Issue Date
September 4, 2008
Audit Report Number
2008-BO-1008
TO:
Robert P. Cwieka, Acting Director, Office of Public Housing, Boston Hub, 1APH
FROM: John Dvorak, Regional Inspector General for Audit, Region 1, 1AGA
SUBJECT: The State of Connecticut Department of Social Services Significantly Underleased
Its Housing Choice Voucher Program and Did Not Always Comply with Its
Annual Contributions Contracts and HUD Regulations
HIGHLIGHTS
What We Audited and Why
We initiated this audit as part of the audit plan to determine whether the State of
Connecticut Department of Social Services (agency) properly administered its
Housing Choice Voucher program (Voucher program) in compliance with its
annual contributions contracts and U.S. Department of Housing and Urban
Development (HUD) regulations. Our objectives were to determine whether the
agency (1) adequately (95 percent or more) leased up its Voucher program, (2)
properly accounted for and reported program fraud repayments and related
program income, and (3) could adequately support administrative costs charged to
the Voucher program.
2
What We Found
The agency did not adequately utilize its Section 8 vouchers. As a result,
approximately 770 households in calendar year 2007 were not served. In
addition, the agency did not ensure that its contractor had adequate controls over
fraud recoveries and related interest income. Specifically, the agency did not
ensure that the contractor properly accounted for, reported, and returned fraud
recoveries and related interest income in accordance with HUD’s requirements.
As a result, more than $1 million needs to be returned to the agency to be used for
program purposes. Lastly, the agency could not support the allocation of more
than $1.6 million in salary and benefits to the Voucher program and charged
$14,440 to the Voucher program for costs related to the state-funded housing
program.
What We Recommend
We recommend that the Public Housing Program Center Coordinator require the
agency to implement adequate procedures and controls to ensure that it is
adequately leased up to at least the 95 percent threshold required by HUD and
provide additional housing assistance to eligible households; recover more than
$1 million from the contractor and account for, report, and use the funds in
accordance with HUD requirements; provide support to show that more than $1.6
million in direct and indirect salaries was properly chargeable to the Voucher
program or repay any ineligible costs.
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 agency the draft report on July 28, 2008, and held an exit
conference on August 12, 2008. The agency agreed with our findings and
recommendations.
We received the agency’s response on August 22, 2008. The complete text of the
auditee’s response, along with our evaluation of that response, can be found in
appendix B of this report.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: The Agency Significantly Underleased Its Voucher Program 6
Finding 2: More Than $1 Million in Program Income and Interest Earned Was 8
Not Properly Accounted for, Reported, and Returned in Accordance with HUD’s
Requirements
Finding 3: The Agency Could Not Support More Than $1.6 Million in Expenses 12
and Charged $14,000 in Ineligible Costs to the Voucher Program
Scope and Methodology 15
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 17
B. Auditee Comments and OIG’s Evaluation 18
4
BACKGROUND AND OBJECTIVES
The State of Connecticut Department of Social Services (agency) provides a broad range of
services to the elderly; persons with disabilities; families; and individuals who need assistance in
maintaining or achieving their full potential for self-direction, self-reliance, and independent
living. The agency is designated as a public housing agency for the purpose of administering the
Section 8 program under the Federal Housing Act. It is headed by the commissioner of social
services, and there are deputy commissioners for administration and programs. There is a
regional administrator responsible for each of the three service regions. By statute, there is a
statewide advisory council to the commissioner, and each region must have a regional advisory
council. The agency administers most of its programs through offices located throughout the
state.
The agency’s Housing Services Unit oversees the Section 8 Housing Choice Voucher program
(Voucher program), as well as its Rental Assistance Program, Transitionary Rental Assistance
Program, and Security Deposit Guarantee Program. The agency receives Voucher program
funding from the U.S. Department of Housing and Urban Development (HUD). It received more
than $126 million in Voucher program funding from July 1, 2005, through February, 2008. It
also earned more than $10.9 million in administrative fees for the same period.
The agency’s Voucher program is a statewide program. The agency contracts the administration
of its Voucher program to J. D’Amelia & Associates LLC. J. D’Amelia & Associates LLC
subcontracts operation of the Voucher program throughout Connecticut to seven local public
housing authorities and one community action agency.
The agency must operate its Voucher program according to rules and regulations prescribed by
HUD in accordance with the United States Housing Act of 1937, as amended, and its annual
contributions contract.
Our overall objective was to determine whether the agency properly administered its Voucher
program in compliance with its annual contributions contract and HUD regulations. Specific
objectives were to determine whether the agency
• Adequately (95 percent or more) leased up its Voucher program
• Properly accounted for and reported tenant fraud repayments and related interest
income, and
• Could adequately support administrative costs charged to the Voucher program.
5
RESULTS OF AUDIT
Finding 1: The Agency Significantly Underleased Its Voucher Program
The agency significantly underleased its Voucher program despite having sufficient funds
available to house eligible households. This condition occurred because the agency did not have
adequate procedures and controls to track utilization and meet HUD’s 95 percent lease up
requirements. As a result, approximately 770 families went unhoused in 2007. Further, as of
December 2007, the agency had nearly $15 million in excess program funds that could have been
used to provided assistance to low- and moderate-income households seeking decent, safe, and
sanitary housing.
Housing Choice Voucher
Leasing Threshold Not Met
Regulations at 24 CFR [Code of Federal Regulations] 985.3(n)(3)(ii) require that
public housing agencies lease at least 95 percent of their allocated yearly vouchers
and/or funding to eligible participants in order to receive an acceptable program
performance rating as a “standard” performer. HUD uses this requirement as part
of its review and scoring of the Voucher program. The agency’s failure to meet
HUD’s lease-up thresholds resulted in approximately 770 families not being
housed in calendar year 2007.
In calendar year 2007, the agency only utilized 5,133 (82 percent) of the 6,214
housing choice vouchers authorized by HUD. In addition, from January 1, 2006,
through December 31, 2007, HUD provided more than $99.3 million in program
funding to the agency to provide housing assistance for eligible households. The
agency spent only about $84.3 million (85 percent) of its funding for housing
assistance payments as reported in HUD’s Voucher Management System. As a
result, it had more than $4.5 million in excess program funds from its calendar year
2006 program, and program surpluses grew to nearly $15 million by the end of
calendar year 2007.
Utilization Not Adequately
Tracked
The agency failed to adequately track voucher utilization; therefore, it was not
aware that it needed to significantly increase the lease-up rate. According to
discussions with the agency and its contractor, the agency was initially
responsible for tracking the utilization rate. However, when the agency
accountant left to take another position, utilization was not adequately tracked.
Further, the agency failed to communicate to the contractor that there was
6
adequate funding to increase the lease-up rate to the 95% level. Currently, the
agency is providing all of the funding information to the contractor, and the
contractor is responsible for tracking utilization and reporting to the agency on its
progress.
Agency Taking Action to
Increase Utilization
Agency management acknowledged that low voucher utilization was a problem
that needed to be addressed. Since utilization rates are a Section Eight
Management Assessment Program indicator that the agency reports to HUD
annually, HUD became aware of the agency’s low lease-up rate. In response to
HUD, the agency began taking actions to more adequately utilize its Voucher
program. In the summer of 2007, it opened the waiting list in an effort to increase
utilization. As of April 2008, it had approximately 1,600 applicants looking for
units to lease.
Conclusion
The agency significantly underleased its Voucher program despite having
sufficient vouchers and funds available to house eligible households. This
condition occurred because the agency did not adequately track utilization and
meet HUD’s 95 percent lease-up requirements. As a result, approximately 770
families went unhoused. Further, as of December 2007, the agency had nearly
$15 million in excess program funds that could have been used to provided
assistance to low- and moderate-income households seeking decent, safe, and
sanitary housing.
Recommendations
We recommend that the Public Housing Program Center Coordinator require the
agency to
1A. Implement adequate procedures and controls to ensure that its authorized
vouchers and program funds are utilized to at least the 95 percent threshold
required by HUD and provide housing assistance to eligible households.
7
RESULTS OF AUDIT
Finding 2: More Than $1 Million in Program Income and Interest
Earned Was Not Properly Accounted for, Reported, and Returned in
Accordance with HUD’s Requirements
The agency did not ensure that its contractor had adequate controls over program income.
Specifically, the agency did not ensure that the contractor properly accounted for, reported, and
returned program fraud recoveries and interest earned in accordance with HUD requirements and its
contract. It did not ensure that the contractor had adequate policies and procedures in place over
program income. In addition, the agency did not ensure that its contractor monitored its
subcontractors and satellite office. This condition occurred because the agency did not effectively
monitor its contractor to ensure that it followed all of HUD’s requirements. As a result, more than
$1 million in a contractor bank account could not be supported by reliable books and records and
was not available for intended program purposes.
Program Income Not Properly
Accounted for, Reported, and
Returned
HUD’s Housing Choice Voucher Program Guidebook 7420.10G, chapter 20.9,
states that tenant and owner (landlord) fraud recoveries can include a number of
situations, with perhaps the most common being the underreporting of tenant
income, which results in an overpayment of housing assistance to owners. When
this fraud is discovered, the public housing agency may pursue the tenant for
repayment of the funds. These repayments are referred to as fraud recoveries.
Although the agency was aware that the contractor collected fraud recoveries
from tenants and landlords, it did not ensure that the contractor properly
accounted for, reported, and returned fraud recoveries and related interest earned
to it in accordance with HUD requirements or its contract. HUD required that the
agency’s portion of the fraud recovery (i.e., the higher of 50 percent of the
amount collected or the reasonable and necessary costs the public housing agency
incurred related to the collection) from the Voucher program continue to be used
for activities related to the Voucher program and any remaining amount would be
considered as excess admin fees of the agency. The balance of the recovery
amount (the remaining 50 percent recovered) must be maintained in the agency’s
account as excess housing assistance payments.
The contractor maintained a bank account that commingled program income from
its Voucher program, State of Connecticut Rental Assistance Program (State
8
program), and interest earned for both programs. Although the agency’s
contractor had administered the Voucher program since 2000, the contractor had
not reconciled the program income collected under the previous contractor and
program income collected after taking over the administration of the program. As
of April 30, 2008, there was more than $1 million in this bank account. These
funds included fraud recoveries and landlord HAP reimbursements for both its
State program and Voucher program and related interest earned.
Lack of Policies and Procedures
Over Program Income
The agency did not ensure that the contractor had policies and procedures in place
for Voucher program fraud recoveries. As a result, there were inconsistencies in
how each subcontractor office handled fraud recoveries. For example, there were
differences with
• The format and content of repayment agreement forms,
• Accepted forms of payment (cash, money orders, personal checks),
• Who the payee was on the payment (subcontractor or contractor),
• How the tenant accounts were maintained by each office (green
accounting paper, Microsoft Word document, Microsoft Excel
spreadsheet, Quick Books),
• How often fraud recovery collections were remitted to the contractor and
what information was included,
• How the payment was documented (copies of each money order or
personal check or recording the amount and tenant in the cash receipts
journal or deposit ticket), and
• How the repayments were submitted to the contractor from the
subcontractors (submitting the actual money orders and personal checks to
the contractor or submitting a check from the subcontractor’s account to
the contractor for the fraud recoveries).
Lack of Monitoring for Tenant
Fraud Recoveries
The agency did not ensure that its contractor adequately monitored fraud
recoveries for its subcontractors and satellite office. Specifically, the contractor
did not:
• Receive copies of tenant repayment agreements and, therefore, did not
know how much each tenant owed, the nature of the repayment, or the
terms of the agreements.
9
• Know how fraud recoveries were paid, tracked, and reconciled in each
office.
• Ensure there were adequate segregation of duties for fraud recoveries at its
satellite office and subcontractor offices.1
• Perform monitoring reviews of its subcontractors to ensure that tenant
accounts were accurate,
• Require its satellite office and subcontractors to provide the repayment
agreements to it in order to reconcile and monitor payments received from
its subcontractors.2
• Ensure that actual expenses to collect fraud recoveries incurred by the
subcontractors and satellite office were documented for each repayment
agreement.
The contractor did not maintain a tenant accounts receivable ledger on its books
but instead relied on its eight subcontractors to track tenant accounts for their
office. The contractor received payments submitted by subcontractors from the
tenant or landlords and deposited the funds into the bank account. The contractor
recorded the program income as a debit to cash and recorded the corresponding
entry as a credit to accounts payable. The fee accountant advised that it was done
this way because they are not sure how much of these funds it must return to the
agency or HUD.
The contractor forwarded program income collected to one of its subcontractors.3
However, the contractor did not receive copies of the bank statements or returned
items from this subcontractor until we began our audit (within the last few
months). As a result, the contractor was not aware of items returned by the bank.
For example, there was a returned item for more than $10,000 from 2006 for a
housing assistance payment reimbursement from another public housing agency).
This public housing agency had stopped payment on the check, which the
contractor recently noticed when it started getting the bank statements for the
tenant repayment bank account.
1
The subcontractor employee responsible for fraud recoveries in each office (1) received the repayments (in the
form of money orders, personal checks, and sometimes cash), (2) was responsible for recording the tenant
repayments in the tenant ledger, (3) tracked the tenant repayment accounts to ensure that tenants made their monthly
payments, and (4) forwarded payments to the contractor.
2
One subcontractor office could not provide adequate support to show that tenant fraud recoveries were properly
accounted for and reported. In addition, an employee from that office had to make adjustments to some tenant
accounts based on documentation provided by the tenants for unrecorded payments to their accounts.
3
This subcontractor maintained and reconciled the bank account for the contractor.
10
Conclusion
The agency did not ensure that its contractor had adequate controls over program
income. It did not ensure the contractor had policies and procedures in place for
program income. In addition, the agency did not ensure that its contractor
monitored its subcontractors and satellite office. This condition occurred because
the agency did not effectively monitor its contractor to ensure that it followed all
requirements. As a result, more than $1 million of program income in a
contractor bank account could not be supported by reliable books and records and
was not available for intended program purposes.
Recommendations
We recommend that the Public Housing Program Center Coordinator require the
agency to
2A. Recover the $1,033,400 from the contractor, determine the amount that is
HUD funds and related interest earned and use them for their intended
purpose.
2B. Implement policies and procedure over program income in accordance with
HUD’s requirements, including ensuring that the contractor (1) properly
accounts for, reports, and returns fraud recoveries to the agency, (2)
develops policies and procedures for its subcontractors and satellite office to
follow to ensure consistency between each office, and (3) monitors fraud
recoveries of its subcontractors and satellite office.
11
RESULTS OF AUDIT
Finding 3: The Agency Could Not Support More Than $1.6 Million in
Expenses and Charged $14,000 in Ineligible Costs to the Voucher
Program
The agency could not support the allocation of more than $1.6 million in salary and benefits to
the Voucher program and charged $14,440 to the Voucher program for costs related to the state-
funded housing programs. This condition occurred because the agency did not comply with
HUD’s requirements. As a result, these funds were not available to the Voucher program to use
for eligible expenses.
Salaries and Benefits Not
Supported
The agency could not support its method for allocating direct and indirect salaries
to the Voucher program. It allocated more than $1.6 million in direct (nearly
$1.3) and indirect ($336,304) salaries and benefits to the Voucher program for the
period July 1, 2005, to March 2008. The agency’s Housing Services Department
had seven employees that worked on the Voucher program, state Rental
Assistance Program, and Transitionary Rental Assistance Program, and two of
these seven employees also worked on the state Security Deposit Guarantee
Program. As of March 14, 2008, four of the seven employees’ salaries and
benefits were charged 100 percent to the Voucher program, including the housing
services manager, who oversees the Voucher program, the two state-funded
housing programs, and the Security Deposit Guarantee Program. The housing
services manager revised this allocation on March 27, 2008, to 50 percent for all
seven employees. She provided no support for the new allocation.
The housing services manager stated that she used the administrative fee funds
that were available from the Voucher program to pay salaries and benefits.
However, the agency did not provide adequate support to show that the salaries
and benefits charged to the Voucher program were appropriate.
12
Ineligible Costs Charged to the
Voucher Program
The agency did not properly allocate approximately $14,440 in expenses related
to the waiting list, rent reasonableness study, and advertising for a contract
administrator. It contracted out the administration of the Voucher program and
two state housing programs, the Rental Assistance Program and the Transitionary
Rental Assistance Program, to J. D'Amelia & Associates LLC. When the agency
advertised for a contract administrator for these programs, it charged all of the
advertising expense to the Voucher program. In addition, when it opened its
waiting list for these programs, the majority of the costs were charged to the
Voucher program. Further, the total cost of the rent reasonableness study was
charged to the Voucher program. However, the manager of housing services
stated that the agency used the rent reasonableness study to determine rents for
both the Voucher program and the state housing programs. Since the state
housing programs also benefited from all of these services, it should have paid its
share of the expenses. The manager of housing services did not provide adequate
justification to explain why the Voucher program funded the majority of the
expenses.
The total costs incurred for the waiting list, rent reasonableness study, and
advertising cost for a contract administrator for the State Rental Assistance
Program and Voucher program were $352,494. The agency allocated $75,087 to
the state housing program and the remaining $277,407 to the Voucher program.
Using program size as a method for allocating costs (6,462 authorized vouchers
versus 2,200 tenant-based Rental Assistance Program certificates), we calculated
ineligible costs for the waiting list, rent reasonableness study, and advertising
costs for contract administration of its rental programs to be approximately
$14,440.4 Based on the size of the programs, the state-funded housing program
should have paid at least 25 percent of the costs.
Conclusion
The agency could not support the allocation of more than $1.6 million in salary
and benefits to the Voucher program and charged $14,440 to the Voucher
program for costs related to the state-funded housing programs. This condition
occurred because the agency did not comply with HUD’s requirements. As a
result, it may have used Voucher program funds for other than intended purposes,
violating Federal Appropriations Acts.
4
This calculation is based on the current number of authorized vouchers and Rental Assistance Program certificates.
13
Recommendations
We recommend that the Public Housing Program Center Coordinator require the
agency to
3A. Provide support to show that $1,629,369 in direct and indirect salaries was
properly chargeable to the Voucher program and repay any ineligible costs.
3B. Reimburse the Voucher program $14,440 for ineligible costs charged to the
program for the waiting list, rent reasonableness study, and advertising costs
for a contract administrator.
3C. Develop and document a reasonable method of allocating salaries and
benefits and other costs to the Voucher program.
14
SCOPE AND METHODOLOGY
We conducted our audit between February and June 2008. We completed our fieldwork at the
agency located at 25 Sigourney Street, Hartford, Connecticut, and its contractor, J. D’Amelia &
Associates LLC’s main office located in Waterbury, Connecticut. Our audit covered the period
July 1, 2005, through June 30, 2007, and was extended when necessary to meet our audit objective.
To accomplish our audit objective, we
• Reviewed applicable Voucher program laws, regulations, guidance, and forms.
• Interviewed pertinent HUD staff to obtain information related to the agency’s Voucher
program.
• Interviewed pertinent agency staff and its contractor’s staff to determine policies and
procedures followed for the Voucher program.
• Determined the impact of the agency not adequately (95% or more) utilizing its Voucher
program.
• Reviewed the tenant repayment account and repayment agreements to determine whether the
agency and its contractor properly accounted for tenant repayments.
• Reviewed expenses charged to the Section 8 program to determine whether they were
necessary and reasonable costs of the Section 8 program.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
15
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:
• Compliance with laws and regulations,
• Controls over voucher utilization,
• Controls over Voucher program accounting and reporting, and
• Controls over Voucher program expenditures.
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 agency did not have adequate procedures and controls to track
utilization and meet HUD’s 95 percent lease up requirements. (finding 1).
• The agency did not ensure that the contractor had adequate policies and
procedures in place over program income. (finding 2).
16
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Funds to be put
number 2/ to better use 3/
2A $1,033,400
3A $1,629,369
3B $14,440
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/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
interest subsidy costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
which are specifically identified. In this instance, the $1,033,400 represents program
income in a contractor bank account could not be supported by reliable books and
records. The agency needs to recover these funds, determine the amount of HUD funds
and related interest earned, and then use the funds for their intended purpose.
17
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
Comment 3
18
19
OIG Evaluation of Auditee Comments
Comment 1 The agency concurred with the finding and has taken corrective action to increase
voucher utilization. According to the agency it had leased over 95 percent of the
available vouchers as of August 2008. The agency needs to ensure that it has
adequate controls in place to ensure voucher utilization stays at or above the
required 95 percent.
Comment 2 The agency concurred with the finding and recommendations. The agency has
begun taking corrective action and expects to complete an analysis of the funds
and interest earned in the repayment account by October 1, 2008.
Comment 3 The agency concurred with the finding and recommendations. The agency has
contracted with a consulting firm to establish an adequate cost allocation for
salary and benefit expenses. The agency must repay any unsupported costs and
agreed to repay the ineligible costs from non-federal funds.
20
The State of Connecticut Department of Social Services Significantly Underleased Its Housing Choice Voucher Program and Did Not Always Comply with Its Annual Contributions and HUD Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)