oversight

Orange City Housing Authority, Housing Choice Voucher Program, Orange, New Jersey, Has Weaknesses in Its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-09-20.

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

                                                                Issue Date
                                                                 September 20, 2006
                                                                Audit Report Number
                                                                 2006-NY-1010




TO:         Edward De Paula, Director, Office of Public Housing, 2FPH


FROM:      Edgar Moore, Regional Inspector General for Audit, 2AGA

SUBJECT: Orange City Housing Authority, Orange, New Jersey, Has Weaknesses in
         Its Housing Choice Voucher Program




                                HIGHLIGHTS

 What We Audited and Why

             We audited the Orange City Housing Authority’s (Authority) Housing
             Choice Voucher program because a regional risk assessment ranked the
             Authority fifth on our list of potential public housing authority audits in
             New Jersey.

             Our audit objectives were to determine whether (1) the Authority’s
             Housing Choice Voucher program units met housing quality standards; (2)
             costs charged to the Housing Choice Voucher program were eligible and
             properly supported; and (3) rental assistance payments were properly
             calculated, and application and recertification information was properly
             verified.

 What We Found

             Our inspection of 59 Section 8 units found that 55 units (93 percent) did
             not meet minimum housing quality standards. Of the 55 units, 37 were in
             material noncompliance with standards. As a result, tenants lived in units
             that were not decent, safe, and sanitary, and HUD made housing assistance
           payments for units that did not meet housing quality standards. We
           estimate that over the next year, HUD will make housing assistance
           payments of more than $1.7 million for units in material noncompliance
           with standards.
           The Authority did not always allocate expenses accurately to the Housing
           Choice Voucher program. As a result, costs were charged to the Housing
           Choice Voucher program that was not adequately supported.

           In addition, the Authority did not always calculate its housing assistance
           payments correctly and obtain the necessary supporting documentation
           related to tenant recertifications. As a result, three landlords either
           received a housing assistance overpayment or underpayment, and tenant
           files contained deficiencies related to missing or incomplete forms and
           documents.

What We Recommend

           We recommend that the director of the New Jersey Office of Public
           Housing instruct the Authority to (1) follow its administrative plan to
           ensure that units meet housing quality standards and ensure that corrective
           action has been taken on those units that failed to meet standards, (2)
           develop procedures and controls to include a cost allocation plan and
           personnel activity reports for allocating and charging costs to the Housing
           Choice Voucher program, (3) provide documentation for all unsupported
           cost and reimburse any cost determined to be ineligible, and (4) establish
           proper quality assurance procedures for housing choice voucher
           recertifications and ensure that all voucher information for tenants and
           landlords is adequately supported and documented.
           For each recommendation without a management decision, please respond
           and provide status reports in accordance with HUD Handbook 2000.06,
           REV-3. Also, please furnish us copies of any correspondence or
           directives issued because of the audit.

Auditee Response
           We discussed the findings with Authority and HUD officials during the
           audit. We provided a copy of the draft report to Authority officials and
           discussed the report with them at the exit conference held on September 6,
           2006. The Authority provided its written comments to our draft report on
           September 7, 2006. The complete text of the auditee’s response, along
           with our evaluation of that response, can be found in appendix B of this
           report.




                                         2
                                  TABLE OF CONTENTS




Background and Objectives                                                            4



Results of Audit
        Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary   5


        Finding 2: The Authority’s Controls for Allocating Costs Were Deficient      12



        Finding 3: There Were Administrative Weaknesses in the Housing Choice        15
                   Voucher Program


Scope and Methodology                                                                18


Internal Controls                                                                    20

   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use               22
   B.   Auditee Comments and OIG’s Evaluation                                        23
   C.   Schedule of Material Noncompliance with Housing Quality Standards            30
   D.   Schedule of File Review Deficiencies                                         31




                                           3
                 BACKGROUND AND OBJECTIVES

The Orange City Housing Authority (Authority) is located at 340 Thomas Boulevard,
Orange, New Jersey. The Authority is headed by an executive director and governed by
a board of commissioners made up of seven members. As of July 2006, the Authority
had issued 601 Section 8 vouchers; it received more than $9.3 million in housing choice
voucher assistance during fiscal years 2004 and 2005. The U.S. Department of Housing
and Urban Development’s (HUD) latest quality control monitoring review confirmed that
the Authority’s 2005 self-certified Section 8 Management Assessment Program score was
65.

The goal of the Housing Choice Voucher program is to provide decent, safe, and sanitary
housing at an affordable cost to low-income families. Accordingly, program regulations
set forth basic housing quality standards, which all units must meet before assistance can
be paid on behalf of a family, and housing quality standards must be met annually and
throughout the term of the tenancy. It is the responsibility of the public housing agency
to conduct annual inspections of units to determine compliance with housing quality
standards before the execution of the entire term of the assisted lease.

Our audit objectives were to determine whether (1) the Authority’s Housing Choice
Voucher program units met housing quality standards; (2) costs charged to the Housing
Choice Voucher program were eligible and properly supported; and (3) rental assistance
payments were properly calculated, and application and recertification information was
properly verified.




                                            4
                              RESULTS OF AUDIT


Finding 1: Tenants Lived in Units That Were Not Decent, Safe,
           and Sanitary

Our inspection of 59 units showed that 55 units (93 percent) did not meet minimum
housing quality standards. Of the 55 units, 37 were in material noncompliance.
Projecting the results of the statistical sample to the population indicates that at least 363
of the Authority’s 412 non-ported-out units would not meet minimum housing quality
standards and 218 units would be in material noncompliance. This noncompliance
occurred because Authority management failed to follow its administrative plan to ensure
that units met minimum housing quality standards and inspections complied with
requirements. As a result, tenants lived in units that were not decent, safe, and sanitary,
and HUD made housing assistance payments for units that did not meet housing quality
standards. Based on the sample, we estimate that over the next year, HUD will pay
housing assistance payments of more than $1.7 million for units in material
noncompliance with housing quality standards if our recommendations are not
implemented.



 HUD Will Pay More Than $1.7
 Million for Units in Material
 Noncompliance


               We estimate that over the next year, HUD will pay housing assistance
               payments of more than $1.7 million for units that are in material
               noncompliance with housing quality standards if the Authority does not
               institute better controls. We inspected a statistical sample of 59 units with
               a HUD Office of Inspector General (OIG) inspector and the Authority’s
               Housing Choice Voucher program director and housing quality standards
               inspector. In addition, the Authority’s executive director attended one unit
               inspection.

               Thirty-seven units had 304 deficiencies that were significant enough to
               materially fail the units. Authority inspectors did not identify and/or have
               adequate follow up for these deficiencies during their most recent
               inspections. The noncompliances occurred because the Authority failed to
               follow its administrative plan to ensure that units met minimum housing
               quality standards and inspections complied with requirements. Appendix
               C provides additional details of the deficiencies for the 37 units.

               When conducting housing quality standards inspections, the Authority did
               not always follow rules and regulations regarding HUD housing quality


                                              5
standards. Regulations at 24 CFR [Code of Federal Regulations] 982.401
provide the performance and acceptability criteria that assisted units must
meet to comply with HUD housing quality standards. In addition, Section
982.54 provides that the Authority must adopt a written administrative
plan that establishes local policies for administration of the program in
accordance with HUD requirements. The plan should include procedural
guidelines and performance standards for conducting the required housing
quality standards inspections.

The following table lists the most frequently occurring deficiencies for all
59 units inspected:

                                                              Percentage
          Type of              Number of Number                of units
         deficiency            deficiencies of units           affected
   Wall, ceiling, floor
   deficiencies                      70             36              61
   Electrical hazards                64             33              56
   Plumbing leaks/water
   damage                            56             30              51
   Egress/fire hazards               55             32              54
   Security                          49             29              49

The deficiencies that occurred most concerned the units’ walls, ceilings,
and floors. Other deficiencies included electrical hazards, plumbing leaks
and water damage, egress/fire hazards, and security issues. The following
pictures provide examples of some of these deficiencies.




Large hole and nonconforming repair located in a kitchen


                              6
floor entrance way found during an inspection on May 08, 2006.




Exposed wiring on an electrical panel found during a
May 5, 2006, inspection.




Many units contained egress deficiencies. This unit
inspected on May 8, 2006 contained security bars,
which could not be opened by those present at the
inspection, for all windows located in this room.



                            7
An inspection on May 10, 2006, revealed a drainage leak and
nonconforming repair under a kitchen sink.




Water damage located in one unit was observed during
an inspection on May 10, 2006. The leak originated from
the roof above.




                            8
           An inspection on May 4, 2006, contained a security violation in which
           double french doors were used as a main entry door for the unit.

Other Deficiencies Were Noted
During Inspections


           Other deficiencies were noted regarding the Authority’s housing choice
           voucher inspection process as follows:

                •   One unit (voucher #255) was inaccessible despite two inspection
                    notices given to the tenant and landlord. As a result of our
                    notification of this issue to the Authority, the Authority had
                    initiated housing assistance payment termination procedures
                    against the tenant in accordance with its administrative plan,
                    section 10C.

                •   Four of the inspected units contained errors relating to missing or
                    incorrect apartment numbers (vouchers #4, #83, #213, and #257).
                    One of the errors resulted in an incorrect unit being inspected
                    (voucher #5). The Authority stated that a new computer system
                    was installed, which led to the incorrect apartment numbers
                    being printed out.



                                        9
The Authority Did Not Provide
Adequate Training to Its Staff

             Authority management stated that one reason for the deficiencies was that
             it needed to provide more housing quality standards training for its
             inspector. Before the completion of our inspections, the Authority
             inspector had attended one training class since his hiring as housing
             quality standards inspector in 1999. In addition, the Authority’s quality
             control inspector had not attended a training course regarding housing
             quality standards since August 2001. While attending our inspections,
             Authority management stated that the inspector had improved his
             knowledge concerning housing quality standards. As a result, Authority
             management provided training to the Authority’s housing choice voucher
             and quality control inspectors regarding housing quality standards after we
             completed our fieldwork.

Conclusion

             While the Authority has made some improvements regarding the training
             of its inspection staff, additional improvements are needed. Management
             must place greater emphasis on the importance of housing quality
             standards and strengthen policies and procedures to ensure that it complies
             with HUD requirements, thus giving tenants the opportunity to live in
             decent, safe, and sanitary housing. The policies and procedures must be
             incorporated into the Authority’s housing choice voucher administrative
             plan. By continuing to make necessary improvements, the Authority will
             ensure that an estimated $1.7 million in housing choice voucher funds are
             put to better use.

Recommendations

             We recommend that the director, New Jersey Office of Public Housing,
             require the Authority to

             1A. Inspect the 55 units that did not meet minimum housing quality
                 standards to verify that the landlords took appropriate corrective
                 actions to make the units decent, safe, and sanitary. If appropriate
                 actions have not been taken, the Authority should abate the rents or
                 terminate the tenants’ vouchers.

             1B. Follow its administrative plan to ensure that units meet housing
                 quality standards and that inspections meet HUD requirements to
                 prevent an estimated $1,710,661 from being spent on units that are in
                 material noncompliance with standards. In addition, the Authority


                                         10
     should continue to provide adequate training to its inspection staff
     and strengthen controls to ensure that unit numbers are correct.

1C. Terminate voucher #255 due to tenant violation of the Authority’s
    administrative plan concerning tenant compliance with housing
    quality standards inspection notifications and access.

1D. Conduct an analysis of its newly implemented computer system to
    determine whether all apartment numbers are valid.




                            11
Finding 2: The Authority’s Controls for Allocating Costs Were
           Deficient
The Authority did not always allocate expenses accurately to the Housing Choice
Voucher program. As a result, costs were charged to the Housing Choice Voucher
program that was not adequately supported. These deficiencies occurred because the
Authority did not establish procedures to ensure that costs were allocated accurately to
each benefiting program as stated in the Authority’s annual contribution contract.



 Costs Not Accurately Allocated
 to the Voucher Program

               The Authority did not always accurately allocate certain expenses to the
               Housing Choice Voucher program. The program appears to have been
               overcharged for managerial services and legal and auditing costs. The
               allocation of these costs to the program was not consistent from year to
               year as the controls in place were inadequate to ensure that allocated
               amounts were accurate. The details are described below.

               Managerial Service Costs

               During the period from June to December 2005, the Authority had a
               contract for additional managerial services related to the responsibilities of
               the executive director that had a total cost of $17,500. The Housing
               Choice Voucher program was charged $8,750 or 50 percent of this cost.
               However, since the HUD-approved Authority budget had a salary
               allocation percentage for charging the executive director’s costs of 15
               percent, the Authority should have charged $2,625 to the Housing Choice
               Voucher program. As a result, $6,125 in managerial service costs is
               unsupported since the Authority did not provide supporting documentation
               to justify the allocation of a higher percentage of these costs than was in
               the approved budget.

               Legal Costs

               For fiscal year 2006, the total legal fees audited were $49,692. These
               costs were paid by the low-rent housing program and then allocated to
               other programs including the Housing Choice Voucher program, which
               was charged $12,794 or 26 percent. Only $2,923 of the legal fees
               involved the Housing Choice Voucher program. Authority officials stated
               that if the legal fees were not identifiable to a specific program, an
               allocated percentage was applied as determined by management. Since
               Authority officials were unable to provide supporting documentation to
               justify legal fees charged in excess of those identifiable to the Housing


                                            12
           Choice Voucher program, the additional legal cost of $9,871 is
           unsupported.

           Auditing Costs

           The HUD-approved budgets for fiscal years 2004, 2005, and 2006 had an
           allocation percentage for the Authority’s annual financial audit of 20
           percent that was supposed to be charged to the Housing Choice Voucher
           program. The program was charged 20 percent of the cost of these audits
           in fiscal year 2006 but was charged 55 and 63 percent of these costs in
           fiscal years 2005 and 2004. In fiscal year 2005, the Housing Choice
           Voucher program was charged $5,499, while 20 percent of the cost of
           these audits was only $1,999, thus resulting in an unsupported cost of
           $3,500. In fiscal year 2004, the Housing Choice Voucher program was
           charged $5,995, while 20 percent of the audit cost was $1,899, resulting in
           an unsupported cost of $4,096. Accordingly, a total of $7,596 in audit
           costs for fiscal years 2004 and 2005 is unsupported.

Allocation Percentages
Varied From Those On the
Authority’s Approved Budget


           The above issues occurred because the Authority did not follow its annual
           contribution contract, which states that program receipts may only be used
           to pay program expenditures. In addition, the Authority must not make
           any program expenditures, except in accordance with the HUD-approved
           budget estimate and supporting data for the program.

           Further, the consolidated annual contributions contract requires “the
           Authority to maintain records in such a manner as to allow HUD to
           determine that all funds have been expended in accordance with each
           specific program regulation and requirement.” The contract also requires
           the Authority “to maintain complete and accurate books of account for the
           projects of the Authority in such a manner as to permit the preparation of
           statements and reports in accordance with HUD requirements, and to
           permit timely and effective audit.”

           In some instances, Authority officials used the percentages that resulted
           from figures in the Authority’s HUD-approved budget to allocate costs to
           various programs, and in some instances, they used an arbitrary percentage
           to allocate costs. Therefore, the Authority needs to develop a cost
           allocation plan and maintain personnel activity reports to accurately
           allocate costs that are different from the Authority’s approved budget.

           The Authority does not have adequate controls to ensure the accuracy and
           allowability of costs allocated to the Housing Choice Voucher program.


                                       13
          Therefore, it cannot ensure that costs charged are reasonable and
          necessary. Consequently, the Authority’s ability to effectively allocate
          costs to the Housing Choice Voucher program is diminished. To alleviate
          this condition, Authority officials have stated that they are developing a
          cost allocation plan.

Recommendation
          We recommend that the director, New Jersey Office of Public Housing,
          require the Authority to

          2A. Establish procedures and controls for allocating and charging costs
              to the Housing Choice Voucher program. These controls should
              include implementing a cost allocation plan and maintaining
              personnel activity reports.

          2B. Provide additional documentation for the $23,592 in unsupported
              costs related to managerial services and legal and auditing costs so
              that HUD can determine the eligibility of these items. Any amounts
              determined to be ineligible should be repaid.




                                      14
Finding 3: There Were Administrative Weaknesses in the Housing
           Choice Voucher Program

The Authority did not always calculate its housing assistance payments correctly and
obtain the necessary supporting documentation related to tenant recertifications. Based
on our sample of 16 tenant files, we determined that 3 of 16 tenants (19 percent) had
landlords who received either a housing assistance overpayment or underpayment. In
addition, 14 tenant files (88 percent) contained deficiencies related to missing or
incomplete forms and incorrect incomes, utility allowances, and payment standards. We
attributed these errors to the Authority’s failure to effectively administer its quality
assurance function and follow HUD Regulations and its administrative plan regarding
tenant and landlord recertification procedures. We also noted administrative deficiencies
during our inspection of housing units that require termination of two housing assistance
payment contracts and recovery of ineligible payments.



 Supporting Documents were
 Incorrect, Incomplete, and/or
 Missing

              Our audit of a sample of 16 Housing Choice Voucher program tenant files
              disclosed 25 deficiencies, such as incorrect, incomplete, and/or missing
              documents. Three of the 25 deficiencies resulted in over or under
              payments of housing assistance. The files, which had over and
              underpayments of housing assistance, were the result of applying an
              incorrect payment standard, incorrect utility allowance and not including
              all family income in the recertification for housing assistance. Appendix D
              contains a listing of the 25 deficiencies.

              According to 24 CFR 982.516 and chapter 12 the Authority’s
              administrative plan, the PHA has to establish appropriate recertification
              procedures necessary to ensure that the income data provided by families
              is complete and accurate.


 Tenant Housing Assistance
 Underpayment or Overpayment

              The Authority incorrectly calculated incomes and applied incorrect utility
              allowances and payment standards when computing the housing assistance
              payments for some of its housing choice voucher tenants. There were two
              housing assistance overpayments totaling $396 and one housing assistance
              underpayment of $102.



                                           15
           HUD Handbook 7420.10g, chapter 6, describes the guidelines for
           calculating rent and subsidy. The Authority’s calculations and
           documentation contained in the tenant files showed that the Authority’s
           procedures were not always effective in ensuring that it correctly
           calculated housing assistance payments.

              •       In one file, the Authority applied an incorrect payment standard,
                      resulting in a $102 housing assistance underpayment.

              •       In another file, the Authority applied an incorrect utility allowance,
                      resulting in a $108 housing assistance overpayment.

              •       In a third file, the Authority did not include part of the daughter’s
                      income for recertification in 2004 and 2005, resulting in a $288
                      housing assistance overpayment.


No Records for Quality Control
Reviews

           We attribute the above deficiencies to the Authority’s failure to establish
           an adequate quality control review process. The Authority did not have
           records to substantiate its quality control reviews completed before August
           2005. We could not determine to what extent quality control reviews were
           conducted. The Authority stated that before August 2005, the assistant
           executive director would sample files on a monthly basis, but that the
           quality control reviews are now being conducted by the program director
           for the Housing Choice Voucher program.

Other Administrative Issues
Were Noted During Inspections

           During our inspection of 59 units, we noted other administrative
           deficiencies regarding the housing choice voucher program. Although
           these issues were not the result of the Authority’s failure to establish an
           adequate quality control review process, the Authority needs take
           corrective action. Specifically, we noted the following:

                  •     One inspected unit (voucher #86) had a tenant who died five
                        months before our inspection. Authority officials stated that they
                        would terminate the housing assistance payment contract and
                        subtract the ineligible housing assistance payments of $2,230
                        from future landlord payments.

                  •     One inspected unit (voucher #57) was vacated by the tenant, who
                        did not provide the Authority proper notice. Landlord


                                             16
                      management stated that the tenant moved to a different unit in
                      the same building the week before our inspection. Authority
                      management should terminate the housing assistance payment
                      contract and recover the housing assistance payment from the
                      landlord for the time of the unapproved move-out. The amount
                      of the housing assistance payment abatement should equal $409.

             According to the Authority’s administrative plan, if the entire family is
             absent from the assisted unit for more than 90 consecutive days, the unit is
             considered vacant and assistance will be terminated. In addition, 24 CFR
             982.551 requires that the family must notify the PHA and the owner
             before the family moves out of the unit.


Conclusion

             Despite these deficiencies, we concluded that all tenants in our sample
             were eligible for housing assistance. In addition, the Authority has
             provided documentation to substantiate the correction of the housing
             assistance underpayment and overpayments discussed in this finding.


Recommendation

             We recommend that the director, New Jersey Office of Public Housing,
             require the Authority to
             3A.    Establish and implement proper quality assurance procedures for
                    housing choice voucher tenant recertifications.

             3B.    Follow HUD Regulations and its administrative plan to ensure that
                    all voucher information regarding tenants and landlords is
                    accurate, properly updated, and documented in its tenant files.

             3C.    Terminate the housing assistance payment contract for voucher
                    #86 and recover the excess housing assistance payments made to
                    the landlord for five months totaling $2,230.

             3D.    Terminate the housing assistance payment contract for voucher
                    #57 and recover one month’s housing assistance payment totaling
                    $409 from the landlord for not providing the Authority proper
                    notification to vacate the subsidized unit.




                                          17
                     SCOPE AND METHODOLOGY

To accomplish our audit objectives, we reviewed applicable laws, regulations, and other
HUD program requirements. We analyzed the Authority’s administrative plan,
cooperative agreements, tenant recertification files, procurement policies, and cash
disbursements and corresponding journal vouchers. We also reviewed independent
public accountant reports, monitoring reviews, board minutes, and resolutions and
interviewed HUD and Authority management and staff.

With regard to the tenant listing obtained from the Authority for the Housing Choice
Voucher program, we performed limited tests of the reliability of the data as of March
2006. We then selected a statistical sample of units and conducted inspections with a
HUD-OIG inspector, the Authority’s lead inspector, and the Housing Choice Voucher
program director to determine whether the units met housing quality standards.

We used a statistical software program to select a random sample of 59 units based on the
Authority’s March 2006 tenant listing. Our sampling criteria used a 90 percent
confidence level, 50 percent estimated error rate, and precision of plus or minus 10
percent. We performed the inspections from May 1 to May 10, 2006.

Our sampling results determined that 37 of the 59 units (63 percent) materially failed to
meet HUD’s housing quality standards.

We judged units to be in material noncompliance with housing quality standards because
of the overall condition of the unit and because the unit had at least three material
deficiencies. Three criteria taken into consideration when determining material
deficiencies were that they (1) had existed for an extended period, (2) were not noted in a
prior Authority inspection report, and (3) resulted from deferred maintenance that
consistently failed the unit. Other factors considered were whether the Authority abated
the rent due to the deficiencies noted and whether the tenant caused the deficiencies. We
also considered whether children and tenants with disabilities resided in the units.

Projecting the results of the 37 units that were in material noncompliance with housing
quality standards to the population yields the following:

The Authority’s March 2006 total tenant count register showed that the average monthly
housing assistance payment was $654. Using the lower limit of the estimate of the
number of units and the average monthly housing assistance payment, we estimate that
the Authority will annually spend at least $1,710,661 (218 units X $654 average payment
X 12 months) for units that are in material noncompliance with housing quality standards.
This estimate is presented solely to demonstrate the annual amount of housing choice
voucher funds that could be put to better use on decent, safe, and sanitary housing if the
Authority implements our recommendations. While these benefits would recur
indefinitely, we were conservative in our approach and only included the initial year in
our estimate.


                                            18
We conducted our audit work from February through June 2006 at the Authority’s offices
in Orange, New Jersey. Our audit covered the period April 1, 2003, through March 31,
2006.
We performed our review in accordance with generally accepted government auditing
standards and included tests of management controls that we considered necessary.




                                         19
                          INTERNAL CONTROLS


Internal controls are 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:

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

               We assessed the relevant controls identified above.

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




                                             20
Significant Weaknesses

       Based on our review, we believe the following items are significant
       weaknesses:

          •   The Authority did not have adequate policies and procedures in
              place to ensure that housing choice voucher units met housing
              quality standards (see finding 1).

          •   The Authority did not have adequate controls in place to ensure
              that cost charged to the Housing Choice Voucher program was
              reasonable, accurate, and properly supported (see finding 2).

          •   The Authority did not have adequate controls, including an
              adequate quality assurance process, to ensure that housing
              assistance payments were always calculated correctly and tenant
              and landlord recertification information was properly supported
              and documented (see finding 3).




                                   21
                                 APPENDIXES

Appendix A

           SCHEDULE OF QUESTIONED COSTS
          AND FUNDS TO BE PUT TO BETTER USE
          Recommendation          Ineligible 1/   Unsupported 2/    Funds to be put to
                 number                                                  better use 3/

                            1B                                              $1,710,661
                            2B                           $23,592
                            3C         $2,230
                            3D            409

                    Total              $2,639            $23,592            $1,710,661




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 require 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/   “Funds to be put to better use” are quantifiable savings that are anticipated to
     occur if an 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. In this instance, if the Authority implements our recommendations, it
     will cease to incur Section 8 costs for units that are not decent, safe, and sanitary
     and will expend those funds for units that meet HUD’s housing quality standards.
     Once the Authority successfully implements its controls, this will be a recurring
     benefit. Our estimate reflects only the initial year of these recurring benefits.




                                          22
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




                        23
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




                        24
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 1




                        25
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation    Auditee Comments




Comment 2




Comment 3




                        26
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




Comment 4




                        27
                      OIG Evaluation of Auditee Comments


Comment 1   Authority officials concur with our determinations related to providing
            additional training to its housing quality inspector. Authority officials also
            stated that they would continue to work on improving their housing
            quality standards where needed.

            Authority officials took exception with the wording that it did not follow
            its administrative plan to ensure that units met minimum housing quality
            standards. Specifically, the Authority stated that the HUD IG inspector
            went beyond the scope of a housing quality inspection by citing
            deficiencies such as those not explicitly required by HUD regulations and
            either tenant caused or non material (e.g. unacceptable drop ceiling in
            bathroom, space between faucets and tiles, loose toilets, etc.). However at
            the exit conference, we informed Authority officials that our inspections
            resulted in over 500 deficiencies, all of which violate HUD regulations.
            We considered 37 units to be in such a condition as to materially fail the
            units based on the severity of the 304 deficiencies cited in those units. It is
            these 37 units that we used to project our results for determining the effect
            of not making changes to the control structure surrounding the inspection
            process.


Comment 2   Authority officials stated that they did have a cost allocation plan,
            however, adjustments had to be made due to changes in program funding
            and administration that made it appear that the Authority was not
            following its established allocation plan. These changes required costs to
            be allocated with a 50 percent split between the Housing Choice Voucher
            and Public Housing programs. However, as stated in the finding, some
            costs were allocated inconsistently from year to year. Specifically, costs
            for legal and auditing were never allocated following a 50 percent split
            during our scope period. In addition, legal costs allocated to the Housing
            Choice Voucher program were not always program related. The Annual
            Contributions Contract states that program receipts may only be used to
            pay program expenditures and that the Authority must not make any
            program expenditures, except in accordance with the HUD-approved
            budget estimate and supporting data for the program. Further, HUD must
            approve changes to the approved budget estimates.


Comment 3   Authority officials disagree with disallowing costs for any of the services
            mentioned in the finding since the costs paid were for actual Public
            Housing or Housing Choice Voucher expenses. However, since costs
            need to be allocated according to the HUD approved estimates, the



                                          28
            Authority will have to reimburse the Housing Choice Voucher program
            for costs not properly allocated.


Comment 4   The report was adjusted to reflect that these items were not the result of a
            quality control issue.




                                         29
Appendix C

     SCHEDULE OF MATERIAL NONCOMPLIANCE
         WITH HOUSING QUALITY STANDARDS
                                         Latest housing        Preexisting
                                            authority        deficiencies &
Sample   Total material    24-hour         inspection     inadequate follow-up
 item     deficiencies    deficiencies        grade         by the Authority
   1           13               3              Fail                13
   4            2               1              Pass                 2
   5           19               3              Pass                19
   8            7               1              Pass                 7
   9            7               2              Pass                 7
  12            8               1              Pass                 8
  13            7               2              Fail                 7
  14            8               3              Pass                 8
  15            4               1              Pass                 4
  16            4               1              Pass                 4
  20            5               2              Pass                 5
  21            4               1              Pass                 4
  24            7               1              Pass                 7
  25           15               5              Pass                15
  26            3               0              Pass                 3
  28            4               2              Pass                 4
  30           13               6              Pass                13
  32            7               3              Fail                 7
  33           10               3              Pass                10
  35           14              11              Pass                14
  36            5               8              Fail                 5
  37            6               4              Pass                 6
  38           10               6              Pass                10
  39            3               2              Pass                 3
  41           10               8              Pass                10
  43           12               6              Fail                12
  45            9               2              Pass                 9
  46            6               4              Pass                 6
  50            9               3              Pass                 9
  51           16              10              Fail                16
  52            6               1              Pass                 6
  54           11               3              Pass                11
  55            6               3              Pass                 6
  56           14               4              Pass                14
  57           12               7              Pass                12
  58            4               2              Fail                 4
  59            4               4              Fail                 4
Totals        304             129                                  304



                                 30
Appendix D

           SCHEDULE OF FILE REVIEW DEFICIENCIES


                                                                                                   Missing or
                                                                                                incomplete forms
         Tenant          Housing        Housing                         Incorrect
      identification    assistance     assistance   Incorrect utility   payment     Incorrect   Rent    HUD-   Cont.
No.      number        overpayment   underpayment      allowance        standard     income     reas.   9886   occup   Total


1     Voucher # 526                                        X                                                            1


2     Voucher # 559                      $102              X               X                                            2


3     Voucher # 475                                        X                                                            1


4     Voucher # 434                                                                                                     0


5     Voucher # 151                                        X                                                            1


6     Voucher # 361                                                                              X                      1


7     Voucher # 507                                        X                                             X              2


8     Voucher # 313       $108                             X                                                            1


9     Voucher # 462                                        X                           X                                2


10    Voucher # 480                                        X                                                            1


11    Voucher # 017       $288                             X                           X         X       X              4


12    Voucher # 087                                                                              X       X              2


13    Voucher # 210                                        X                                                            1


14    Voucher # 124                                                                                                     0


15    Voucher # 307                                        X                                     X                      2


16    Voucher # 240                                        X                                     X       X      X       4


                        2 - $396      1 - $102            12               1           2         5       4      1       25




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