Department of Housing and Urban Development, Office of Inspector General | Housing and Urban Development | Housing Authority of the County of Cook, Chicago, Illinois, Had Weak Controls over Its Section 8 Housing Choice Voucher Program

Housing Authority of the County of Cook, Chicago, Illinois, Had Weak Controls over Its Section 8 Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-09-30.

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

Issue Date
September 30, 2006
Audit Report Number
2006-CH-1021

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

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

SUBJECT: Housing Authority of the County of Cook, Chicago, Illinois, Had Weak Controls
over Its Section 8 Housing Choice Voucher Program

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 second of two audit reports of the Authority’s program.

What We Found

The Authority’s program controls had weaknesses in the areas of housing
assistance payment calculations, the Family Self-Sufficiency Program, and
household portability. Of the 70 households’ files statistically selected for
review, the Authority incorrectly calculated housing assistance payments for 26
and lacked supporting documentation regarding admission and selection for five
households. This resulted in the Authority paying nearly $28,000 in
overpayments of program housing assistance and utility allowances and more than
$47,000 in unsupported housing assistance.

The Authority failed to adequately use HUD’s Enterprise Income Verification
system to determine that reported zero-income households had unreported income
resulting in more than $62,000 in improper housing assistance and utility
allowance payments. It also did not monitor and correct escrow balances of its
Family Self-Sufficiency Program participants and accurately account for
payments related to household portability. The Authority took proper abatement
actions regarding housing assistance and maintained its waiting lists in
accordance with HUD’s requirements.

As a result of the deficiencies previously mentioned, program funds were not
always 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 program funds, provide support or reimburse its program from
nonfederal funds for the unsupported housing assistance payments and related
administrative fees, and implement adequate procedures and controls to address
the findings cited in this audit report. These procedures and controls should help
ensure that more than $3 million in program funds are spent on housing assistance
payments 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 executive
director, its board chair, and HUD’s staff during the audit. We held an exit
conference with the Authority’s executive director on September 19, 2006.

We asked the Authority’s executive director to provide comments on our
discussion draft audit report by September 25, 2006. The Authority’s executive
director provided written comments dated September 25, 2006. The Authority
disagreed with some of our findings and recommendations, and provided
supporting documentation for most of the unsupported housing assistance
payments cited in our discussion draft audit report. The complete text of the
written comments, except for two binders of supporting documentation that were
not necessary to understand the executive director’s comments, along with our
evaluation of that response, can be found in appendix B of this report. We
redacted the names of households cited in the executive director’s comments prior
to including them in this audit report. The Authority provided HUD’s director of
the Chicago Office of Public Housing with a complete copy of the Authority’s
written comments plus the two binders of supporting documentation.

2
TABLE OF CONTENTS

Background and Objectives 4

Results of Audit

Finding 1: Housing Assistance Payment Calculations Were Inaccurate 5

Finding 2: The Authority’s Zero-Income Households Had Unreported Income 8

Finding 3: Controls over the Authority’s Program Admission and Selection 11
Were Generally Effective

Finding 4: The Authority Did Not Properly Manage Its Family Self-Sufficiency
Program 14
Finding 5: The Authority’s Controls over Household Portability Were Weak 18

Scope and Methodology 21

Internal Controls 23

Followup on Prior Audits 25

Appendixes

A. Schedule of Questioned Costs and Funds to Be Put to Better Use 26
B. Auditee Comments and OIG’s Evaluation 27
C. Criteria 41
D. Household Files Missing Documentation 43

3
BACKGROUND AND OBJECTIVE

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 August 7, 2006, the Authority had 10,683 units under contract
with annual housing assistance payments totaling more than $101 million in program funds.

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

4
RESULTS OF AUDIT

Finding 1: Housing Assistance Payment Calculations Were Inaccurate
The Authority did not always compute housing assistance payments accurately. Of the 70
households’ files statistically selected for review, the Authority failed to calculate correctly 26
(37 percent) households’ housing assistance and utility allowance payments. This occurred
because the Authority lacked adequate procedures and controls to ensure that it followed HUD’s
requirements. As a result, the Authority overpaid nearly $28,000 and underpaid more than
$2,900 in housing assistance and utility allowance payments.

Incorrect Housing Assistance
Payment Calculations

According to HUD’s regulations at 24 CFR [Code of Federal Regulations]
5.240(c), public housing authorities must verify the accuracy of the income
information received from program households and change the amount of the
total tenant payment, tenant rent or program housing assistance payment, or
terminate assistance, as appropriate, based on such information.

From the Authority’s 11,583 active program households as of September 23,
2005, we statistically selected 70 households’ files to determine whether the
Authority accurately verified and calculated the income information received
from the households for their housing assistance and utility allowance payments
for the period April 1, 2004, through March 31, 2006. Our review was limited to
the information maintained by the Authority in its households’ files. Of the 70
files reviewed, 26 had discrepancies in the calculation of income that resulted in
annual income miscalculations. Two files did not include adequate
documentation to support the Authority’s income calculation for the households
(5147 and 24259), and the Authority was unable to locate one household file
(32374) for review. Therefore, HUD and the Authority lack assurance that the
housing assistance and utility allowance payments for the three households was
accurate.

The Authority miscalculation of households’ income resulted in $27,201 in
overpayments and $2,911 in underpayments of housing assistance and utility
allowances. Further, the Authority overpaid $528 and underpaid $15 in utility
allowances. We provided the Authority’s deputy executive director and the
director of HUD’s Chicago Office of Public Housing with schedules of the
overpayments and underpayments of the housing assistance and utility allowances
for the 26 households.

The following are examples of the types of errors found:

5
• The Authority miscalculated the annual income for household number 16006
due to a miscalculation of income from self-employment. HUD’s Housing
Choice Voucher Program Guidebook 7420.10, chapter 9, page 5-19, requires
income to be included from self-employment as the net income or the gross
income from business less business expenses. However, the Authority used
the gross income from business as the annual income for the household’s 2004
and 2005 annual certifications. As a result, the Authority underpaid the
household’s housing assistance by $1,860 for both years.

• The Authority miscalculated the adjusted annual income for household
number 25234 due to a miscalculation of medical expenses. The Authority
only calculated the medical expenses for the head of household and excluded
the medical expenses for the spouse on the 2004 annual certification. As a
result, the Authority underpaid the household’s housing assistance by $264 for
2004.

• The Authority miscalculated the payment standard for household number
6070 due to an incorrect unit size. The Authority failed to correct the
household’s unit size at the 2004 certification. The household, a single
individual, resided in a two-bedroom unit at the 2004 and 2005 certifications.
However, an additional household member moved out of the unit on July 1,
2004. The household’s recertification was due in December 2004 and the
Authority allowed the household to receive the benefits of the two-bedroom
unit. As a result, the Authority overpaid the household’s housing assistance
by $2,111 for December 2004 through August 2005.

Cause for Miscalculations

Payments were not always computed accurately because the Authority lacked
effective prcedures and controls to ensure that all income and expenses were
properly considered so that accurate housing assistance and utility allowance
payments could be calculated. The Authority did not use households’ appropriate
annual or adjusted annual income, unit size, or utility allowances or calculate
household expenses for payments. It also failed to exercise proper supervision
and oversight of the certification process. The Authority’s program supervisors
said they conducted periodic quality control reviews of files to determine whether
staff accurately calculated households’ housing assistance and utility allowance
payments. However, the Authority could not provide documentation to support
the reviews. Periodic quality control reviews are an important step in ensuring
that the Authority’s housing assistance and utility allowance payments are
accurate.

Conclusion

HUD lacked assurance that the Authority used its program funds efficiently and
effectively since it overpaid $27,729 and underpaid $2,926 in housing assistance

6
and utility allowance payments. Unless corrections to its certification process are
realized, we estimate that the Authority could make more than $2.6 million in
excessive payments over the next year based on the error rate found in our sample
and the net overpayment of housing assistance and utility allowances. Our
methodology for this estimate is explained in the Scope and Methodology section
of this audit report. The Authority could put these funds to better use if proper
procedures and controls are put in place to ensure the accuracy of housing
assistance and utility allowance payments.

Recommendations

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

1A. Reimburse its program $27,729 ($27,201 in housing assistance and $528
in utility allowances) from nonfederal funds for the overpayment of
housing assistance and utility allowance payments cited in this finding.

1B. Reimburse the applicable households $2,926 ($2,911 in housing assistance
and $15 in utility allowances) from its fiscal year 2005 program funds for
the underpayment of housing assistance and utility allowance payments
cited in this finding.

1C. Provide documentation to support the housing assistance and utility
allowance payments for the three households (5147, 24259, and 32374)
cited in this finding. For any overpayment or underpayment, the
Authority should reimburse its program the applicable amount from
nonfederal funds or reimburse the applicable household for the appropriate
amount.

1D. Implement adequate procedures and controls to ensure that its calculations
regarding households’ housing assistance and utility allowance payments
are correct as required by HUD. These procedures and controls should
help to ensure that an estimated $2,619,182 in housing assistance and
utility allowance payments are accurate over the next year.

7
Finding 2: The Authority’s Zero-Income Households Had Unreported
Income
The Authority did not use HUD’s Enterprise Income Verification system (system) to determine
that reported zero-income households had unreported income. Of the 62 households statistically
selected for review, 25 had unreported income that affected their housing assistance payments.
This occurred because the Authority lacked adequate procedures and controls to perform
appropriate income verification. As a result, it unnecessarily paid housing assistance and utility
allowance payments totaling more than $62,000 for households that were required to meet their
rental obligations.

Income Verification Not
Performed

We statistically selected 62 zero-income households from the Authority’s 779
zero-income households as of September 23, 2005, to determine whether they had
income according to HUD’s system for the period April 1, 2005, through June 30,
2006. Of the 62 households reviewed, 25 had income not reported to the
Authority but income information was available through HUD’s system.
Therefore, the Authority provided excessive housing assistance and utility
allowance payments for households. Our review was limited to the information
maintained in HUD’s system.

The following are examples of households with unreported income:

• The head of household 700878 had income, according to HUD’s system,
totaling $18,352. Since the household had income, the Authority overpaid
$589 in housing assistance and $64 in utility allowance per month. The total
overpayment for this household was $11,754 from January 2005 to June 2006.

• Household 023542 had income, according to HUD’s system, totaling $33,132.
Since the household had income, the Authority overpaid $689 in housing
assistance and $38 in utility allowance per month. The total overpayment for
this household was $8,724 from January to December 2005.

According to HUD’s Public and Indian Housing Notice 2005-9, as a possible way
to reduce costs, program households can be required to report all increases in
income between reexaminations, and public housing authorities can conduct more
frequent interim income reviews for families reporting no income. The
Authority’s program operations manual states that tenants who report that they do
not have any source of income should be questioned closely to ensure that they do
not have income of any sort and to determine how they expect to pay for
necessities. Further, the Authority requires it zero-income households to certify
that any willful failure to report all household income may subject their
application for eligibility to disqualification.

8
Cause for Overpayments

The overpayment of $51,244 in housing assistance and $11,121 in utility
allowances to households that reported zero income but had income occurred
because the Authority lacked adequate procedures and controls for performing
appropriate income verification. The Authority did not have procedures requiring
more frequent reviews of its zero-income households or determining when and
how the reviews should be conducted. Some of the Authority’s program staff
used HUD’s system to determine whether households had unreported income.
The Authority needs to make full use of HUD’s system or other third-party
income verification for all households at the time of examinations.

Further, the Authority’s program managers did not conduct periodic supervisory
reviews to ensure that staff took appropriate steps to determine whether
households who reported zero income had unreported income. Periodic quality
control reviews are an important step in ensuring that the Authority’s housing
assistance and utility allowance payments are accurate.

Conclusion

HUD lacks assurance that the Authority used its program funds efficiently and
effectively. Unless corrections to its certification process are realized, we
estimate that the Authority could make more than $776,000 in excessive housing
assistance and utility allowance payments over the next year based on the error
rate found in our sample. Our methodology for this estimate is explained in the
Scope and Methodology section of this audit report. The Authority could put
these funds to better use if proper procedures are put in place to ensure the
accuracy of housing assistance and utility allowance payments.

Recommendations

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

2A. Pursue collection from the applicable households or reimburse its program
$62,365 ($51,244 in housing assistance and $11,121 in utility allowances)
from nonfederal funds for the overpayment of housing assistance and
utility allowance payments cited in this finding.

2B. Implement adequate procedures and controls to ensure that its households
that report zero income do not have income that would result in an
overpayment of housing assistance and utility allowances. These
procedures and controls should help to ensure that an estimated $776,236
in housing assistance and utility allowance payments are accurate over the
next year.

9
2C. Review the remaining 717 (779 minus 62) zero-income households as of
September 23, 2005, to determine whether they had unreported income.
For households that received excessive housing assistance and utility
allowance payments, the Authority should pursue collection and/or
reimburse its program the applicable amount from nonfederal funds.

2D. Terminate the program housing assistance to the applicable households
that certified they had no income when in fact they had income according
to HUD’s system.

10
Finding 3: Controls over the Authority’s Program Admission and
Selection Were Generally Effective
The Authority’s controls over program households’ admission and selection were generally
effective. Of the 70 households’ files statistically selected for review, the Authority did not
maintain adequate supporting documentation regarding program eligibility for five households.
This occurred because the Authority needed to improve its procedures and controls over its
household admission and selection process. As a result, HUD and the Authority lacked
assurance that more than $47,000 in program funds supported eligible low- and moderate-
income households.

Files Lacking Adequate
Eligibility Documentation

From the Authority’s 11,583 active program households as of September 23,
2005, we statistically selected 70 households’ files for review by using EZ Quant
Dollar Unit Variable Statistical Sampling System software. We reviewed the 70
files to determine whether the Authority maintained adequate documentation to
support the households’ admission to and selection for its program. There were
five documents missing from the 70 files. The following chart details the number
of items missing by category for the 70 households’ files.

Of the 70 files reviewed, there were a total
of 5 unsupported items

2
Citizenship certification
Form 9886
Annual inspection

The Authority must maintain complete and accurate accounts and other records
for its program in a manner that permits a speedy and effective audit as required
by 24 CFR [Code of Federal Regulations] 982.158(a). The Authority must keep a

11
copy of the executed lease, the housing assistance contract, and the household’s
application for the term of each assisted lease—and for at least three years
thereafter.

HUD requires the Authority to determine a household’s eligibility for the program
by conducting background verifications and obtaining proof of Social Security
numbers and certifications of citizenship. Two files did not include a signed
certification from household members claiming to be U.S. citizens or eligible
residents, and one of the Authority’s files lacked documentation to support that an
annual unit inspection was performed within 12 months of its previous inspection.
Additionally, two files did not include Form 9886, Authorization for the Release
of Information and Privacy Act Notice. Appendix D of this report shows the
documentation missing for the 70 households’ files reviewed.

Causes for Unsupported
Documentation

The Authority needed to improve its procedures and controls over program
households’ files. Its staff created multiple files from a household’s master file,
thereby enabling several staff to work on the same file. However, this process
resulted in missing paperwork or in some instances, a failure to obtain the
required documentation since the Authority did not have an effective system for
locating all files for program households. During the audit, the Authority was in
the process of converting to an electronic system to enable staff to access
household information electronically and update each file in real time. Once the
file conversion was completed, the Authority was able to locate most of the
supporting documentation that was missing during our audit. The Authority
provided the supporting documentation after our on-site audit work was
completed.

The Authority’s program supervisors said they conducted periodic quality control
reviews of files to determine whether staff obtained required documentation for
determining households’ eligibility for admission and selection. The Authority
could not provide documentation to support the reviews. Periodic quality control
reviews are an important step in ensuring that the Authority’s program household
files continue to contain required eligibility documentation.

HUD Funds Not Effectively
Used

The Authority paid $43,435 in unsupported housing assistance for five of the 70
households during the period April 1, 2004, through August 31, 2005. Further,
the Authority received $4,028 in program administrative fees related to the five
households. Since the Authority lacked documentation to support the payment of
the five households’ housing assistance, HUD and the Authority lacked assurance
that the assistance benefited eligible low- and moderate-income households.

12
Recommendations

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

3A. Provide supporting documentation or reimburse its program $47,463
($43,435 in housing assistance payments plus $4,028 in related
administrative fees) from nonfederal funds for the unsupported housing
assistance payments and related administrative fees for the five
households cited in this finding.

3B. Implement adequate procedures and controls to ensure that it maintains all
required documentation in program household files to support housing
assistance and utility allowance payments in accordance with HUD’s
requirements.

13
Finding 4: The Authority Did Not Properly Manage Its Family Self-
Sufficiency Program
The Authority failed to meet HUD’s requirements regarding the administration of its Family
Self-Sufficiency Program. The Authority’s Family Self-Sufficiency Program did not (1) have a
coordination committee or hold regular meetings to discuss ways to secure commitments of
public and private resources for its operation, (2) verify whether participating households were
employed or seeking employment, and (3) provide households with annual escrow account
statements. Further, 10 of 26 households reviewed had their escrow account balances
inaccurately calculated at least once during the scope of our audit. These deficiencies occurred
because the Authority lacked adequate procedures and controls over its Family Self-Sufficiency
Program. As a result, the Authority’s Family Self-Sufficiency Program was not operating as
HUD intended, and the Authority overfunded households’ escrow accounts by more than $1,600
and underfunded them by more than $2,700 plus applicable interest.

Program Coordination
Committee

As of July 2006, the Authority had not established a coordination committee for
its Family Self-Sufficiency Program. The Authority’s special program manager
said the Authority had not held applicable meetings since March 2004 although it
planned to meet quarterly. According to 24 CFR [Code of Federal Regulations]
984.202, each participating public housing authority must establish a program
coordination committee, the functions of which will be to assist the authority in
securing commitments of public and private resources for the operation of the
Family Self-Sufficiency Program within the authority’s jurisdiction, including
assistance in developing the action plan and in program implementation.

Actively Seeking Employment

The Authority did not followup on households to determine whether they were
employed or seeking employment in accordance with 24 CFR [Code of Federal
Regulations] 984.303(b)(4). Two organizations provided services to the
Authority’s Family Self-Sufficiency Program households.

One of the organizations provided quarterly cumulative statistics and a report
regarding the households’ employment or education status to the Authority.
However, the Authority did not document the information from these reports in
the households’ files or use the information from these reports for monitoring
purposes. The organization had not provided the Authority with any written
reports on the households’ employment status as of July 2006. However, the
organization provided reports to the Authority when it inquired about the job or
education status of a household. However, the Authority did not document the
information it received from the organization in the households’ files.

14
Escrow Account Statements

The Authority did not correctly calculate the escrow balances for the participating
households. There was a total of $1,605 plus earned interest overfunded and
$2,711 plus earned interest underfunded to the households’ escrow accounts. In
addition, households were not aware of the balances in their accounts since they
did not receive annual statements.

We reviewed a sample of 26 of the Authority’s 190 participating households’ files
as of December 2005 and determined that 10 households had their escrow
accounts credited inaccurately, at least once, between April 1, 2004, and August
31, 2005. In addition, there were two households (28852 and 702827) for which a
determination of their escrow balances of $40,592 ($11,405 and $29,187,
respectively) could not be verified because the Authority was unable to provide
supporting documentation from the households’ files. The following table details
the overfunded and underfunded escrow accounts for the 10 households.

Incorrect escrow accounts
Household
number Overfunded Underfunded
347 $190
3499 $268
4539 90
4766 383
9549 852
12961 180
21397 522
21571 387
41307 1,054
41334 390
Totals $1,605 $2,711

For example, the escrow account for household number 41307 was underfunded
by $1,054 plus any accrued interest because the Authority failed to update the
escrow credit from the previous certification. Effective April 1, 2005, the
Authority calculated the household’s earned income and escrow credit to be zero.
At the next certification, effective July 1, 2005, the household’s earned income
increased to $24,500, and the Authority should have increased the escrow credit
to $527. However, the Authority kept it at zero, a difference of $527 per month
for two months. This resulted in the underfunding of the account by $1,054. As
of December 31, 2005, the household’s escrow account was $4,048 and it should
have been $5,102.

15
Cause for Deficiencies

The deficiencies occurred because the Authority lacked adequate procedures and
controls over its Family Self-Sufficiency Program. The Authority relied on its
computer system to generate the escrow account credits for its households. The
computer system used information from HUD Form 50058 to calculate the
escrow account credit. The Authority’s program staff did not perform a quality
control review of the information contained on the forms for accuracy to ensure
that the amount of earned income was correct when determining the escrow
account credit.

The Authority’s Family Self-Sufficiency Program staff performed reviews of each
household’s escrow account to ensure that the accounts were credited. However,
the reviews did not include performing a verification of the annual income or
allowances to ensure that the escrow credits were accurate since this was the
responsibility of the Authority’s program staff. Therefore, the Family Self-
Sufficiency Program staff relied upon the Authority’s program staff to have
already verified the accuracy of the households’ earned income data from their
annual recertifications or interim examinations.

Conclusion

The Authority did not effectively manage its Family Self-Sufficiency Program.
As a result, escrow credits were out of balance and households were not aware of
the amounts credited to their accounts. In addition, the Authority did not closely
monitor to ensure that all households complied with applicable employment
requirements. Participants who do not comply with the Family Self-Sufficiency
Program’s requirements should be terminated so that other households may
participate. Allowing households to stay on the Family Self-Sufficiency Program
when they were unemployed and not seeking employment prevented other
households that wanted to actively participate from doing so.

Recommendations

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

4A. Establish a coordination committee as required by HUD’s regulations.

4B. Maintain documentation in participating households’ files of their
employment or job-seeking status to ensure that they meet their contract of
participation and remove any households not employed or not actively
seeking employment.

16
4C. Reduce the escrow accounts for the five Family Self-Sufficiency Program
households that were inaccurately credited for the $1,605 cited in this
finding and any accrued interest.

4D. Reimburse its seven Family Self-Sufficiency Program households’ escrow
accounts that were not credited the $2,711 cited in this finding plus any
interest.

4E. Implement adequate procedures and controls regarding its Family Self-
Sufficiency Program to ensure that participating households’ annual
income calculations are accurate and complete, escrow credits are
reviewed for accuracy, and households receive annual statements.

4F. Provide adequate documentation to support the $40,592 deposited to the
two households’ escrow accounts cited in this finding and adjust or
reimburse the account(s) as appropriate.

17
Finding 5: The Authority’s Controls over Household Portability Were
Weak
The Authority had weaknesses in the accuracy of payments it made to receiving housing
authorities for port-out households and did not ensure that payments for port-in households were
accurate and received within prescribed timeframes. In addition, the Authority continued to
receive portability receipts for port-ins after absorbing the households. These weaknesses
occurred because the Authority did not adequately reconcile reports to track portability payments
and receipts and was not timely in notifying all housing authorities when it absorbed households.
As a result, the Authority made net overpayments of $2,938 for port-out households and needs to
return $10,336 in housing assistance payments for households that were absorbed.

Port-Out Payments

Our review of 25 randomly selected port-out households’ files showed that the
Authority underpaid and overpaid receiving housing authorities for port-out
households’ housing assistance. The Authority underpaid one receiving housing
authority $138 and overpaid three receiving housing authorities $3,076. The total
payment error was $3,214, and the net effect on housing assistance payments was
an overpayment of $2,938.

According to 24 CFR [Code of Federal Regulations] 982.355, the Authority must
promptly reimburse the receiving housing authority for the full amount of the
housing assistance payments made by the receiving housing authority for the
portable households. Since the Authority did not always reimburse the receiving
housing authority the correct amount of housing assistance payments, the
Authority and HUD lack assurance that the port-out payments were correct.

Receipts for Port-Ins
Delinquent

The Authority did not receive payments from housing authorities for port-in
households within 30 days of the initial billing and by the fifth working day of
each month for all subsequent payments in accordance with HUD’s requirements.
Of the 67 port-in households’ files reviewed, the Authority initially billed housing
authorities for 24 in 2005. For these 24 port-in households, the Authority did not
receive payments within 30 days of the initial billing for 16 (67 percent). For
subsequent payments, the Authority did not receive payments for 31 of the 67 (46
percent) port-in households by the fifth working day of the month. Most of the
late payments were from the Chicago Housing Authority (15 of the 16 initial
billings and 25 of the 31 subsequent payments). This resulted in large payments
being received by the Authority. For example, in January 2005 and April 2006,
the Chicago Housing Authority sent checks for $614,252 and $78,030,
respectively.

18
The controller said that the Authority did not always notify housing authorities
about late payments and it had not notified HUD as of June 2006. The
Authority’s position was that it had sufficient program funds to cover any
shortfalls due to abatements of housing assistance, moves, or other pending
actions that would delay housing assistance payments.

As of January 2006, there was $48,199 in outstanding housing assistance
payments and administrative fees from housing authorities for port-in households.
The Authority received payment for all but $18,766 by April 10, 2006. However,
of the $48,199 in outstanding payments as of January 2006, only $33,683
appeared on the Authority’s aging report. We identified the remaining
outstanding payments by comparing the expected payments (from HUD Form
52665 in the households’ files) to the Authority’s cash receipts reports. Of the
$18,766 in outstanding payments as of April 10, 2006, only $12,656 appeared on
the aging report due to differences in the amounts recorded on the aging and cash
receipts reports. There was no evidence that the Authority routinely reconciled
these two reports.

The Authority needs to monitor the accuracy and timeliness of payments for port-in
households by reconciling its cash receipts and aging reports on a periodic basis and
notifying authorities of any late payments that are due. This will help to ensure that
the Authority pursues program funds appropriately.

Payments for Absorbed
Portability Households

Our review of 1,174 port-in households that the Authority had absorbed as of
February 2006 showed that it still received payments for 25 households as of
March 2006 because it failed to notify all affected housing authorities. The total
payment received by the Authority for the 25 households in March 2006 was
$10,336.

According to HUD’s Public and Indian Housing Notices 2004-12 and 2005-28, if
the Authority absorbs a household for which it has been billing or if it terminates
the housing assistance payments for any reason, the Authority should provide
adequate notice of the effective date of the absorption or termination to avoid
having to return a payment. In no event should the Authority fail to notify the
initial housing authority later than 10 working days following the effective date of
the termination of billing arrangements. Since the Authority continued to receive
payments for absorbed households, the Authority and HUD lack assurance that
the Authority provided adequate notice of households’ absorptions to initial
housing authorities regarding port-in payments.

19
Recommendations

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

5A. Pay the receiving housing authorities the $138 underpaid for port-out
households cited in this finding.

5B. Request reimbursement from the receiving authorities for the $3,076 in
overpaid housing assistance for port-out households cited in this finding.

5C. Perform periodic reconciliations of household portability information
forms with check listings by vendor reports to identify any discrepancies
with port-out payments made.

5D. Reconcile its cash receipts and aging reports for portability receipts on a
recurring basis to pursue discrepancies and notify authorities of any late
payments due.

5E. Repay the applicable housing authorities for the $10,336 in payments
received for absorbed port-in households cited in this finding.

5F. Implement adequate procedures and controls over its portability process to
include but not limited to notifying housing authorities for port-in
households that will be absorbed so that housing assistance payments are
not obligated unnecessarily.

20
SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed:

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

• 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, program household files,
board meeting minutes for January 2004 through December 2005, organizational
chart, and program annual contributions contract with HUD.

We downloaded electronic data for the Authority’s program households as of September 23,
2005. We also interviewed the Authority’s employees, program households, and HUD staff.

From the Authority’s 11,583 active program participant households as of September 23, 2005,
we statistically selected 70 households’ files for review by using EZ Quant Dollar Unit Variable
Statistical Sampling System software. We reviewed the 70 files to determine whether the
Authority maintained adequate documentation to support the households’ admission and
selection for its program. We also reviewed the 70 files to determine whether the Authority
accurately verified and calculated the income information received from the households for their
housing assistance and utility allowance payments for the period April 1, 2004, through March
31, 2006. The Authority incorrectly calculated payments for 26 of the 70 files reviewed. This
resulted in total miscalculation of payments by $30,655—to include overpayments of $27,729
and underpayments of $2,926 in housing assistance and utility allowances.

Unless the Authority improves its calculation process, we estimate that it could make $2,619,182
in future excessive housing assistance and utility allowance payments. We determined this
amount by multiplying 2.93 percent (the percent of the total housing assistance and utility
allowance for the 70 households’ files in the sample that received excessive payments) times
$89,391,864 (the total payments for the population of households served). We determined the
2.93 percent by annualizing the net excessive payments of $24,803 ($27,729 in overpayments
minus $2,926 in underpayments) for our sample of 70 households divided by the $596,690 in
housing assistance and utility allowance payments for one year.

We determined an estimate of $776,236 in future housing assistance overpayments due to
underreporting of income by zero-income households during the next 12 months. To do this, we
applied a 10.5 percent error rate found during our review of 62 statistically selected zero-income
households’ files to the estimated average annual housing assistance payments disbursed by the
Authority for all of its zero-income households ($7,392,720). We determined this error rate by
dividing the overpaid housing assistance payments ($62,365) by the total housing assistance
payments made for the 62 households in our sample ($593,931) for the review period of January

21
2005 through June 2006. We calculated the Authority’s average annual housing assistance
expense by annualizing the total payments made to the 779 zero-income households in our
sample’s population as of September 2005 ($616,060 times 12).

We performed our on-site audit work from November 2005 to June 2006 at the Authority’s former
program 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.

22
INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

• Effectiveness and efficiency of operations,
• Reliability of financial reporting,
• Compliance with applicable laws and regulations, and
• Safeguarding resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.

Relevant Internal Controls

We determined the following internal controls were relevant to our objective:

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

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

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

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

We assessed the relevant controls identified above.

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

23
Significant Weakness

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

• The Authority lacked adequate procedures and controls over calculations of
households’ housing assistance and utility allowance payments, income
verification for reported zero-income households, administration of the
Family Self-Sufficiency Program; and household portability (see findings 1, 2,
4, and 5).

24
FOLLOWUP ON PRIOR AUDITS

This is the second audit of the Authority’s program by HUD’s Office of Inspector General (OIG).
The first audit report (report number 2006-CH-1012) issued on July 11, 2006, included three
findings. The three findings are not repeated in this audit report. The most recent independent
auditor’s report for the Authority covered the year ending March 31, 2005, and resulted in no
findings.

25
APPENDIXES

Appendix A

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

Recommendation Funds to be put
number Ineligible 1/ Unsupported 2/ to better use 3/

1A $27,729
1B $2,926
1D 2,619,182
2A 62,365
2B 776,236
3A $47,463
4C 1,605
4D 2,711
4F 40,592
5A 138
5B 3,076
5E 10,336
Totals $90,094 $88,055 $3,416,210

1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
policies or regulations.

2/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of audit. Unsupported costs
required a decision by HUD program officials. This decision, in addition to obtaining
supporting documentation, might involve a legal interpretation or clarification of
departmental policies and procedures.

3/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an OIG recommendation is implemented. This includes
reduction in outlays, deobligation of funds, withdrawal of interest subsidy costs not
incurred by implementing recommended improvements, avoidance of unnecessary
expenditures noted in preaward reviews, and any other savings that are specifically
identified.

26
Appendix B

AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation Auditee Comments

Comment 1

27
Ref to OIG Evaluation Auditee Comments

Comment 2

Comment 3

28
Ref to OIG Evaluation Auditee Comments

Comment 4

Comment 5

Comment 6

Comment 7

29
Ref to OIG Evaluation Auditee Comments

Comment 8

Comment 9

Comment 10

Comment 11

30
Ref to OIG Evaluation Auditee Comments

Comment 12

Comment 13

31
Ref to OIG Evaluation Auditee Comments

32
Ref to OIG Evaluation Auditee Comments

Comment 14

33
Ref to OIG Evaluation Auditee Comments

34
Ref to OIG Evaluation Auditee Comments

35
Ref to OIG Evaluation Auditee Comments

36
OIG Evaluation of Auditee Comments

Comment 1 We would like to take this opportunity to commend the Authority on its continued
efforts and commitment toward improving its program operations.

Comment 2 We reviewed the Authority’s supporting documentation for background
verifications and adjusted finding 3.

Comment 3 We reviewed the supporting documentation provided by the Authority and
determined that the verification of citizenship was still not provided for household
numbers 9615 and 11277.

Comment 4 We reviewed the Authority’s supporting documentation regarding households’
birth certificates and adjusted finding 3.

Comment 5 We reviewed the Authority’s supporting documentation regarding households’
annual unit inspections and made adjustments to finding 3.

Comment 6 We reviewed the Authority’s supporting documentation regarding households’
proof of Social Security numbers and made appropriate adjustments to finding 3.

Comment 7 We reviewed the Authority’s supporting documentation regarding households’
annual applications and Form 9886, and adjusted finding 3. However, the
Authority still lacked an application for household number 9299, and Form 9886
for households 5147 and 27884.

Comment 8 We reviewed the Authority’s supporting documentation regarding households’
Form 50058 and adjusted finding 3.

Comment 9 We reviewed the Authority’s supporting documentation for household 43002 and
we disagree. The Authority was not consistent in the manner in which it averaged
the monthly amount of child support received by the household. We based our
calculation of the income from child support on the amount and frequency
provided by the Illinois Department of Public Aid.

Based on the Authority’s and our calculations of the housing assistance payment
at the 2005 certification, the Authority should have paid $4,650 in housing
assistance payments. However, when we checked the housing assistance payment
schedule, it showed a total of $7,513 as the total amount paid in housing
assistance payments.

Based on the housing assistance payment schedule, the Authority overpaid $2,863
in housing assistance payments. The Authority corrected this error and reissued
new checks, but we could not determine whether the initial checks issued by the
Authority were voided.

37
OIG Evaluation of Auditee Comments

Comment 10 We disagree with the Authority’s calculation of income for household 10176.
According to the documents provided, the household’s hourly rate decreased from
$10 to $8 per hour effective January 4, 2005. On January 15, 2005, the earned
income was $493 (61.63 hours times $8). As of the January 30, 2005, pay period,
the household earned $640 (80 hours time $8). The Authority used the income
earned during January 2005 and multiplied by 12 months for an annual income of
$13,596. Based on the income earned on the January 30, 2005, paycheck (which
was a full paycheck compared to the earnings on January 15, 2005) the household
worked a 40 hour week and was paid semi-monthly (24 pay periods times $640
average pay for half month) making the annual income $15,360. The Authority
could have consulted the household’s employer regarding the number of hours
worked during a pay period if this was unclear.

Comment 11 We reviewed the Authority’s supporting documentation for household 29782 and
determined the Authority used the income from child support per the household’s
and the provider of child support’s self-certification. However, we based our
calculation of income from child support on the third-party verification conducted
by the Authority. The Authority conducted third-party verification through the
Department of Human Services. This third-party verification was kept with the
other documents used for the 2004 certification. The documentation provided by
the Authority was not dated, so we could not determine whether it was current.

Comment 12 We reviewed the Authority’s supporting documentation for household 9512,
agree with the results, and made the appropriate revisions to our audit report.

Comment 13 We agree that HUD’s Public and Indian Housing Notice 2005-9 only suggests
ways the Authority may reduce costs to its program. The Authority’s program
operations manual states that tenants who report they do not have any source of
income should be questioned closely to confirm they do not have income of any
type, and to determine how they expect to pay for necessities. As a prudent
management tool, the Authority should review the income of its zero-income
tenants more frequently.

Comment 14 We only included unearned income in computing the total annual income. We
did not include unearned income for the purpose of calculating the escrow credits.

Household 347
We disagree with the Authority’s calculated annual income. Five of the prior six
pay periods before the certification the household earned $919. We used this as
the biweekly pay amount. For one pay period, the household earned $980 that the
Authority averaged with $919 to get a biweekly pay amount of $949. We do not
agree with this methodology and maintain that the escrow account was
overfunded by $190.

38
OIG Evaluation of Auditee Comments

Household 3499
We agree with the Authority that the escrow account was underfunded by $268
and made the appropriate adjustments to our audit report.

Household 3603
We agree that the escrow account was not underfunded for this household and
made the appropriate adjustments to our audit report.

Household 4539
We agree that the escrow account was underfunded by $90 and made the
appropriate adjustments to our audit report.

Household 4766
For the period April 1, 2004, through March 31, 2005, the Authority agreed that
the amount of earned income should be $20,312, but stated that this resulted in an
escrow credit of $191 a month. The actual escrow credit that it produced was
$167 a month, and the account was overfunded by $288 each month for April 1,
2004, through March 31, 2005.

For the period April 1, 2005, through August 31, 2005, the Authority used three
quarters of income to calculate the income for the household. We disagree with
the Authority using three quarters and determined that the escrow credit was
overfunded by $95 from April 1, 2005, through August 31, 2005. In total, the
escrow account was overfunded by $383.

Household 9549
The Authority agreed with our calculation that the escrow account was
overfunded by $852 for this household.

Household 12961
We agree with the Authority. There was a difference in income calculations. The
escrow account was overfunded by $180. We have made the appropriate
adjustments to our audit report.

Household 21397
The Authority agreed the escrow account was underfunded by $522.

Household 14208
We agree with the Authority that the escrow account for this household was not
underfunded and have made the appropriate adjustments to our audit report.

Household 21397
The Authority agreed with our calculation that the escrow account was
underfunded by $1,054.

39
OIG Evaluation of Auditee Comments

Household 21571
For the period April 1, 2004, through April 31, 2005, the Authority agreed that the
escrow account was underfunded by $521. However, beginning May 1, 2005, the
Authority stated that we failed to include child support payments. We obtained a
document showing that child support payments ended September 24, 2004.
Therefore, we do not agree with the Authority’s position. The household’s
income must be based on employment, not child support. This resulted in an
escrow credit of $495 from April 1, 2005, to July 31, 2005, and was overfunded
by $134. As a result, the escrow account was underfunded in total by $387.

40
Appendix C
CRITERIA

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.240 state that the responsible
entity must verify the accuracy of the income information received from the family and change
the amount of the total tenant payment, tenant rent, or Section 8 housing assistance payment or
terminate assistance, as appropriate, based on such information.

HUD’s Housing Choice Voucher Program Guidebook 7420.10, chapter 5, pages 5-31 through
32, states that the medical expense deduction is permitted only for households in which the head
or spouse is at least 62 years of age or disabled (elderly or disabled households). If the
household is eligible for a medical expense deduction, the medical expenses of all family
members may be counted. Medical expenses are expenses anticipated to be incurred during the
12 months following certification or reexamination, which are not covered by an outside source
such as insurance. The medical allowance is not intended to give a family an allowance equal to
the past year’s expenses but to anticipate regular ongoing and anticipated expenses during the
coming year.

Finding 3
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.551(b) states that (1) the
family must supply any information that the Authority or HUD determines is necessary in the
administration of the program, including submission of required evidence of citizenship or
eligible immigration status; (2) the family must supply any information requested by the
Authority or HUD for use in a regularly scheduled reexamination or interim reexamination of
family income and composition in accordance with HUD requirements; and (3) the family must
disclose and verify Social Security numbers and must sign and submit consent forms for
obtaining information.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.553(a)(2)(i) state that the
Authority must establish standards that prohibit admission to the program if any member of the
household is subject to a lifetime registration requirement under a state sex offender registration
program. In this screening of applicants, the Authority must perform criminal history
background checks necessary to determine whether any household member is subject to a
lifetime sex offender registration requirement in the state where the housing is located and in
other states where the household members are known to have resided.

HUD’s Housing Choice Voucher Program Guidebook 7420.10, chapter 5, page 12, states that
participation in the program places an obligation on the family to provide information required
by HUD and the Authority when requested and to cooperate in efforts to verify the information
provided. Disclosure of Social Security numbers and signatures on HUD’s release authorization
form are minimum program requirements.

41
The Authority must require applicants and program participants to disclose the Social Security
numbers of all family members age six or older, as a condition of admission and continued
assistance. Persons who have not been assigned a Social Security number must execute a
certification stating that no Social Security number has been assigned. This process need occur
only one time for each family member. New family members, age six or older, should be
required to disclose or certify at the time the change in family composition is reported to the
Authority or the next annual recertification after a family member reaches age six. A parent or
guardian must provide the certification for a minor.

The Authority must document the Social Security number disclosed by each family member. If
the family member cannot produce an original Social Security card issued by the Social Security
Administration, the Authority may accept one of the following as verification if it includes the
Social Security number: a driver’s license with Social Security number; identification card issued
by a federal, state, or local agency; identification card issued by a medical insurance company or
provider (including Medicare and Medicaid); or identification card issued by an employer or
trade union.

The Authority’s operations manual states that new program applicants are required to provide a
copy of documentation of the Social Security numbers of all household members. This also
applies to persons who are added to households of current participants for each household
member age six or older. New applicants cannot be offered assistance until the requirements are
met. If they refuse to provide the necessary documentation or certification they should be sent a
letter of ineligibility.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.201(a) state that the Authority
may only admit an eligible family to the program. To be eligible, the applicant must be a
“family” and must be a citizen or a noncitizen who has eligible immigration status.

HUD’s Housing Choice Voucher Program Guidebook 7420.10, chapter 5, page 3, states that
eligibility for federal housing assistance is limited to United States citizens and applicants who
have eligible immigration status. Persons claiming eligible immigration status must present
appropriate immigration documents that must be verified by the Authority through the
Immigration and Naturalization Service. Every applicant household for (and participant in) the
program must sign a certification for every household member, either claiming status as a United
States citizen or an eligible alien or stating the individual’s choice not to claim eligible status and
acknowledge ineligibility.

Finding 4
HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.305(a)(3), state that each
authority will be required to make a report, at least once annually, to each Family Self-
Sufficiency Program participant on the status of the family’s account. At a minimum, the report
will include (i) the balance at the beginning of the reporting period, (ii) the amount of the
family’s rent payment that was credited to the family self-sufficiency account during the
reporting period, (iii) any deductions made from the account for amounts due the Authority
before interest is distributed, (iv) the amount of interest earned on the account during the year,
and (v) the total in the account at the end of the reporting period.

42
Appendix D

HOUSEHOLD FILES MISSING DOCUMENTATION
Authorization
for Release of
Citizenship Birth Annual Proof of Social Information Annual
certification certificates housing Security and Privacy certification
for all for all quality numbers- Act Notice (HUD Total
Household Background household household standards everyone over Annual (HUD Form Form unsupported
number check members members inspection six application 9886) 50058) payments
5147 Not required Yes Yes Yes Yes Yes No (1) Yes 6,604
9299 Not required Yes Yes Yes Yes No Yes Yes 13,271
9615 Not required No Yes Yes Yes Yes Yes Yes 12,126
11277 Not required No Yes Yes Yes Yes Yes Yes 5,260
27884 Not required Yes Yes Yes Yes Yes No Yes 10,202
Totals 2 0 0 0 1 2 0 $47,463

(1) – Missing documentation for one of the two years reviewed.

Not required – Households were on the program prior to background checks being required.