oversight

The Housing Authority of the City of Los Angeles, Los Angeles, California, Did Not Adequately Administer and Maintain Its Section 8 Waiting List

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-03-01.

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

                                                                      Issue Date
                                                                             March 1, 2006
                                                                      Audit Report Number
                                                                             2006-LA-1008




TO:         Cecilia Ross, Director, Los Angeles Office of Public Housing, 9DPH



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Housing Authority of the City of Los Angeles, Los Angeles, California, Did
         Not Adequately Administer and Maintain Its Section 8 Waiting List

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of the City of Los Angeles (Authority),
             California, in response to a request from its current executive director regarding
             his concern over the previous administration’s management of the waiting list.
             The audit objective was to determine whether the Authority complied with
             applicable laws and regulations when placing registrants on the waiting list and
             selecting applicants in the proper order to receive housing vouchers.

 What We Found


             The Authority did not adequately administer and maintain a waiting list in
             accordance with program requirements and, thus, may not have selected applicants
             in the proper order. Our audit was prematurely terminated due to the absence of
             Authority records needed for review, the departure of responsible and/or
             knowledgeable personnel in matters relating to the waiting list, and the questionable
             integrity of the Authority’s Information Technology department and the electronic
             files that were provided. We attributed these deficiencies to the Authority’s former
             management, which emphasized increasing its lease rate quickly to avoid losing its
             funding allocation from the U.S. Department of Housing and Urban Development
             (HUD), rather than ensuring that proper procedures were followed.
What We Recommend


           We recommend, before the waiting list is re-opened, that the director of HUD’s
           Office of Public Housing require the Authority to (1) take any immediate and
           necessary action to ensure that the Authority’s information technology system
           will be more secure, accurate, and reliable in the data it produces for the Authority
           and HUD; (2) engage a dedicated team to analyze, purge, and update its current
           waiting list to ensure that the Authority has an accurate and complete waiting list;
           (3) evaluate and implement any changes that are needed to its current
           administrative plan to ensure HUD requirements relating to administering and
           maintaining the waiting list are met; and (4) provide training to pertinent
           employees on the revised waiting list procedures and policies.

           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 draft report on February 8, 2006, and held an exit
           conference with Authority officials on February 15, 2006. The Authority
           provided written comments on February 27, 2006. The Authority generally
           agreed with our report; therefore, we did not have any comments responding to its
           reply. The complete text of the auditee’s response can be found in appendix A of
           this report.




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                            TABLE OF CONTENTS

Background and Objectives                                                        4

Results of Audit
      Finding 1: The Authority Failed to Administer and Maintain Its Section 8   5
      Waiting List in Compliance with HUD Requirements

Scope and Methodology                                                            12

Internal Controls                                                                13

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                      14
   B. Flowchart of Two-Week Open Registration Period (September 15 to            18
      October 1, 1998) Including “Boat Shows” and Daytime Interviews
   C. Flowchart of Ongoing Open Registration (After Initial Two-Week Period)     19




                                             3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Los Angeles (Authority) was organized as a public housing
agency in 1938 under California charter to provide safe and sanitary housing for persons of low
and moderate income. It administers the second largest Section 8 program in the country and
operates one citywide waiting list for the public housing program. The Authority paid more than
$963 million in housing assistance payments to landlords participating in the program and
received more than $104 million in administrative fees between 2002 and 2004.

In a letter, dated March 27, 2005, the current executive director of the Authority requested that
we perform an audit of the Authority’s Housing Choice Voucher program’s process and integrity
under the previous administration of the Authority. The focus of our review was to evaluate and
address the Authority’s concerns as to whether it complied with U.S. Department of Housing and
Urban Development (HUD) requirements and selected applicants from the waiting list in a fair
and equitable manner.

During the two-week period September 15 through October 1, 1998, the Authority opened its
registration list for new registrations for the Section 8 program to increase its leasing rate and
avoid losing its allocations from HUD because it was under leased. More than 150,000
registrants responded. Anyone who did not register during the open registration period could
register as part of the ongoing continuous registration; however, these registrants would not be
processed until all current registrants from the open registration event had been processed. To
meet the demand for housing and expedite its lease-up process, registrants were scheduled to
attend normal daytime interviews as well as nighttime interviews held during events the
Authority called “boat shows,” which served to enhance the volume of issued vouchers. By
2003, it became apparent that the Authority had surpassed its leasing threshold. Consequently,
voucher issuance was suspended in February 2004 to curb the 6 percent shortage in allocation,
which arose when the Authority used 48,471 vouchers when it was only authorized to pay
44,198 vouchers. Due to lack of federal funding, the waiting list was closed in October 2004.
During our audit, Authority officials informed us that the Authority plans to reopen its waiting
list in early 2006.

The audit objective was to determine whether the Authority complied with applicable laws and
regulations when placing registrants on the waiting list and selecting applicants in the proper
order to receive housing vouchers.




                                                 4
                                 RESULTS OF AUDIT

Finding 1: The Authority Failed to Administer and Maintain Its Section
           8 Waiting List in Compliance with HUD Requirements
Contrary to HUD requirements, the Authority failed to administer and maintain its waiting list. We
attribute this deficiency to the the Authority’s former management, which emphasized increasing its
lease rate quickly to avoid losing its funding allocation from HUD, rather than ensuring that proper
procedures and controls were followed. As a result, neither HUD nor the Authority can be assured
that applicants on the waiting list were selected in the proper order to receive housing vouchers.
Until an accurate and complete waiting list is established, neither HUD nor the Authority can be
assured that housing vouchers will be issued to applicants in the proper order.



 HUD Rules &
 Regulations

               According to 24 CFR [Code of Federal Regulations] 982.52 (a) and (b), the
               Authority must comply with HUD regulations and requirements when
               administering the Section 8 program. The public housing agency must maintain
               information that permits it to select participants from the waiting list in
               accordance with its admission policies. The waiting list must contain the
               following information for each applicant listed:

                   ‰   Applicant name,
                   ‰   Family unit size (number of bedrooms for which the family qualifies
                       under public housing agency occupancy standards),
                   ‰   Date and time of application,
                   ‰   Qualification for any local preference, and
                   ‰   Racial or ethnic designation of the head of household.

               The Housing Choice Voucher Guidebook requires the housing authority to
               maintain an up-to-date and well-managed waiting list that promotes fair and
               consistent treatment of families, ensures that needy families receive assistance as
               quickly as possible, and is a first step in helping the housing authority maintain a
               high leasing rate.

               Our general understanding of the Authority’s application and selection process is
               explained below, along with the issues we identified. In addition, we have created
               two flowcharts to help illustrate the processes. Appendix B shows the two-week
               open registration period process (September 15 to October 1, 1998), including the
               “boat shows” and daytime interviews. Appendix C shows the ongoing open
               registration process (after the initial two-week period).

                                                 5
Registration Process


            During the two-week open registration period in September 1998, persons
            interested in obtaining housing could obtain a registration form via local
            newspapers, community-based organizations, telephone, Internet, or fax. Once
            the registrations were received, the Authority contracted out the registration
            process to Alert Communications, an outside vendor responsible for generating a
            random computerized lottery registration. Starting with the first registration
            number, applications were mailed out in batches of 10,000. Upon receipt of the
            completed applications, they were dated and time-stamped by the Authority, and
            all activities regarding the applicant’s eligibility were performed in the order in
            which the applications were received. We considered this as the point at which an
            applicant was placed on the waiting list. We were told that the last registration
            number assigned during the two-week registration period was 152,716. When the
            registration list was opened again in 1999, the Authority opted not to contract out
            its registration process but, instead, assigned numbers in the order in which
            registrations were received, beginning with the next number after the last one
            assigned, 152,717.

Registration List Versus
Waiting List

            It was difficult to determine whether a waiting list was properly maintained
            because it was often confused with the registration list. We interviewed several
            Authority personnel, who provided varied responses as to the nature of the current
            waiting list. While the former assistant Section 8 director claimed that the waiting
            list and registration list were one and the same, the manager of Section 8 special
            programs operations and applications distinguished between the two lists. Based
            on our review of the Housing Choice Voucher Guidebook, the Authority’s
            administrative plan, and our understanding of the waiting list process, we
            determined that the waiting list was comprised of applicants who had submitted
            their applications to the Authority and were not withdrawn due to ineligibility.
            The registration list, on the other hand, was comprised of all persons registered
            and assigned a registration number but not necessarily eligible for the Section 8
            program. It is from the registration list that applications, in batches of 10,000,
            were sent out, although not all registrants returned a complete application to be
            placed on the waiting list.




                                             6
Integrity of Electronic
Files Doubtful


             We obtained a copy of the Authority’s Creative Computer Solutions database,
             which contained all registrants for the Section 8 program as of November 2005.
             We sorted the data to determine the number of persons on the waiting list based
             on the date an application was received. Our analysis produced the following
             results:

             ‰   86,737 of the registrants submitted applications and were placed on the
                 waiting list.
             ‰   18,545 applicants obtained a contract.
             ‰   24,897 applicants were still on the waiting list waiting for a housing assistance
                 payment contract.
             ‰   45,763 applicants were shown as withdrawn, although they had a housing
                 assistance payment contract.

             We noted that the numbers above do not sum up or reconcile. We have reason to
             believe that the Authority’s Creative Computer Solutions database was not
             completely accurate or reliable and was poorly managed for the reasons stated
             below.

             ‰   In 1993, the Authority purchased its proprietary software from Emphasys, but
                 discontinued the computer maintenance service, and began customizing the
                 system to fit its reporting needs in 1998. According to Emphasys’ security
                 assessment report, published on July 22, 2005, “from 1998 until present,
                 HACLA’s [the Authority’s] MIS [Management Information System] staff was
                 unable to assure that the security settings inherent in the Emphasys LIB were
                 properly set, or that other typical security protocol for a LIB system were
                 employed. As a result, it has created a virtual feeding frenzy in which internal
                 and/or external corruption, manipulation, and fraud is strongly evident in the
                 LIB 3.5.HACLA system. Moreover, a lack of expertise in management and
                 auditing of Emphasys’ LIB information system is evident and has helped
                 create a culture of criminal activity and defrauding of the Agency.” The
                 report went on to state that 121 users had full access to perform any functions
                 on the system.

             ‰   Our interview with Authority personnel further justified the unreliability of
                 the Authority’s system. A former assistant manager who supervised the “boat
                 show” events stated that the fields below the first line of the registration
                 screen could be altered by anybody. She cautioned against trusting the data
                 completely because fields could be overwritten without recording the history
                 of the prior entries. Similarly, the Section 8 division support services manager
                 confirmed that once the withdrawal field was overwritten, it was gone forever.



                                               7
                He stated that the reasons for changes should be recorded in the notes screen.
                However, a former assistant manager stated that the notes screen was prone to
                manipulation; between 1998 and 2000, the supervisors had the ability to
                change anything in the notes, and by 2001 and 2002, the security was changed
                to allow all Authority employees the ability to alter or modify any information
                in the notes screen.

            ‰   We conducted further analysis of the Authority’s Creative Computer
                Solutions database and determined that there were 249 instances in which
                contracts were executed, but the registrants’ status showed that they were
                withdrawn before the contract execution. The Section 8 division support
                services manager agreed with our contention that people who were withdrawn
                should not have been given a contract. If the applicant contested and won the
                withdrawal by way of a hearing, the code should reflect a change or a removal
                of the withdrawal status. Further, we noted that 73 registrants obtained a
                contract after they were withdrawn, but the database did not indicate that an
                application was received.


“.1” Registration
Numbers

            Shortly after Alert Communications assigned randomly generated registration
            numbers, it came to the Authority’s attention that a group of persons had been
            excluded from the lottery. A memorandum from Alert Communications, dated
            June 18, 1999, indicated a tape was created containing the names of registrants
            who may not have been assigned a registration number. We obtained little
            information regarding these missing registrants because the involved personnel
            were no longer employed at the Authority. Current Authority personnel could not
            determine the whereabouts of the tape or provide details on how the lost group
            was reconstructed. A hard copy of its assumed contents was made and
            maintained by the assistant manager of Section 8 support services. We estimate
            that there were more than 14,000 names on this list, of which 193 registrants were
            assigned a “.1” registration number. We noted that more than 50 percent of the
            193 registrants were withdrawn from the program for various reasons.

            According to the assistant manager of Section 8 support services, he compared the
            information of the unregistered person against the hard-copy list, and if the name
            was listed, he sent a request to an Authority management information system
            employee (who left in July 2005) to generate a “.1” registration number. This
            employee then sent him a request sheet with the new registration number listed on
            it, and the assistant manager notified the registrant of his or her registration
            number by letter.




                                             8
          We interviewed the Authority’s database manager to determine the validity of the
          hard-copy listing. The manager recalled the Authority receiving two different
          tapes: one with a list of all registrants who registered during the two-week period
          and the other containing the registrant information received from Alert
          Communications. The hard copy may have been produced by comparing the two
          tapes, and whichever information was not in both tapes represented the registrants
          who were mistakenly excluded from the lottery. We asked that the manager
          locate these tapes and restore the information in them. While he could not
          guarantee that the information he restored was used in 1999, he was able to locate
          one tape and formatted it into two tables to be read in Audit Command Language.
          We compared the two tables against the list of 193 registrants who received “.1”
          registration numbers and determined that 24 registrants did not appear in either
          table, yet five people were housed. In addition, although the names and
          registration dates for 68 registrants were in the second table, the addresses are
          different. Of the 68 registrants, 22 were housed, 37 were withdrawn, and 9 were
          still waiting for housing.

“Boat Shows”

          The “boat shows” were a management concept designed to accelerate the voucher
          issuance phase of contracting. Since it was a temporary measure, the procedures
          of running a “boat show” were not written into the Authority’s administrative
          plan; yet between 2001 through 2003, the Authority falsely certified in its Section
          8 Management Assessment Program report that it had written policies in its
          administrative plan for selecting applicants from the waiting list and that it had
          followed these policies when selecting applicants for admission from the waiting
          list. The Housing Choice Voucher Guidebook requires that any outreach plan or
          application and selection policies be reviewed periodically and included in the
          administrative plan to ensure that they are current and effectively support the
          public housing agency’s occupancy and leasing objectives.

          Since the Authority did not document its policies or procedures in organizing the
          “boat shows,” our only alternative was to rely on interviews with Authority
          personnel to detail the events and practices that took place. “Boat shows” were
          generally held a few days each month or every few months between August 2001
          and September 2003. Approximately 200 people per night were scheduled to
          attend, and out of 100 vouchers issued, about 75 percent graduated to the
          contracting phase. The former Section 8 director and assistant director assured us
          that applicants were chosen for the “boat shows” from the waiting list. The
          former Section 8 assistant director added that they may have targeted a specific
          group for the “boat shows,” but she was not sure.




                                           9
                    According to a former assistant manager, applicants with Social Security Income,
                    low income, and Aid for Families with Dependent Children were preselected from
                    the waiting list to participate in the “boat shows.” While there was nothing
                    inherently wrong with this selection procedure, we could not verify whether this
                    was done since the Authority could not locate the “boat show” records of
                    attendees.

                    Once applicants were selected, they were sent an appointment letter, which the
                    Authority did not retain. Typically, the interviews had a 75 percent “show rate.”
                    For those persons who did not show up for the interview, a second appointment
                    letter was sent out. If the person did not show up for this second appointment, a
                    withdrawal letter was sent, giving the applicant 30 days to respond if still
                    interested.

                    When applicants brought in all of their required documents, their chances of
                    receiving a voucher on the same day were greatly improved. However, several
                    managers told us that although third-party verifications were often conducted
                    haphazardly or not at all, applicants were issued a voucher to satisfy
                    management’s directive of “approve, approve, approve.”1

                    Applicants who received a voucher on the night of a “boat show” were not
                    guaranteed a contract. Their folders were re-reviewed by a five-person group in
                    the contracting department. We contacted one assistant manager; the other four
                    managers were either on administrative leave or no longer worked at the
                    Authority. The assistant manager of Section 8 issuance and contracting admitted
                    that the staff was subject to making more errors when re-reviewing the files
                    because of high volume and upper management’s priority of increasing the
                    leasing rate.


    Conclusion


                    The Authority did not administer and maintain its Section 8 waiting list in
                    compliance with HUD requirements. Due to the severity of the problems with the
                    waiting list, we concluded that we could not perform a complete audit of this area
                    beyond our initial survey work to determine the magnitude of the deficiencies.
                    We attribute the deficiencies to the previous Authority management’s emphasis
                    on increasing its lease rate quickly to avoid losing its funding allocation from
                    HUD, its neglect of ensuring the operation integrity of the Information
                    Technology department rather than its responsibilities to ensure that proper
                    controls and procedures were in place and followed. Consequently, neither HUD
                    nor the Authority was assured that applicants on the Section 8 waiting list were


1
    This could be indicative of a tenant eligibility problem, which we are reviewing under a separate assignment.

                                                           10
          selected in the proper order to receive housing vouchers. Until an accurate and
          complete waiting list is established, neither HUD nor the Authority can be assured
          that housing vouchers will be issued to applicants in the proper order. Based on
          the significance of the issues, we recommend that immediate action be taken
          before the Authority issues any new housing vouchers to applicants.


Recommendations


          We recommend, before the waiting list is reopened, that the director of the Los
          Angeles Office of Public Housing require the Authority to

          1A.     Take any immediate and necessary action to ensure that the Authority’s
                  information technology system will be more secure, accurate, and reliable
                  in the data it produces for the Authority and HUD.

          1B.     Engage a dedicated team (or contractor) to analyze, purge, and update its
                  various listings to establish an accurate and complete waiting list.

          1C.     Evaluate and implement any changes that are needed to its current
                  administrative plan to ensure that HUD requirements relating to
                  administering and maintaining the waiting list are met.

          1D.     Provide training to pertinent employees on the revised waiting list
                  procedures and policies to ensure that they will be applied consistently and
                  in accordance with HUD requirements.




                                           11
                        SCOPE AND METHODOLOGY

We performed our audit work at the Authority’s administrative office at 2600 Wilshire
Boulevard, Los Angeles, California, from September 6 through November 30, 2005.
Our review generally covered the period from September 15, 1998, through October 31, 2004. We
expanded the scope of the audit as necessary.

To accomplish our objectives, we

   •   Reviewed the HUD requirements and regulations and the Authority’s administrative plan.

   •   Obtained an understanding of the Authority’s waiting list procedures, including its
       controls to ensure that applicants are being placed on and selected from the list in
       compliance with requirements.

   •   Interviewed appropriate Authority personnel, HUD personnel, and third-party vendors to
       acquire an understanding of waiting list procedures.

   •   Queried the Authority’s Creative Computer Solutions system through the WIntegrate
       portal.

   •   Obtained a copy of the Authority’s Creative Computer Solutions database and filtered it
       to identify the current waiting list.

   •   Reviewed the Authority’s audited financial statements for years ending 2002 through
       2004 to determine whether the independent auditor identified any findings that pertain to
       the scope of our survey work.

   •   Reviewed the Emphasys security assessment report, dated July 22, 2005, to determine
       whether there were any problems relating to the waiting list.

   •   Reviewed the Authority’s September 2004 rental integrity monitoring report to determine
       whether the monitoring identified any findings or concerns that pertain to the scope of
       our survey work.

   •   Reviewed the 2000 through 2004 Section 8 Management Assessment Program reports to
       determine whether the Authority adequately and accurately measured the two aspects of
       its management of its waiting list and selection activities.

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




                                               12
                             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 control was relevant to our audit objectives:

              •       Policies and procedures management has in place to ensure that the waiting
                      list is maintained in compliance with HUD regulations.

              We assessed the relevant control 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 item is a significant weakness:

              •       The Authority did not follow policies and procedures in effect to properly
                      administer and maintain a waiting list (finding 1).




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                  APPENDIXES

Appendix A

     AUDITEE COMMENTS AND OIG’S EVALUATION


                  Auditee Comments




                         14
15
16
17
Appendix B

 FLOWCHART OF TWO-WEEK OPEN REGISTRATION PERIOD (SEPTEMBER 15 TO
   OCTOBER 1, 1998) INCLUDING “BOAT SHOWS” AND DAYTIME INTERVIEWS




                                18
Appendix C

 FLOWCHART OF ONGOING OPEN REGISTRATION (AFTER INITIAL TWO-WEEK
                            PERIOD)




                               19