oversight

The Suffolk Redevelopment and Housing Authority, Suffolk, Virginia

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-10-17.

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

                                                                 Issue Date
                                                                       October 17, 2005
                                                                 Audit Report Number
                                                                       2006-PH-1002




TO:        William D. Tamburrino, Director, Baltimore Public Housing Program Hub,
            3BPH
           Robert Jennings, Director, Richmond Office of Public Housing, 3FPH



FROM:


SUBJECT:   The Suffolk Redevelopment and Housing Authority, Suffolk, Virginia, Did Not
            Always Follow HUD Requirements in Its Section 8 and Low-Rent Programs




                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Suffolk Redevelopment and Housing Authority’s (Authority)
           Operations as part of our fiscal year 2005 annual audit plan. Our audit objective was
           to determine if the Suffolk Redevelopment and Housing Authority carried out its
           operations in accordance with applicable U.S. Department of Housing and Urban
           Development (HUD) requirements.

 What We Found

           For the most part, the Authority carried out its operations in accordance with
           applicable HUD criteria. It properly inspected its Section 8 units, followed proper
           contracting procedures, and properly supported its draw down of HUD funds.
           However, the Authority did not always properly calculate Section 8 tenant income
           and utility allowances resulting in net overpayments of $5,127. Additionally, for
           one of its public housing developments, the Authority sometimes did not perform
           required annual inspections or properly recertify the tenants.

What We Recommend

           We recommend that HUD reduce the Authority’s housing assistance payments by
           $5,127 on its next Section 8 year-end settlement statement to account for the
           overpayments. Additionally, we recommend that HUD require the Authority to
           follow its Section 8 administrative plan and to prepare periodic reports showing
           the results of file reviews and any actions taken. We further recommend that HUD
           require the Director of Public Housing to perform the necessary reviews to ensure
           re-certifications and inspections are done when required.


Auditee’s Response


           On September 28, 2005, the Authority declined its opportunity to discuss the draft
           audit report with us at an exit conference. On October 12, 2005, the Authority
           provided a written response to the report. In its response, the Authority thanked
           us for the report and stated it had no comments at this time. The Authority’s
           response can be found in appendix B of this report.




                                            2
                           TABLE OF CONTENTS


Background and Objectives                                                      4

Results of Audit
      Finding 1: The Authority Did Not Always Follow HUD Requirements in Its   5
      Section 8 and Low Rent Programs

Scope and Methodology                                                          9

Internal Controls                                                              10

Appendixes
   A. Schedule of Questioned Costs                                             11
   B. Auditee Comments                                                         12




                                           3
                      BACKGROUND AND OBJECTIVES


The Suffolk Redevelopment and Housing Authority (Authority) was established in 1971 to provide
safe and sanitary housing for the low- and moderate-income families of the city of Suffolk, Virginia.
The Authority’s primary mission is to develop and operate affordable housing that is decent, safe,
sanitary, and suitable for the low- and moderate-income families of Suffolk, Virginia. An eight-
member board of commissioners governs the Authority. The Authority is located at 530 East
Pinner Street in Suffolk, Virginia.

The Authority owns and manages 466 public housing units under its Consolidated Annual
Contributions Contract with the U.S. Department of Housing and Urban Development (HUD). The
Authority’s Section 8 program had 625 units under lease during the audit. The Consolidated
Annual Contributions Contract defines the terms and conditions under which the Authority agrees
to develop and operate all projects under the agreement. HUD authorized the Authority the
following financial assistance from fiscal years 2001 to 2005:

   •   $3.4 million in operating subsidies to operate and maintain its housing developments,

   •   $14.1 million to provide housing assistance through tenant-based Section 8 certificates
       and vouchers,

   •   $3.6 million Capital Fund program funding to modernize public housing units, and

   •   $114,000 to eliminate or reduce drug related crime and other crime or disorder problems.

Our audit objective was to determine whether the Authority carried out its operations in
accordance with applicable HUD criteria.




                                                 4
                                 RESULTS OF AUDIT


Finding 1: The Authority Did Not Always Follow HUD Requirements in
Its Section 8 and Low Rent Programs

The Authority sometimes incorrectly calculated income and used the wrong utility allowance
schedules when computing rent and subsidy for some of its Section 8 recipients. This occurred
because of administrative errors by the Authority’s staff. The errors resulted in net
overpayments of $5,127. The Authority also did not always adequately re-certify its tenants or
conduct required annual inspections at one public housing development. This resulted from
inadequate management oversight and could result in tenants living in units that are not safe and
sanitary. The Authority can correct these problems by improving its internal control program.




 The Authority Made Net
 Housing Assistance
 Overpayments of $5,127

               The Authority incorrectly calculated income and used the wrong utility allowance
               schedules when computing rent and subsidy for some of its Section 8 recipients
               resulting in net overpayments of $5,127.

               HUD Handbook 7420.10g, Chapter 6, describes the guidelines for calculating rent
               and subsidy. Chapter 22 of the handbook describes the quality control procedures
               necessary for ensuring the correct calculation of rent and subsidy. Our review of the
               Authority’s calculations and documentation contained in the tenant files (for
               example, paycheck stubs and employment verification forms) showed the
               Authority’s procedures were not always effective in ensuring it correctly calculated
               rent and subsidy.

                  •   In eight of the 25 files reviewed (32 percent), the Authority incorrectly
                      calculated income resulting in $6,807 in housing assistance overpayments
                      and $1,464 in housing assistance underpayments.

                  •   In five of the 25 files reviewed (20 percent), the Authority used the wrong
                      utility allowance schedule to calculate the rent and subsidy, resulting in
                      $192 in housing assistance overpayments and $408 in housing assistance
                      underpayments.




                                                 5
                 The deficiencies noted above resulted in housing assistance overpayments totaling
                 $5,127 1 .

                 Authority officials agreed with the calculation errors we noted in our review, but
                 stated they believed their quality control program met HUD requirements. To
                 comply with Section 8 Management Assessment program requirements, Authority
                 officials stated they selected a sample of Section 8 files to determine whether the
                 rent being paid by the recipients was correctly calculated. According to Authority
                 officials, all of the rent calculations in the sample they reviewed were correct.
                 Authority officials provided us a listing of 17 files they reviewed during June 2004.
                 However, the Authority could not provide other documentation supporting its
                 review. Further, it was apparent by the deficiencies noted in our review that the
                 Authority needed to strengthen its quality control program. The Authority’s Section
                 8 administrative plan contained provisions that if implemented would have
                 strengthened Authority’s quality control program. The plan required the Section 8
                 director to review 10 percent of all rent re-examination files and 10 percent of new
                 application files. The plan also required the Authority to sample files in an unbiased
                 manner, leaving a clear audit trail. However, the Authority could not provide
                 evidence or an audit trail to show it had performed these reviews.

                 The Authority can correct the errors noted in calculating rent and subsidy by
                 following its own administrative plan and preparing periodic reports showing the
                 results of file reviews and any actions taken. Additionally, the Authority can
                 perform periodic reviews of staff to ensure they use the correct utility allowance
                 schedules and correctly calculate income according to requirements.

    The Authority Did Not Always
    Re-Certify Tenants or Inspect
    Units at One Public Housing
    Development


                 Our review of the Authority’s public housing files showed the Authority followed
                 HUD requirements when re-certifying tenants and inspecting units at four of its five
                 public housing developments. However, we found some deficiencies at one
                 development known as Chorey Park Apartments.

                 According to 24 CFR 960.257 [Code of Federal Regulations], the Authority must
                 conduct an annual re-examination of family income and composition.
                 Additionally, HUD Handbook 7460.5 states that the Authority must inspect its
                 public housing units annually. Our review of files related to Chorey Park
                 Apartments showed



1
 Housing assistance overpayments totaled $6,999 and housing assistance underpayments totaled $1,872 having a
net effect of $5,127 ($6,999 minus $1,872 equals $5,127).


                                                      6
             •   Three of five tenant files (60 percent) did not contain evidence showing
                 that the Authority inspected the unit annually as required by HUD
                 Handbook 7460.5.

             •   Two of five tenant files (40 percent) did not contain evidence showing the
                 Authority verified family income and composition as required by 24 CFR
                 960.257 [Code of Federal Regulations].

             •   Four of the five tenant files reviewed did not have re-certifications
                 conducted in 2003 (80 percent) and two of the five tenant files (40
                 percent) reviewed did not have re-certifications conducted in 2004.

          The deficiencies noted above can be directly attributed to a lack of adequate
          management oversight on the part of Authority officials. Specifically, the
          Director of Public Housing did not perform the necessary reviews to ensure re-
          certifications and inspections were done when required. However, the Director of
          Public Housing has recently implemented some corrective actions, including a
          checklist for resident managers to follow.


Summary


          Despite the deficiencies our audit noted, all of the Section 8 and public housing
          tenant files we reviewed showed the tenants met income eligibility requirements.
          In addition, HUD has recently rated the Authority’s Section 8 program very
          highly under its Section 8 Management Assessment program. We also believe the
          corrective actions taken by the Director of Public Housing will correct the
          deficiencies noted at the Chorey Park Apartments development. The Authority
          has also taken steps to improve the overall physical condition of its public
          housing units. The Authority has recently prepared a schedule to ensure it
          inspects all of its units. The Authority has also prepared a memorandum of
          agreement with HUD addressing deficiencies HUD noted in its 2004 Real Estate
          Assessment Center’s inspections. The memorandum provided a timeline for
          correcting deficiencies, including fire prevention classes for the residents, general
          maintenance, housekeeping enforcement, replacing damaged refrigerators, and
          making electrical repairs. The Authority expects to complete most of the
          necessary repairs by the end of 2005.




                                            7
Recommendations



          We recommend that the Director, Baltimore Public Housing Program Hub

          1A.     Reduce the amount of housing assistance payments by $5,127 on the
                  Authority’s next Section 8 year-end settlement statement to account for
                  net overpayments.

          1B.     Require the Authority to follow its Section 8 administrative plan and to
                  prepare periodic reports showing the results of file reviews and any
                  actions taken.

          1C.     Require the Director of Public Housing to perform the necessary reviews
                  to ensure re-certifications and inspections are done when required.




                                           8
                         SCOPE AND METHODOLOGY


We performed the audit

   •   From February through October 2005 in accordance with generally accepted government
       auditing standards.

   •   At the Authority located in Suffolk, Virginia.

The audit covered transactions representative of operations current at the time of the audit and
included the period January 2002 through July 2005. We expanded the scope of the audit as
necessary. We reviewed applicable regulations and guidance and discussed operations with
management and staff personnel at the Authority.

To determine whether the Authority carried out its operations in accordance with applicable
HUD requirements we

   •   Used audit software to randomly select and review 25 Section 8 tenant files and 15 public
       housing tenant files,

   •   Reviewed all 11 current Authority contracts (6 general and administrative contracts and 5
       maintenance contracts) valued at $415,731,

   •   Reviewed 10 of 76 Line of Credit Control System draw downs, totaling $768,411 out of
       $1,681,671, from 2003-2005, and

   •   Reviewed the Authority’s internal control structure.




                                                 9
                             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:

                  •   Re-certification of families in the Authority’s Section 8 program, and

                  •   Re-certification of tenants and inspecting units in the public housing
                      program.

              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.
              The Authority did not:

                  •   Follow its Section 8 administrative plan and prepare periodic reports
                      showing the results of file reviews and any actions taken, and

                  •   Perform the necessary reviews to ensure public housing tenant re-
                      certifications and inspections were done when required.



                                               10
                                   APPENDIXES


Appendix A

                SCHEDULE OF QUESTIONED COSTS
                          Recommendation          Ineligible 1/
                              number
                                  1A                $5,127



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.




                                            11
Appendix B

             AUDITEE COMMENTS

                Auditee Comments




                       12