oversight

The Housing Authority of the City of Fort Wayne, Indiana, Needs to Improve Its Section 8 Housing Choice Voucher Program Administration

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-04-18.

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

                                                                 Issue Date
                                                                         April 18, 2008
                                                                 Audit Report Number
                                                                         2008-CH-1007




TO:         Thomas Marshall, Director of Public Housing Hub, 5DPH


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The Housing Authority of the City of Fort Wayne, Indiana, Needs to Improve Its
           Section 8 Housing Choice Voucher Program Administration

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of the City of Fort Wayne’s (Authority)
             Section 8 Housing Choice Voucher program (program). The audit was part of the
             activities in our fiscal year 2007 annual audit plan. We selected the Authority
             based upon our analysis of risk factors relating to the housing agencies in Region
             V’s jurisdiction. Our objective was to determine whether the Authority
             administered its program in accordance with the U.S. Department of Housing and
             Urban Development’s (HUD) requirements.

 What We Found

             The Authority’s program administration regarding housing assistance payment
             calculations, documentation to support households’ eligibility for housing
             assistance, monitoring of reported zero-income households, administration of the
             Family Self-Sufficiency Program, and voucher utilization were inadequate. The
             Authority incorrectly calculated households’ payments resulting in more than
             $73,000 in overpayments and nearly $7,000 in underpayments for the period July
             2005 through June 2007. Based on our statistical sample, we estimate that over
             the next year, the Authority will overpay more than $1 million in housing
             assistance and utility allowances.
           The Authority also did not ensure that its households’ files contained the required
           documentation to support its housing assistance and utility allowances. Of the 67
           files statistically selected for review, 30 did not contain documentation required
           by HUD and the Authority’s program administrative plan to support nearly
           $195,000 in housing assistance and utility allowances. Further, the Authority did
           not perform periodic reviews to determine that reported zero-income households
           had unreported income resulting in more than $28,000 in improper housing
           assistance and utility allowances.

           The Authority failed to administer its Family Self-Sufficiency Program according
           to federal requirements. As a result, it overfunded and underfunded participants’
           escrow accounts by more than $8,000 and nearly $4,000, respectively, had nearly
           $15,000 in escrow funds that should have been reimbursed to the program, could
           not support more than $151,000 in Housing Choice Voucher - Family Self-
           Sufficiency/Homeownership Coordinator funds, and failed to support nearly
           $890,000 that it determined was to be forfeited from escrow accounts.

           Although the Authority had nearly $6.2 million in program funds which could be
           used to house additional eligible households, its program was significantly under
           leased. As a result, eligible participants were denied the opportunity to seek
           decent, safe, and sanitary housing under the program.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to reimburse the applicable program from nonfederal funds
           for the improper use of more than $135,000 in funds, provide documentation or
           reimburse the applicable program nearly $1.3 million from nonfederal funds for
           the unsupported payments cited in this audit report, and implement adequate
           procedures and controls to address the findings cited in this audit report to prevent
           more than $1 million in program funds from being spent on excessive housing
           assistance and utility allowances and more than $3 million from not being used to
           provide decent, safe, and sanitary housing to eligible households.

           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 our file review results and supporting schedules to the Coordinator
           of HUD’s Indianapolis Public Housing Program Center and the Authority’s
           executive director during the audit. We also provided our discussion draft audit
           report to the Authority’s executive director, its board chairperson, and HUD’s


                                             2
staff during the audit. We held an exit conference with the executive director on
April 3, 2008.

We asked the executive director to provide comments on our discussion draft
audit report by April 11, 2008. The executive director provided written
comments, dated April 11, 2008. The Authority generally agreed with our
findings. The complete text of the written comments, along with our evaluation
of that response, can be found in appendix B of this report except for 66 pages of
documentation that was not necessary for understanding the Authority’s
comments. A complete copy of the Authority’s comments plus the
documentation was provided to the Director of HUD’s Cleveland Office of Public
Housing.




                                 3
                            TABLE OF CONTENTS

Background and Objective                                                          5

Results of Audit
      Finding 1: Controls over Housing Assistance Payments Were Inadequate        6

      Finding 2: The Authority’s Zero-Income Households Had Unreported Income     9

      Finding 3: The Authority Failed to Administer Its Family Self-Sufficiency
                 Program According to Federal Requirements                        13

      Finding 4: The Authority Significantly Underleased Its Program              21

Scope and Methodology                                                             23

Internal Controls                                                                 25

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use              27
   B. Auditee Comments and OIG’s Evaluation                                       29
   C. Federal Requirements and Authority’s Program Administrative Plan            43




                                             4
                      BACKGROUND AND OBJECTIVE

The Housing Authority of the City of Fort Wayne (Authority) is a nonprofit governmental entity
created by the City of Fort Wayne, Indiana (City), on February 8, 1938, to provide decent, safe,
and sanitary housing. A seven-member board of commissioners governs the Authority. The
Authority’s executive director is appointed by the board of commissioners and is responsible for
coordinating established policy and carrying out the Authority’s day-to-day operations.

The Authority administers a Section 8 Housing Choice Voucher program (program) funded by
the U.S. Department of Housing and Urban Development (HUD). It provides assistance to low-
and moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing rents
with owners of existing private housing. As of December 31, 2007, the Authority had 2,182
units under contract with annual housing assistance payments totaling more than $11 million in
program funds. It also received Housing Choice Voucher - Family Self-
Sufficiency/Homeownership Coordinator (Coordinator) grant funds to pay the salary and fringe
benefits of its Family Self-Sufficiency Program coordinator.

Our objective was to determine whether the Authority administered its program in accordance
with HUD’s requirements to include determining whether the Authority (1) accurately calculated
housing assistance and utility allowance payments, (2) maintained required documentation to
support households’ eligibility, (3) appropriately verified whether reported zero-income
households had income, (4) complied with HUD’s requirements regarding the administration of
its Family Self-Sufficiency Program, and (5) utilized its program funds to HUD’s expected lease-
up thresholds.




                                               5
                               RESULTS OF AUDIT

Finding 1: Controls over Housing Assistance Payments Were
                             Inadequate
The Authority failed to always compute housing assistance and utility allowance payments
accurately. It incorrectly calculated housing assistance and utility allowances and lacked
documentation to support housing assistance and utility allowances to program landlords and
households, respectively, because it lacked adequate procedures and controls to ensure that
HUD’s regulations and its program administrative plan were appropriately followed. As a result,
it overpaid more than $73,000 and underpaid nearly $7,000 in housing assistance and utility
allowances and was unable to support nearly $195,000 in housing assistance and utility
allowances paid. Based upon our statistical sample, we estimate that over the next year, the
Authority will overpay more than $1 million in housing assistance and utility allowances.



 The Authority Paid Incorrect
 Housing Assistance and Utility
 Allowances

              From the Authority’s 2,247 active program households as of June 30, 2007, we
              statistically selected 66 households’ files by using data mining software. The 66
              households’ files were reviewed to determine whether the Authority accurately
              verified and calculated the income information received from the households for
              their housing assistance and utility allowances for the period July 1, 2005, through
              June 30, 2007. Our review was limited to the information maintained by the
              Authority in its households’ files.

              According to HUD’s regulations at 24 CFR [Code of Federal Regulations]
              5.240(c), public housing authorities must verify the accuracy of the income
              information received from program households and change the amount of the
              total tenant payment, tenant rent or program housing assistance payment or
              terminate assistance, as appropriate, based on such information.

              The Authority’s miscalculations resulted in overpayments of $73,531 and
              underpayments of $6,853 in housing assistance and utility allowances. The
              Authority incorrectly calculated housing assistance and utility allowances for 49
              (74 percent) households in one or more of the certifications. The 49 files
              contained miscalculations of the households’ annual income, use of the incorrect
              utility reimbursement schedule, use of the incorrect payment standard, and
              miscalculations of income deductions and reimbursements.

              Of the $73,531 in overpaid housing assistance and utility allowances, $43,631 (33
              households) was a result of the Authority’s calculation errors, and $29,900 (14
              households) was a result of households’ underreporting their income to the

                                               6
            Authority. The $6,853 in underpaid housing assistance and utility allowances was
            also a result of the Authority’s calculation errors.

            The 49 files contained the following errors:

               ¾ 31 had annual income calculation errors by the Authority for one or more
                 certifications,
               ¾ 20 had incorrect payment standards for one or more certifications,
               ¾ 18 had incorrect utility reimbursement calculations for one or more
                 certifications,
               ¾ 14 had unreported income by the household for one or more certifications,
               ¾ 12 had incorrect calculations of reimbursements from annual income for
                 one or more certifications,
               ¾ Seven had an inaccurate voucher size for one or more certifications, and
               ¾ One did not use the Authority’s minimum rent for one certification.

Household Files Lacked
Eligibility Documentation


            The Authority lacked documentation to support housing assistance and utility
            allowances totaling $194,694 for the period July 1, 2005, through June 30, 2007.
            Of the 66 household files statistically selected for review, 30 files (45 percent)
            were missing or had incomplete documents as follows:

               ¾ 21 were missing HUD Form 9886, Authorization for the Release of
                 Information and Privacy Act Notice,
               ¾ Nine were missing proof of a criminal history check,
               ¾ Five were missing signed U.S. citizenship certifications,
               ¾ Five were missing proof of Social Security numbers,
               ¾ Four were missing birth certificates,
               ¾ One was missing a housing assistance payment contract, and
               ¾ One was missing a current lease agreement.

            The 30 files did not include documentation required by HUD’s regulations and
            the Authority’s program administrative plan.

The Authority’s Procedures
and Controls Had Weaknesses


            The weaknesses regarding incorrect calculations, inappropriate payments, and
            missing documentation occurred because the Authority lacked adequate
            procedures and controls to ensure that it appropriately followed HUD’s
            regulations and its program administrative plan. It did not ensure that it fully
            implemented HUD’s regulations and its administrative plan and standardized
            household certifications and file management procedures.


                                             7
Conclusion

             The Authority overpaid $73,531 in housing assistance and utility allowances, 59
             percent ($43,631) of which was due to the Authority’s calculation errors, and
             underpaid $6,853 in housing assistance and utility allowances, also due to the
             Authority’s calculation errors. If the Authority implements adequate procedures
             and controls over its housing asistance and utility allowances to ensure
             compliance with HUD’s regulations and its program administrative plan, we
             estimate that more than $1 million in payments will be accurately spent over the
             next year based on the error rate found in our sample. Our methodology for this
             estimate is explained in the Scope and Methodology section of this audit report.

Recommendations

             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Authority to

             1A.    Reimburse its program $43,631 from nonfederal funds for the
                    overpayment of housing assistance and utility allowances cited in this
                    finding.

             1B.    Pursue collection from the 14 households cited in this finding to reimburse
                    the Authority’s program $29,900 for the overpaid housing assistance and
                    utility allowances due to the underreporting their income or reimburse its
                    program the applicable amount from nonfederal funds.

             1C.    Reimburse the appropriate households $6,853 for the underpayment of
                    housing assistance and utility allowances cited in this finding.

             1D.    Provide supporting documentation or reimburse its program $214,157
                    ($194,694 in housing assistance and utility allowances plus $19,463 in
                    related administrative fees) from nonfederal funds for the unsupported
                    payments and associated administrative fees related to the 30 households
                    cited in this finding.

             1E.    Implement adequate procedures and controls over its housing assistance
                    and utility allowance processes to ensure that it complies with HUD’s
                    requirements and the Authority’s program administrative plan. By
                    implementing adequate procedures and controls, the Authority should help
                    to ensure that $1,086,442 in program funds is appropriately used for future
                    payments.




                                             8
Finding 2: The Authority’s Zero-Income Households Had Unreported
                               Income
The Authority did not perform periodic reviews to determine that reported zero-income
households had unreported income. Of the 151 households reviewed, 24 had unreported income
that affected their housing assistance and utility allowance payments. This condition occurred
because the Authority lacked adequate controls to ensure that it performed periodic reviews. As
a result, it unnecessarily paid housing assistance and utility allowances totaling more than
$62,000 for households that were able to meet their rental obligations.



 Households Had Unreported
 Income

              We reviewed all 151 households listed as zero income by the Authority as of June
              30, 2007, to determine whether it conducted periodic reviews of the zero-income
              households and whether the households had unreported income according to
              HUD’s system for the period July 1, 2005, through June 30, 2007. The
              Authority’s program administrative plan states that an interim reexamination will
              be scheduled for households with zero income every 90 days to review for
              changes in income. However, the Authority did not perform reexaminations
              every 90 days for the 151 household files.

              Of the 151 households reviewed, 24 had unreported income totaling $171,801
              resulting in the Authority providing $28,267 in excessive housing assistance and
              utility allowances. Our review was limited to the information maintained in
              HUD’s Enterprise Income Verification system (system) and information included
              in the Authority’s household files.

              The following are examples of households with unreported income:

              •   Household t0003228 had income, according to HUD’s system, totaling
                  $22,327 from January 2006 through June 2007. Since the household had
                  unreported income, the Authority overpaid a total of $4,971 in housing
                  assistance and utility allowances from February 2006 to June 2007. There
                  was no evidence in the household file that the Authority conducted periodic
                  reviews every 90 days as stated in its administrative plan.

              •   Household t0002117 had income, according to HUD’s system, totaling
                  $10,288 from May 2006 through February 2007. Since the household had
                  unreported income, the Authority overpaid a total of $1,790 in housing
                  assistance and utility allowances from May 2006 to February 2007. There
                  was no evidence in the household file that the Authority conducted periodic
                  reviews every 90 days as stated in its administrative plan.




                                               9
           In addition to conducting periodic reviews every 90 days, the Authority’s plan
           states that households claiming to have no income will be required to execute
           verification forms to determine that forms of income such as unemployment
           benefits, temporary assistance for needy families, and supplemental security
           income were not received by the households. Forms are required to be submitted
           on the first day of the month once every quarter. By conducting reviews and
           verifying income as required by its administrative plan, the Authority could have
           significantly increased its chances of detecting unreported income.

Underreported Income by
Households

           The Authority overpaid $12,505 in housing assistance and utility allowances for
           six households because they underreported their income. The households were
           not reported as being zero income during the period their housing assistance was
           overpaid, but according to HUD’s system they underreported their household
           income. Examples of households with underreported income follow:

           •   Household t0000992 had income, according to HUD’s system and
               documentation in the Authority’s household file, totaling $12,610 from July
               2005 through June 2006. The household was not reported as zero income
               because welfare income was being included during this time period. Since the
               household did not report their earned income, the Authority overpaid a total of
               $3,072 in housing assistance and utility allowances from July 2005 to June
               2006.

           •   Household t0002438 had income, according to HUD’s system, totaling
               $14,455 from August 2005 through July 2006. The household was not
               reported as zero income because earned income and welfare income was
               included during this time period. Since the household did not report its
               correct earned income, the Authority overpaid a total of $2,867 in housing
               assistance and utility allowances from August 2005 to July 2006.

           The six households failed to report to the Authority that they had an increase in
           their income. As a result, the income that was used to determine their housing
           assistance was not accurate. HUD’s system showed more income was earned by
           the households than what was reported to the Authority. If the Authority had
           effectively incorporated the use of HUD’s system, it would have found the
           income information and been able verify the households’ employment status by
           performing third party verifications.

Authority Did Not Act Timely
with Income Information

           For 12 of the households reviewed, the Authority overpaid $21,411 in housing
           assistance and utility allowances even though it had the necessary income

                                           10
             information to adjust the housing assistance and utility allowances. The
             households reported their income to the Authority, but it never performed an
             interim reexamination or delayed the interim reexamination effective date, which
             was contrary to the Authority’s program administrative plan.

             The following are examples of households that reported income, but the Authority
             did not act timely:

             •   Household t0000142 had income, according to HUD’s system and the
                 Authority’s household file, totaling $21,895 from July 2005 through March
                 2006. The household reported the income to the Authority in November
                 2004, but the Authority failed to perform third-party income verification and
                 failed to include it at the interim reexamination effective in January 2005.
                 Since the Authority did not act in a timely manner regarding the income
                 information, a total of $4,288 in housing assistance and utility allowances was
                 overpaid from July 2005 through February 2006.

             •   Household t0001863 reported its earned income increase to the Authority in
                 June 2006 and the Authority received a third-party income verification form
                 in July 2006. Contrary to the Authority’s administrative plan, the Authority
                 failed to make the interim reexamination effective August 1, 2006, and it was
                 not made effective until January 2007. The Authority’s delay resulted in an
                 overpayment of $1,985 in housing assistance and utility allowances from
                 August through December 2006.

             The Authority reported these households as having zero income. As previously
             mentioned, if the Authority had conducted periodic reviews every 90 days as
             required by its program administrative plan, it would have identified the income
             information and been able to verify the households’ employment status by
             performing third-party verifications. Its plan also requires households who report
             zero income to complete a written certification every 90 days and an interim
             reexamination will be scheduled for families with zero and/or unstable income
             every 90 days.

             We identified unreported income through HUD’s system. This is available to all
             housing authorities. The Authority did not effectively use this system despite
             having access. By using HUD’s system in addition to the verification procedures
             already in its administrative plan, the Authority could further increase its ability to
             detect unreported income.

Conclusion

             As a result of the Authority’s failure to properly verify household income for its
             zero-income households and identity unreported income, it improperly paid
             $28,267 in housing assistance and utility allowances for households that were able
             to meet their rental obligations. If the Authority does not implement adequate
             controls over its zero-income households, we estimate that it could pay more than

                                               11
          $32,000 in excessive housing assistance and utility allowances over the next year
          based on the error rate found during our review. Our methodology for this
          estimate is explained in the Scope and Methodology section of this audit report.

Recommendations


          We recommend that the Director of HUD’s Cleveland Office of Public Housing
          require the Authority to

          2A.     Pursue collection from the applicable households or reimburse its program
                  $28,267 from nonfederal funds for the overpayment of housing assistance
                  and utility allowances cited in this finding.

          2B.     Pursue collection from the applicable households or reimburse its program
                  $12,505 from nonfederal funds for the overpayment of housing assistance
                  and utility allowances cited in this finding related to the underreporting of
                  income.

          2C.     Reimburse its program $21,411 from nonfederal funds for the
                  overpayment of housing assistance and utility allowances due to not
                  including household reported income.

          2D.     Implement adequate controls to ensure that it follows its administrative
                  plan to minimize the chance that it will overpay housing assistance and
                  utility allowances. These controls should help to ensure that an estimated
                  $32,655 in housing assistance and utility allowances is not overpaid
                  during the next year.




                                           12
Finding 3: The Authority Failed to Operate Its Family Self-
       Sufficiency Program According to Federal Requirements
The Authority failed to operate its Family Self-Sufficiency Program according to the United
States Code, HUD’s requirements, and the Authority’s family self-sufficiency action plan. This
condition occurred because the Authority failed to exercise proper supervision and oversight of
its Family Self-Sufficiency Program and lacked adequate procedures and controls to ensure that
federal requirements were appropriately followed. As a result, the Authority had more than
$900,000 in questioned costs and participants did not receive the needed support to achieve
economic independence and self-sufficiency.



 The Authority Failed to
 Adequately Operate Its Family
 Self-Sufficiency Program

              The Authority inappropriately administered its Family Self-Sufficiency Program
              by failing to ensure that participants’ escrow account balances were accurate and
              escrow funds were not credited to participants whose contracts of participation
              had expired and had not been extended according to HUD’s requirements,
              communicate regularly with participating households to check progress and
              ensure continued participation, establish and maintain an effective program
              coordinating committee and program coordinator, maintain the minimum Family
              Self-Sufficiency Program size, provide family self-sufficiency account statements
              to participants at least annually, and ensure that the amount of escrow accounts
              forfeited was accurate and supported.

 Escrow Account Balances Were
 Inaccurate


              The Authority did not correctly calculate the escrow balances for its participating
              households. After reviewing 25 randomly selected files of the Authority’s 102
              participants’ files and their respective program household files, we determined
              that 16 participants had incorrect escrow account balances. The Authority
              overfunded seven participants’ escrow accounts by $8,437 plus interest and
              underfunded nine participants’ escrow accounts by $3,808 plus interest between
              July 1, 2005, and November 30, 2007. The following table details the overfunded
              and underfunded escrow accounts for the 16 households.




                                              13
            Incorrect escrow account balances
           Household
             number      Overfunded       Underfunded
            t0003414                          $798
            t0002655                           189
            t0002407         $1,059
            t0001514                             58
            t0001232           1,503
            t0002376             346
            t0007465                            158
            t0001152            819
            t0001254                              8
            t0002030                            171
            t0002037                            387
            t0002955              50
            t0001980           4,104
            t0003229                            252
            t0001531                          1,787
            t0000390            556
              Totals         $8,437          $3,808

For example, the escrow account for household number t0003414 was
underfunded by $798 plus applicable interest because the Authority did not use
third-party income verification in a timely manner. The Authority verified that
the participant was employed in December 2005 and should have made the
income change effective February 1, 2006, in accordance with its administrative
plan. Instead, the Authority made the income change effective April 1, 2006.
This error resulted in the participant’s escrow account being underfunded by $399
for February and March 2006, a total of $798.

These errors occurred because the annual income was miscalculated by the
Authority’s staff, tenant-supplied income documentation or third-party income
verifications were not used correctly or in a timely manner by the staff, and
escrow credits were not accurately calculated or updated. The Authority’s former
family self-sufficiency coordinator relied on the income included on HUD Forms
50058 to calculate the escrow credits. If the income was miscalculated or
certification was not effective in a timely manner on the form, the escrow credits
were also miscalculated and not calculated in a timely manner.

There was also a lack of communication among the Authority’s program staff,
family self-sufficiency coordinators, and the accounting department. When
changes to the participants’ rent amounts were made by the program staff, the
family self-sufficiency coordinators were not notified in a timely manner causing
the participants to receive incorrect escrow credits. In turn, the family self-
sufficiency coordinators did not communicate with the accounting department and
the participants’ escrow account balances were not updated correctly. The
Authority lacked procedures and controls to ensure that escrow credits were

                                14
           properly calculated and credited to the escrow account. Additionally, the
           Authority had no quality control measures in place for its Family Self-Sufficiency
           Program.

Escrow Accounts Contained
Funds from Expired Contracts
of Participation


           The Authority’s escrow accounts contained funds from participants whose
           contracts of participation had expired and had not been extended in accordance
           with HUD’s regulations. According to 24 CFR [Code of Federal Regulations]
           984.303(c), the contract of participation shall provide that all family self-
           sufficiency participants are required to fulfill those obligations to which they have
           committed themselves under the contract of participation, no later than five years
           after the effective date of the contract. Paragraph (d) states that the Authority
           shall in writing extend the term of the contract of participation for a period not to
           exceed two years for any family self-sufficiency participant who requests in
           writing a contract extension provided that the Authority finds that good cause
           exists for granting the extension. The participant’s written request for an
           extension must include a description of the need for the extension.

           There were six family self-sufficiency participants in our sample of 25 whose file
           contained a contract of participation that was extended for two years by the
           Authority because their contract expired between July 1, 2005, and November 30,
           2007. The files contained no written requests for a contract extension from the
           participant and no documentation from the Authority stating that good cause
           existed and that an extension was needed. As a result, the contracts should not
           have been extended for the two years beyond the expiration dates. The amounts
           credited to the escrow accounts for these six participants from the time the
           contract expired through November 30, 2007, are included in the overfunded
           amounts previously mentioned. As a result, $14,928 should have been forfeited
           and reimbursed to the program because the contracts of participation were not
           extended in accordance with HUD’s requirements for these six escrow accounts.
           This amount does not include the overfunded amounts previously mentioned.

           Of the remaining 77 participant files that we did not review, 20 contained
           contracts of participation that expired between July 1, 2005, and November 30,
           2007. As previously mentioned, we determined that six files in our sample of 25
           contained contracts of participation that had expired with no written request for an
           extension or a granted extension by the Authority. Based upon our sample
           results, we would expect the same results if we reviewed the remaining 20 files
           with expired contracts of participation. The 20 files had escrow account balances
           totaling $54,196, according to the Authority’s records, as of November 30, 2007.




                                            15
The Authority Failed to
Support the Forfeiture Amount


            The Authority forfeited $889,209 from its family self-sufficiency escrow in June
            2007 as a result of a comprehensive review performed by the Authority’s former
            family self-sufficiency coordinator. The former coordinator reviewed all of the
            Authority’s Family Self-Sufficiency Program participants’ files. According to the
            former coordinator, she used the participants’ income listed on HUD Form 50058
            as her basis to adjust the escrow accounts. She did not use the income
            documentation in the participants’ files. We determined that the income included
            on the HUD Forms 50058 were not always accurate (see finding 1).

            The forfeited amount is in question because the Authority could not provide
            documentation showing how the amount was determined. The executive director
            said that the large amount of escrow forfeited was a result of inadequate
            administration by the Authority since its Family Self-Sufficiency Program began
            in 1998.

The Authority Did Not
Communicate with Its Family
Self-Sufficiency Participants


            For the period July 1, 2005, to November 30, 2007, the contracts of participation
            were effective for a combined 626 months for the 25 participant files in our
            sample. During these 626 months, the Authority reported that the participants had
            no earned income for a combined 284 months, or 45 percent of the time. The
            participants may have had earned income, but the Authority did not report it on
            the Form 50058 that was effective and used to generate the escrow credits.
            According to 24 CFR [Code of Federal Regulations] 984.303(b)(4)(i), the head of
            the family self-sufficiency household shall be required under its contract of
            participation to seek and maintain suitable employment during the term of the
            contract and any extension thereof. Although other members of the family may
            seek and maintain employment during the term of the contract, only the head of
            the family is required to seek and maintain suitable employment. Paragraph (ii)
            states that the obligation to seek employment means that the head of the family
            self-sufficiency household has applied for employment, attended job interviews,
            and otherwise followed through on employment opportunities. Paragraph (iii)
            states that a determination of suitable employment shall be made by the authority
            based on the skills, education, and job training of the individual that has been
            designated the head of the family self-sufficiency household, and based on the
            available job opportunities within the jurisdiction served by the authority.

            As previously mentioned, for the 25 participants in our sample, the heads of
            household had no earned income for nearly half of the time period reviewed
            according to the Authority’s files. This fact may only indicate that suitable
            employment was not maintained, but the participant could have been seeking

                                            16
            employment. However, the Authority’s Family Self-Sufficiency Program files
            contained no documentation or correspondence between the Authority and the
            participants on their progress toward meeting the goals in the contracts of
            participation including seeking and maintaining employment.

            The Authority did not provide annual escrow account statements to participants at
            anytime from July 2005 through November 2007 contrary to HUD’s
            requirements. The executive director said that the Authority had not sent annual
            escrow account statements to participants because the escrow balances were
            incorrect. According to 24 CFR [Code of Federal Regulations] 984.305(a)(3),
            each authority will be required to make a report, at least once annually, to each
            family self-sufficiency family on the status of the family’s family self-sufficiency
            account. At a minimum, the report will include the balance at the beginning of
            the reporting period, the amount of the family’s rent payment that was credited to
            the family self-sufficiency account during the reporting period, any deductions
            made from the account for amounts due the authority before interest is distributed,
            the amount of interest earned on the account during the year, and the total in the
            account at the end of the reporting period.

            The Authority was unable to determine whether participants were employed,
            seeking employment, or acquiring the skills necessary for future employment due
            to its lack of communication with its family self-sufficiency participants. It failed
            to administer its Family Self-Sufficiency Program properly because it did not
            communicate with participants. Frequent communication between the Authority
            and participants is essential for the Family Self-Sufficiency Program and its
            participants to be successful.

The Authority Failed to
Maintain the Minimum
Program Size


            The Authority did not maintain the minimum Family Self-Sufficiency Program
            size. As of August 10, 2007, the minimum required program size according to the
            Authority was 271 participants. As of November 30, 2007, there were 102
            participants in its Family Self-Sufficiency Program according to the Authority.
            As previously mentioned, six participants should not have been in the program on
            November 30, 2007, because their contracts of participation were inappropriately
            extended and up to 20 more family self-sufficiency participant files that were not
            reviewed may also have contained contracts that were inappropriately extended.
            The Authority’s Family Self-Sufficiency Program size should be 96 (102 minus
            6) as of November 30, 2007, and may be as low as 76 (96 minus 20) if no
            documentation exists to support the contract extensions for the 20 participants.

            The Authority had not received approvals from HUD to operate a smaller Family
            Self-Sufficiency Program than the required minimum program size as of February
            2008.


                                             17
The Authority Failed to
Establish and Maintain an
Effective Committee and Earn
Coordinator Funds Received

           The Authority did not have an established program coordinating committee
           (committee) for its Family Self-Sufficiency Program and had not maintained an
           effective committee in accordance with HUD’s regulations and its family self-
           sufficiency action plan. According to 24 CFR [Code of Federal Regulations]
           984.202(a), each participating authority must establish a program coordinating
           committee, the functions of which will be to assist the authority in securing
           commitments of public and private resources for the operation of the Family Self-
           Sufficiency Program within the authority’s jurisdiction, including assistance in
           developing the action plan and in program implementation. The Authority’s
           executive director provided us lists of past and current committee members and
           said that the committee had not existed since September 2006. However, the
           Authority could not provide documentation to support that the committee was
           established and effectively functioning from July 2005 through June 2007.

           The Authority received $151,661 in Coordinator grant funds from HUD between
           January 2005 and February 2007 to operate its Family Self-Sufficiency Program.
           These funds were made available to pay the salary and fringe benefit of a
           coordinator under the stipulation that the Authority administer the Family Self-
           Sufficiency Program in accordance with federal regulations and HUD’s
           requirements. The executive director acknowledged that the family self-
           sufficiency coordinators did not adequately perform the duties of the position.
           Given that the Authority and the coordinator failed to maintain an effective
           program and implement its action plan to establish and maintain a structured
           program for family self-sufficiency participants, the Authority may not have
           properly used the $151,661 in Coordinator funds.


The Authority Needs to
Implement Adequate
Procedures and Controls

           The Authority did not establish adequate procedures and controls for the
           administration of its Family Self-Sufficiency Program. It failed to exercise proper
           supervision and oversight of the Family Self-Sufficiency Program and lacked
           adequate procedures and controls to ensure that federal requirements and its
           action plan were appropriately followed.

           According to the executive director, the Authority advertised the program as a
           way to receive a large sum of money rather than as a way to help participants
           become economically self-sufficient, thereby, causing participants to join the
           program who had no intention of becoming self-sufficient but, rather, were
           primarily interested in receiving money. Participants who were truly interested in

                                           18
             becoming self-sufficient did not receive the benefits that the program was
             intended to offer and had no assurance that their escrow accounts were correct.

Conclusion

             The Authority improperly used funds for the Family Self-Sufficiency Program
             when it failed to comply with federal requirements. Its failure to maintain
             sufficient documentation made it difficult to determine whether its Family Self-
             Sufficiency Program was meeting its goal of enabling households to become
             economically self-sufficient and increased the likelihood that participants were
             not complying with the contracts of participation, and participants were receiving
             incorrect escrow credits. Additionally, it hindered the Authority’s ability to
             monitor and measure the effectiveness of its Family Self-Sufficiency Program.

             As a result of its noncompliance, the Authority overfunded participants’ escrow
             accounts by $8,437 and underfunded participants’ escrow accounts by $3,808,
             had nearly $15,000 in escrow funds that should have been reimbursed to the
             program, failed to support nearly $890,000 that it determined was to be forfeited
             from escrow accounts, and could not support more than $151,000 in Coordinator
             funds.

Recommendations

             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Authority to

             3A.    Reimburse its program $8,437 plus the applicable earned interest for the
                    seven Family Self-Sufficiency Program participants’ escrow accounts
                    cited in this finding that were overfunded.

             3B.    Reimburse its nine Family Self-Sufficiency Program participants’ escrow
                    accounts $3,808 plus the applicable earned interest cited in this finding that
                    were overfunded.

             3C.    Provide documentation to support its use of funds for the six Family Self-
                    Sufficiency Program participants whose contracts were extended contrary to
                    HUD’s requirements or reimburse its program $14,928 from nonfederal
                    funds.

             3D.    Review the files for the 20 participants whose contracts of participation
                    expired between July 1, 2005, and June 30, 2007, to support its use of
                    program funds for the escrow accounts, or reimburse its program the
                    applicable amount from nonfederal funds.

             3E.    Provide documentation to support the forfeiture of the $889,209 from its
                    Family Self-Sufficiency Program escrow accounts to its program. If

                                              19
      documentation cannot be provided, the Authority should contract with an
      independent third-party to reconcile all of its Family Self-Sufficiency
      Program participants’ escrow accounts from the inception of the program to
      ensure that the $889,209 is the correct amount of funds forfeited to its
      program.

3F.   Establish and maintain a committee in accordance with HUD’s requirements
      and its family self-sufficiency action plan.

3G.   Provide documentation to support its allocation of time spent correctly
      administering its Family Self-Sufficiency Program or reimburse its
      program’s undesignated fund balance for administration account from
      nonfederal funds the appropriate portion of the $151,661 in Coordinator
      funds received for fiscal years 2004 and 2005 that were incorrectly
      administered.

3H.   Implement adequate procedures and controls over its Family Self-
      Sufficiency Program to ensure that it follows federal requirements and its
      HUD-approved action plan.




                                20
Finding 4: The Authority Significantly Underleased Its Program
The Authority’s program was significantly underleased despite having sufficient funds available
to house eligible households. These conditions occurred because the Authority did not comply
with HUD’s requirements. Its failure to meet HUD’s lease-up thresholds resulted in
approximately 577 households in fiscal year 2007 and 447 households in fiscal year 2006 not
being housed. Overall, the Authority’s failure to meet HUD’s lease-up requirements resulted in
nearly $6.2 million in program funds not being used. As a result, it failed to maximize the
benefits of HUD’s program funding to provide assistance to low- and moderate-income
households seeking decent, safe, and sanitary housing.


 Housing Choice Voucher
 Leasing Threshold Not Met


              HUD’s regulations at 24 CFR [Code of Federal Regulations] 985.3(n)(3)(ii)
              require that public housing authorities lease at least 95 percent of their allocated
              yearly vouchers to eligible participants. HUD uses this requirement as part of its
              review and scoring of the Authority’s program. The Authority’s failure to meet
              HUD’s lease-up thresholds resulted in approximately 577 households in fiscal
              year 2007 and 447 households in fiscal year 2006 not being served.

              From July 1, 2005, through June 30, 2007, HUD provided $29.4 million in
              program funding to the Authority to provide housing assistance for eligible
              households. The Authority spent $23.2 million (79 percent) of its funding for
              housing assistance payments as reported in HUD’s Voucher Management system.
              It had more than $2.7 million in excess program funds from its fiscal year 2006
              program ending June 30, 2006, and accumulated more than $3.4 million from its
              fiscal year 2007 program ending June 30, 2007. Contrary to HUD’s
              requirements, the Authority maintained its excess program funds in two separate
              bank accounts neither of which was an interest-bearing account.

 Authority Acknowledged Low
 Utilization

              The Authority’s management acknowledged that low voucher utilization was a
              problem that needed to be addressed. Previously, the Authority’s management
              did not consider voucher utilization to be a priority and focused its resources
              elsewhere. Since utilization rates are a Section 8 Management Assessment
              Program indicator that the Authority reports to HUD annually, HUD was aware
              that the Authority had not leased to full utilization or even standard performance
              levels of 95 percent. The Authority’s management had tracked program turnover
              but not the voucher success rate. These two statistics combined, along with the
              number of waiting list applicants that were issued vouchers, are necessary to



                                               21
             project future utilization rates and effectively budget resources to increase
             utilization to target levels.

Ineffective Voucher
Management


             The Authority’s management did not effectively monitor the voucher issuance
             process. The Authority was unable to determine how many applications it needed
             to accept and maintain on its waiting list to fully utilize the vouchers and whether
             it effectively used its resources. Management had kept track of program turnover,
             the number of participants terminated each month, and was attempting to increase
             its utilization rate. However, it was not tracking the success rate, the percent of
             households that received housing choice vouchers that succeeded in finding
             suitable units and become program participants. Collecting and monitoring
             success rates are essential program administration activities.

Conclusion

             The Authority’s program was significantly underleased despite having excess
             program funds totaling $6,178,124 from July 1, 2005, through June 30, 2007. As
             a result, it was not providing voucher assistance to as many households in its
             jurisdiction that it was able to. HUD also has the ability to recapture a portion of
             the unused program funds as provided for in HUD’s 2008 Appropriations Act.
             Further, if the Authority does not improve its voucher utilization, future housing
             assistance funded to the Authority to provide for households will be permanently
             reduced. By implementing adequate procedures and controls over its program
             voucher utilization, we estimate that $3,005,593 of excess program funds could be
             put to better use over the next year. Our methodology for this estimate is
             explained in the Scope and Methodology section of this audit report.

Recommendations

             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Authority to

             4A.    Implement adequate procedures and controls to ensure its program funds
                    are fully utilized to provide $3,005,593 in housing assistance to the
                    maximum number of eligible households.

             4B.    Implement adequate procedures and controls to ensure compliance with
                    HUD’s investment requirements for excess funds.




                                              22
                        SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

              •   Applicable laws; regulations; and HUD program requirements at 24 CFR [Code
                  of Federal Regulations] Parts 5, 982, 984, and 985; HUD’s Public and Indian
                  Housing Notices 2005-9 and 2006-3; United States Code, Title 42, chapter 8,
                  subchapter I, subsection 1437u; HUD notices for fiscal years 2004 and 2005 of
                  funding available for the Coordinators, dated May 14, 2004, and March 21,
                  2005; and HUD’s Housing Choice Voucher Guidebook 7420.10G.

              •   The Authority’s accounting records, annual audited financial statements for the
                  fiscal year ending June 30, 2006, general ledgers, bank statements and cancelled
                  checks, program household files, family self-sufficiency participant files and
                  action plan, board meeting minutes from July 2005 through May 2007,
                  organizational chart, program annual contributions contract with HUD, and
                  program administrative plans effective February 2005 and July 2006.

              •   HUD’s reports and files for the Authority’s program.

We also interviewed the Authority’s employees and HUD staff.

From the Authority’s 2,247 active program participant households as of June 30, 2007, we
statistically selected 66 households’ program files for review by using the United States Army
Statistical Sampling program and ACL Services Limited Software. The Authority incorrectly
calculated payments for the period July 1, 2005, through June 30, 2007, for 49 of the 66 files
reviewed. Our sampling criteria used an expected error rate of 50 percent, a precision of 10
percent, and a confidence level of 90 percent.

Unless the Authority improves its housing assistance payment calculation process, we estimate
that it could make $1,086,442 in future excessive housing assistance and utility reimbursement
payments. We determined this amount by multiplying 9.7 percent (the percentage of the total
housing assistance and utility reimbursement for the 66 households’ program files in the sample
that received excessive payments) by $11,200,442 (the total payments for the population of
households served). We determined the 9.7 percent by annualizing the net excessive payments
of $66,678 ($73,531 in overpayments minus $6,853 in underpayments) for our sample of 66
households divided by the $343,748 in housing assistance and utility reimbursement payments
for one year.

The Authority originally provided a list of 157 zero-income households as of June 30, 2007.
However, six of these households were included in our sample of 66 for the housing assistance
payment calculations so we removed them, leaving 151 zero-income household files, which we
reviewed. Included in the 151 households reviewed were 14 for which housing assistance
payments were not changed to reflect the reporting of zero income until July 2007 or later and
eight that had not been reported as zero income as of June 2007. By removing these 22
households from our population, we were left with 129 households that had reported zero income


                                               23
as of June 30, 2007. The 129 households that had reported zero income as of June 30, 2007,
were used to determine the estimated future housing assistance overpayments.

We determined that an estimate of $32,655 in housing assistance overpayments would be made
due during the next 12 months due to the underreporting of income by zero-income households.
To make this determination, we applied a 3.78 percent error rate found during our review of 129
zero-income households’ files to the estimated average annual housing assistance payments of
$863,892 disbursed by the Authority for all 129 zero-income households as of June 30, 2007.
We determined this error rate by dividing the overpaid housing assistance payments ($28,267) by
the total housing assistance payments made for the 129 households in our sample ($748,616)
from July 1, 2005, through June 30, 2007, during the period in which they reported zero income.
We calculated the Authority’s average annual housing assistance expense by annualizing the
total payments made to the 129 zero-income households in our population as of June 2007
($71,991 times 12).

According to the Authority, there were 102 active participants in the Family Self-Sufficiency
Program as of November 30, 2007. Due to the variance of the escrow account balances and
small population, we decided to conduct a 100 percent review. However, due to the time it took
the Authority to provide its files, we only reviewed 25 of the 102 family self-sufficiency files for
participants active in the program as of November 30, 2007. These were the first 25 that were
randomly selected. The 25 participants were selected to determine whether the Authority had
supporting documentation for participation, correctly calculated escrow account balances,
properly executed contracts of participation with individual training and services plans, and had
documentation to support contract extensions.

The annual average housing assistance payment per unit was determined by taking the voucher
management system’s expenses for fiscal year 2007, which were $11,200,442, and dividing by
the average number of housing choice voucher units for fiscal year 2007 of 2,150, giving an
average annual voucher payment of $5,209 for fiscal year 2007. The Authority was required to
lease up to 95 percent of its contracted vouchers, which were 2,727 units (2,870 units authorized
by HUD times 95 percent) for fiscal year 2007. It only leased an average of 2,150 vouchers.
The Authority needed to lease an additional 577 vouchers to meet its lease-up threshold of 95
percent or 2,727 vouchers for fiscal year 2007. Using the average annual voucher payment of
$5,209 times the number of vouchers that were needed to meet the required 95 percent (577) of
leased vouchers, we estimate that the Authority will have $3,005,593 in excess program funds
that could be put to better use. This estimate is solely to demonstrate the annual amount of
program funds that could be put to better use if the Authority implements our recommendation.
We were conservative in our approach since the Authority had not appropriately issued vouchers
and had declined in leased vouchers between 2006 and 2007 from 82 percent to 76 percent,
respectively.

We performed our on-site audit work from July 2007 through February 2008 at the Authority’s
program office, located at 7315 South Hanna Street, Fort Wayne, Indiana. The audit covered the
period July 1, 2005, through June 30, 2007, but was expanded as necessary to accomplish our
objectives.

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


                                                 24
                             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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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 objective:

              •       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, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.
 Significant Weakness

              Based on our review, we believe the following item is a significant weakness:



                                               25
•   The Authority lacked adequate procedures and controls to ensure compliance
    with federal requirements regarding households’ admission and selection,
    calculations of households’ housing assistance and utility reimbursement
    payments, income verification for reported zero-income households,
    administration of its Family Self-Sufficiency Program, and HUD’s expected
    threshold for issuing available vouchers to eligible participants (see findings
    1, 2, 3, and 4).




                                 26
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE
         Recommendation                                              Funds to be put
             number            Ineligible 1/        Unsupported 2/   to better use 3/
                1A                 $43,631
                1B                  29,900
                1C                                                            $6,853
                1D                                       $214,157
                1E                                                         1,086,442
                2A                   28,267
                2B                   12,505
                2C                   21,411
                2D                                                            32,655
                3A                                                             8,437
                3B                                                             3,808
                3C                                         14,928
                3E                                        889,209
                3G                                        151,661
                4A                                                         3,005,593
               Totals             $135,714             $1,269,955         $4,143,788


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
     required 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 reduction 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 these instances, if the Authority implements
     Recommendation 1C it will ensure that program funds are used to benefit eligible
     households as intended by federal requirements. For Recommendations 1E and 2B, if the


                                               27
Authority implements our recommendations, it will ensure that program funds are spent
according to federal requirements. Once the Authority successfully improves its controls,
this will be a recurring benefit. For Recommendations 3A and 3B, if the Authority
implements our recommendations, it will cease to incur program costs for improper
Family Self-Sufficiency Program participants’ escrow accounts. Our estimate reflects
only the initial year of this benefit. For Recommendation 4A, by implementing adequate
procedures and controls to ensure that the Authority meets HUD’s expected leasing
thresholds in issuing available vouchers, it can provide more housing assistance to
eligible households. Once the Authority successfully improves its controls, this will be a
recurring benefit. Our estimate reflects only the initial year of this benefit.




                                        28
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         29
Ref to OIG Evaluation   Auditee Comments




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         31
Ref to OIG Evaluation   Auditee Comments




                         32
Ref to OIG Evaluation   Auditee Comments




                         33
Ref to OIG Evaluation   Auditee Comments




                         34
Ref to OIG Evaluation   Auditee Comments




                         35
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         36
Ref to OIG Evaluation   Auditee Comments




Comment 4




                         37
Ref to OIG Evaluation   Auditee Comments




Comment 5




                         38
Ref to OIG Evaluation   Auditee Comments




Comment 6




                         39
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




                         40
                         OIG Evaluation of Auditee Comments

Comment 1   We acknowledge the Authority’s efforts in conducting a self-assessment and
            creating a corrective action plan (plan) to address its program weaknesses. We
            agree that the Authority identified the issues cited in this report with the exception
            of the underutilized program funds (see finding 4). According to its plan, the
            Authority initiated many of its corrective actions beginning in September 2005
            and many are ongoing actions. However, as evidenced by the findings in this
            report, the Authority’s identified weaknesses have not been fully corrected. For
            example, the Authority lists revising its verification practices as a subtask for
            correcting inaccurate rent calculations. This effort is listed as beginning on
            January 1, 2006, and completed as of January 31, 2006. We cited the Authority’s
            lack of verifying household income in findings 1, 2, and 3. The Authority also
            identified its utilization of housing assistance payments as a weakness in
            September 2005. Its efforts in making the necessary corrective actions have not
            been completed as noted in finding 4.

Comment 2   The Authority was provided the draft finding outlines and supporting schedules
            for findings 1 and 2 on December 6, 2007, and for findings 3 and 4 on March 4,
            2008. No documentation to support any of the questioned costs was provided by
            the Authority prior to and including its comments on the discussion draft audit
            report. As a result, no adjustments to the recommendations were necessary.

Comment 3   The Authority’s progress in correcting its program weaknesses is commendable.
            However, it listed the correction of inaccurate rent calculations as a recommended
            corrective action. We identified that the Authority incorrectly calculated housing
            assistance and utility allowances for 49 (74 percent) of 66 households we
            reviewed in one or more of the certifications. The 49 files contained
            miscalculations of the households’ annual income, use of the incorrect utility
            reimbursement schedule, use of the incorrect payment standard, and
            miscalculations of income deductions and reimbursements. The Authority still
            needs to improve its quality control procedures to identify staff errors. More
            extensive use of HUD’s system should also assist in recognizing unreported
            income from households.

Comment 4   The Authority did not provide documentation to support that it successfully
            achieved its evaluation and review of zero income households as required by its
            program administrative plan. Its plan states that an interim reexamination will be
            scheduled for households with zero income every 90 days to review for changes
            in income. The Authority did not perform reexaminations every 90 days for the
            151 household files we reviewed (see finding 2).

Comment 5   The Authority did not provide documentation to support that it successfully
            achieved its revision of annual escrow statements issued to participants, corrected
            escrow balances, planned an audit of its escrow balance by an independent third
            party, met with all participants periodically, and that all contracts of participation
            were updated and extensions executed where needed. Additionally, the planned
            audit of its escrow balance by an independent third party is in response to

                                              41
            Recommendation 3E in this report and also included in the discussion draft audit
            report provided to the Authority on March 19, 2008. The Authority did not
            provide any documentation to support the appropriate use of $151,661 in
            Coordinator funds received for fiscal years 2004 and 2005.

Comment 6   As previously stated, the Authority did not provide documentation to support that
            it successfully achieved the leasing of 2,621 program vouchers or its current
            utilization rate. Its latest information submitted to HUD’s Voucher Management
            System was for the last quarter of calendar year 2007. At that time, the Authority
            reported that it had 2,255 program vouchers leased. With regards to its confusion
            over HUD’s Public and Indian Housing Notice 2005-1, the Authority could have
            easily obtained a better understanding of the program funding for fiscal year 2005
            by contacting HUD’s Indianapolis Public Housing Program Center or the
            Cleveland Office of Public Housing Hub.

Comment 7   The findings cited in this report constitute violations of the Authority’s
            consolidated annual contributions contract (contract) with HUD. The contract
            allows for HUD to declare a default of the contract if the Authority fails to
            comply with any obligations under its contract. We did not make a
            recommendation to HUD’s Director of Cleveland Office of Public Housing to
            issue a notice to the Authority as permitted by Section 15 of the contract. The
            recommendations in this report are not overly harsh or punitive, but seek to
            improve the Authority’s administration of its program. Additionally, our
            recommendations are consistent with prior audits we conducted of other housing
            authorities’ programs.

Comment 8   The Authority can provide HUD with documentation to address the findings and
            recommendations cited in this audit report.




                                            42
Appendix C

 FEDERAL REQUIREMENTS AND AUTHORITY’S PROGRAM
              ADMINISTRATIVE PLAN

Finding 1
HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.216(a) state that each assistance
applicant must submit the complete and accurate Social Security number assigned to the
applicant and to each member of the household who is at least six years of age. The
documentation necessary to verify the Social Security number of an individual is a valid Social
Security number issued by the Social Security Administration or such other evidence of the
Social Security number as HUD and, where applicable, the authority may prescribe in
administrative instructions.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.230(a) require each member of
the family of an assistance applicant or participant who is at least 18 years of age and each
family head and spouse regardless of age to sign one or more consent forms.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.508(b) require each family
member, regardless of age, to submit the following evidence to the responsible entity:

(1) For U.S. citizens or U.S. nationals, the evidence consists of a signed declaration of U.S.
citizenship or U.S. nationality. The responsible entity may request verification of the declaration
by requiring presentation of a U.S. passport or other appropriate documentation, as specified in
HUD guidance.

(2) For noncitizens who are 62 years of age or older or who will be 62 years of age or older and
receiving assistance under a Section 214-covered program on September 30, 1996, or applying
for assistance on or after that date, the evidence consists of a signed declaration of eligible
immigration status and proof of age document.

(3) For all other noncitizens, the evidence consists of a signed declaration of eligible immigration
status, one of the documents referred to in 5.510, and a signed verification consent form.

(c) Declaration: (1) For each family member who contends that he or she is a U.S. citizen or a
noncitizen with eligible immigration status, the family must submit to the responsible entity a
written declaration, signed under penalty of perjury, by which the family member declares
whether he or she is a U.S. citizen or a noncitizen with eligible immigration status. (i) For each
adult, the declaration must be signed by the adult. (ii) For each child, the declaration must be
signed by an adult residing in the assisted dwelling unit who is responsible for the child.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.901(a) include requirements that
apply to criminal conviction background checks by public housing authorities that administer
Section 8 and public housing programs when they obtain criminal conviction records, under the
authority of section 6(q) of the 1937 Act (United States Code 42.1437d(q)), from a law

                                                43
enforcement agency to prevent admission of criminals to public housing and Section 8 housing
and to assist in lease enforcement and eviction.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.153 state that the public
housing authority must comply with the consolidated annual contributions contract, the
application, HUD regulations and other requirements, and its program administrative plan.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.158(a) state that the public
housing authority must maintain complete and accurate accounts and other records for the
program in accordance with HUD requirements in a manner that permits a speedy and effective
audit. The authority must prepare a unit inspection report. During the term of each assisted
lease and for at least three years thereafter, the authority must keep (1) a copy of the executed
lease, (2) the housing assistance payment contract, and (3) the application from the family. The
authority must keep the following records for at least three years: records that provide income,
racial, ethnic, gender, and disability status data on program applicants and participants; unit
inspection reports; lead-based paint records as required by part 35, subpart B of this title; records
to document the basis for authority determination that rent to owner is a reasonable rent (initially
and during the term of a contract); and other records specified by HUD.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.162(a)(3) state that the
authority must use program contracts and other forms required by HUD headquarters including
the tenancy addendum required by HUD.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.305(d) state that after receiving
the family’s request for approval of the assisted tenancy, the housing authority must promptly
notify the family and owner of whether the assisted tenancy is approved.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.311(d) state that if the family
moves out of the unit, the authority may not make any housing assistance payment to the owner
for any month after the month when the family moves out. The owner may keep the housing
assistance payment for the month when the family moves out of the unit.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.4 state that the voucher is the
document issued by the authority to a family selected for admission to the voucher program.
This document describes the program and procedures for the authority’s approval of a unit
selected by the family. The voucher also states obligations of the family under the program.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.505(B)(4) state that if the
payment standard amount is increased during the term of the contract, the increased payment
standard amount shall be used to calculate the monthly housing assistance payment for the
family beginning at the effective date of the family’s first regular reexamination on or after the
effective date of the increase in the payment standard amount.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.516(a)(1) require the authority
to conduct a reexamination of family income and composition at least annually. The authority
must obtain and document in the client file third-party verification of the following factors or
must document in the client file why third-party verification was not available: (i) reported
family annual income, (ii) the value of assets, (iii) expenses related to deductions from annual

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income, and (iv) other factors that affect the determination of adjusted income. At any time, the
authority may conduct an interim reexamination of family income and composition. Interim
examinations must be conducted in accordance with policies in the authority’s administrative
plan. As a condition of admission to or continued assistance under the program, the authority
shall require the family head and such other family members as the authority designates to
execute a HUD-approved release and consent form (including any release and consent as
required under 5.230 of this title) authorizing any depository or private source of income or any
federal, state, or local agency to furnish or release to the authority or HUD such information as
the public housing authority or HUD determines to be necessary. The authority and HUD must
limit the use or disclosure of information obtained from a family or from another source pursuant
to this release and consent to purposes directly in connection with administration of the program.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.517(a) state that the authority
must maintain a utility reimbursement schedule for all client-paid utilities, for cost of client-
supplied refrigerators and ranges, and for other client-paid housing services.

Chapter 2, Section E, of the Authority’s administrative plan states the Authority will apply the
following criteria, in addition to the HUD eligibility criteria, as grounds for denial of admission
to the program. The Authority will check criminal history for all adults in the household to
determine whether any member of the family has violated any of the prohibited behaviors as
referenced in Chapter 15, Section B. At no time will an applicant be admitted to the Authority
Section 8 program if the applicant or any member of the applicant household has ever engaged in
the sale, manufacture and/or distribution of any controlled illegal substances. The Authority also
submits a computer matching check to the State of Indiana Department of Work Force
Development. The check provides a detailed summary of the applicants work/benefit history.
This check is conducted prior to determining final eligibility and at least once each year at annual
reexamination.

Chapter 12, Section C, of the Authority’s administrative plan states program participants must
report all changes in household composition and income to the Fort Wayne Housing Authority
between annual reexaminations. This includes additions due to birth, adoption, foster care
placement and court-awarded custody. The family must obtain Fort Wayne Housing Authority
approval prior to all other additions to the household. The head of household is required to
report in writing within ten (10) working days any member of the assisted household who moves
from the unit.
    1. A new total tenant payment will be calculated if the income increased following zero
    income; or
    2. If the participants had an interim recertification resulting in a lower tenant rent.

Decreases in Income
Participants may report a decrease in income and other changes which would reduce the amount
of tenant rent, such as an increase in reimbursements or deductions. The Authority must calculate
the change if a decrease in income is reported.

Housing Authority Errors
If the Fort Wayne Housing Authority makes a calculation error at admission to the program or at
an annual reexamination, an interim reexamination will be conducted, if necessary, to correct the
error, but the family will not be charged retroactively. Families will be given decreases, when

                                                45
applicable, retroactive to when the decrease for the change would have been effective if
calculated correctly.

Chapter 12, Section E, of its plan states
Procedures when the Change is Reported in a Timely Manner
The Fort Wayne Housing Authority will notify the family and the owner of any change in the
Housing Assistance Payment to be effective according to the following guidelines:

Increases in the Tenant Rent are effective on the first of the month following at least thirty days'
notice.

Decreases in the Tenant Rent are effective the first of the month following that in which the
change is reported. However, no rent reductions will be processed until all the facts have been
verified, even if a retroactive adjustment results.

The change may be implemented based on documentation provided by the family, when third-
party written verification is not possible.

Procedures when the Change is not Reported by the Tenant in a Timely Manner
If the family does not report the change as described under Timely Reporting, the family will
have caused an unreasonable delay in the interim reexamination processing and the following
guidelines will apply:

Increase in Tenant Rent will be effective retroactive to the date it would have been effective had
it been reported on a timely basis. The family will be liable for any overpaid housing assistance
and may be required to sign a Repayment Agreement in accordance with Chapter 18 of this
administrative plan.

Decrease in Tenant Rent will be effective on the first of the month following the month that the
change was reported.

Procedures when the Change is Not Processed by the Housing Authority in a Timely Manner
"Processed in a timely manner" means that the change goes into effect on the date it should when
the family reports the change in a timely manner. If the change cannot be made effective on that
date, the change is not processed by the Fort Wayne Housing Authority in a timely manner.

In this case, an increase will be effective after the required thirty days' notice prior to the first of
the month after completion of processing by the Fort Wayne Housing Authority.

If the change resulted in a decrease, the overpayment by the family will be calculated
retroactively to the date that it should have been effective, and the family will be credited for the
amount.

Chapter 15, Section B, of the Authority’s administrative plan states under the family obligations
listed at 24 CFR 982.551, the members of the household must not engage in drug-related
criminal activity or violent criminal activity or other criminal activity that threatens the health,
safety or right to peaceful enjoyment of other residents and persons residing in the immediate


                                                   46
vicinity of the premises. HUD regulations at 24 CFR 982.553(b) requires the Authority to
establish standards for termination of assistance when this family obligation is violated.

If the family violates the lease for drug-related or violent criminal activity, the Fort Wayne
Housing Authority will terminate assistance.

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.54(a) require that the public
housing authority must adopt a written administrative plan that establishes local policies for
administration of the program in accordance with HUD requirements. The administrative plan
and any revisions of the plan must be formally adopted by the authority’s Board of
Commissioners or other authorized authority officials. The administrative plan states authority
policy on matters for which the authority has discretion to establish local policies. The authority
must administer the program in accordance with its administrative plan.

Finding 3
The United States Code, title 42, chapter 8, subchapter I, subsection 1437u(c)(3), states each
family participating in a local program shall be required to fulfill its obligations under the
contract of participation not later than 5 years after entering into the contract. The public housing
agency shall extend the term of the contract for any family that requests an extension, upon a
finding of the agency of good cause. Subsection 1437u(c)(4), states the contract of participation
shall require the head of the participating family to seek suitable employment during the term of
the contract. Subsection 1437u(f)(1), states each public housing agency carrying out a local
program under this section shall, in consultation with the chief executive officer of the unit of
general local government, develop an action plan, carry out activities under the local program,
and secure commitments of public and private resources through a program coordinating
committee established by the public housing agency under this subsection.

HUD issued notices for fiscal years 2004 and 2005 of funding available for the housing choice
voucher family self-sufficiency program coordinators dated May 14, 2004, and March 21, 2005,
which stated the purpose of the program Family Self-Sufficiency program is to promote the
development of local strategies to coordinate the use of assistance under the program with public
and private resources to enable participating families to achieve economic independence and
self-sufficiency. The Family Self-Sufficiency program and this Family Self-Sufficiency notice
of funding available support HUD’s strategic goals of increasing homeownership activities and
helping HUD-assisted renters make progress toward self-sufficiency. The Family Self-
Sufficiency program provides critical tools that can be used by communities to support welfare
reform and help families develop new skills that will lead to economic self-sufficiency. A
Family Self-Sufficiency program coordinator assures that program participants are linked to the
supportive services they need to achieve self sufficiency. Those authorities who apply for the
funding must administer the Family Self-Sufficiency program in accordance with HUD
regulations and requirements in 24 CFR [Code of Federal Regulations] 984, which govern the
Family Self-Sufficiency program, and must comply with existing program requirements, notices,
and guidebooks.



                                                 47
HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.102 state the objective of the
Family Self-Sufficiency program is to reduce the dependency of low-income families on welfare
assistance and on Section 8, public, or any Federal, State, or local rent or homeownership
subsidies. Under the Family Self-Sufficiency program, low-income families are provided
opportunities for education, job training, counseling, and other forms of social service assistance,
while living in assisted housing, so that they may obtain the education, employment, and
business and social skills necessary to achieve self-sufficiency.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.103(b) state self-sufficiency
means that a Family Self-Sufficiency family is no longer receiving Section 8, public or Indian
housing assistance, or any Federal, State, or local rent or homeownership subsidies or welfare
assistance. Achievement of self-sufficiency, although a Family Self-Sufficiency program
objective, is not a condition for receipt of the Family Self-Sufficiency account funds.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.105(a)(1) state a Public
Housing Authority must operate a Family Self-Sufficiency program of the minimum program
size determined in accordance with paragraph (b) of this section. Section 984.105(b)(3) state the
minimum program size for an Authority's public housing or Section 8 Family Self-Sufficiency
program is reduced by one slot for each family that graduates from the Family Self-Sufficiency
program by fulfilling its Family Self-Sufficiency contract of participation on or after October 21,
1998. If a Family Self-Sufficiency slot is vacated by a family that has not completed its Family
Self-Sufficiency contract of participation obligations, the slot must be filled by a replacement
family which has been selected in accordance with the Family Self-Sufficiency family selection
procedures. Section 984.105(d) state upon approval by HUD, a Public Housing Authority may
be permitted to operate a public housing or a Section 8 Family Self-Sufficiency program that is
smaller than the minimum program size if the Public Housing Authority provides to HUD a
certification that the operation of a Family Self-Sufficiency program of the minimum program
size is not feasible because of local circumstances.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.303(b)(1) state the contract of
participation, which incorporates the individual training and services plan(s), shall be in the form
prescribed by HUD, and shall set forth the principal terms and conditions governing participation
in the Family Self-Sufficiency program, including the rights and responsibilities of the Family
Self-Sufficiency family and of the authority, the services to be provided to, and the activities to
be completed by, the head of the Family Self-Sufficiency family and each adult member of the
family who elects to participate in the program. (2) The individual training and services plan,
incorporated in the contract of participation, shall establish specific interim and final goals by
which the Public Housing Authority, and the family, may measure the family's progress toward
fulfilling its obligations under the contract of participation, and becoming self-sufficient. For
each participating Family Self-Sufficiency family that is a recipient of welfare assistance, the
authority must establish as an interim goal that the family become independent from welfare
assistance and remain independent from welfare assistance at least one year before the expiration
of the term of the contract of participation, including any extension thereof. Section 984.303(g)
state the contract of participation is considered to be completed, and a family's participation in
the Family Self-Sufficiency program is considered to be concluded when one of the following
occurs:




                                                48
(1) The Family Self-Sufficiency family has fulfilled all of its obligations under the contract of
participation on or before the expiration of the contract term, including any extension thereof; or
(2) 30 percent of the monthly adjusted income of the Family Self-Sufficiency family equals or
exceeds the published existing housing fair market rent for the size of the unit for which the
Family Self-Sufficiency family qualifies based on the authority's occupancy standards. The
contract of participation will be considered completed and the family's participation in the
Family Self-Sufficiency program concluded on this basis even though the contract term,
including any extension thereof, has not expired, and the family members who have individual
training and services plans have not completed all the activities set forth in their plans.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 984.305(b)(3) state the authority
shall not make any additional credits to the Family Self-Sufficiency family's Family Self-
Sufficiency account when the Family Self-Sufficiency family has completed the contract of
participation, as defined in Sec. 984.303(g), or when the contract of participation is terminated or
otherwise nullified. Section 984.305(f)(2)(ii) state Family Self-Sufficiency account funds
forfeited by the Family Self-Sufficiency family will be treated as program receipts for payment
of program expenses under the authority budget for the applicable Section 8 program, and shall
be used in accordance with HUD requirements governing the use of program receipts.

Chapter 23.4 of HUD’s Housing Choice Voucher Program Guidebook 7420.10G states the initial
term of the contract of participation is five years. The authority may grant an extension of no
more than two years in response to a written request from the family explaining the need for the
extension, if the authority determines that there is good cause for granting the extension. “Good
cause” includes circumstances beyond the control of the family such as:
• Serious illness, or
• Involuntary loss of employment.

Chapter 23.4 of HUD’s Guidebook requires that every Family Self-Sufficiency contract must
include a training and service plan for the head of the family that commits the family head to
seek and maintain suitable employment. The training plan should include clearly stated goals
with specific deadlines. Other family members can also have individual training and service
plans. For families currently receiving welfare assistance, the interim goals must include
independence from welfare assistance for at least 12 consecutive months before the expiration of
the contract of participation. Although the head of the family is required to seek and maintain
employment during the term of the contract, it is permissible for the head to attend school full-
time prior to the search for employment. There is no minimum employment period. Prior to
execution of the contract of participation, the authority must determine if employment goals
proposed for inclusion in the individual training and services plans are appropriate goals
considering the participant's skills, interests, education, and the jobs available in the local market.
Family Self-Sufficiency employment objectives should generally include jobs with growth
potential. Training and service plans should be reviewed regularly with the family and changed
as necessary to reflect new interests and circumstances.

Chapter 23.5 of HUD’s Guidebook states the amount of the escrow credit is based on increases
in the family’s total tenant payment resulting from increases in the family’s earned income
during the term of the Family Self-Sufficiency contract. The authority must compute escrow
credit at any time it conducts an annual or interim reexamination of income for a Family Self-
Sufficiency family during the term of the contract of participation.

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The Authority’s Housing Choice Voucher Program and Public Housing Family Self-Sufficiency
Action Plan, Effective July 2005, states the Program Coordinating Committee is comprised of
community leaders from the public and private sector, Authority personnel, program participants,
and others in the community. An integral part of the program, the Program Coordinating
Committee’s responsibilities include:
1. Assisting in the development and expansion of Family Self-Sufficiency services and training
as defined as each Individual Training and Service plan;
2. Advisory Group for the Family Self-Sufficiency program;
3. Assisting in expanding and coordinating agreements between the Authority and potential
service providers;
4. Recommending improvements and provision for delivery services;
5. Marketing the Family Self-Sufficiency Program to others in the community and providing
additional incentives for participation;
6. Holding regular meetings to review and update its goals;
7. Participating in the determination of program extensions of individual participating families;
and,
8. Assisting in the development annual updates to the Family Self-Sufficiency Action plan.

Finding 4
Chapter 24.1 of HUD’s Guidebook states the failure of any Authority to use all of the funding
contracted for the housing choice voucher program will always mean that a family in need of
housing assistance is not being helped. HUD has a responsibility to Congress to ensure that the
funds authorized for housing assistance are used to assist the maximum number of families.

Chapter 24.4 of HUD’s Guidebook states often a low utilization rate is related to the tightness of
the local housing market. Too often, however, the Authority staff assumes that a tight housing
market establishes an insurmountable hurdle and fails to consider a leasing strategy to overcome
specific tight market problems. To develop a good strategy, the Authority must collect and
analyze information to determine the specific issues that contribute to low leasing rates.

The term “success rate” refers to the percent of families receiving housing choice vouchers that
succeed in finding suitable units and become program participants. Collecting and monitoring
success rates are essential program administration activities.

Chapter 20.2 of HUD’s Guidebook states that when executing an annual contributions contract, a
public housing agency agrees to comply with the following requirement: if funds on-hand
exceeds current needs they will be invested in accordance with current HUD regulations.

Chapter 4 of HUD’s Financial Management Handbook states that each public housing authority
with a cash balance of $10,000 or more shall invest such funds in HUD-approved investments.




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