Issue Date
July 21, 2006
Audit Report Number
2006-CH-1013
TO: Robert E. Nelson, Director of Public Housing Hub, 5FPH
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: The Ann Arbor, Michigan Housing Commission’s Administration of Its Section
8 Housing Choice Voucher Program Needs to Be Improved
HIGHLIGHTS
What We Audited and Why
We audited the Ann Arbor Housing Commission’s (Commission) Section 8
Housing Choice Voucher program (program). The audit was part of the activities
in our fiscal year 2006 annual audit plan. We selected the Commission based
upon a risk analysis that identified it as having a high-risk program. The
objective was to determine whether the Commission managed its program in
accordance with the U.S. Department of Housing and Urban Development’s
(HUD) requirements.
What We Found
The Commission’s program administration regarding housing unit conditions,
housing assistance payment calculations and reexaminations, and allocation of its
indirect costs was inadequate. The Commission did not adequately inspect
program units because it did not effectively monitor the inspection process and
quality control reviews were not effective in identifying violations. Of the 62
housing units statistically selected for inspection, 45 did not meet HUD’s housing
quality standards and 40 had 125 violations that existed at the time of the
Commission’s previous inspections. The 40 units had between one and eight
preexisting violations per unit. Based on our stastistical sample, we estimate that
over the next year HUD will pay nearly $2 million in housing assistance
payments on units with material housing quality standards violations.
The Commission improperly calculated the housing assistance payments for 16 of
25 tenant files selected for review and did not perform reexaminations timely.
This resulted in more than $8,000 in housing assistance payment errors. Also, the
Commission did not establish an adequate cost allocation plan for charging
indirect costs to its program.
The Commission had adequate policies and procedures for monitoring payment
standards and utility allowances, and it initiated corrective actions by making
changes to its quality control inspection process and quality control procedures
over tenant file reviews.
What We Recommend
We recommend that the director of HUD’s Detroit Office of Public Housing
require the Commission to reimburse its program from nonfederal funds for the
improper use of more than $58,000 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 $2 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 audits report to the Commission’s executive
director, its board chairman, and HUD’s staff during the audit. We held an exit
conference with the Commission’s executive director on June 20, 2006.
We asked the Commission’s executive director to provide comments on our
discussion draft audit report by July 19, 2006. The Commission’s executive
director provided written comments dated July 18, 2006, and agreed to implement
corrective actions to address our three findings. The complete text of the written
comments can be found in appendix B of this report.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: Housing Quality Standards Were Not Adequately Enforced 5
Finding 2: Controls over Housing Assistance Payments Were Inadequate and
Tenant Reexaminations Were Not Timely 12
Finding 3: The Commission Lacked a Cost Allocation Plan for Indirect Costs 14
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 21
C. Criteria 27
D. Units with Preexisting Violations 30
E. Tenant File Exceptions 32
3
BACKGROUND AND OBJECTIVE
The Ann Arbor Housing Commission (Commission) was established by the City of Ann Arbor,
Michigan (City) in September 1965 under the laws of the State of Michigan, pursuant to the U.S.
Housing Act of 1937, as amended. A five-member board of commissioners governs the
Commission. The City’s mayor appoints the commissioners to five-year terms, with approval by
the city council. The Commission’s main administrative office is located at 727 Miller Avenue,
Ann Arbor, Michigan.
As of May 2006, the Commission administers various programs under the U.S. Department of
Housing and Urban Development (HUD), which include the Section 8 Housing Choice Voucher,
low-rent housing, Public Housing Capital Fund, Section 8 Project-Based Voucher, and Shelter
Plus Care programs. The Commission’s Section 8 Housing Choice Voucher program (program)
provides housing assistance to its tenants in the counties of Washtenaw, Monroe, and western
Wayne. The Commission 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 February 2, 2006, the Commission had 1,166 units under contract with annual housing
assistance payments totaling more than $8.6 million in program funds for calendar year 2006.
Our objective was to determine whether the Commission managed its program in accordance
with HUD’s requirements.
4
RESULTS OF AUDIT
Finding 1: Housing Quality Standards Were Not Adequately Enforced
The Commission’s program units did not meet HUD’s housing quality standards due to the poor
condition of most units inspected. Of the 62 program units inspected, 45 did not meet minimum
housing quality standards, and 40 had violations that existed before the Commission’s last
inspections. The violations existed because the Commission did not perform effective quality
control inspections of its contract inspector to ensure that units met HUD’s requirements. As a
result, $51,081 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 nearly $2 million in housing assistance payments
on units with material housing quality standards violations.
HUD’s Housing Quality
Standards Not Met
From the 686 program units that were inspected by the Commission between
August 2005 and January 2006, we statistically selected 62 units for inspection by
using the Defense Contract Audit Agency’s EZ-Quant Statistical Sampling
software. The 62 units were inspected to determine whether the Commission
ensured that its program units met HUD’s housing quality standards. Our
appraiser inspected the 62 units between February 21 and March 3, 2006.
Of the 62 units inspected, 45 (72.6 percent) had 207 housing quality standards
violations. Of the 207 violations, six were identified by the Commission during
its previous inspections and were shown on the Commission’s inspection reports.
In addition, 40 of the 45 units had 125 violations that existed before the
Commission’s previous inspections and 33 units were considered to be in material
noncompliance since they had health and safety violations that predated the
Commission’s previous inspections. The following table categorizes the 207
housing quality standard violations in the 45 units.
5
Number of
Category of violations violations
Electrical 70
Windows 24
Exterior surface 19
Security 18
Interior walls 16
Floor 9
Stove 9
Lead-based paint 9
Ceiling 4
Tub or shower in unit/sink 3
Foundation 3
Roofs/gutters 3
Water heater 3
Sink or fixed wash basin 2
Chimney 2
Ventilation 2
Fire exit 2
Refrigerator 1
Space for storage, preparation,
and serving of food 1
Toilet 1
Sewer connection 1
Refuse disposal 1
Stairs, rails, and porches 1
Garbage and debris 1
Access to unit 1
Smoke detector 1
Total 207
We provided our inspection results to the director of HUD’s Detroit Office of
Public Housing and the Commission’s executive director on May 3, 2006.
Electrical Violations
Seventy electrical violations were present in 32 of the Commission’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, and exposed wires.
The following pictures are examples of the electrical-related violations identified
in the Commission’s program units inspected.
6
Voucher TV4032-010:
Loose electrical panel
cover in basement.
Voucher V4040-030:
Exposed wires in ceiling
junction box in basement’s
bathroom.
Window Violations
Twenty-four window violations were present in 17 of the Commission’s program
units inspected. The following items are examples of window violations listed in
the table: window locks not working properly, mold on windowsills and sashes,
television cables going through windows not allowing them to lock, drafty
windows, and cracked windowpanes. The following pictures are examples of the
window-related violations identified in the program units inspected.
7
Voucher CV0042-029: Mold
on bedroom windowsill,
frame, and sash; crumbling
plaster and peeling paint on
window jamb.
Voucher CV4039-014:
Power cord passes through
utility room window
preventing it from closing
and locking.
Exterior Surface Violations
Nineteen exterior surface-related violations were present in 15 of the
Commission’s program units inspected. The following items are examples of
exterior surface-related violations listed in the table: missing globes on entry
lamps, improper electrical wiring from a house to a garage, rotting door and
threshold, and no condulet cover on main power line. The following pictures are
examples of exterior surface-related violations identified in the program units
inspected.
8
Voucher CV4039-014:
Improper use of power
cords from a house’s utility
room through a window
lying on the sidewalk and
buried underground to
provide power to the
garage.
Voucher V4038-009:
Missing condulet cover
from conduit that covers
the unit’s main power
line.
Causes for Violations
The housing quality standards violations existed because the Commission did not
perform effective quality control inspections of its contract inspector to ensure
that units were inspected in accordance with HUD’s requirements. This resulted
in its contract inspector failing to conduct all inspections in accordance with his
agreement with the Commission.
The contract inspector did not always perform tasks in accordance with his
agreement, such as providing the Commission with a schedule of inspections to
9
be performed each week, timely inspection results, a schedule of followup
inspections on units that failed inspection, or notification to tenants and/or
landlords of the violations that caused the units to fail to meet HUD’s housing
quality standards.
The Commission’s contract inspector was based in Ohio and was only onsite to
perform inspections for the Commission for approximately one week per month.
This limited the amount of time the inspector had available to conduct required
followup inspections on units that had previously failed inspection. Of the
Commission’s 108 inspection reports for the period August 2005 through January
2006 that we reviewed, 27 did not show whether a followup inspection was
performed. Consequently, the Commission could not support when the units
passed inspection and what, if any, abatement action of the housing assistance
payment should have occurred. Without timely followup inspections, the
Commission’s ability to adequately track unit inspections and enforce HUD’s
housing quality standards was adversely affected.
The Commission did not renew its contract with its quality control inspector that
ended in July 2005 and did not resume performing quality control inspections
until its staff was trained, late in November 2005, after our audit started. After
performing a quality control inspection in December 2005, the Commission met
with its contract inspector in an attempt to address violations that the inspector did
not identify. After continued followup inspection issues which caused the
Commission’s units to be noncompliant with HUD’s housing quality standards,
the Commission terminated its contract inspector in March 2006. The
Commission plans to submit proposals for a new contract inspector and will hire a
staff inspector to perform annual inspections in the interim.
The Commission has made efforts to improve the tracking of housing quality
standards inspection results through the use of an Excel spreadsheet. Coupled
with the implementation of quality control procedures and controls as we
recommended, this should assist the Commission in monitoring the effectiveness
of its inspection program.
HUD Funds Not Effectively
Used
The Commission did not effectively use program funds when it failed to fully
enforce HUD’s housing quality standards. Our appraiser identified 40 units with
housing quality standards violations that existed at the time of the Commission’s
previous inspections. However, the Commission’s contract inspector passed 29 of
the 40 units. Our appraiser noted these preexisting housing quality standards
violations on the inspection reports that we provided to the Commission and
HUD.
The Commission should not have made housing assistance payments on the 40
units due to the preexisting violations. The table in appendix D of this report lists
10
the 40 units, the period after the Commission’s previous inspection (beginning 30
days after the Commission’s inspection or immediately if it was an initial
inspection), and $47,110 in housing assistance payments that should not have
been paid by the Commission. In addition, the Commission should not be entitled
to the associated administrative fees of $3,971.
Conclusion
The Commission’s tenants were subjected to health and safety-related violations
while living in program units that failed to meet HUD’s housing quality standards.
Through the Commission’s implementation of adequate procedures and controls
over its unit inspections to ensure compliance with HUD’s housing quality
standards, we estimate that $1,995,816 in future housing assistance payments will
be spent for units that are decent, safe, and sanitary. We determined this amount by
multiplying 274 units (estimated number of units that would be in material
noncompliance with housing quality standards if appropriate actions are not taken by
the Commission) times $607 (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 Detroit Office of Public Housing require
the Commission 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 $51,081 from nonfederal funds ($47,110 for
housing assistance payments and $3,971 in associated administrative fees)
for the 40 units that contained preexisting violations not identified in the
Commission’s previous inspections.
1C. Implement adequate procedures and controls to ensure that all program
inspections are performed adequately and all units meet HUD’s housing
quality standards. By implementing adequate procedures and controls, the
Commission should help ensure that $1,995,816 in program funds support
units that are decent, safe, and in sanitary condition over the next year.
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Finding 2: Controls over Housing Assistance Payments Were
Inadequate and Tenant Reexaminations Were Not Timely
The Commission failed to comply with HUD’s requirements and its program administrative plan
regarding housing assistance payments and tenant reexaminations. It did not always calculate
housing assistance payments correctly, maintain complete documentation to support tenant
eligibility, and complete annual and interim reexaminations in a timely manner. These
conditions occurred because the Commission did not identify areas requiring additional training
through quality control reviews and lacked written procedures for conducting reexaminations.
As a result, the Commission overpaid $7,459 and underpaid $1,318 in housing assistance
payments.
Numerous Errors in Tenant
Case Files
We identified errors in 20 of 25 program tenant case files that were randomly
selected from the Commission’s files. The errors included miscalculation of
income and utility allowances, missing third-party verifications, use of incorrect
payment standards, outdated verification forms, and untimely reexaminations.
The errors affected the housing assistance payments for 16 of the 25 tenant files
reviewed and totaled $8,777 in housing assistance payment errors, including
overpayments of $7,459 and underpayments of $1,318. A schedule summarizing
the results of our 25 tenant file reviews is in appendix E of this report.
The Commission was aware of the condition of its tenant case files based on its
own quality control reviews and prior HUD reviews. In addition, the Commission
reported to its board the results of its own quality control reviews stating that only
44 of 79 (56 percent) of its quality control reviews of tenant files were accurate.
However, additional procedures and controls are needed to ensure that the
Commission follows HUD’s requirements and its program administrative plan
regarding housing assistance payments and tenant reexaminations.
Increased Oversight and
Procedures Needed
The Commission needs to enhance its oversight of housing assistance payment
calculations to determine the training needs of its staff and establish written
procedures for performing annual reexaminations. According to the housing
programs manager, the Commission’s program experienced staff turnover and a
reorganization in 2005, which contributed to the tenant file errors. The
Commission’s program coordinator staff went from four to five positions, with
three being staffed by employees new to the position. In the process of hiring an
additional program coordinator, the Commission eliminated two administrative
support staff positions.
12
To address tenant file discrepancies, the Commission provided a corrective action
plan to HUD in November 2005 in response to its confirmatory review. The
corrective action plan stated that management would perform at least three quality
control reviews per program coordinator each month. Although the Commission
appeared to be doing sufficient reviews toward the end of our audit (81 quality
control reviews from November 2005 through February 2006), it needs to analyze
the review results to determine areas in which additional training is needed by its
staff.
Due to the staffing changes, the Commission redistributed its tenant file caseload to
the five program coordinators. This resulted in 4 of the 25 tenants that we reviewed
not being reexamined in a timely manner—ranging from one to five months late on
annual reexaminations. Two other tenants were required to have interim
reexaminations since they claimed no income at their last annual reexaminations.
However, these reexaminations were not performed because the Commission’s
program coordinators did not know which tenants in their case workload were
required to have an interim reexamination. To assist the coordinators, the
Commission should run quarterly reports to identify program tenants who claimed
zero income at their last annual reexamination. Tenants claiming zero income and
who have not been reexamined in the last three months should be scheduled for an
interim reexamination as required by the Commission’s program administrative
plan.
The Commission’s program administrative plan also did not address how tenants
would be reimbursed when an underpayment of housing assistance payment occurs.
Recommendations
We recommend that the director of HUD’s Detroit Office of Public Housing
require the Commission to
2A. Reimburse its program $7,459 from nonfederal funds for the overpayment
of housing assistance payments cited in this finding.
2B. Reimburse the appropriate tenants $1,318 for the underpayment of
housing assistance payments from unobligated program funds.
2C. Implement adequate procedures and controls over its housing assistance
payment calculations and tenant reexaminations to ensure they meet
HUD’s requirements and/or its program administrative plan.
2D. Revise its program administrative plan to address how tenants will be
reimbursed when an underpayment of housing assistance occurs.
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Finding 3: The Commission Lacked a Cost Allocation Plan for Indirect
Costs
The Commission failed to establish an adequate cost allocation plan for costs shared by its
various programs. It allocated costs based on estimates by its executive director and fiscal and
administrative manager to improve the deficit position of its low-rent housing program.
However, this effort was not adequately supported since the Commission allocated all of its
utility costs for its administrative offices located at 727 Miller Avenue to its low-rent housing
program, and lacked a plan showing the basis for the allocation of other indirect costs. These
conditions occurred because the Commission thought its allocation basis was appropriate and
reasonable. Without adequate documentation to support the allocation of indirect costs, HUD
and the Commission cannot be assured that costs were reasonable and appropriate in relation to
the benefits derived from the indirect costs.
No Written Allocation Plan
The Commission lacked a written cost allocation plan for distributing indirect costs
to its various programs. These programs include the Section 8 Housing Choice
Voucher, low-rent housing, Public Housing Capital Fund, Section 8 Project-Based
Voucher, and Shelter Plus Care programs. Based upon the Commission’s various
programs and its fiscal year 2004 and 2005 expenditures, the program constituted
70 percent of the Commission’s total expenses.
The Commission allocated 85 percent of its indirect costs to the program and 15
percent to its low-rent housing program. No indirect costs were allocated to the
Commission’s other programs (Public Housing Capital Fund, Section 8 Project-
Based Voucher, and Shelter Plus Care). The allocation was based on estimates
made by its executive director and fiscal and administrative manager. According to
the fiscal and administrative manager, the Commission previously allocated 75
percent of its indirect costs to the program and 25 percent to its low-rent housing
program. The Commission’s staff obtained board approval to change the allocation
to an 85/15 split primarily because the low-rent housing program was determined to
be operating at a deficit for fiscal year 2005. However, the Commission could not
provide documentation to support the reasonableness of the 85/15 split and lacked a
written cost allocation plan.
Expenses Not Allocated
Properly
The Commission used the 85/15 split between the program and its low-rent housing
program to allocate indirect costs that included computer software and support,
office rent, insurance premiums, telephone service, postage, and administrative
supplies. It lacked a written cost allocation plan to support the reasonableness of
the 85/15 split.
14
Further, the Commission did not allocate any of the utility costs for its
administrative offices located at 727 Miller Avenue to the program. Instead, it
charged all utility costs to its low-rent housing program. The executive director
said that the utility costs for the administrative offices’ building were not allocated
to the Commission’s various programs because there was only one managed utility
meter for the entire property which also includes 104 low-rent housing units and its
maintenance offices.
Commission’s Justification for
Using 85/15 Percent Split
The Commission’s position was that the 85/15 split between the program and the
low-rent housing program was appropriate since it did not spend a significant
amount of time administering the Section 8 Project-Based Voucher and Shelter Plus
Care programs. The executive director said the Commission acts as fiduciary
administrator for the two programs (Section 8 Project-Based Voucher and Shelter
Plus Care). The Commission’s management and staff involved with the two
programs have a portion of their salaries charged to the programs; however, they do
not incur administrative costs. For the Shelter Plus Care program, the entire
administrative fee is passed through to the Commission’s sponsors. For the Section
8 Project-Based Voucher program, direct costs such as housing quality standards
inspections are directly charged to the program. The executive director did agree
that the basis for the Commission’s 85/15 allocation should be explained in a
written cost allocation plan.
Recommendation
We recommend that the director of HUD’s Detroit Office of Public Housing require
the Commission to
3A. Implement a cost allocation plan to properly allocate indirect costs to all of
its programs in accordance with HUD’s requirements and the annual
contributions contract.
15
SCOPE AND METHODOLOGY
To accomplish our objective, we reviewed
• Applicable laws; HUD’s program requirements at 24 CFR [Code of Federal
Regulations] Parts 5, 85, 982, and 985; HUD Public and Indian Housing Notices
1998-27, 2005-01, 2005-09, 2006-03, and 2006-05; HUD’s Housing Choice
Voucher Guidebook 7420.10; and the Commission’s program administrative
plan and operations manual.
• The Commission’s accounting records, annual audited financial statements for
2004 and 2005, general ledgers, bank statements and cancelled checks, tenant
files, policies and procedures, board meeting minutes for 2004 and 2005,
organizational chart, and program annual contributions contract.
• Downloaded electronic program tenant file information from the Commission’s
computer system.
• HUD’s reports and files for the Commission.
We also interviewed the Commission’s employees, HUD staff, and program tenants. We
statistically selected 62 of the Commission’s program units to inspect using the Defense Contract
Audit Agency’s EZ-Quant Statistical Sampling software from the 686 units that were inspected
by the Commission from August 2005 through January 2006. The 62 units were selected to
determine whether the Commission’s program units met HUD’s housing quality standards. Our
sampling criteria used a 90 percent confidence level, 50 percent estimated error rate, and
precision of plus or minus 10 percent.
Our sampling results determined that 33 of the 62 units (53.2 percent) materially failed to meet
HUD’s housing quality standards. This surpassed our 50 percent estimated error rate, so we
adjusted our error rate downward to 50 percent. Materially failed units were those units with
health and safety violations that preceded the Commission’s last inspection.
The Commission’s September 2005 through February 2006 housing assistance payment registers
(one month after each of our inspection periods noted above) showed that the average monthly
housing assistance payment was $607. Using the lower limit of the estimate of the number of
units that materially failed and the average housing assistance payment, we estimated that the
Commission will annually spend $1,995,816 (274 units times $607 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 Commission 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
Commission 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
16
normal circumstances, and (3) it would take the Commission at least a year to complete all
inspections under an improved inspection process.
Using our lower precision limit of 40 percent, we projected this error rate to the population of
686 units that were inspected by the Commission over a six-month period. We estimated that the
Commission spent $1,995,816 in housing assistance payments for 274 units that materially failed
housing quality standards, computed as 274 units times the average annual housing assistance
payment of $7,284.
The administrative fee was calculated by dividing the year-to-date administrative fee received by
the Commission from July 2005 through February 2006 ($492,878) by the number of lease-ups
the Commission maintained for the same period (9,495). This resulted in an average
administrative fee earned of $52 per unit for the period within the scope of our statistical sample
of unit inspections. We multiplied the administrative fee earned per unit by the inappropriate
period to arrive at a total improper administrative fees paid to the housing commission of $3,971
(see finding 1).
We performed our onsite audit work from November 2005 to April 2006 at the Commission’s
administrative offices located at 727 Miller Avenue, Ann Arbor, Michigan. The audit covered the
period July 1, 2004, through September 30, 2005, and was expanded as necessary to accomplish our
objective.
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 management controls do not provide reasonable
assurance that the process for planning, organizing, directing, and controlling
program operations will meet the organization’s
Significant Weakness
objectives.
Based on our review, we believe the following item is a significant weakness:
18
• The Commission lacked sufficient procedures and controls to ensure
compliance with HUD’s regulations and/or its program administrative plan
regarding unit inspections, and housing assistance payments, and tenant
reexaminations (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/ to better use 2/
1B $51,081
1C $1,995,816
2A 7,459
2B 1,318
Totals $58,540 $1,997,134
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 Commission 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 Commission 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
Auditee Comments
21
Auditee Comments
22
Auditee Comments
23
Auditee Comments
24
Auditee Comments
25
Auditee Comments
26
Appendix C
CRITERIA
Finding 1
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.152(d) state 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 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 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] 24.982.405(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.
HUD’s Housing Choice Voucher Program Guidebook 7420.10, 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.
27
Finding 2
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 or why third-party
verification was not available for the following factors: (1) reported family annual income, (2)
the value of assets, (3) expenses related to deductions from annual income, and (4) 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.
HUD’s Housing Choice Voucher Program Guidebook7420.10, chapter 5, pages 13 through 35,
states that determinations of program eligibility and total tenant payment for the housing choice
voucher program require that the applicant or participant family’s annual income be computed at
least annually. Regulations specify the amounts to be included in the calculation of annual
income. The chapter further explains how to determine annual income and adjusted income.
HUD’s Housing Choice Voucher Program Guidebook7420.10, chapter 6, pages 1 through 11,
explains how to calculate the housing assistance payment and the tenant’s total payment toward
rent and utilities, including circumstances in which gross rent for the unit exceeds the payment
standard for the unit size.
HUD’s Housing Choice Voucher Program Guidebook7420.10, chapter 12, pages 1 through 10,
states that public housing agencies must establish a policy regarding annual reexamination
effective dates that ensures that reexamination for every family takes effect within a 12-month
period. Public housing agencies must develop their own interim reporting requirements, which
must be stated in the administrative plan and the briefing materials. The policy must include
clear guidance on when (how soon after the change occurs) and under what circumstances the
family must report a change in family income or composition and rules on effective dates of any
changes in the housing assistance payment resulting from an interim reexamination. The interim
reporting rules must be applied uniformly to all families. It is important that the agency has
tracking and monitoring procedures and systems in place to ensure that the required
reexaminations for each assisted family are initiated and completed on time.
The Commission’s program administrative plan, chapter 6, discusses calculating rent and
housing assistance payments and the specific guidance to be used, such as when families report
zero income. Chapter 6, section D, states that families who report zero income are required to
complete a written certification every 90 days and provide a written statement as to how they
meet their basic needs. Chapter 6, section F, states that if family expenses exceed known
income, the family will be questioned about contributions and gifts. Chapter 7, page 8, of the
28
administrative plan states that families claiming to have no income will be required to execute
various verification forms to determine that income is not being received by the household.
Finding 3
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.152(a)(3) states that [housing
authority] administrative fees may only be used to cover costs incurred to perform [housing
authority] administrative responsibilities for the program in accordance with HUD’s regulations
and requirements.
Section 11 of the annual contributions contract, between the Commission and HUD, states that
program receipts may only be used to pay program expenditures.
HUD’s Housing Assistance Payments Program Accounting Handbook 7420.6, chapter 5, page
34, states that if the [public housing agency] is administering other low-income housing
programs or is involved in enterprises other than the program and certain costs incurred are
applicable to other than the program, it will be necessary to prorate such costs in order to charge
the program with its applicable portion of the costs. The [public housing agency] shall maintain
for audit purposes appropriate schedules and worksheets showing how the allocation of costs
was made.
29
Appendix D
UNITS WITH PREEXISTING VIOLATIONS
Improper
Housing housing Improper
assistance Last unit assistance administrative
Voucher number payment inspection From To payment fee
WV066-7 $530 12/2/2005 2/1/2006 2/21/2006 $397 $38
TV4041-0261 584 11/22/2005 12/1/2005 2/27/2006 1,731 153
WV4027-132 838 12/14/2005 2/1/2006 2/27/2006 808 50
TV4040-035 813 9/2/2005 11/1/05 2/27/2006 3,222 205
V4038-0111 671 10/13/2005 10/14/2005 3/1/2006 2,792 239
V4040-133 888 1/3/2006 2/3/2006 2/22/2006 -- --
CV4011-0141 715 8/3/2005 8/10/2005 2/28/2006 4,611 348
WV4027-0961 1012 1/6/2006 1/6/2006 2/28/2006 1,860 95
WV4027-152 926 12/14/2005 2/1/2006 2/24/2006 793 44
CV4039-014 817 12/13/2005 2/1/2006 2/28/2006 817 51
WV4027-200 773 12/13/2005 2/1/2006 3/1/2006 797 53
V4044-1222 224 12/14/2005 2/1/2006 2/27/2006 -- --
WV4027-038 590 12/14/2005 2/1/2006 2/27/2006 568 50
TV4041-066 341 12/12/2005 2/1/2006 2/21/2006 255 38
TV4032-009 495 12/14/2005 2/1/2006 2/27/2006 477 50
CV4038-067 267 12/15/2005 2/1/2006 3/2/2006 284 55
TV4041-0513 499 12/2/2005 2/1/2006 2/24/2006 -- --
V4040-007 859 9/19/2005 11/1/2005 2/23/2006 3,282 198
V4040-026 685 12/14/2005 2/1/2006 3/1/2006 707 53
V4041-094 361 12/13/2005 2/1/2006 3/2/2006 384 55
CV0042-029 635 10/12/2005 12/1/2005 2/22/2006 1,768 144
WV4027-030 1100 12/12/2005 2/1/2006 2/23/2006 903 42
V4045-006 370 12/14/2005 2/1/2006 2/27/2006 356 50
V0043-017 452 12/14/2005 2/1/2006 2/28/2006 452 51
TV4044-076 566 10/19/2005 12/1/2005 2/24/2006 1,617 148
V4038-009 644 12/14/2005 2/1/2006 3/1/2006 664 53
WV4027-0061 464 10/28/2005 11/1/2005 2/22/2006 1,756 196
WV4027-149 846 12/15/2005 2/1/2006 2/28/2006 846 51
TV066-062 471 9/2/2005 11/1/2005 2/22/2006 1,783 196
MCV066-058 889 12/2/2005 2/1/2006 2/23/2006 730 42
V4040-0301 307 10/7/2005 10/7/2005 2/28/2006 1,475 249
WV4027-086 717 12/2/2005 2/1/2006 2/22/2006 563 40
V4041-053 77 12/13/2005 2/1/2006 3/1/2006 79 53
1
The last unit inspection was an initial inspection; therefore, the housing assistance payment should not have been
paid until the unit met HUD’s housing quality standards.
2
According to the housing assistance payments register as of February 6, 2006, the Commission took appropriate
abatement action for the unit.
3
The Commission abated the housing assistance payment for December 2005 and part of January 2006, for a total
of $692. This amount was subtracted from the improper housing assistance payment amount.
30
UNITS WITH PREEXISTING DEFICIENCIES (continued)
Improper
Housing housing Improper
assistance Last unit assistance administrative
Voucher number payment inspection From To payment fee
V4044-041 $615 12/13/2005 2/1/2006 3/2/2006 $654 $55
CV4040-044 751 12/12/2005 2/1/2006 2/23/2006 616 42
V0043-0731 860 8/8/2005 8/8/2005 3/3/2006 4,583 356
V4044-073 936 12/14/2005 2/1/2006 3/2/2006 996 55
V4040-0201 811 10/1/2005 10/1/2005 3/2/2006 2,859 262
TV4032-010 87 12/14/2005 2/1/2006 3/3/2006 95 56
TV4041-158 498 12/2/2005 2/1/2006 3/2/2006 530 55
Totals $47,110 $3,971
31
Appendix E
TENANT FILE EXCEPTIONS
Voucher Assistance Assistance
number Exception Description of exception Period Calculation underpaid overpaid
6/1/04 – 12 months times $168
CV4038-064 Income calculation error Trust fund counted as asset in error. 5/1/05 $14/month
Rent reasonableness Rent increased in 2005 from $650 to
CV4038-064 review not performed $675 without a rent review.
WV4027-033 Income document missing Child support not documented.
Incorrect payment Correct payment standard should be 5/1/05 – 12 months times 180
V4041-057 standard $713 but used $698. 4/1/06 $15/month
Two conflicting verifications in file $2,002
Conflicting information with different terms. More recent 6/1/05 – 11 months times
V4041-151 for child care expenses and detailed verification used. 4/1/06 $182/month
Tenant moved to new unit in 2005,
Rent reasonableness but only one comparable was used
V4041-151 review not complete for the review.
Utility allowance calculation failed 174
to include allowance for “other 7/1/05 – 6 months times
V4041-062 Utility allowance error electric.” 12/1/05 $29/month
Reexamination not Annual reexamination due 6/1/05,
V4041-062 performed timely but prepared on 7/1/05.
CV4038-014 None identified
Food stamps counted as income, 240
child support income understated,
and wrong utility allowance
Income calculation error schedule used (2004 instead of 5/1/05 – 12 months times
WV4027-038 and utility allowance error 2005). 4/1/06 $20/month
WV4027-185 None identified
CV0042-046 None identified
No evidence that child resided with 120
tenant at least 51 percent of time to
Dependent allowance receive dependent allowance. 7/1/05 – 10 months times
CV4038-025 error 4/1/06 $12/month
Rent reasonableness Rent increased in 2004 from $860 to
CV4038-025 review not performed $897.
Zero income tenant. Tenant 100
reported new job in August 2005,
but change in income was not
processed in a timely manner.
Effect could not be determined for
period 3/1/05 to 9/1/05 when interim
should have been performed. But
for 10/1/05 to 11/1/05, housing
No interim examinations assistance payment overstated as 10/1/05 – 2 months times
WV4027-093 performed calculated. 11/1/05 $50/month
Tenant’s annual reexamination was
due August 2005 but was not
Reexamination not prepared. It was five months late as
CV4040-002 performed timely of review in December 2005.
Tenant reported job loss in 2005. 774
No followup verification performed
to determine any unemployment 8/1/05 – 9 months times
V4044-056 Unreported income benefits received. 4/1/06 $86/month
32
TENANT FILE EXCEPTIONS (continued)
Voucher Assistance Assistance
number Exception Description of exception Period Calculation underpaid overpaid
Tenant failed to disclose Family $451
Independence Agency income
between 2004 and 2005
examinations. The Commission did 8/1/04 – 11 months times
V4041-137 Unreported income not execute repayment agreement. 6/1/05 $41/month
Unemployment benefits of 3,344
$243/week reported in June but not
Unreported income; included. Form HUD-50058,
wrong payment standard effective 8/1/05, used payment 6/1/05 – 11 months times
WV4027-134 used standard of $913 instead of $863. 4/1/06 $304/month
Tenant claimed zero income at last
annual examination, effective
No interim examinations 8/1/05, but no interim examination
WV4027-134 performed has been performed as required.
CV4038-049 None identified
Monthly allowance of $8 for gas 36
service was given for a unit that was 11/15/05 – 4.5 months
V4041-030 Utility allowance error all electric. 3/1/06 times $8/month
Contract shows incorrect amount of
Housing assistance $502 for housing assistance payment
V4041-030 payment contract error when it should be $479.
Higher housing assistance payment 36
paid for first and second months of
Housing assistance contract. $13 for November 2005 11/15/05 –
V4041-030 payment error and $23 for December 2005. 12/31/05
Interim examination was effective 254
one month early which did not allow
for 30-day notice for rent increase.
Incorrect interim Difference in tenant portion of rent 1 month times
MCV066-026 examination effective date is $254/month. 12/1/05 $254/month
Tenant claimed near zero income at
last annual examination, effective
No interim examinations 7/1/05. Known expenses exceeded
WV066-37 performed income.
Tenant file shows contract effective 101
8/27/04, but the payment register 5 days/31 days
Missing payment to shows no disbursements for the 8/27/04 – per month x
V0043-106 landlord period 8/27/04 through 8/31/04. 8/31/04 $627/month
Tenant claimed zero income at last
Reexamination not annual examination, effective
performed in a timely 5/1/05, but no interim examination
CV0042-052 manner has been performed as required.
For 8/1/03 examination (8/1/03 – 540
7/31/04), childcare was calculated at
$75/week although verification form
Miscalculated childcare indicated expense of $75 every 2 8/1/03 – 12 months x
WV4027-85 expense weeks. 7/31/04 $45/month
Reexamination not Annual reexamination was due
performed in a timely 8/1/05 but was effective 11/1/05 (3
WV4027-85 manner months late).
33
TENANT FILE EXCEPTIONS (continued)
Voucher Assistance Assistance
number Exception Description of exception Period Calculation underpaid overpaid
Latest examination effective 11/1/05
Expired verification used expired verifications from June
WV4027-85 documents used 2005.
CV0042-002 None identified
Did not use anticipated Social $48
Income calculation error Security income. Used $569 instead 3/4/05 – 12 months times
WV066-16 for 2005 examination of $584. 2/1/06 $4/month
Income calculation error Did not include state supplemental 3/1/06 – 2 months times 8
WV066-16 for 2006 examination security income of $168 annually. 4/1/06 $4/month
Housing assistance payment $201
contract effective 2/21/05 indicated
housing assistance payment of $239.
However, on 4/11/05, housing
assistance payment was revised to
$327 made effective retroactively to
No amended housing 2/21/05. No adjustments to
assistance payment disbursements were made as a result 2/21/05 –
V4044-030 contract of the revision. 4/30/05
Totals $1,318 $7,459
34
The Ann Arbor, Michigan Housing Commission's Administration of Its Section 8 Housing Choice Voucher Program Needs to Be Improved
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)