oversight

The Housing Authority of Contra Costa Did Not Adequately Determine and Support Section 8 Rents

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-12-15.

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

                                                                Issue Date
                                                                   December 15, 2006
                                                                Audit Report Number
                                                                   2007-LA-1004




TO:         Stephen Schneller, Director, Office of Public Housing, Region IX, 9APH



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

SUBJECT: The Housing Authority of the County of Contra Costa, Martinez, California, Did
           Not Adequately Determine and Support Section 8 Rents


                                   HIGHLIGHTS

 What We Audited and Why

             In response to a request from the Office of Public Housing, we reviewed the
             Housing Authority of the County of Contra Costa’s (Authority) administration of
             rent reasonableness determinations for units leased under its Section 8 Housing
             Choice Voucher program.

             Our objective was to determine whether the Authority ensured that rents were
             reasonable and that its written procedures and internal controls were adequate to
             ensure compliance with U.S. Department of Housing and Urban Development
             (HUD) rules and regulations, and consequently, to ensure the use of federal funds
             was supported and for eligible purposes.

 What We Found


             The Authority did not adequately determine reasonable rent or document support
             because written policies and controls were inadequate. Specifically,
              •      In some cases, the Authority compared assisted units to units that were
                     vastly dissimilar and, therefore, provided no support for the contract rent.
              •      The Authority did not consider important factors that could affect the
                     rental price, such as amenities, services provided, age of units, and square
                     footage.
              •      The forms used to document the rent reasonableness determinations were
                     often missing or incomplete and/or contained erroneous information.

           The Authority also improperly used federal funds to pay for housing assistance
           overpayments caused by the Authority’s delays in processing landlords’ rent
           increase requests and did not reimburse HUD for those improper payments.

What We Recommend


           We recommend that the director of HUD’s Office of Public Housing require the
           Authority to (1) support or reimburse HUD $82,659 in unsupported housing
           assistance payments, (2) follow HUD-approved policies and procedures when
           performing rent reasonableness determinations and ensure that adequate quality
           control procedures are in place, (3) reimburse HUD $77,997 in administrative
           fees, (4) repay HUD $5,236 for subsidy overpayments resulting from processing
           delays, (5) repay additional subsidies disbursed due to late processing of rent
           increases from July 1, 2005, to the present, and (6) develop procedures that ensure
           the timely processing of rent increase requests; prevent the use of federal funds to
           pay for the Authority’s errors or omissions; and address repayment of funds to
           HUD for overpayments resulting from the use of federal funds to pay for errors or
           omissions.

           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 November 21, 2006, and held an exit
           conference on December 4, 2006. The Authority provided written comments on
           December 11, 2006. It generally agreed with the report. The complete text of the
           auditee’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 Follow Federal Requirements to Ensure That    6
        Section 8 Rents Were Reasonable
        Finding 2: The Authority Improperly Used Housing Assistance Payment Funds      16
        to Pay Tenants’ Portions of Rent Increases and Failed to Repay HUD for those
        Overpayments

Scope and Methodology                                                                  19

Internal Controls                                                                      20

Appendixes
   A.   Schedule of Questioned Costs                                                   21
   B.   Auditee Comments                                                               22
   C.   Summary of Exceptions Found                                                    24
   D.   Summary of Retroactive Rent Increase Absorptions Due to Late Processing        27




                                              3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Contra Costa (Authority) is a public housing agency as
defined in the United States Housing Act of 1937, as amended, and in 24 CFR [Code of Federal
Regulations] Chapter VIII. It was established in 1942 and currently owns 1,168 public housing
units and 262 low-income tax credit units. The Authority also administers approximately 6,874
units under the Section 8 Housing Choice Voucher program. Section 8 housing choice vouchers
allow income-eligible families to obtain affordable, decent, and safe housing. During the period
from January through June 2006, the Authority paid more than $37 million in housing assistance
payments to landlords participating in the program. The Authority received more than $2.8
million in administrative fees from the U.S. Department of Housing and Urban Development
(HUD) for administering the Section 8 program for the same period.

The Authority’s executive director held the position of deputy executive director for four years
before becoming the acting executive director on October 1, 2005. On February 28, 2006, he
became the executive director. The current director of housing assistance programs (Section 8)
has worked for the Authority since November 2005.

As a result of the most recent review of the Authority’s Section 8 Management Assessment
Program, HUD designated the Authority’s performance rating as troubled.

The Code of Federal Regulations requires housing authorities to determine whether rents are
reasonable before approving a lease. The Housing Choice Voucher Guidebook states that
“ensuring rent reasonableness is very important for effective program operations. If a PHA
[public housing authority] approves rents that are too high, government funds are wasted, limited
housing subsidies are squandered, and speculators may exploit the program to outbid potential
homeowners. If rents are approved at levels lower than comparable units in the private market,
the better owners do not participate in the program, or they participate only with their lowest cost
and lowest quality units. In addition, families may be inappropriately restricted in where they
can live.”

To determine whether Section 8 rents are reasonable, housing authority inspectors compare the
rents for the subject units to rents for similar unassisted units on the open market. For
multifamily properties, they must compare the subject rent to rents for similar unassisted units on
the premises. Rent reasonableness determinations are performed at various times, including but
not limited to before entering into a housing assistance payment contract, before any increase in
rent, and if there is a 5 percent decrease in the published fair market rent in effect 60 days before
the anniversary date of the housing assistance payment contract. Housing authorities are
required to document each rent reasonableness decision and maintain records showing the basis
for that decision for at least three years.




                                                 4
There are a number of factors used to determine comparability. Among the factors housing
authorities must consider are

•              Location
•              Quality
•              Size
•              Unit type
•              Unit age
•              Amenities
•              Housing services
•              Maintenance
•              Utilities paid by the owner

The Authority’s latest Section 8 administrative plan, dated 2005, showed that the above nine
factors would be used to determine comparability. An additional factor, facilities, was added but
not defined in the plan. The Authority’s rent reasonableness survey forms included information
meeting the requirements for all 10 factors. The plan, in accordance with HUD requirements,
stated that the Authority would use an “appraisal system” to adjust for differences between
Section 8 properties and unassisted units used in the rent reasonableness determination. In
addition, the plan discussed acceptable sources for comparable rents. The data for unassisted
units could be gathered from newspapers, realtors, professional associations, inquiries of owners,
market surveys, the Internet, and other available sources. The plan did not require visits to
comparable properties to verify whether the units were comparable to the subject unit.

The Authority defined market areas for rent reasonableness within its jurisdiction. Subject units
within a defined housing market should be compared to similar units within the same area.

The Office of Public Housing recommended a review of the Authority’s rent reasonableness
procedures and determinations. The objective of the audit was to determine whether the Authority
administered its Section 8 rent reasonableness determinations in accordance with HUD rules and
regulations and, consequently, to ensure the use of federal funds was supported and for eligible
purposes.




                                                5
                                 RESULTS OF AUDIT

Finding 1: The Authority Did Not Follow Federal Requirements to
Ensure That Section 8 Rents Were Reasonable
The Authority did not adequately perform rent reasonableness reviews to ensure that Section 8
rents were reasonable. It based Section 8 rents on units that were not comparable to the assisted
units, including units of different structure types or in neighborhoods with different
characteristics. In other cases, the Authority did not consider or make adjustments for significant
differences that could affect the rent. Many of the required documents to support rent
reasonableness determinations were missing, incomplete, or incorrect. We attribute these
problems to the Authority’s not having adequate procedures to ensure compliance with HUD
requirements and its own policies for performing rent reasonableness reviews. Additionally, the
Authority’s quality controls over the rent reasonableness process were inadequate. As a result,
the Authority spent $82,659 in unsupported housing assistance payments, reduced subsidy funds
available for program participants, and collected administrative fees from HUD to manage the
Section 8 program while not in compliance with program requirements.


 Inspectors Compared Different
 Structure Types and Different
 Areas

       In some cases, the Authority’s inspectors compared vastly dissimilar units, including
       comparing duplexes to single-family homes, as well as homes of highly disparate quality
       and in very different neighborhoods. HUD’s Housing Choice Voucher Guidebook
       outlines requirements for ensuring that assisted rents under the Housing Choice Voucher
       program do not exceed rents charged for comparable unassisted units. The guidebook
       stresses that “... the three most important factors in explaining differences in rents are the
       location of the unit, number of bedrooms in the unit, and type of unit.” The Authority
       must conduct a market study and document explanations for deviations in these three
       major comparison factors.

       The guidebook provides a method for use when a similar type of unit cannot be found in
       the same neighborhood as the assisted unit. It involves finding a similar unit in a
       different neighborhood, additional research to determine differences in prices between
       the neighborhoods, and a system for adjusting the rent based on those differences. The




                                                 6
         Authority failed to adopt these or any adequate procedures to assure rent reasonableness
         when there were no similar comparable units within the locality.

         Additionally, the inspectors did not have uniform procedures for classifying duplexes.
         Although the data system accepted duplexes as a unit type designation, some inspectors
         entered all duplexes as single-family homes, while others entered all duplexes as
         apartments. Since no one entered them as duplexes, they were used as comparables for
         dissimilar structure types. Moreover, because the inspectors did not have adequate
         information about the comparables, they could not have known about some of the
         differences that made certain units unacceptable as comparables.1

         Of the 29 rent reasonableness determinations reviewed, 11 were based on comparisons to
         very dissimilar units, and it does not appear that the determinations could have been
         justified had the Authority had an established adjustment procedure. Therefore, we could
         not determine whether the $38,940 in housing assistance payments for these units was
         reasonable (see appendix C for details). The following three examples are representative
         of these 11 problems.

         Client Number T9906

         The certification of rent reasonableness form was dated January 23, 2006. The subject
         unit type was a single-family home; however, one unit used as a comparable was a
         duplex, and the other was a small converted garage. Additionally, the two comparables
         were in poorer neighborhoods, and the converted garage was disproportionately smaller
         than the assisted unit. As a result, we cannot determine whether the $4,140 in housing
         assistance payments to the landlord from January 23 through June 30, 2006, were
         reasonable.




1
 Adequate information about the comparables can be obtained by different methods, including, but not limited to a
short visit to the comparable unit for purpose of external observation of the unit and location qualities, services, and
some amenities.


                                                           7
                                      Subject unit – single-family




Comparable 1 – converted garage                 Comparable 2 – duplex (one entrance in front
                                                and second unit entrance on the side)




      Client Number T2748

      The certification of rent reasonableness form was dated March 15, 2006. The subject unit
      type and both comparables were apartments; however, observation revealed the units
      were not acceptable for rent comparison. The assisted unit had two bedrooms and one
      bathroom, a clubhouse, and uncovered parking. It was in a very poor neighborhood on a
      busy street where the adjacent grocery store had an armed guard inside the front door,
      while both comparables were in quiet residential neighborhoods. Comparable 1 was a
      two-bedroom condominium but had two bathrooms and individual garages. Comparable
      2 was a two-bedroom, two-bathroom apartment in a new development with vastly
      superior amenities, including on-site management, a learning center, a clubhouse, a
      fitness center, two heated pools, two Jacuzzis, private balconies or patios, walk-in closets,
      fireplaces, and ceiling fans. As a result, we cannot determine whether the $4,390 in
      housing assistance payments to the landlord from February 1 through June 30, 2006,
      were reasonable.



                                               8
Subject unit                                       Grocery store adjacent to subject unit




Comparable 1 - condominium                         Comparable 2




       Client Number T3134

       The certification of rent reasonableness form was dated May 15, 2006. The subject unit
       type and both comparables were apartments; however, observation revealed that the units
       were not acceptable for rent comparison. The subject unit was 39 years old. It was in a
       below average neighborhood, did not appear to have any notable amenities, and was in a
       poorly maintained building. Both comparables were in a new complex by the bay. The
       comparables had on-site management. Their superior amenities included a
       barbeque/picnic area, a clubhouse with a full kitchen, a recreational lawn, three laundry
       rooms, after school clubs, and nine computer stations. The complex was clean with well-
       maintained lawns and streets. As a result, we cannot determine whether the $759 housing
       assistance payment to the landlord from June 2 through 30, 2006, was reasonable.




                                               9
Subject unit – unit immediately above has a        View directly across the street from subject
boarded window                                     unit




Comparables 1 and 2 – in the same complex          Comparables 1 and 2 – clubhouse and
                                                   barbeque area




                                              10
 Important Comparison Factors
 Were Ignored



      The Authority ignored important comparison factors, such as unit quality, size, age,
      amenities, and services, when determining the reasonableness of Section 8 rents. The
      Authority only used the limited information entered into its data system. It used rent
      reasonableness survey forms to record information about all factors that it should
      consider for comparable units but did not observe the units in person to verify
      information. No survey forms were prepared for the subject units, although this
      information could have been obtained during required inspections. The Authority entered
      limited information from the survey form into its automated database management
      system, called UNIX, and the inspectors did not refer back to the form when the unit was
      used as a comparable for a rent reasonableness determination. The UNIX data system
      was limited to comparing information about the unit’s structure type and location, basic
      appliances provided by the owner, utilities paid by the owner, and number of bedrooms
      and bathrooms in the unit. The data system did not accept or compare important
      information contained on the survey forms, including but not limited to the unit’s quality,
      age, and amenities such as pools, spas, patios, decks, fenced yards, parking, or laundry
      facilities. The data system also failed to include services provided by the landlord.

      The following chart shows which of the factors HUD considers significant and the factors
      considered by the Authority.

Comparison factors required by HUD              Information accepted by the Authority’s
                                                database
      1. Location                               Yes

      2. Quality                                No

      3. Size (number of bedrooms & square      Yes - bedrooms and bathrooms
      footage)                                  No - square footage
      4. Unit type                              Yes

      5. Unit age                               No

      6. Amenities                              No - limited to basics (stove, drapes,
                                                refrigerator, carpets, dishwasher, disposal)
      7. Housing services                       No

      9. Utilities the owner pays               Yes




                                              11
    If the inspectors had been required to fill out rent reasonableness survey forms for the
    Section 8 units, they could have compared all important factors on the forms, instead of
    using limited system data, and ensured that Section 8 rents were reasonable in
    comparison to those of similar units.

    In addition, when the Authority’s inspectors compared the rent for an assisted unit to
    rents for unassisted units available in the marketplace, they did not use an “appraisal”
    method to account for significant factors that would reasonably affect the rental prices in
    accordance with the Authority’s Section 8 administrative plan. Therefore, under the
    Authority’s current procedures, it may authorize the same rent amount for an older
    Section 8 unit offering no special amenities as an unassisted tenant may pay for a new
    unit with many amenities. Conversely, the Authority may also deny the rent requested
    for a significantly superior potential Section 8 unit after comparing the price to rents for
    smaller units with fewer amenities.

    Of the 29 rent reasonableness determinations reviewed, 13 may have been justified if the
    Authority had used a system to identify and adjust for differences. Because the Authority
    did not establish or use such a system, we cannot determine whether $43,719 in housing
    assistance payments for these units was reasonable (see appendix C for details).

Required Documentation Was
Often Missing or Incorrect



    The documentation in the Authority’s files was incomplete, missing, and/or erroneous,
    resulting in unreliable rent reasonableness determinations.

    HUD requires housing authorities to document each rent reasonableness determination
    and its basis in the tenant files (PIH 7420.10G, Housing Choice Voucher Guidebook).
    Documents must be maintained for three years (24 CFR [Code of Federal Regulations]
    982.158).

    As mentioned above, the inspectors used a rent reasonableness survey form to record the
    information they obtained for unassisted units to be used as comparables and then entered
    the data into the UNIX automated database management system. However, the forms
    and/or database information were often incomplete or missing altogether. Sometimes the
    inspectors attached copies of newspaper or Internet advertisements to the forms to show
    how the units were identified. The inspectors did not always check the appropriate fields
    on the forms to show how they obtained the information about the comparable units.
    Other fields filled out inconsistently were the unit type (single-family, duplex, low-rise
    apartment, high-rise apartment), name and phone number of contact person, survey date,
    utilities paid by owner, year built, square footage, and quality of the unit. For the 29




                                             12
         sampled units, the Authority could not provide 16 of the 512 applicable survey forms, and
         32 of the remaining 35 forms were missing important information (see appendix C for
         details).

         We also noted cases in which the information on the survey forms and/or in the UNIX
         system was incorrect. The questionable data included an address that did not exist (when
         we visited the neighborhood, we found a public park instead of a house), two instances in
         which the number of bedrooms was incorrect, and 16 cases in which the unit type was
         incorrectly recorded (for instance, a duplex listed as a single-family home or apartment).
         Overall, we found 14 of the survey forms had errors, and when we checked the UNIX
         system information (in the 16 cases in which the forms were missing), we identified five
         additional errors.

    Quality Control Procedures
    Were Inadequate



         The Authority’s Section 8 administrative plan called for quality control reviews of
         selected tenant files (which document eligibility, certification, and approval of housing
         assistance payments) before initial tenant certification and at the completion of all tenant
         recertifications. However, there were no written review procedures specific to rent
         reasonableness determinations. The manager supervising the process told us she
         reviewed every rent reasonableness certification form but only to ensure that the dates for
         the two comparables were recent and the total rent for the assisted unit did not exceed the
         average rent for the two comparables. She did not review the survey forms to determine
         whether they were complete and accurate or whether the data in the database were
         correct. As a result, the Authority’s management was unaware of the errors we observed
         during our review.

    HUD Paid the Authority More
    Than $2.8 Million in
    Administrative Fees

         The Authority received administrative fees from HUD that it did not properly earn due to
         its inappropriate administration of the Section 8 program. From January 1 through June
         30, 2006, HUD paid the Authority more than $2.8 million to administer its Section 8
         program. During the same period, HUD provided more than $37 million in housing
         assistance payments to landlords. The administrative fees benefited the Authority while
         it ignored HUD’s requirements for the program’s implementation.




2
 The Authority used two comparables for each assisted unit. Some of the comparables were used for more than one
assisted unit. Therefore, there were 51 rent reasonableness survey forms for 29 assisted units.

                                                      13
         HUD pays public housing authorities an administrative fee for administering housing
         assistance payments under the Section 8 program. Regulations at 24 CFR [Code of
         Federal Regulations] 982.155 allow HUD to “…reduce or offset any administrative fee
         to the PHA [public housing authority], in the amount determined by HUD, if the PHA
         fails to perform PHA administrative responsibilities correctly or adequately under the
         program.”

         Since the Authority did not follow HUD’s rent reasonableness requirements as a general
         practice during the audit period, the issues identified above were not limited to the
         sample items reviewed. Because determining rent reasonableness is only one
         administrative requirement for the program, we are recommending that HUD recapture a
         proportionate amount (2.7 percent)3 of the fees paid to the Authority during the six-month
         audit period.

    Conclusion


         The Authority did not adequately perform rent reasonableness determinations to support
         Section 8 rents paid through housing assistance payments. We attribute this to the
         Authority’s failure to adopt procedures that would ensure compliance with HUD
         requirements and its own policies and not having adequate quality control procedures.
         As a result, the Authority paid $82,659 in unsupported Section 8 housing assistance
         payments to the landlords of 24 of the 29 units reviewed (see appendix C). In addition,
         the Authority received more than $2.8 million in Section 8 administrative fees while
         inappropriately administering the rent reasonableness determination requirement for its
         Section 8 program.

         The Authority is aware of the problem in its determination of rent reasonableness. The
         executive director and the Section 8 director have agreed to change to a better data
         management system and revise written procedures.

    Recommendations



         We recommend that the director, Office of Public and Indian Housing, Region IX,
         require the Authority to

         1A. Support or reimburse HUD $82,659 for unsupported Section 8 housing assistance
         payments from nonfederal funds.



3
  The percentage is based on the proportionate number of Section 8 staff performing the tasks associated with rent
reasonableness determinations and their input about the amount of time they spend on those tasks.


                                                        14
1B. Develop and implement adequate HUD-approved policies and procedures for
performing and documenting rent reasonableness determinations, including adequate
quality control procedures.

1C. Reimburse HUD $77,997, which is 2.7 percent of the Section 8 administrative fees
the Authority received from January 1 through June 30, 2006.




                                      15
Finding 2: The Authority Improperly Used Housing Assistance
Payment Funds to Pay Tenants’ Portions of Rent Increases and Failed to
Repay HUD for those Overpayments
The Authority failed to reimburse HUD $5,236 for the housing assistance payment funds it used
to pay for the tenants’ portions of retroactive rent increases caused by processing delays. This
occurred because the Authority was unaware of HUD requirements and lacked procedures for
handling payments resulting from its own errors and omissions. As a result, less funding was
available to house tenants, and the Authority retained administrative fees to which it was not
entitled.



 The Authority Processed Rent
 Increase Requests Late


       Each of the 12 rent increase files we reviewed was processed by the Authority one to five
       months late (average of three months). Each file contained copies of letters the Authority
       sent to the tenants informing them that it would absorb the tenants’ retroactive rent
       increase amounts. The letters indicated (1) that the rent increase requests were approved
       as of the corresponding effective dates requested by the owners, (2) the dates on which
       the assisted families were to start paying the increased amounts, and (3) the amounts the
       Authority would pay the owners on behalf of the tenants.


 The Authority Absorbed Tenants’
 Portion of Rent Increases

       As a result of processing delays, the Authority absorbed a total of $5,236 on behalf of the
       12 tenants (see appendix D for details). Contrary to the prohibition of Section 982.515(c)
       of title 24 of the Code of Federal Regulations against the use of federal funds for
       ineligible purposes, the Authority used its housing assistance payment funds to absorb
       tenants’ portion of the rent increases resulting from late processing. Section 22.5 of the
       Housing Choice Voucher Guidebook states that the assisted family or the landlord may
       not be held responsible for errors or omissions made by the housing authority. Section
       22.2 of the guidebook includes late processing in its definition of “errors and omissions.”
       The Authority acted appropriately by not holding tenants or owners responsible for its
       failure to process requests in a timely manner.




                                               16
         However, according to section 982.155(b)(3) of title 24 of the Code of Federal
         Regulations and section 22.5 of the guidebook, the Authority must repay HUD from its
         administrative fee reserve for any federal funds used for overpayments resulting from its
         omissions or errors. The Authority had no written procedures addressing payments for
         errors and omissions.

    Conclusion

         According to the regulatory and guidebook requirements, the Authority must repay HUD
         $5,2364 from its administrative fee reserve for housing assistance payment funds it
         spends as a result of an error or omission. The Authority’s use of housing assistance
         payment funds for this purpose is not allowed and it reduces the assistance available to
         other eligible families. The Authority’s failure to pay these funds back to HUD is an
         ineligible retention of administrative fees.

         Additionally, since processing delays and rent absorptions were observed in all 12
         applicable sample items reviewed, we believe this problem has been occurring on a wider
         scale. Since the Authority was not aware that it violated HUD requirements during and
         after our audit period, as late as October 2006, this appears to be a continuing problem.
         During our review period (January through June 2006), the Authority identified that it
         approved 81 housing choice voucher rent increases. The Authority has already
         documented the rent amounts absorbed using housing assistance funds and should be able
         to readily identify all applicable rent increases. Therefore, the Authority must identify
         any additional payments in which it has absorbed the tenants’ portions of retroactive rent
         increases due to late processing since July 1, 2005, and repay HUD from administrative
         fee reserves.




4
  These amounts were paid based on the Authority’s unsupported rent increase determinations (see above).
However, since we are questioning the $5,236 as ineligible, it has not been included as part of the questioned cost
identified under appendix C or recommendation 1A.


                                                         17
Recommendations


    We recommend that the director, Office of Public and Indian Housing, Region IX,
    require the Authority to

    2A. Repay HUD $5,236 from its administrative fee reserve for overpaid subsidies
    resulting from processing delays.

    2B. Determine additional housing assistance funds that the Authority used to absorb the
    tenants’ portions of rent increases due to late processing of rent increase requests from
    July 1, 2005, to the present and repay HUD that amount from the Authority’s
    administrative fee reserve.

    2C. Develop and implement written procedures that ensure the timely processing of rent
    increase requests and address the reimbursement to HUD for payments using housing
    assistance payment grant funds resulting from any of the Authority’s errors or omissions
    discovered after the fact. Additionally, the Authority must establish procedures to use
    nonfederal funds to pay for its errors and omissions when the Authority is aware of the
    reason for such payments.




                                            18
                            SCOPE AND METHODOLOGY

To accomplish our objective, we

   •   Reviewed 29 tenant files, selected on a nonstatistical basis, including 100 percent of new
       housing assistance payment contracts (nine total), plus rent increases exceeding the
       Authority’s payment standard and/or fair market rent by more than 10 percent (12 total)
       and reinstated 2003 vouchers (eight total);
   •   Interviewed inspectors, eligibility interviewers, eligibility advisors, and Section 8 and
       financial management personnel;
   •   Reviewed HUD’s and the Authority’s Section 8 Management Assessment Program
       reports; and
   •   Conducted on-site visits to 29 Section 8 units and their comparable units.

We interviewed appropriate Authority and HUD Office of Public Housing management staff.

We performed on-site work at the Authority’s Section 8 office at 1805 Arnold Drive, Martinez,
California, from March through August 2006. The audit covered the period January through
June 2006.

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




                                               19
                              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:

       •   Administration of the Section 8 program as it relates to rent reasonableness
           determination in compliance with HUD regulations,
       •   Maintaining complete and accurate records, and
       •   Safeguarding Section 8 program resources.

       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 have policies and procedures in effect to properly administer
           the rent reasonableness determinations or safeguard Section 8 resources (finding 1).
       •   The Authority lacked procedures to ensure the use of nonfederal funds to pay for its
           errors and omissions and it lacked procedures to ensure reimbursement to HUD for
           the use of housing assistance payment funds to pay for those errors and omissions
           (finding 2).




                                                20
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

      Recommendation            Ineligible 1/    Unsupported 2/    Unreasonable or
             number                                                 unnecessary 3/
                     1A                                $82,659
                     1C                                                     $77,997
                     2A               $5,236


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
     polices 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/   Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that would be incurred by a prudent person in conducting a competitive
     business.




                                            21
APPENDIX B

                   AUDITEE COMMENTS


Auditee Comments




                          22
23
APPENDIX C

                 SUMMARY OF EXCEPTIONS FOUND


       Unreimbursed housing assistance paid during the audit period as a result of rent
          reasonableness determinations based on comparisons to unassisted units

                                                                        Unsupported-no
                                            Unsupported-poor
    Tenant no. Acceptable comparison                                    adjustment for
                                             comparable(s)
                                                                          differences
    T9837                $5,639
    T9972                                                                   $4,772
    T9934                                                                    5,612
    T9854                 8,582
    T9912                                                                    4,457
    T9865                                          $2,726
    T9894                                                                      943
    T9906                                           4,140
    T3672                                                                    1,128
    T12760                                                                   1,198
    T5768                 1,112
    T9158                                                                    1,525
    T3134                                            759
    T4120                                                                      871
    T12734                1,673
    T12761                  848
    T12752                                                                   1,779
    T4265                                           4,255
    T1295                                           2,316
    T7967                                                                    7,595
    T11671                                          5,240
    T6026                                                                    4,997
    T4811                                           4,182
    T10110                                                                   7,048
    T3640                                           5,453
    T3472                                           2,022
    T3013                                                                    1,794
    T2748                                           4,390
    T11640                                          3,457
     Subtotals          $17,854                   $38,940                  $43,719

    Total unsupported housing assistance                      $82,659




                                             24
                                            Summary of rent reasonableness survey form errors
                                                                                       No. of blank fields on rent
Tenant                                                    Rent reasonableness survey                                 Incorrect information on survey
                         Comparison address                                             reasonableness survey
 no.                                                              form found                                             forms and/or in UNIX
                                                                                                 forms

         325 Rockrest Circle, San Ramon, CA 94583                    Yes                       Complete                         Correct
T9837
         145 Lawnview Circle, Danville, CA 94526                     Yes                           2                       Survey by -1/2 bath
         5221 Forestgreen, Concord, CA 94521                         Yes                           4                        Survey by -2 bath
T9972
         1042 Kaski Lane, Concord, CA 94521                          Yes                           3                            Correct
         5332 Catanzaro Way, Antioch, CA 94531                       Yes                           4                      Survey by +1/2 bath
T9934
         4636 Fallow Ct., Antioch, CA 94531                          Yes                           3                      Survey by +1 bedrm.
         1048 Avocet Dr., Hercules, Ca 94547                         No                           N/A                      UNIX by -1/2 bath
T9854
         1250 Teraya Ter., Hercules, CA 94547                        No                           N/A                           Correct
         3289 Madrone St., Antioch, CA 94509                         Yes                           3                            Correct
T9912
         4202 Buchanan Ct., Pittsburg, CA 94565                      Yes                           1                            Correct
         5631 Main Street, Oakley, CA 94561                          Yes                           1                            Correct
T9865
         110 W. 6th St., Antioch, CA 94509                           Yes                           2                            Correct
         2812 Greenwood, San Pablo, CA 94806                         Yes                       Complete                         Correct
T9894
         2854 16th St., San Pablo, CA 94806                          No                           N/A                       UNIX by +1 bath
         411 1/2 W. 19th St., Antioch, CA 94509                      Yes                           4                        Survey by -1 bath
T9906
         110 W. 6th St., Antioch, CA 94509*                Yes-also used for T9865       2-also used for T9865         Correct-also used for T9865
         2511 Carmelita Way, Pinole, CA 94564                        No                           N/A                      UNIX by -1/2 bath
T3672
         1678 El Toro Way, Pinole, CA 94564                          Yes                       Complete                         Correct
         428 Chestnut, Brentwood, CA 94513                           Yes                           2                      Survey by +1/2 bath
T12760
         166 Remington St., Brentwood, CA 94513                      Yes                           1                            Correct
         2692 Colusa St., Pinole CA 94564                            Yes                           1                            Correct
T5768
         1537 Mann Dr., Pinole, CA 94564                             No                           N/A                           Correct
         4094 Castle Canyon, Antioch, CA 94531                       Yes                           2                      Survey by +1/2 bath
T9158
         4636 Fallow Ct., Antioch, CA 94509*               Yes-also used for T9934       3-also used for T9934        Incorrect-also used for T9934
         160 Paradise Dr., #7, Rodeo, CA 94547                       No                           N/A                           Correct
T3134
         106 Paradise Dr., #5, Rodeo, CA 94547                       No                           N/A                           Correct
         4213 Spaulding Way, Antioch, CA 94531                       Yes                           1                            Correct
T4120
         4605 Arabian Way, Antioch, CA 94531                         Yes                           1                            Correct
         1827 Vender Ct., Antioch, CA 94531                          Yes                           4                       Survey by -1/2 bath
T12734
         1804 Crater Peak Way, Antioch, CA 94531                     Yes                           5                       Survey by -1/2 bath
         4520 Waterford, Oakley, CA 94561                            Yes                           5                 Survey by -1 bedrm. & -1/2 bath
T12761
         4782 Canopy Lane, Oakley, CA 94561                          Yes                           2                       Survey by -1/2 bath
         4213 Spaulding Way, Antioch, CA 94531*            Yes-also used for T4120       1-also used for T4120         Correct-also used for T4120
T12752
         1059 Prewett Ranch, Antioch, CA 94531                       Yes                           3                            Correct
         913 Dartmouth Way, Concord, CA 94518                        No                           N/A                           Correct
T4265
         1818 Woodsdale, Concord, CA 94521                           Yes                           1                            Correct
         1432 Darlene Dr., Concord, CA 94520                         No                           N/A                           Correct
T1295
         146 Norman Avenue, Concord, CA 94520                        Yes                           1                            Correct




                                                                     25
                                           Summary of rent reasonableness survey form errors
                                                                                       No. of blank fields on rent
Tenant                                                    Rent reasonableness survey                                 Incorrect information on survey
                         Comparison address                                             reasonableness survey
 no.                                                              form found                                             forms and/or in UNIX
                                                                                                 forms

         428 Chestnut, Brentwood, CA 94513*               Yes-also used for T12760      2-also used for T12760       Incorrect-also used for T12760
T7967
         166 Remington St., Brentwood, CA 94513*          Yes-also used for T12760      1-also used for T12760        Correct-also used for T12760
         1059 Prewett Ranch Drive, Antioch, CA 94531*     Yes-also used for T12752      3-also used for T12752        Correct-also used for T12752
T11671
         5039 Fernbank, Antioch, CA 94531                            Yes                           3                      Survey by +1/2 bath
         1411 Creekside Dr., #5, Walnut Creek, CA 94596              No                           N/A                           Correct
T6026
         1160 Lincoln Avenue, Walnut, Creek, CA 94596                Yes                           2                            Correct
         410 O' Connor Dr., Pinole, CA 94564                 Yes-wrong address                     1                         Wrong address
T4811
         1537 Mann Dr., Pinole, CA 94564*                  No-also used for T5768      N/A-also used for T5768        Correct-also used for T5768
         101 Charles Lane, Danville, CA 94526                        Yes                           2                            Correct
T10110
         39 Terraced Hills Way, San Ramon, CA 94583                  Yes                           1                            Correct
         1735 Castro Street, Martinez, CA 94553                      No                           N/A                           Correct
T3640
         1217 Court Street, Martinez, CA 94553                       No                           N/A                           Correct
         825 Coventry Circle, Brentwood, CA 94513                    Yes                           3                            Correct
T3472
         374 Topaz, Brentwood, CA 94513                              Yes                           4                      Survey by -1/2 bath
         130 Mesa Court, Hercules, CA 94547                          No                           N/A                           Correct
T3013
         2006 Forest Run, Hercules, CA 94547                         No                           N/A                           Correct
         21 Las Moradas Cr., San Pablo, CA 94806                     No                           N/A                       UNIX by -1 bath
T2748
         15718 Crestwood Dr., #621, San Pablo, CA 94806              No                           N/A                       UNIX by -1 bath
         305 Texas St., Oakley, CA 94561                             Yes                           4                            Correct
T11640
                  th
         1002 W. 4 St., Antioch, CA 94509                            Yes                           4                            Correct

                                                                                          32 forms missing             14 survey form errors &
                           Totals                             16 forms missing
                                                                                        important information        5 UNIX errors of 16 reviewed




        * Denotes unassisted units used as a comparison for more than one assisted unit. Errors on the survey forms for
        these comparison units were counted only once.

        N/A denotes the survey form was missing and the field description is not applicable.




                                                                     26
APPENDIX D

           SUMMARY OF RETROACTIVE RENT INCREASE
             ABSORPTIONS DUE TO LATE PROCESSING


 Tenant no.      Disallowed and/or        Period of the retroactive rent increase absorbed by
              unsupported rent increase                      the Authority
                    absorptions
T4265                   $300               $100 per month, March through May 2006
T1295                   $200               $100 per month, April through May 2006
T7967                   $957               $319 per month, February through April 2006
T11671                  $918               $306 per month, March through May 2006
T6026                   $492               $164 per month, February through April 2006
T4811                   $155               $31 per month, January through May 2006
T10110                  $300               $100 per month, November 2005 through January 2006
T3640                   $685               $137 per month, December 2005 through April 2006
T3472                   $533               $533 for May 2006
T3013                   $300               $100 per month, April through June 2006
T2748                   $192               $48 per month, February through May 2006
T11640                  $204               $102 per month, February and March 2006

   Total               $5,236




                                              27