oversight

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)

                                                                  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.




                                            2
                            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.




                                                4
                                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.




                                             6
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.


                                                       7
             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.




                                               8
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.




                                                 9
                        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.




                                              10
                              INTERNAL CONTROLS


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

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

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



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

              •       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.




                                                11
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).




                                           12
                                     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.




                                               13
Appendix B

     AUDITEE COMMENTS AND OIG’S EVALUATION


                     Auditee Comments




                      14
AUDITEE COMMENTS AND OIG’S EVALUATION


                Auditee Comments




                 15