oversight

The Housing Authority of the City of Austin, Texas, Overhoused Tenants and Paid excessive Housing Assistance Payments in the Section 8 Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-09-01.

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

                                                              Issue Date
                                                                       September 1, 2006
                                                              Audit Report Number
                                                                           2006-FW-1015




TO:         Diana Armstrong
            Director, Office of Public Housing, 6JPH



FROM:       Frank E. Baca
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Housing Authority of the City of Austin, Texas, Overhoused Tenants and
           Paid excessive Housing Assistance Payments in the Section 8 Housing
           Choice Voucher Program

                                   HIGHLIGHTS

 What We Audited and Why

             As part of the U. S. Department of Housing and Urban Development (HUD),
             Office of Inspector General’s (OIG) annual audit plan, we audited the Housing
             Authority of the City of Austin’s (Authority) Section 8 Housing Choice Voucher
             program to determine whether the Authority overhoused tenants and computed
             housing assistance payments correctly. We selected the Authority based on a
             computer analysis of data from HUD’s Public and Indian Housing Information
             Center, which identified 662 tenants whose voucher size appeared to exceed the
             needs of the members of the households. We limited our review to the 662
             vouchers.


 What We Found


             In 482 of the 662 vouchers reviewed, the Authority applied the correct voucher
             size and correctly computed housing assistance payments. However, it
             overhoused 180 tenants because it did not have effective controls in place to
           ensure that staff assigned the correct voucher size. Staff used their own discretion
           and sometimes misapplied the policies for approving larger bedroom sizes
           because of the age/gender or live-in aides. Authority supervisors did not
           adequately review the assignment of voucher sizes to detect these staff errors.
           From April 1, 2003, through January 31, 2006, the Authority paid $588,130 in
           excess housing assistance payments. We estimate the Authority could avoid
           future losses of up to $768,000 by improving its controls over voucher size
           assignments. In addition, HUD overfunded the Authority’s fiscal year 2006
           Section 8 Housing Choice Voucher program budget by $189,245 because it used
           costs incurred during three months in 2004 that contained overpayments of
           $48,603 in the formula for calculating the budget and maximum funding.

What We Recommend


           We recommend that you require the Authority to correct the voucher size for
           overhoused tenants and repay HUD for the housing assistance overpayments of
           $588,130 that occurred from April 1, 2003, through January 31, 2006. In
           addition, we recommend that you require the Authority to repay any
           overpayments for the tenants that the Authority incurred after January 31, 2006.
           We also recommend that you ensure that the Authority improves and corrects its
           procedures to assign the correct subsidy size for all tenants to avoid future losses
           of up to $768,000. Further, we recommend that you take the necessary action to
           reduce the Authority’s fiscal year 2006 Section 8 budget by $189,245 due to the
           use of 2004 overpayments in the formula for calculating the budget and funding.

           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 the Authority a copy of draft report on August 3, 2006, and had an
           exit conference on August 22, 2006. The Authority provided a written response
           at the exit conference. The Authority generally agreed with the report. The
           complete response and our evaluation are contained in Appendix B.




                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                    4

Results of Audit
      Finding: The Authority Overhoused Tenants and Paid Excessive Housing   5
      Assistance Payments

Scope and Methodology                                                        10

Internal Controls                                                            11

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use         12
   B. Auditee Comments and OIG’s Evaluation                                  13
   C. Calculations of Funds to Be Put to Better Use                          17




                                             3
      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Austin (Authority) was established in 1937
by the City of Austin, Texas, and is governed by a five-member board of
commissioners. The U.S. Department of Housing and Urban Development
(HUD) has authorized the Authority to administer 5,023 Section 8 housing choice
vouchers. From 2002 through 2006, HUD authorized the Authority more than
$201.8 million in Section 8 voucher program funds, nearly $196.9 million of
which the Authority had disbursed as of February 4, 2006.

The Authority uses its Section 8 voucher funds to provide eligible families with
rental subsidies for decent, safe, and sanitary housing in the private market. It
pays a housing subsidy directly to the property owner on behalf of the tenant; the
tenant pays the difference between the actual rent and the subsidy amount. The
Authority determines eligibility based on income and family size in accordance
with its administrative plan. It verifies family income and composition annually
and ensures the unit meets minimum housing quality standards.

With the HUD Appropriations Acts for federal fiscal years 2003 through 2006,
Congress revised its method of calculating and distributing Section 8 renewal
funds, housing assistance payments, and administrative fees. There were also
provisions for a central fund and prohibitions on the use of Section 8 funds for
overleasing. The revisions now require housing authorities to control the
increasing costs of vouchers. In addition, the Housing Choice Voucher program
became completely budget based in 2005. Housing authorities now must fiscally
manage their voucher programs and leasing levels and keep costs within their
budgets.

HUD calculated the budget allocations for 2005 and 2006 using the actual
housing assistance payments from the May-July 2004 reporting period. HUD
applied annual adjustment factors and pro rata reductions to the calculations to
determine the renewal amounts.

Our objective was to determine whether the Authority overhoused tenants and
computed housing assistance payment correctly.




                                 4
                                      RESULTS OF AUDIT

Finding: The Authority Overhoused Tenants and Paid Excessive
Housing Assistance Payments

            The Authority overhoused 180 tenants because it did not have effective controls
            in place to ensure that staff assigned the correct voucher size. The staff used their
            own discretion in assigning voucher sizes and, in some cases, misapplied the age/
            gender and medical policies for granting larger voucher sizes. Staff supervision
            and review of the staff’s work did not detect these errors and require correct
            voucher sizes at the time of the annual reexaminations. As a result, from April 1,
            2003, through January 31, 2006, the Authority paid $588,130 in excess housing
            assistance payments. It could overpay an additional $768,000 during the next 3.7
            years, the median time a tenant stays in a unit, if the Authority does not
            adequately correct the erroneous voucher size assignments. In addition, HUD
            overfunded the 2006 Section 8 Housing Choice Voucher program by $189,245
            because it used 2004 overpayments in the formula for calculating the budget and
            maximum funding.

 The Authority Established
 Subsidy Standards

            HUD requires the Authority to adopt a written administrative plan that establishes
            local policies for administering the program in accordance with HUD
            requirements. The Authority must comply with the consolidated annual
            contributions contract and HUD regulations and administer the program in
            accordance with the administrative plan. It must also establish subsidy standards
            that determine the number of bedrooms needed for families of different sizes and
            compositions. The subsidy standards must provide for the smallest number of
            bedrooms needed to house a family without overcrowding.

            The Authority’s Section 8 administrative plan and standard operating procedures
            require staff to assign the voucher size to a participant based on the established
            minimum and maximum number of persons in a household. The Authority
            expects two people to share a bedroom unless they are of different sexes and one
            is at least seven years old. The Authority also may allow a family member a
            separate bedroom, upon written verification of a disability or handicap, and grant
            reasonable accommodations for tenants who require a live-in aide. Written
            verified proof from a doctor is required before approval of a live-in aide, and live-
            in aides must reside in the unit to be included in determining the family unit size.
            The Authority’s policies require downgrades of tenants at annual reexaminations
            if there is a change in family composition during the interim period that caused a




                                              5
                   decrease in family size. The Authority also requires the compliance supervisors
                   to screen all annual reexaminations conducted by staff.

    The Authority Overpaid
    $588,130 in Housing Assistance
    Payments
                   We reviewed 662 vouchers of tenants who appeared to be overhoused to
                   determine whether there was acceptable justification for issuing vouchers larger
                   than the Authority’s administrative plan allowed. For 482 vouchers, we
                   concluded that the Authority assigned the correct voucher size and ensured that an
                   age/gender or medical exception applied. During the audit period, the Authority
                   made $588,130 in excessive housing assistance payments on behalf of 180
                   overhoused tenants. 1 We provided the calculations for all 180 overhoused tenant
                   vouchers to the Authority’s compliance investigator for review. The Authority
                   agreed with our calculations. The following table shows the number of vouchers
                   and amount of overpayments for each type of situation that resulted in overhoused
                   tenants.

                    Overhoused situations                         Number of vouchers          Total overpayments
                    Tenant did not meet age/gender                                      97 $                394,697
                    requirement
                    Live-in aide did not reside in unit                                20     $              82,596
                    Change in family composition                                       43     $              67,876
                    No justification documented                                        20     $              42,961
                    Totals                                                            180     $             588,130

    The Authority’s Staff
    Misapplied the Written Policies
    When Assigning the Voucher
    Size

                   The Authority’s policies generally expect two people, besides the head of
                   household, of the same gender to share a bedroom. The table below shows the
                   Authority’s subsidy standards during the period:

                                                          Subsidy standards
                                                                                 Maximum occupancy under
                                         Minimum # of       Maximum # of          housing quality standards
                       Voucher size
                                           persons            persons         (assumes a living room is used as
                                                                                    a living/sleeping area)
                            0                  1                  1                             1
                            1                  1                  2                             4
                            2                  2                  4                             6
                            3                  4                  6                             8
                            4                  6                  8                            10
                            5                  8                 10                            12




1
      This represents about 3.6 percent of the HUD-authorized 5,023 vouchers.


                                                            6
However, the Authority can increase the voucher size and allow separate
bedrooms for household members of the opposite sex if one is at least seven years
old. For example, if a tenant household were to consist of a head of household, a
teenage male, and a teenage female, the correct voucher size would be three. The
head of household would get one bedroom, and the teenage male and teenage
female would each get a separate bedroom. However, if a tenant household were
to consist of a head of household and two teenage females, the correct voucher
size would be two bedrooms. The head of household gets a bedroom, and the two
teenage females will share a bedroom because they are of the same gender.

The Authority did not follow the age/gender exception policy when it increased
the voucher size for 97 tenants. Authority staff used their own discretion instead
of following written policies. Sometimes they allowed families with teenage
children of the same sex to have their own bedrooms. One reason given was that
they did not want to displace the family; therefore, if the family remained in the
same unit, they allowed them to keep their voucher bedroom size.

The Authority granted medical exceptions for 20 tenants who required live-in
aides. The Authority had written verification of the family member’s disability or
handicap and had obtained written verification from a doctor that a live-in aide
was required. Written policies require the approval of a live-in aide prior to
upgrading a voucher. However, staff apparently did not want to cause any
additional hardship on the family and upgraded the voucher without first
approving the live-in aide. The tenant files did not indicate that staff approved the
live-in aides or that live-in aides resided in the units. HUD’s and the Authority’s
policies require live-in aides to be on the lease and reside in the unit. The
Authority should not have considered a live-in aide in determining the voucher
size before ensuring that the live-in aide would be on the lease and would live in
the unit.

The Authority should have downgraded 43 vouchers at its annual reexamination
for tenants who had a change in family composition. During the annual
reexamination, the Authority’s housing counselors are responsible for reviewing
the current family composition and applying the correct subsidy standards to the
households. Tenant families experiencing a change in household size and
composition during the interim period that warrants a smaller voucher size are
required to be downgraded at the next annual reexamination. The Authority’s
compliance supervisors are responsible for reviewing all of the annual
reexaminations conducted by staff. The supervisors’ review process was not
effective because these tenants should have been identified as overhoused and
their vouchers downgraded at the annual reexamination.

The Authority also overhoused 20 tenants without justification in the files. The
tenants’ files did not have written verification of a disability or handicap required
to grant reasonable accommodation for a live-in aide or an extra bedroom to store
medical equipment. There were no justifications for extra bedrooms and larger



                                  7
              voucher sizes. The supervisory review process was not effective because these
              overhoused tenants should have been discovered during the interim and annual
              reexaminations.

              For 18 of the 180 vouchers, overhousing did not result in housing subsidy
              overpayments. The gross rents were less than the correct payment standard.
              Although the overhousing did not result in overpayments in these instances, the
              Authority should correct the voucher sizes to avoid possible future overpayments.

   The Authority Can Save About
   $768,000 by Correcting Voucher
   Assignments

              If the Authority corrects the voucher assignments for its overhoused tenants and
              assigns the correct voucher sizes at initial examinations and annual
              reexaminations, it could avoid additional overpayments of as much as $768,000
              over the next 3.7 years. This estimate is based on the average actual overhousing
              costs incurred per month during our audit period. See appendix C for our
              calculation of these savings.


      HUD Overfunded the Authority’s
      Section 8 Budget

              The overhousing costs during the audit period resulted in overfunding the
              Authority’s Housing Choice Voucher program. To arrive at the budget and
              maximum funding for 2006, the HUD Appropriations Act for 2006 required HUD to
              use the calendar year 2005 Housing Choice Voucher program renewal amount as the
              baseline. HUD adjusted the baseline amount by the annual adjustment factor and
              then by a proration factor that represents the 2006 percentage of 2005 funding. The
              2005 budget was based on the average actual costs and number of units authorized
              during May, June, and July 2004, also adjusted by an annual adjustment factor.
              Since May, June, and July 2004 contained payments for overhoused tenants, the
              2006 budget needs to be adjusted by the amount of overpayments and later
              adjustments. We calculated the downward adjustment to the 2006 Housing Choice
              Voucher program budget to be $189,245. See appendix C for our calculation. HUD
              should reduce the 2006 budget by the costs associated with the overpayment of
              housing subsidies during those months.

The Authority Issued New
Policies for Assigning and
Reviewing Voucher Sizes


              The Authority changed its policy on April 6, 2006, and no longer uses the age or
              gender of household members in determining an exception to policy for assigning



                                               8
                 voucher size. 2 The Authority’s policy now requires two people to share a
                 bedroom regardless of their age or gender. According to the Authority,
                 downgrade letters have been sent to the current overhoused tenants. The
                 downgrade letters state that the tenant has a choice of keeping the larger unit and
                 paying the higher portion of rent (if gross rent exceeds the new payment standard)
                 or relocating to the appropriate unit size. The downgrades will take effect at the
                 next annual reexaminations. Authority managers have also instructed staff not to
                 upgrade vouchers until a live-in aide has been approved. Staff members are
                 instructed to ensure that there is written verification of disability or handicap
                 including a doctor’s statement documenting the need for an extra bedroom for a
                 live-in aide and/or medical equipment storage.

                 The Authority has also implemented new quality control measures to ensure
                 proper application of the subsidy standards policy. The new standard operating
                 procedures added a tighter quality control process that requires monthly reviews
                 of a computer-generated report that compares number of people in the household
                 with the voucher size. A compliance investigator will review the report for all
                 situations in which the families appear to be overhoused. After the review, if the
                 family requires a downgrade, staff will arrange an appointment, and the voucher
                 will be downgraded if the family size does not meet the requirements. The new
                 standards and procedures should help ensure that the Authority downgrades any
                 currently overhoused tenants by their next annual reexamination and avoids
                 overpaying housing assistance payments.

    Recommendations

                 We recommend that HUD require the Authority to

                 1A.      Correct the voucher size for all currently overhoused tenants.

                 1B.      Repay HUD for housing assistance overpayments of $588,130 during the
                          audit period and any additional overpayments incurred after our audit
                          period that ended January 31, 2006.

                 We also recommend that HUD

                 1C.      Ensure that the Authority’s annual reexaminations and supervisory review
                          procedures are effective in assigning the appropriate voucher subsidy size
                          for family composition in accordance with its administrative plan and
                          HUD requirements to avoid future overpayments of up to $768,031.

                 1D.      Reduce the fiscal year 2006 Section 8 Housing Choice Voucher program
                          budget and maximum funding by $189,245 due to the use of the 2004
                          overpayments in the formula for calculating the budget.
2
     The policy is consistent with HUD guidance.


                                                   9
                        SCOPE AND METHODOLOGY

The audit covered the period from April 1, 2003, through January 31, 2006. To accomplish our
objectives, we analyzed HUD data and data provided by the Authority. We reviewed the
Authority’s policies and procedures, tenant files, and audited financial statements. We also
reviewed federal regulations and the Authority’s annual and administrative plans. We
interviewed HUD and Authority staff and obtained an understanding of the applicable internal
controls. We performed fieldwork at the Authority’s administrative offices in Austin, Texas,
from February to June 2006.

The Authority uses the Emphasys Computer System for recording all financial transactions for
all departments including finance, public housing, and Section 8 programs. The Authority
uploads information from the Section 8 component in the system into HUD’s Public and Indian
Housing Information Center system. The HUD database contained 5,666 vouchers, and the
Authority’s database contained 6,443 vouchers for the survey period. We assessed the reliability
of computer-processed data relating to our objectives. Using Access computer software, we
merged the data and resolved all discrepancies; the new database contained 6,431 vouchers.
Rent and utility payment assistance totaled more than $124.7 million for the audit period.

We identified 662 potentially overhoused tenants from the 6,431 vouchers used during our audit
period. We defined an overhoused tenant voucher as any voucher that did not have the minimum
number of household members required by Authority’s payment standards for voucher size.
During the period, the Authority paid nearly $15.3 million in rent and utility payments for the
662 tenants. We reviewed all 662 files for the potentially overhoused tenants to determine
whether there was acceptable justification for assigning vouchers larger than the Authority’s
administrative plan allowed, and when there was not justification, we calculated the
overpayments.

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




                                               10
                             INTERNAL CONTROLS

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

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

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



 Relevant Internal Controls
              We determined the following internal controls were relevant to our audit objectives:

                      •   Application and reexamination processing,
                      •   Assignment of subsidy standard and voucher size, and
                      •   Calculation of housing assistance payments.

              We assessed the relevant controls identified above.

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

 Significant Weaknesses


              Based on our review, we believe the following items are significant weaknesses
              (finding 1):

              •       The Authority permitted staff to use their own discretion in assigning
                      voucher sizes that sometimes did not comply with policies and caused the
                      tenant to be overhoused,
              •       The Authority did not have adequate controls to detect overhoused tenants
                      during reviews of staff annual reexaminations.




                                               11
                                    APPENDIXES

Appendix A

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


                  Recommendation          Ineligible 1/      Funds to be put
                      number                                 to better use 2/
                        1B                 $588,130
                        1C                                      $768,031
                        1D                                      $189,245
                       Totals              $588,130             $957,276




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 quantifiable savings that are anticipated to occur if an
     Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
     expenditures at a later time for the activities in question. This includes costs not incurred,
     deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
     unnecessary expenditures, loans and guarantees not made, and other savings. The
     $768,031 represents future overpayments that HUD will avoid if the Authority
     implements procedures to assign families the appropriate voucher size, and the $189,245
     represents a reduction in HUD’s maximum funding of the Authority’s Section 8 Housing
     Choice Voucher program budget due to prior overpayments. See appendix C for
     calculations.




                                              12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         13
14
15
                         OIG Evaluation of Auditee Comments

Comment 1   We reviewed the auditee's comments and revised our report to better explain the
            cause of tenants being overhoused.




                                           16
Appendix C

    CALCULATIONS OF FUNDS TO BE PUT TO BETTER USE


Calculation of savings by correcting voucher size assignments (recommendation 1C):

A. Amount of overpayments during the audit period                                                $588,130
B. Number of months in the audit period                                                                34
C. Average monthly overpayments (line A ÷ line B)                                                 $ 17,298
D. Average annual overpayments (line C x12)                                                      $207,576
E. Savings over the next 3.7 years 3 (line D x 3.7)                                              $768,031
                     Funds to be put to better use                                               $768,031


Calculation of the 2006 Housing Choice Voucher program overfunding adjustment
              (recommendation 1D):

2004 overpayments used in formula
             May 2004                                                    $16,934
             June 2004                                                    15,799
             July 2004                                                    15,870
             Total overpayments                                          $48,603

Average overpayments ($48,603 ÷ 3 months)                                $16,201

Annualized overpayments ($16,201 x 12 months)
for overfunding adjustment                                               $194,412

Renewal funding for calendar year 2006
                                                            Actual funding          Overfunding Adjusted funding
                                                                                     adjustment    for 2006_____
A. 2005 funding before proration for 2006                      $45,502,878            ($194,412)    $45,308,466
B. Annual adjustment factor                                          1.029                 1.029          1.029
C. Adjusted 2006 eligibility (line A x line B)                 $46,822,461             ($200,050)   $46,622,412
D. Proration factor for 2006 (per HUD calculation)                  .94599                 .94599        .94599
E. 2006 final funding amount (line C x line D)                 $44,293,473              ($189,245)  $44,104,229

                           Funds to be put to better use                              $189,245




3
    Average time a tenant stays in a Section 8 unit in a large metropolitan area.


                                                         17