oversight

The Portage Metropolitan Housing Authority, Ravenna, Ohio, 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 2008-06-30.

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

                                                                  Issue Date
                                                                          June 30, 2008
                                                                  Audit Report Number
                                                                          2008-CH-1011




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


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

SUBJECT: The Portage Metropolitan Housing Authority, Ravenna, Ohio, Needs to Improve
           Its Section 8 Housing Choice Voucher Program Administration

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Portage Metropolitan Housing Authority’s (Authority) Section 8
             Housing Choice Voucher program (program) under its Moving to Work
             Demonstration program. The audit was part of the activities in our fiscal year
             2008 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. This is the first of two audit reports on the Authority’s
             program.

 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, and housing quality
             standards enforcement was deficient. The Authority incorrectly calculated
             households’ payments, resulting in more than $26,000 in overpayments and
             nearly $600 in underpayments for the period January through December 2007.
             Based on our statistical sample, we estimate that over the next year, the Authority
             will overpay more than $593,000 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 73
           files statistically selected for review, 17 did not contain documentation required
           by HUD and the Authority’s program administrative plan to support more than
           $48,000 in housing assistance and utility allowance payments. Further, the
           Authority’s inadequate income verifications and calculations for households
           reporting zero income resulted in more than $27,000 in improper housing
           assistance and utility allowance payments.

           The Authority also failed to properly reinspect, abate, and terminate assistance for
           program units that failed housing quality standards inspections. As a result, it
           overpaid more than $12,000 in housing assistance and utility allowances and
           allowed tenants to reside in units that were not decent, safe, and sanitary.

           We informed the Authority’s executive director and the Director of HUD’s
           Cleveland Office of Public Housing of minor deficiencies through a
           memorandum, dated June 19, 2008.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of more than $90,000 in funds; provide documentation or reimburse
           its program more than $51,000 from nonfederal funds for the unsupported
           payments cited in this audit report; and implement adequate policies, procedures,
           and controls to address the findings cited in this audit report to prevent more than
           $606,000 in program funds from being spent on excessive housing assistance and
           utility allowance payments.

           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 Director of
           HUD’s Cleveland Office of Public Housing 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 staff during the
           audit. We held an exit conference with the executive director on June 5, 2008.

           We asked the executive director to provide comments on our discussion draft
           audit report by June 19, 2008. The executive director provided written comments,
           dated June 18, 2008, and he agreed with our recommendations. The complete text


                                             2
of the written comments, along with our evaluation of that response, can be found
in appendix B of this report.




                                3
                            TABLE OF CONTENTS

Background and Objective                                                           5

Results of Audit
      Finding 1: Controls over Housing Assistance and Utility Allowance Payments   6
                 Need Improvement

      Finding 2: The Authority’s Zero-Income Households Had Unreported Income      10

      Finding 3: The Authority Failed to Enforce Housing Quality Standards for
                 Reinspections, Abatements, and Terminations                       13

Scope and Methodology                                                              17

Internal Controls                                                                  19

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               21
   B. Auditee Comments and OIG’s Evaluation                                        22
   C. Federal Requirements and Authority’s Program Administrative Plan             27




                                            4
                      BACKGROUND AND OBJECTIVE

The Portage Metropolitan Housing Authority (Authority) was created in 1968 pursuant to
Section 3735.27 of the Ohio Revised Code to provide safe and sanitary housing to low-income
families. In 1977, the Authority began administering federal housing programs, beginning with
the Section 8 rental housing assistance program, and expanded its jurisdiction to include all of
Portage County. The Authority is a political subdivision of the State of Ohio and is governed by
a five-member board of commissioners appointed for five-year terms by local elected officials.
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.

In 1996, Congress authorized the Moving to Work Demonstration (Moving to Work) program as
a demonstration program under the U.S. Department of Housing and Urban Development
(HUD). The Authority was accepted into the program on March 15, 1999, when HUD’s
Assistant Secretary for Public and Indian Housing signed the Authority’s Moving to Work
agreement (agreement). Moving to Work allows certain housing authorities to design and test
ways to promote self-sufficiency among assisted families, achieve programmatic efficiency,
reduce costs, and increase housing choice for low-income households. Congress exempted the
participants from much of the Housing Act of 1937 and associated regulations as outlined in its
agreement. The Authority’s agreement outlines alternate funding, reporting, occupancy, and rent
structure policies for its Section 8 Housing Choice Voucher program (program). The
agreement’s alternate occupancy and rent structure policies were incorporated into the
Authority’s program administrative plan.

As of March 2008, the Authority had 1,496 units under contract with annual housing assistance
payments totaling more than $8.3 million in program funds.

Our objective was to determine whether the Authority administered its program in accordance
with HUD’s requirements, which included determining whether the Authority (1) accurately
calculated housing assistance and utility allowance payments, (2) maintained required
documentation to support household eligibility, (3) appropriately verified whether reported zero-
income households had income, and (4) properly enforced HUD’s housing quality standards.
This is the first of two audit reports on the Authority’s program.




                                                5
                                RESULTS OF AUDIT

Finding 1: Controls over Housing Assistance and Utility Allowance
                     Payments Need Improvement
The Authority did not comply with HUD’s requirements and its program administrative plan
when issuing housing assistance and utility allowance payments. It failed to maintain
documentation to support all payments to program landlords and households and consistently
compute payments accurately. These deficiencies occurred because the Authority lacked
adequate procedures and controls to ensure that its calculations were accurate and that HUD’s
requirements and its program administrative plan were appropriately followed. As a result, the
Authority was unable to support more than $48,000 in housing assistance and utility allowance
payments and overpaid more than $26,000 and underpaid nearly $600 in housing assistance and
utility allowances. Based upon our statistical sample, we estimate that over the next year, the
Authority will overpay more than $593,000 in net housing assistance and utility allowances.



 The Authority Lacked
 Documentation to Support
 More Than $48,000 in Housing
 Assistance and Utility
 Allowance Payments

              We statistically selected 73 household files from a universe of 1,775 households
              that received housing assistance payments from January through September 2007
              using data mining software. The 73 files were reviewed to determine whether the
              Authority had documentation for and correctly calculated households’ housing
              assistance and utility allowance payments for the period January 1 through
              December 2007. Our review was limited to the information maintained by the
              Authority in its households’ files.

              The Authority lacked documentation to support housing assistance and utility
              allowance payments totaling $48,209 for the period January through December
              2007. The documentation was required by HUD’s regulations and the Authority’s
              program administrative plan. Of the 73 household files reviewed, 17 files (23
              percent) had missing or incomplete documents as follows:

                  ¾ Six were missing a disclosure of information on lead-based paint,
                  ¾ Five were missing signed U.S. citizenship certifications,
                  ¾ Four had incomplete housing assistance payments contracts and/or lease
                    agreements,
                  ¾ Three were missing a rent reasonableness study,
                  ¾ Two were missing the households’ initial application,
                  ¾ Two were missing proof of a criminal history check, and
                  ¾ Two were missing proof of Social Security number.

                                               6
            The Authority obtained new or original documentation for 7 of the 17 household
            files after we notified it of the missing or incomplete documents during the audit.
            This resulted in a reduction in recommendation 1A of $35,599 ($33,955 in
            housing assistance and utility allowance payments and $2,644 in associated
            administrative fees). For three files, the Authority was unable to obtain the
            documentation since the households were no longer on the program and could not
            be located. As a result, the questioned cost cited in recommendation 1A only
            reflects the missing documentation for the remaining 7 files (17 minus 10).

The Authority Made Incorrect
Housing Assistance and Utility
Allowance Payments


            The Authority’s miscalculations and its failure to comply with program
            requirements resulted in housing assistance and utility allowance overpayments of
            $26,912 and underpayments of $577. Of the 73 files reviewed, 44 (60 percent)
            contained errors in one or more of the income certifications. The 44 files
            contained the following errors:

               ¾ 25 had calculation errors relating to annual income,
               ¾ 18 did not have proper third party verifications of income and/or income
                 deductions and allowances,
               ¾ 15 had income certifications that were processed in an untimely manner,
               ¾ 12 did not retroactively adjust the housing assistance for households that
                 reported an increase in income in an untimely manner,
               ¾ 12 had incorrect utility allowances,
               ¾ 10 had inappropriate income deductions and/or allowances, and
               ¾ Five had an incorrect payment standard.

The Authority’s Procedures
and Controls Had Weaknesses


            The Authority did not maintain the required program documentation and made
            incorrect housing assistance and utility allowance payments to program landlords
            and households because it lacked adequate procedures and controls to ensure that
            it appropriately followed HUD’s regulations and its program administrative plan.
            The Authority’s Section 8 manager admitted that the department had lacked
            consistent quality control procedures for several years. The Authority also did not
            have written guidance that incorporated many of its detailed, in-house procedures
            for its program. The Section 8 manager added that despite the availability of
            other written guidance, including its administrative plan, many staff members
            relied on verbal instruction in conducting their daily tasks. As a result of these
            control weaknesses, many staff members were unaware that they were following
            improper procedures, and management was unaware of staff errors.



                                             7
             During the audit, the Authority restructured its Section 8 department to add a
             compliance specialist. The specialist will be responsible for conducting quality
             control reviews, work with the manager to retrain staff, and develop an in-house
             procedures manual to address those areas needing clarification and improvement.

Conclusion

             As a result of its control weaknesses, the Authority disbursed $48,209 in housing
             assistance and utility allowance payments without supporting documentation and
             overpaid $26,912 and underpaid $577 in housing assistance and utility
             allowances. Unless the Authority implements adequate procedures and controls
             over its disbursement of payments to ensure compliance with HUD’s regulations
             and its program administrative plan, we estimate that more than $593,000 in
             payments will be misspent over the next year. Our methodology for this estimate
             is explained in the Scope and Methodology section of this audit report.

             In accordance with 24 CFR [Code of Federal Regulations] 982.152(d), HUD may
             reduce or offset any administrative fee to public housing authorities in the amount
             determined by HUD, if the authorities fail to perform their administrative
             responsibilities correctly or adequately under the program. The Authority
             received $1,139 in program administrative fees related to the unsupported
             payments for the 7 households and $14,081 in program administrative fees for the
             44 households with incorrect housing assistance and utility allowance payments.

Recommendations

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

             1A.    Provide supporting documentation or reimburse its program $51,490
                    ($48,209 in housing assistance and utility allowance payments and $3,281
                    in associated administrative fees) from nonfederal funds for the
                    unsupported payments and associated administrative fees cited in this
                    finding, of which $16,393 ($14,254 in housing assistance and utility
                    allowance payments and $1,139 in associated administrative fees) remains
                    to be supported or reimbursed.

             1B.    Reimburse its program $40,993 ($26,912 in housing assistance and utility
                    allowance payments and $14,081 in associated administrative fees) from
                    nonfederal funds for the overpayment of housing assistance and utility
                    allowances cited in this finding.

             1C.    Reimburse the appropriate households $577 for the underpayment of
                    housing assistance and utility allowances cited in this finding.



                                              8
1D.   Implement adequate procedures and controls to ensure that all required file
      documentation is complete, accurate, and maintained in its household files
      to support the eligibility of housing assistance and utility allowance
      payments.

1E.   Implement adequate procedures and controls to ensure that its staff
      properly calculates housing assistance and utility allowance payments. By
      implementing adequate procedures and controls, the Authority should help
      to ensure that $593,070 in net program funds is appropriately used for
      future payments.




                               9
Finding 2: The Authority’s Zero-Income Households Had Unreported
                               Income
The Authority did not perform periodic reviews to determine whether reported zero-income
households had unreported income as required by its program administrative plan. Of the 88
zero-income households reviewed, 14 had earned 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 $27,000 for households that were able to
meet their rental obligations.



 Households Had Unreported
 Income

               We reviewed all 85 households listed as zero income by the Authority from
               January through September 2007 to determine whether the households had
               unreported income according to HUD’s Enterprise Income Verification system
               (system). Of the 85 households, HUD’s system showed that 27 households had
               earned income during the time their zero-income certifications were effective.
               We reviewed the 27 household files further to determine whether the households
               had unreported income for the period January 2006 through December 2007.

               The Authority’s program administrative plan states that an interim reexamination
               will be scheduled for households reporting zero income every 60 days to review
               for changes in income. However, the Authority did not perform these
               reexaminations for 25 of 26 households as its plan required. The remaining
               household did not require a reexamination of income since the household reported
               new income within the 60-day period.

               Nine of the households had unreported income resulting in the Authority
               providing $16,886 in excessive housing assistance and utility allowances. Our
               review was limited to the information maintained in HUD’s system and the
               Authority’s household files.

               The following are examples of households with unreported income:

               •   Household 2195-03 had income, according to HUD’s system, totaling $30,328
                   from January 2006 through December 2007. Since the household had
                   unreported income, the Authority overpaid a total of $6,936 in housing
                   assistance and utility allowances from January 2006 through December 2007.
                   There was no evidence in the household file that the Authority conducted a
                   reexamination every 60 days as stated in its administrative plan.

               •   Household 0104-03 had income, according to HUD’s system, totaling $9,458
                   from October 2006 through September 2007. Since the household had

                                               10
               unreported income, the Authority overpaid a total of $2,971 in housing
               assistance and utility allowances from December 2006 to December 2007.
               There was no evidence in the household file that the Authority conducted a
               reexamination every 60 days as stated in its administrative plan.

           In addition to conducting reexaminations every 60 days, the Authority developed
           a checklist on which households report at each income review how the family
           pays for its daily living expenses. The form was intended to uncover sources of
           income that the household might not be reporting to the Authority. Where
           applicable, this checklist was only consistently present in one file. The Section 8
           manager said that she was aware that staff was not conducting the reexaminations
           because of the additional time required to review household income every 60
           days. By conducting the reviews and verifying income as required by its program
           administrative plan, the Authority could have significantly increased its chances
           of detecting unreported income.

           The Authority also could have reduced the amount of excess housing assistance
           and utility allowance payments resulting from households’ unreported income if it
           had more aggressively pursued access to HUD’s system. Due to data transfer
           limitations between the Authority’s software and HUD data systems, the
           Authority lacked the ability to obtain data from HUD’s income verification
           system until early 2007. However, the Authority did not seriously pursue access
           to the system until November 2007 and successfully obtained access in April
           2008—almost one year later. Although the Authority could thoroughly verify
           household income, the delay in obtaining access to the income verification system
           allowed several households to receive months of excessive housing assistance and
           utility allowance.

The Authority Did Not Process
Income Changes Correctly

           For 7 of the 27 households reviewed, the Authority failed to properly verify
           and/or adjust annual income and the housing assistance and utility allowance
           payments after the household that reported a change. 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. As a result of the improper verifications
           and adjustments to income, the Authority overpaid $10,172 in housing assistance
           and utility allowances. The seven household files contained the following errors:

               ¾ Five did not retroactively adjust the housing assistance for households that
                 reported an increase in income in an untimely manner,
               ¾ Three did not have proper third-party verifications of income, and
               ¾ Two had an incorrect payment standard.


                                           11
             Errors of these types are noted in finding 1 in this report.

Conclusion

             As a result of the Authority’s failure to properly verify household income for its
             zero-income households and identify unreported income, it improperly paid more
             than $27,000 ($16,886 plus $10,172) 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 $13,000 in excessive housing assistance and
             utility allowances over the next year. Our methodology for this estimate is
             explained in the Scope and Methodology section of this audit report.

             In accordance with 24 CFR [Code of Federal Regulations] 982.152(d), HUD may
             reduce or offset any administrative fee to public housing authorities, in the
             amount determined by HUD, if the authorities fail to perform their administrative
             responsibilities correctly or adequately under the program. The Authority
             received $6,514 in program administrative fees related to the 16 (9 plus 7)
             households with missing income reviews and improper processing of reported
             household income.

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
                    $16,886 from nonfederal funds for the overpayment of housing assistance
                    and utility allowances cited in this finding.

             2B.    Reimburse its program $10,172 from nonfederal funds for the
                    overpayment of housing assistance and utility allowances due to not
                    including household reported income.

             2C.    Reimburse its program $6,514 from nonfederal funds for the
                    administrative fees related to the 16 households with missing income
                    reviews and improper processing of reported household income.

             2D.    Implement adequate controls to ensure that it follows its administrative
                    plan for monitoring zero-income households to minimize the chance that it
                    will overpay housing assistance and utility allowances. These controls
                    should help to ensure that an estimated $13,529 in housing assistance and
                    utility allowances is not overpaid during the next year.




                                               12
Finding 3: The Authority Failed to Enforce Housing Quality Standards
           for Reinspections, Abatements, and Terminations
The Authority did not comply with HUD’s requirements and its program administrative plan
when enforcing housing quality standards. It failed to properly reinspect, abate, and terminate
housing assistance for program units that failed housing quality standards inspections. This
condition occurred because the Authority lacked adequate policies, procedures, and controls to
ensure that HUD’s regulations and its program administrative plan were appropriately followed.
As a result, it overpaid more than $12,000 in housing assistance and utility allowances from
January through December 2007, and households resided in units that were not decent, safe, and
sanitary.



 The Authority Failed to Abate
 Program Assistance for Units
 Failing Reinspections

              From the Authority’s database listing all program units that had housing quality
              standards inspections conducted from January through December 2007, we
              reviewed all inspections to determine whether the Authority properly enforced
              housing quality standards for performing reinspections, abatements, and
              terminations. We separated our review into two timeframes to account for the
              Authority’s new computer software implemented in October 2007, which changed
              the procedure for processing abatements.

              The Authority improperly processed abatements and terminations for 45 of the 61
              units (74 percent) that failed reinspections between January and September 2007.
              The most common error was staff failing to begin abatements at the proper time
              allowing most units to pass a second reinspection before the scheduled abatement
              began. The Authority also did not abate housing assistance when units with
              emergency violations failed a reinspection.

              The Authority implemented new computer program software in October 2007 that
              changed the procedure for processing abatements. However, it continued to
              improperly process abatements and terminations in 14 of the 19 units (74 percent)
              that failed reinspections between October and December 2007. It also did not
              always notify households and owners of an abatement or termination. In addition,
              the abatements or terminations processed by the Authority did not match the
              notification letters sent in 12 of the 42 cases reviewed (29 percent) from January
              to September 2007 and in 8 of 15 cases reviewed (53 percent) from October to
              December 2007.




                                              13
The Authority Did Not Always
Reinspect Units in a Timely
Manner

           The Authority did not always perform timely reinspections for units failing a
           housing quality standards inspection. It contracted with Housing Authority
           Services (contractor) to perform housing quality standards inspections. Although
           the contractor generally performed timely reinspections of units failing for
           nonemergency violations, the contractor did not follow the Authority’s
           administrative plan or its contract when reinspecting units with emergency
           violations. For 8 of the 24 units cited as having emergency violations, the
           contractor took an average of three days to reinspect the units. According to
           chapter 10.D of the Authority’s administrative plan and the contract between the
           Authority and its contractor, emergency violations must be corrected and
           reinspected within 24 hours.

           In addition, the contractor took an average of 36 to 51 days to reinspect units
           when a member of the household was not present on the contractor’s first
           inspection attempt. The contractor also did not perform a second reinspection for
           units in abatement status for an average of 45 to 52 days after the first
           reinspection. HUD’s regulations and the Authority’s administrative plan state
           that units with nonemergency violations will be reinspected within 30 days. The
           administrative plan also states that the abatement will continue for 30 days before
           termination is initiated.

The Authority Improperly Paid
Housing Assistance for Units
That Were Not Decent, Safe,
and Sanitary

           As a result of improper abatements, terminations, and reinspections, the Authority
           improperly paid $12,650 in net housing assistance and utility allowances from
           January through December 2007. Specifically, for units that failed reinspections
           between January and September 2007, the Authority overpaid $13,890 in housing
           assistance and utility allowances, underpaid owners $1,000 in housing assistance,
           and underpaid households $202 in utility allowances. After its implementation of
           the new computer software and procedures for processing abatements in October
           2007, the Authority only overpaid $1,088 in housing assistance and utility
           allowances and underpaid owners $1,126 for units that failed reinspections
           between October and December 2007. As a result, households resided in units
           that were not decent, safe, and sanitary.




                                            14
The Authority Did Not Properly
Train and Monitor Its Staff


             The improper abatements, terminations, and reinspections occurred because the
             Authority lacked adequate procedures and controls over the enforcement of
             housing quality standards. The Authority’s Section 8 management failed to
             adequately train and monitor the staff processing abatements and terminations and
             did not monitor the timeliness of reinspections. The Authority also lacked
             policies that adequately addressed when staff should execute an abatement and/or
             termination based on a missed or failed inspection. According to several Section
             8 staff, the Authority started processing abatements in late 2006 or early 2007,
             and the staff responsible for initiating the abatements was not aware of their
             responsibilities and/or did not understand how to process abatements. The
             Section 8 manager also said that there was no regular quality control over
             abatements, terminations, or reinspections.

             The implementation of the Authority’s new software in October 2007 streamlined
             the abatement and termination processes, which reduced the opportunity for
             calculation errors. This change caused the dollar amount of the error occurring
             per abatement to decrease. However, the Authority’s staff continued to make
             errors by not following the program administrative plan’s guidance regarding
             when to start and stop abatements.

Conclusion

             As a result of control weaknesses in the abatement, termination, and reinspection
             processes, the Authority improperly paid $12,650 in net housing assistance and
             utility allowance payments from January through December 2007.

             In accordance with 24 CFR [Code of Federal Regulations] 982.152(d), HUD may
             reduce or offset any administrative fee to public housing authorities in the amount
             determined by HUD, if the authorities fail to perform their administrative
             responsibilities correctly or adequately under the program. The Authority
             received $1,327 in program administrative fees related to the 53 households (45
             plus 8) cited in this finding.

Recommendations

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

             3A.    Reimburse its program $14,978 ($13,890 plus $1,088) from nonfederal
                    funds for the overpayment of housing assistance and utility allowances for
                    the units cited in this finding.


                                             15
3B.   Reimburse the owners of the units cited in this finding $2,126 ($1,000 plus
      $1,126) in housing assistance payments that were inappropriately abated.

3C.   Reimburse the appropriate households $202 in utility allowance payments
      that were inappropriately abated.

3D.   Reimburse its program $1,327 from nonfederal funds for the related
      administrative fees received for the units cited in this finding that had
      improper reinspections, abatements, and terminations.

3E.   Revise its program administrative plan to clearly explain when and under
      what circumstances the Authority will abate and terminate housing
      assistance due to failed or missed housing quality standards inspections.

3F.   Implement adequate procedures and controls to ensure that its enforcement
      of housing quality standards meets HUD’s requirements and its program
      administrative plan.




                                16
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

               •   Applicable laws; regulations; and HUD’s program requirements at 24 CFR
                   [Code of Federal Regulations] Parts 5 and 982, HUD’s Public and Indian
                   Housing Notices 2000-9 and 2003-12, and HUD’s Housing Choice Voucher
                   Guidebook 7420.10.

               •   The Authority’s accounting records, annual audited financial statements for
                   fiscal years 2005 and 2006, general ledgers, bank statements, board meeting
                   minutes from January 2006 through December 2007, organizational chart,
                   program household files, program annual contributions contract with HUD,
                   Moving to Work agreement and amendments effective from March 1999
                   through March 2006, and program administrative plan effective October 2006.

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

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

Finding 1

We statistically selected 73 household files from a universe of 1,775 households that received
housing assistance payments from January through September 2007 using data mining software.
The 73 files were reviewed to determine whether the Authority had documentation for and
correctly calculated households’ housing assistance and utility allowance payments for the
period January through December 2007. Our sample selection included households receiving
both tenant and project-based voucher assistance and included a 90 percent confidence level.

Unless the Authority implements adequate procedures and controls over the disbursement of
housing assistance and utility allowance payments to ensure compliance with HUD’s regulations
and its program administrative plan, we estimate that more than $593,000 in payments will be
misspent over the next year. We determined this amount by multiplying the error rate of 7.1
percent (the total net excess housing assistance and utility allowances paid for the 73 households
divided by the total housing assistance and utility allowance paid for the 73 households) times
$6,264,829 (the total payments for the population of households served from January through
September 2007). The resulting amount was annualized to cover estimated net overpayments
during the next 12 months. This estimate is presented solely to demonstrate the annual amount
of program funds that could be put to better use for appropriate payments if the Authority
implements our recommendation. While these benefits could recur indefinitely, we were
conservative in our approach and only included the initial year in our estimate.

Finding 2

We reviewed all 85 households reporting zero income from January through September 2007 as
shown in HUD’s Public and Indian Housing Information Center to determine whether the

                                                17
households had unreported income according to HUD’s system. Of the 85 household files
reviewed, the system showed that 27 households earned income during the time their zero-
income certifications were effective. We conducted further review of the 27 files to determine
whether the households had unreported income during the period January 2006 through
December 2007 and whether the Authority conducted periodic reviews of the zero-income
households and processed any reported income changes according to HUD’s requirements and
its program administrative plan.

If the Authority does not implement adequate controls over its zero-income households, we
estimate that it could pay more than $13,000 in excessive housing assistance and utility
allowances over the next year. We determined this amount by dividing the total excess housing
assistance and utility allowances paid for zero-income households with incorrect or unreported
income calculations ($27,058 paid over 24 months from January 2006 through December 2007)
by 24 months to determine the average monthly overpayment of housing assistance and utility
allowances. This monthly amount was annualized to cover estimated overpayments during the
next 12 months. This estimate is presented solely to demonstrate the annual amount of program
funds that could be put to better use for appropriate payments if the Authoritiy implements our
recommendation. While these benefits could recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate.

We performed our on-site audit work from September 2007 through May 2008 at the Authority’s
program office located at 2832 State Route 59, Ravenna, Ohio. The audit covered the period
January 1 through December 31, 2007, but was expanded as necessary.

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




                                               18
                             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:


                                               19
•   The Authority lacked adequate procedures and controls to ensure compliance
    with federal requirements regarding household eligibility; calculation of
    household income, housing assistance, and utility allowances; income
    verification and processing for reported zero-income households; and
    enforcement of housing quality standards (see findings 1, 2, and 3).




                               20
                                     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                                         $51,490
                 1B                  $40,993
                 1C                                                               $577
                 1E                                                            593,070
                 2A                    16,886
                 2B                    10,172
                 2C                     6,514
                 2D                                                             13,529
                 3A                    14,978
                 3B                                                               2,126
                 3C                                                                 202
                 3D                    1,327
                Totals               $90,870                $51,490           $609,504


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. This includes reductions in outlays, deobligation of funds, withdrawal of
     interest subsidy costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     which are specifically identified. In these instances, if the Authority implements
     recommendations 1E and 2D, it will ensure that program funds are spent according to
     federal requirements. Once the Authority successfully improves its procedures and
     controls, this will be a recurring benefit. Our estimate reflects only the initial year of this
     benefit.


                                                 21
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         22
Ref to OIG Evaluation   Auditee Comments




                         23
Ref to OIG Evaluation   Auditee Comments




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         25
                         OIG Evaluation of Auditee Comments

Comment 1   The actions taken, in process, and proposed by the Authority, if fully
            implemented, should improve its program operations.




                                             26
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] 5.240(c) state that 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.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.508(a) and (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 section 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. For each
adult, the declaration must be signed by the adult. 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
                                                27
authority of section 6(q) of the 1937 Act (United States Code 42.1437d(q)), from a law
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] 982.305(b)(1) state that before the
beginning of the initial term of the lease for a unit, the landlord and the tenant must have
executed the lease (including the HUD-prescribed tenancy addendum), and the lead-based paint
disclosure information as required in section 35.92(b) of this title.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.308(d) state that the lease must
specify all of the following: (1) the names of the owner and the tenant, (2) the unit rented
(address, apartment number, and any other information needed to identify the contract unit), (3)
the term of the lease (initial term and any provisions for renewal), (4) the amount of the monthly
rent to owner, and (5) a specification of what utilities and appliances are to be supplied by the
owner and what utilities and appliances are to be supplied by the family.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.451(a)(2) state that the term of
the housing assistance payments contract is the same as the term of the lease.

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
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

                                                 28
examinations must be conducted in accordance with policies in the authority’s administrative
plan.

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.54(a) state that the authority
must administer the program in accordance with its administrative plan.

The Authority’s administrative plan states,

Chapter 5, Section A. The Authority assigns one bedroom units to two people within the
following guidelines: persons of different generations, persons of the opposite sex (other than
spouses), and unrelated adults should be allocated a separate bedroom. The family may request a
larger size voucher than indicated by the Authority’s subsidy standards. Such request must be
made in writing within five business days of the Authority’s determination of bedroom size. The
request must explain the need or justification for a larger bedroom size.

Chapter 6, Section A. The Authority’s deductions from annual income for dependents are as
follows: $480 each for family members (other than the head or spouse) who are minors and for
family members who are 18 and older who are full-time students or who are disabled. This
allowance is not to exceed $960, except that current residents as of April 23, 1999, will have an
allowance of $480 each for family members (other than the head or spouse) who are minors and
for family members who are 18 and older who are full-time students or who are disabled, as of
June 1, 2000. A $500 deduction will be offered to families whose head of household, co-head,
or spouses are full time students in post-secondary education. To qualify, a student must show
satisfactory progress toward graduation with a degree and maintain a minimum 2.0 grade point
average (4.0 scale). Only one education deduction will be permitted per family. A $500
deduction will be offered to families whose head of household, co-head, or spouse is employed
32 hours per week or more on a permanent basis.

Chapter 6, Section A. Families who experience a permanent increase in employment earnings
grossing in excess of $100 per month over prior earned income will be eligible for a phased rent
increase as follows: (1) for the first two months following the increase in employment earnings,
no rent adjustment will be made; (2) in the third month, rent will be increased by half of the
regular rent increase amount (this new rent level will be maintained for the third and fourth
months); and (3) in the fifth month following the increase in employment earnings, the full rental
charge will implemented.

Chapter 6, Section G. Regular alimony and child support payments are counted as income for
calculation of total tenant payment. If the amount of child support or alimony received is less
than the amount awarded by the court, the Authority must use the amount awarded by the court
unless the family can verify that it is not receiving the full amount. The Authority will accept
that the family is receiving an amount less that the award if, (1) it receives verification from the
agency responsible for enforcement or collection or (2) the family furnishes documentation of
child support or alimony collection action filed through a child support enforcement/collection
agency or has filed an enforcement or collection action through an attorney. It is the family’s
responsibility to supply a certified copy of the divorce decree.

Chapter 6, Section H. Lump-sum payments caused by delays in processing periodic payments
(unemployment or welfare assistance) are counted as income. In order to determine amount of

                                                 29
retroactive tenant rent that the family owes as a result of the lump sum receipt, the Authority will
calculate prospectively if the family reported the payment within 10 business days and
retroactively to date of receipt if the receipt was not reported within that time frame.

Chapter 7, Section A. The Authority will verify information through the four methods of
verification acceptable to HUD in the following order: (1) up-front income verification (UIV)
whenever available; (2) third-party written; (3) third-party oral; (4) review of documents; and (5)
certification/self-declaration.

Chapter 7, Section D. Items to be verified include the full-time student status including high
school students who are 18 or over. Section E. Only the first $480 of the earned income of full
time students, other than head or spouse, will be counted towards family income.

Chapter 9, Section C. The Authority will review the lease, particularly noting the approvability
of optional charges and compliance with regulations. Responsibility for utilities, appliances and
optional services must correspond to those provided on the Request for Tenancy Approval.

Chapter 12, Section C. Reporting Interim Changes
Increases in Income: The Authority will conduct interim reexaminations when families have an
increase in income. Families will be required to report all increases in income/assets of the all
household members to the Authority in writing within 5 business days of the increase.
Section E. Timely Reporting of Changes in Income (and Assets)
Standard for Timely Reporting of Changes: The Authority requires that families report interim
changes to it within five business days of when the change occurs. Any information, document
or signature needed from the family which is needed to verify the change must be provided
within 10 business days of the change.
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:
Decreases in the Tenant Rent are effective the first of the month following that in which the
change occurred. However, no rent reductions will be processed until all the facts have been
verified, even if a retroactive adjustment results.
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 or make a lump sum payment. The change
will not be made until the third party verification is received.

Chapter 13, Section C. In a move, assistance stops at the old unit at the end of the month in
which the tenant ceased to occupy, unless proper notice was given to end a lease mid-month.
Assistance will start on the new unit on the effective date of the lease and contract. Assistance
payments may overlap for the month in which the family moves.

Chapter 14, Section A. The term of the housing assistance payments contract is the same as the
term of the lease. The contract between the owner and the Authority may be terminated by the
Authority or by the owner or tenant terminating the lease. No future subsidy payments on behalf
of the family will be made by the Authority to the owner after the month in which the contract is
terminated. The owner must reimburse the Authority for any subsidies paid by it for any period

                                                30
after the contract termination date. The contract for the new unit may begin during the month in
which the family moved from the old unit.

Chapter 15, Section C. The Authority will deny a family’s request to add additional family
members who are persons who have been part of a family whose assistance has been terminated
under the certificate or voucher program.

Chapter 21, Section C. All standard Section 8 program requirements, including but not limited
to, client Section 8 eligibility, housing quality standards compliance, rent reasonableness, and
fair housing requirements will apply to project-based owners.

Finding 2
HUD’s regulations at 24 CFR [Code of Federal Regulations] 5.609(c)(11) state that annual
income does not include earnings in excess of $480 for each full-time student 18 years old or
older (excluding the head of household and spouse).

HUD’s regulations at 24 CFR [Code of Federal Regulations] 982.505(c)(5) state that irrespective
of any increase or decrease in the payment standard amount, if the family unit size increases or
decreases during the housing assistance payments contract term, the new family unit size must be
used to determine the payment standard amount for the family beginning at the family's first
regular reexamination following the change in family unit size.

The Authority’s administrative plan requires the following:

Chapter 1, Section P. All zero income participants shall be recertified every 60 days

Chapter 6, Section D. Families who report zero income are required to complete a written
certification every 60 calendar days.

Chapter 7, Section E. Families 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, Supplemental Security income, et cetera, are not being received
by the household.

Chapter 12, Section C. An interim reexamination will be scheduled for families with zero
income every 60 days.

The Authority’s Zero Income Checklist and Worksheet was created in October 2004. The
Checklist states that the Head of Household must complete the form at annual or interim income
examinations when reporting zero income.

Finding 3
Federal Regulations at 24 CFR [Code of Federal Regulations] 982.404(a)(2) state that if the
owner fails to maintain the dwelling unit in accordance with housing quality standards, the
authority must take prompt and vigorous action to enforce the owner obligations. Authority

                                               31
remedies for such breach of the housing quality standards include termination, suspension or
reduction of housing assistance payments and termination of the housing assistance payments
contract. Section (3) states that the authority must not make any housing assistance payments for
a dwelling unit that fails to meet the housing quality standards unless the owner corrects the
defect within the period specified by the authority and the authority verifies the correction. If a
defect is life threatening, the owner must correct the defect within no more than 24 hours. For
other defects, the owner must correct the defect within no more than 30 calendar days (or any
authority approved extension). Section (4) states that the owner is not responsible for a breach of
the housing quality standards that is not caused by the owner, and for which the family is
responsible, which is outlined in part (b) of the regulation. Part (b)(3) states that if the family has
caused a breach of the housing quality standards, the authority must take prompt and vigorous
action to enforce the family obligations. The authority may terminate assistance for the family in
accordance with Section 982.552.

The Authority’s administrative plan requires the following:

Chapter 10, Section D. If the emergency repair item(s) are not corrected in the time period
required by the Authority, and the owner is responsible, the housing assistance payment will be
abated and the housing assistance payments contract will be terminated. If the emergency repair
item(s) are not corrected in the time period required by Authority, and it is a housing quality
standards breach which is a family obligation, Authority will terminate the assistance to the
family and the owner's payment will not be abated for the breach of housing quality standards.

Chapter 10, Section C. If the family does not contact the Authority to reschedule the inspection,
or if the family misses 2 inspection appointments, the Authority will advise the owner. The
Authority will consider the family to have violated a family obligation and their assistance will
be terminated in accordance with the termination procedures in the plan.

Chapter 10, Section E. When it has been determined that a unit on the program fails to meet
housing quality standards, and the owner is responsible for completing the necessary repair(s) in
the time period specified by Authority, the assistance payment to the owner will be abated.

Chapter 10, Section E. A Notice of Abatement will be sent to the owner, and the abatement will
be effective from the day after the date of the failed inspection. The notice is generally for 30
days, depending on the nature of the repair(s) needed.

Chapter 10, Section E. The Authority will inspect abated units within 3 days of the owner's
notification that the work has been completed. If the owner makes repairs during the abatement
period, payment will resume on the day the unit passes inspection. The family will be notified of
the reinspection date and requested to inform the owner. No retroactive payments will be made
to the owner for the period of time the rent was abated and the unit did not comply with housing
quality standards. The notice of abatement states that the tenant is not responsible for
Authority's portion of rent that is abated.

Chapter 10, Section E. If the owner is responsible for repairs, and fails to correct all the
deficiencies cited prior to the end of the abatement period, the owner will be sent a housing
assistance payments contract proposed termination notice. Prior to the effective date of the
termination, the abatement will remain in effect. If repairs are completed before the effective

                                                  32
termination date, the termination will be rescinded by Authority if the tenant chooses to remain
in the unit. Only one housing quality standards inspection will be conducted after the
termination notice is issued.

Chapter 10, Section G. If the tenant is responsible and corrections are not made, the housing
assistance payments contract will terminate when assistance is terminated.

Chapter 14, Section D. The term of the housing assistance payments contract terminates when
the lease terminates, when the Authority terminates program assistance for the family, and when
the owner has breached the housing assistance payments contract. Any of the following actions
will be considered a breach of contract by the owner...the owner has violated any obligation
under the housing assistance payments contract for the dwelling unit, including the owner's
obligation to maintain the unit to housing quality standards, including any standards authority
has adopted in this policy. Authority will provide the owner and family with at least thirty days
written notice of termination of the contract.

Chapter 15, Sections C & D. Family Obligations require that the family allow the authority to
inspect the unit. The family may be sent a Notice of Termination of Assistance for failure to
allow the housing authority to inspect the unit. For most purposes in this plan, the family will be
given two opportunities before being issued a notice of termination.




                                                33