Issue Date
February 27, 2006
Audit Report Number
2006-SE-1002
TO: Harlan Stewart, Director, Region X Office of Public Housing, 0APH
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region X, 0AGA
SUBJECT: Northeast Washington Housing Solutions, Spokane, Washington, Improperly
Administered Housing Choice Vouchers
HIGHLIGHTS
What We Audited and Why
As part of the Office of Inspector General’s annual plan, we reviewed the
Northeast Washington Housing Solutions’ (authority) Section 8 program to
determine whether it properly verified tenant eligibility, correctly paid housing
assistance, adequately maintained housing quality standards, properly managed its
portability program, and accurately reported its Section 8 Management
Assessment Program scores. We also assessed a complaint concerning certain
expenses the authority paid with its Section 8 administrative fee.
What We Found
The authority made housing assistance payments, maintained housing quality
standards, and managed tenant portability in accordance with U.S. Department of
Housing and Urban Development (HUD) requirements. However, an anomaly in
the authority’s admittance process allowed 154 families to receive housing
assistance in 2005 without the required verification that those families were
eligible for the program. The authority also did not correctly report its fiscal year
2005 Section 8 Management Assessment Program score to HUD. In addition, the
authority does not have adequate documentation to support some staff salaries
charged to the Section 8 administrative fee.
What We Recommend
We recommend that the director, Region X, Office of Public Housing require the
authority to determine the eligibility of the 154 families and for those found to be
ineligible, reimburse the Section 8 fund from nonfederal funds the amount of
housing assistance paid on behalf of those families, repay at least $14,725 in
Section 8 administrative fees, and develop a process to ensure the accuracy of its
Section 8 Management Assessment Program scores. We also recommend that the
Office of Public Housing require the authority to develop a cost allocation plan
for indirect salary allocations.
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 on February 14, 2006. The authority provided written comments on
February 23, 2006. The authority generally agreed with our report; therefore, we
did not have any comments responding to its reply. The complete text of the
authority’s comments can be found in appendix B. We appreciate the authority’s
cooperation during the audit.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: The Authority Did Not Properly Administer 154 Housing Choice 5
Vouchers
Finding 2: The Authority Incorrectly Reported Its Fiscal Year 2005 Section 8 7
Management Assessment Program Score for the Determination of Adjusted
Income
Finding 3: The Authority Did Not Have Adequate Support for Some Indirect 9
Costs
Scope and Methodology 10
Internal Controls 11
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 13
B. Auditee Comments 14
3
BACKGROUND AND OBJECTIVES
Northeast Washington Housing Solutions
The Spokane City Council created the Spokane Housing Authority in 1971 to increase safe,
affordable housing and provide opportunities to persons experiencing barriers to housing. In
2005, the Spokane Housing Authority changed its name to Northeast Washington Housing
Solutions (authority). The authority provides housing assistance to more than 4,000 families in
eastern Washington through a combination of tenant-based rental assistance and authority-owned
units. The authority administers a Housing Choice Voucher program; operates a low-rent public
housing program; and has a HOME program; a Housing Opportunities for People with Aids
Program; and single-room occupancy units.
Section 8 Housing Choice Voucher Program
The Housing Choice Voucher program is the federal government’s major program for helping
very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary
housing in the private market. Participants are free to choose any housing that meets program
requirements. Public housing agencies administer the U.S. Department of Housing and Urban
Development (HUD)-funded housing choice vouchers that pay a housing subsidy directly to the
landlord on behalf of the participating family. Public housing agencies determine family
eligibility based on income and family size and determine the amount of tenant subsidy.
Annually, the agency verifies family income and composition and ensures the unit meets
minimum housing quality standards.
Our objective was to determine whether the authority operates its tenant-based (Housing Choice
Voucher) Section 8 program in accordance with HUD requirements. We wanted to determine
whether the authority
1. Assisted only eligible families,
2. Calculated and paid tenant subsidies accurately,
3. Maintained HUD housing quality standards,
4. Managed its portability program in accordance with HUD requirements, and
5. Carried out its Section 8 Management Assessment Program in accordance with regulations.
We also assessed the validity of a complaint about how the authority spent its Section 8
administrative fee.
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RESULTS OF AUDIT
Finding 1: The Authority Did Not Properly Administer 154 Housing
Choice Vouchers
The authority admitted 154 families into the Housing Choice Voucher program without verifying
the applicants met HUD income eligibility requirements. This happened because the authority
did not adequately implement a change in its verification of eligibility policy. As a result, the
authority paid $445,594 in housing assistance payments during 2005 without the required
verification that the families were eligible for assistance, and HUD paid the authority $58,898 in
administrative fees for families who were not admitted in accordance with program
requirements.
Third-Party Verifications Were
Not Always Performed
HUD requires that the authority admit only eligible families to the housing choice
voucher program. To be eligible, the applicant must be a family, must be income
eligible, and must be a citizen. In addition, the authority must deny admission to
an applicant who has been involved in certain criminal activity. To determine
income eligibility and to ensure the correct amount of housing assistance
payments are paid on behalf of the family, HUD requires that the authority obtain
third-party verifications of tenant income. If such third-party income verifications
are not performed, the authority must document why the third-party verification is
not available. HUD pays the authority an administrative fee to operate the
program in accordance with program regulations and may reduce or offset the
administrative fee if the authority fails to perform its administrative
responsibilities under the program.
In October 2004, the authority tried to remedy a condition that was preventing
timely lease-up of housing choice vouchers. It reported that families with housing
choice vouchers found units to rent, but the delay in receiving third-party income
verifications prevented the families from moving into the units. As a result of
these delays, the authority reported some landlords complained about holding the
units while the authority waited for the third-party verifications, and some
families said they were concerned about losing their deposits.
To get the families into the units, the authority instituted a policy whereby
authority staff would make temporary income eligibility decisions based on
5
family self-certification while waiting for the third-party verifications. When the
third-party verifications arrived, the authority would make any necessary
adjustments. However, due to a misunderstanding, some authority staff and the
supervisors who reviewed their work believed the policy meant that third-party
verifications were not required.
The authority admitted families into the Housing Choice Voucher program
without properly verifying their eligibility because it did not adequately
implement its policy to facilitate lease up. Authority management did not provide
specific instructions for implementing the policy and did not follow up on its
execution.
As a result, the authority made housing assistance payments of $445,594 without
the required verification that the families were eligible for assistance. In
admitting the 154 families to the housing choice voucher program, the authority
did not meet one of the four HUD requirements for determining family eligibility
and we therefore are questioning, as a minimum, $14,725 (25 percent) of the
$58,898 that HUD paid the authority to administer these vouchers during the
period when the families’ eligibility was unknown.
As corrective action, the authority has started an independent review to determine
which families do not meet third-party verification requirements. For families not
meeting these requirements, the authority will determine whether the housing
assistance payments made on behalf of those families were accurate. Also, the
authority has implemented a policy requiring any change or modification to an
established procedure to have prior written approval of authority management.
Recommendations
We recommend that the director, Region X, Office of Public Housing
1A. Require the authority to determine the eligibility of the 154 families and for
those families found to be ineligible, reimburse that portion of the $445,594
in ineligible housing assistance payments from nonfederal funds.
1B. Require the authority to repay a minimum of $14,725 in administrative fees
in accordance with HUD regulations. Evaluate the authority’s response and
determine if additional repayment is warranted.
1C. Review the adequacy of the authority’s corrective action.
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Finding 2: The Authority Incorrectly Reported Its Fiscal Year 2005
Section 8 Management Assessment Program Score for the
Determination of Adjusted Income
The authority’s reported 93 percent accuracy rate for determining the adjusted income of housing
choice voucher families was overstated by at least 10 percent. This difference occurred because
the authority did not have a formal process for calculating, reviewing, and approving its Section
8 Management Assessment Program score. As a result, HUD cannot rely on the authority’s
certification that it verifies and correctly determines the adjusted annual income for each assisted
family. Also, the authority’s management and board of commissioners do not have reliable
information needed to identify and correct program weaknesses in the area of adjusted income
determination.
The Section 8 Management
Assessment Program Should
Measure Program Performance
Under the Section 8 Management Assessment Program, HUD sets performance
standards for key areas of Section 8 program management to measure whether a
housing authority administers its Section 8 program properly and effectively. To
measure their performance in the key areas, housing authorities must determine
whether the documented work in those areas conforms to program requirements
by selecting and reviewing a quality control sample.1 Housing authorities then
compare the results of their quality control sample reviews to the performance
standards, assign the appropriate number of points, and certify the results to HUD.
HUD uses the results to identify housing authority management capabilities and
deficiencies, and housing authorities can use the Section 8 Management
Assessment Program to assess and improve their own program operations.
The key area of determination of adjusted income shows whether a housing
authority correctly determines the assisted family’s adjusted annual income using
third-party verification of reported family income or documents why the third-
party verification is not available.
For the fiscal year 2005 Section 8 Management Assessment Program report, the
authority selected a sample of 50 tenant files and reviewed 43 to determine
whether it met HUD requirements for determining the adjusted income of assisted
families. Of the 43 files reviewed, the authority reported three files with errors,
for an accuracy rate of 93 percent, resulting in a score of 20 points for the area.
Although HUD regulations require that the authority’s methodology for selecting
1
The minimum sample size for the determination of adjusted income area is based on the number of families
assisted. The authority’s minimum sample for this area is 39.
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the sample leave a clear audit trail, authority records are unclear as to which 43 of
the 50 files it used to determine its score.
We reviewed 11 tenant files that the authority’s sample paperwork lists as not
having either the correct income calculation or the third-party verification or
documentation of why the verification was not available. We found five files
with incorrect income calculations and one without the third-party verification or
documentation of why the verification was not available. We also compared the
sample of 50 files to the families discussed in finding 1 and found three additional
files that had no third-party verification or documentation of why the verification
was not available. To be conservative, we calculated the authority’s score for this
area using the entire sample of 50, giving an accuracy rate of 82 percent and
resulting in 15 points for this performance standard.
Conclusion
The authority’s accuracy rate for determining the adjusted income of housing
choice voucher families was overstated because it did not have a formal process
for calculating, reviewing, and approving Section 8 Management Assessment
Program results. As a result, HUD cannot rely on the authority’s certification that
it verifies and correctly determines the adjusted annual income for each assisted
family. Also, the authority’s management and board of commissioners do not
have the reliable information needed to identify and correct program weaknesses
in this area (see finding 1).
The authority has now implemented a formal process for reporting its Section 8
Management Assessment Program score that, if followed, will ensure the
accuracy of the results.
Recommendations
We recommend that the director, Region X, Office of Public Housing
2A. Perform an on-site verification of the authority’s fiscal year 2006 Section
8 Management Assessment Program score to ensure its new process is
effective.
2B. Review the adequacy of the authority’s corrective action.
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Finding 3: The Authority Did Not Have Adequate Support for Some
Indirect Costs
The authority could not support indirect salary charges to its Section 8 administrative fee because
it does not have an adequate allocation plan for its indirect costs. As a result, it could not
provide reasonable assurance of how much of the more than $512,000 in indirect salary and
benefit expenses, paid from the Section 8 administrative fee, benefited the Section 8 program.
The Authority Had No
Statistical Basis for Its Salary
Allocation
HUD requires that the Section 8 administrative fee be spent only for activities
related to the provision of Section 8 assistance, including related development
activities. The authority’s cost policy statement and allocation plan describes how
it allocates indirect costs such as salaries and wages, fringe benefits, travel and
training, and general corporate overhead. The plan lists the staff who charge
some or all of their salary costs indirectly and states these indirect salary costs are
charged based on the estimated average time spent on each program. Benefits are
charged at the same percentage as the respective salaries. These estimated times
were unsupported by statistical data.
Without documentation to substantiate its indirect salary allocation, the authority
could not provide HUD reasonable assurance of how much of the more than
$512,000 in indirect salary and benefit expenses benefited the Section 8 program.
Recommendations
We recommend that the director, Region X, Office of Public Housing
3A. Require the authority to prepare and submit a revised cost policy statement
and allocation plan that includes a reasonable basis for allocating indirect
salaries and benefits. We also recommend you require the authority to
update the policy as necessary.
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SCOPE AND METHODOLOGY
Our review of the authority’s Housing Choice Voucher program covered July 1, 2004, to June
30, 2005 (fiscal year 2005) and we determined the questioned costs through December 2005.
We conducted the audit from September through December 2005 at the authority’s offices in
Spokane, Washington.
To accomplish our objectives, we reviewed authority records and tenant files and interviewed
authority staff, HUD program staff, and housing choice voucher holders. We also performed
housing quality standards inspections on authority housing choice voucher units.
We used 100 percent sampling to determine the number of months the authority made housing
assistance payments on behalf of families whose eligibility was unknown. We reviewed each of
these 321 tenant files to determine when the authority admitted each family into the program and
when it determined the family’s eligibility. We used this information as the number of months in
our determination of the amount of Section 8 administrative fee we are questioning.
To determine whether the authority accurately reported its determination of adjusted income
score, we reviewed tenant files that the authority noted that did not meet Section 8 Management
Assessment Program requirements. We also compared the families in the quality control sample
to our list of families for which the authority did not get the required third-party income
verifications or did not have documentation of why the verification was not available.
We performed our review in accordance with generally accepted government auditing standards.
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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:
• Effectiveness and efficiency of 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.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resources are used
consistent with laws and regulations. This includes the Section 8
administrative fee that is the subject of the complaint assessment portion of
the audit.
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.
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Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• The authority did not have an internal control process for implementing a
change to its normal admittance process that ensured HUD requirements
were met (finding 1).
• The authority did not have an internal control process for calculating,
reviewing, and approving its Section 8 Management Assessment Program
scores (finding 2).
• The authority did not have an internal control process that ensured adequate
documentation to support Section 8 administrative fee expenses (finding 3).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation number Ineligible 1/ Unsupported 2/
1A $445,594
1B $14,725
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.
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Auditee Comments
14
AUDITEE COMMENTS AND OIG’S EVALUATION
Auditee Comments
15
Northeast Washington Housing Solutions, Spokane, Washington, Improperly Administered Housing Choice Vouchers
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-02-27.
Below is a raw (and likely hideous) rendition of the original report. (PDF)