

HUD’s regulations 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 24 CFR [Code of Federal Regulations] 982.405 state the Authority must
inspect the unit leased to a family before the initial term of the lease, at least annually during
assisted occupancy, and at other times as needed to determine whether the unit meets the housing
quality standards. The Authority must conduct supervisory quality control housing quality
standards inspections.

HUD’s Housing Choice Voucher Program Guidebook7420.10, chapter 10, pages 10 through 33,
states that quality control inspections provide feedback on inspectors’ work, which can be used
to determine whether individual performance or general housing quality standards training issues
need to be addressed. The Authority should maintain a quality control tracking system for each
program year, which indicates the address of the units; date of original inspection and inspector;
date of the quality control inspection; and location of the unit by neighborhood, zip code, and
census tract.

Finding 2
HUD’s regulations 24 CFR [Code of Federal Regulations] 982.551 state that the composition of
the assisted family residing in the unit must be approved by the Authority. The family must
promptly inform the Authority of the birth, adoption, or court-awarded custody of a child. The
family must request the Authority’s approval to add any other family member as an occupant of




                                                 35
the unit. The family must promptly notify the Authority if any family member no longer resides
in the unit.

A dependent can only be associated with one household. The household must be able to
demonstrate the dependent lived at the unit for at least 51 percent of the year. Divorce custody
paperwork is not a concern. A care provider on a part-time basis or a student at a second
location is not considered dependents.

The dependent can be claimed by only one head of household and that head of household must
be able to demonstrate the dependent was at his or her unit more than 50 percent of the time.

Finding 3
HUD’s regulations 24 CFR [Code of Federal Regulations] 982.507 state that the Authority may
not approve a lease until it determines that the initial rent is reasonable. The Authority must
redetermine the reasonableness of the rent before any increase in the rent if there is a 5 percent
decrease in the published fair market rent in effect 60 days before the contract anniversary or if
directed by HUD. At all times during the assisted tenancy, the rent may not exceed the
reasonable rent as most recently determined or redetermined by the Authority.

HUD’s Housing Choice Voucher Program Guidebook 7420.10, chapter 9, page 9-7, states that
by updating rent reasonableness databases periodically, the Authority may be able to avoid
having to conduct a more expensive, comprehensive survey. The work involved in updating the
database could be spread out with some updating each month. The Authority should always
indicate in its documentation the date of the data collection so that it knows how old the data are
when using or updating the data.

HUD’s Housing Choice Voucher Program Guidebook 7420.10, chapter 9, page 9-11, requires
the Authority to provide staff with written guidance describing how the database will be
maintained and how rent reasonableness determinations will be made and documented. Clear
performance standards should be set and there should be monitoring and quality control
performed throughout the year with training and feedback regarding both good and inadequate
performance.




                                                36
Appendix D
                UNITS WITH PREEXISTING VIOLATIONS
                                                                   Improper
                 Housing                                            housing       Improper
    Household   assistance    Last unit                            assistance   administrative
     number     payment      inspection     From         To         payment          fee
     18388        $916       7/29/2005    9/1/2005    11/30/2005      $2,748             $178
                  969        7/9/2005     8/1/2005    8/31/2005          969               59
                  626                     9/1/2005    9/30/2005          626               59
     56075        483                     10/1/2005   11/30/2005         966              118
                  714        7/14/2005    9/1/2005    9/30/2005          714               59
     14484        726                     10/1/2005   11/30/2005       1,452              118
     44248        456        8/1/2005     9/1/2005    11/30/2005       1,368              178
                  300        7/12/2005    9/1/2005    9/30/2005          300               59
     26937        306                     10/1/2005   11/30/2005         612              118
     14562        794        8/12/2005    10/1/2005   11/30/2005       1,588              118
                  509        7/6/2005     8/1/2005    10/31/2005       1,527              178
     703113       515                     11/1/2005   11/30/2005         515               59
     43140        900        8/1/2005     9/1/2005    11/30/2005       2,700              178
                  960        7/13/2005    9/1/2005    9/30/2005          960               59
     30106        979                     10/1/2005   11/30/2005       1,958              118
     14103        546        7/13/2005    9/1/2005    11/30/2005       1,638              178
     42149        543        9/28/2005    11/1/2005   11/30/2005         543               59
     14439        472        8/31/2005    10/1/2005   11/30/2005         944              118
     701258       740        8/12/2005    10/1/2005   11/30/2005       1,480              118
     12887         47        7/19/2005    9/1/2005    11/30/2005         141              178
     52287        1020       9/6/2005     10/1/2005   11/30/2005       2,040              118
     601866       614        9/14/2005    11/1/2005   11/30/2005         614               59
     25264        992        9/15/2005    11/1/2005   11/30/2005         992               59
     51893        789        7/13/2005    9/1/2005    11/30/2005       2,367              178
     14495        529        7/25/2005    9/1/2005    11/30/2005       1,587              178
     30394        687        8/18/2005    10/1/2005   11/30/2005       1,374              118
     43816        818        8/8/2005     9/1/2005    11/30/2005       2,454              178
     43324        928        8/24/2005    10/1/2005   11/30/2005       1,856              118
      7925        727        8/3/2005     9/1/2005    11/30/2005       2,181              178
     30221        562        9/23/2005    11/1/2005   11/30/2005         562               59
      4420        651        9/9/2005     10/1/2005   10/31/2005         651               59
     31918        103        9/15/2005    11/1/2005   11/30/2005         103               59
      5365        504        9/26/2005    11/1/2005   11/30/2005         504               59
     701371       409        8/31/2005    10/1/2005   11/30/2005         818              118
     56149        925        8/30/2005    10/1/2005   11/30/2005       1,850              118
      9178        653        8/23/2005    10/1/2005   11/30/2005       1,306              118
      9023        555        9/2/2005     10/1/2005   11/30/2005       1,110              118
     56123        820        7/21/2005    9/1/2005    11/30/2005       2,460              178
     50617        505        9/7/2005     10/1/2005   11/30/2005       1,010              118
     21555        664        9/23/2005    11/1/2005   11/30/2005         664               59
     14232        658        8/30/2005    10/1/2005   11/30/2005       1,316              118
     32370        486        8/1/2005     9/1/2005    11/30/2005       1,458              178




                                                37
         UNITS WITH PREEXISTING VIOLATIONS (continued)
                                                               Improper
             Housing                                            housing       Improper
Household   assistance    Last unit                            assistance   administrative
 number     payment      inspection     From         To         payment          fee
 14165        $554       8/18/2005    10/1/2005   10/31/2005       $554               $59
 50711         920       9/29/2005    11/1/2005   11/30/2005         920               59
 56205         798       9/14/2005    11/1/2005   11/30/2005         798               59
               716       7/12/2005    9/1/2005    10/31/2005       1,432              118
 31437         692                    11/1/2005   11/30/2005         692               59
 13319         645       7/14/2005    9/1/2005    11/30/2005       1,935              178
 9891          950       7/7/2005     8/1/2005    11/30/2005       3,800              237
 15203         489       7/6/2005     8/1/2005    11/30/2005       1,956              237
 5664          764       8/18/2005    10/1/2005   11/30/2005       1,528              118
               725       8/10/2005    9/1/2005    9/30/2005          725               59
 32454         740                    10/1/2005   11/30/2005       1,480              118
 18698        1,186      9/14/2005    11/1/2005   11/30/2005       1,186               59
 20987         969       9/19/2005    11/1/2005   11/30/2005         969               59
 9602          601       8/23/2005    10/1/2005   11/30/2005       1,202              118
 14027         576       9/13/2005    11/1/2005   11/30/2005         576               59
 28119         684        7/9/2005    8/1/2005    11/30/2005       2,736              237
 10712         603        9/8/2005    10/1/2005   11/30/2005       1,206              118
 35760         802       8/30/2005    10/1/2005   11/30/2005       1,604              118
 9913          476       9/13/2005    11/1/2005   11/30/2005         476               59
 26042        1,116      8/11/2005    10/1/2005   11/30/2005       2,232              118
 18951         776       8/29/2005    10/1/2005   11/30/2005       1,552              118
 14195        1,040       8/4/2005    9/1/2005    11/30/2005       3,120              178
 9940          308       7/29/2005    9/1/2005    11/30/2005         924              178
                             No
                         inspection
               971         report     8/1/2005    8/31/2005          971               59
 50664         995                    9/1/2005    11/30/2005       2,985              178
 604967        539       7/29/2005    9/1/2005    11/30/2005       1,617              178
 51691         714       7/26/2005    9/1/2005    9/30/2005          714               59
                           Totals                                $92,916           $8,054




                                           38