Issue Date September 30, 2008 Audit Report Number 2008-CH-1017 TO: Steven E. Meiss, Director of Public Housing Hub, 5APH FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA SUBJECT: The Chicago Housing Authority, Chicago, Illinois, Needs to Improve Its Controls Over Housing Assistance and Utility Allowance Payments HIGHLIGHTS What We Audited and Why We audited the Chicago 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 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. This is the first of multiple audit reports that may be issued regarding the Authority’s program. What We Found The Authority’s program administration regarding housing assistance payment calculations, documentation to support households’ eligibility and calculations for housing assistance, and the recovery of overpayments of housing assistance and utility allowances for deceased individuals was inadequate. The Authority incorrectly calculated households’ payments resulting in more than $60,000 in overpayments and nearly $5,800 in underpayments for the period January 1, 2006, through August 31, 2007. The Authority also did not ensure that its households’ files contained the required documentation to support its housing assistance and utility allowances. Of the 71 files statistically selected for review, 42 did not contain documentation required by HUD and the Authority’s program administrative plan to support nearly $157,000 in housing assistance and utility allowance payments. Further, the Authority did not effectively recover more than $36,000 in housing assistance and utility allowance overpayments for deceased individuals. We informed the Authority’s chief executive officer and the Director of HUD’s Chicago Office of Public Housing of minor deficiencies through a memorandum, dated August 25, 2008. What We Recommend We recommend that the Director of HUD’s Chicago Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $113,000 in program funds, provide documentation or reimburse its program nearly $164,000 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. 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 issued because of the audit. Auditee’s Response We provided our review results and supporting schedules to the Director of HUD’s Chicago Office of Public Housing and the Authority’s chief executive officer during the audit. We also provided our discussion draft audit report to the Authority’s chief executive officer, its board chairman, and HUD’s staff during the audit. We held an exit conference with the Authority’s chief executive officer on July 23, 2008. We asked the chief executive officer to provide comments on our discussion draft audit report by August 15, 2008. The chief executive officer provided written comments, dated August 15, 2008. The Authority disagreed with our findings and recommendations. 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 27 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 Chicago Office of Public Housing. 2 TABLE OF CONTENTS Background and Objective 4 Results of Audit Finding 1: Controls over Housing Assistance and Utility Allowance Payments Were Inadequate 5 Finding 2: Controls over Recovery of Housing Assistance and Utility Allowance Payments for Deceased Individuals Need Improvement 10 Scope and Methodology 13 Internal Controls 14 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 16 B. Auditee Comments and OIG’s Evaluation 17 C. Federal Regulations and the Authority’s Requirements 47 3 BACKGROUND AND OBJECTIVE The Chicago Housing Authority (Authority) was established in April 1934 under the laws of the State of Illinois to provide decent, safe, and sanitary housing. The Authority is governed by a 10-member board of commissioners (board) appointed by the mayor of the City of Chicago, Illinois to five-year staggered terms. The board’s responsibilities include overseeing the Authority’s operations, as well as the review and approval of its policies. The City’s mayor also appoints the Authority’s chief executive officer. The chief executive officer is responsible for coordinating established policy and carrying out the Authority’s day-to-day operations. In May 1995, the U.S. Department of Housing and Urban Development (HUD) assumed control of the Authority due to years of management problems and deteriorated living conditions at the Authority’s developments. HUD selected Quadel Consulting Corporation (contractor) to administer, manage, and operate the Authority’s Section 8 Housing Choice Voucher program (program) in October 1995. The contractor created a subsidiary, CHAC, Inc., which formally took over the Authority’s program administration in December 1995. The Authority paid the contractor more than 90 percent of its administrative fee to operate the program. Although the contractor administers the program, the Authority is ultimately responsible to HUD for program operations and for any errors. In 1996, Congress authorized the Moving to Work Demonstration (Moving to Work) program as a program under HUD. The Authority was accepted into the Moving to Work program on February 6, 2000, 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 choices for low-income households. Congress exempted the Moving to Work participants from much of the United States Housing Act of 1937 and associated regulations. The agreement requires the Authority to abide by the statutory requirements in Section 8 of the United States Housing Act of 1937 and the annual contributions contract to the extent necessary for the Authority to implement its Moving to Work demonstration initiatives. As of June 2008, HUD proposed amendments to the Authority’s agreement; however, it had not executed the new agreement. As of May 31, 2008, the Authority had 48,557 units under contract with annual housing assistance payments totaling more than $463 million in program funds. 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 household eligibility, and (3) recovered the overpayment of housing assistance provided for deceased individuals. This is the first of multiple audit reports that may be issued regarding the Authority’s program. 4 RESULTS OF AUDIT Finding 1: Controls over Housing Assistance and Utility Allowance Payments Were Inadequate The Authority did not comply with HUD’s requirements and its program administrative plan regarding housing assistance and utility allowance payments. Its contractor failed to maintain required documentation to support payments to program landlords and households and consistently compute payments accurately. This condition occurred because the Authority and its contractor lacked adequate procedures and controls to ensure that their calculations were accurate and that HUD’s requirements and the Authority’s program administrative plan were appropriately followed. As a result, the Authority was unable to support nearly $157,000 in housing assistance and utility allowance payments and overpaid more than $60,000 and underpaid nearly $5,800 in housing assistance and utility allowances. The Authority’s Contractor Lacked Documentation to Support Nearly $157,000 in Housing Assistance and Utility Allowance Payments We statistically selected 71 household files from a universe of 34,895 households receiving housing assistance payments as of September 24, 2007, using data mining software. The 71 files were reviewed to determine whether the Authority and/or its contractor had documentation for and correctly calculated households’ housing assistance and utility allowance payments for the period January 2006 through August 2007. Our review was limited to the information maintained by the contractor in the Authority’s household files. The contractor lacked documentation to support housing assistance and utility allowance payments totaling $156,449 for the period January 2006 through July 2007. The documentation was required by HUD’s regulations and/or the Authority’s program administrative plan. Of the 71 household files reviewed, 42 (59 percent) had missing or incomplete documents as follows: • 21 were missing HUD Form 52517, Request for Tenancy Approval; • Seven were missing HUD Form 9886, Authorization for the Release of Information and Privacy Act Notice; • Seven were missing third-party income verifications of reported household income; • Seven were missing a disclosure of information on lead-based paint; • Six were missing birth certificates; • Five were missing declaration of U.S. citizenship certifications; 5 • Five were missing proof of Social Security numbers; • Five were missing evidence of criminal history background checks; • Four were missing housing assistance payments contracts; • Four were missing the lease and/or addendum agreements; • Two were missing supporting documentation for the utility allowance calculation; • One was missing supporting documentation for the dependent allowance and income calculation; and • One was missing the biennial certification. The contractor obtained new or original documentation for 17 of the 42 household files after we notified it of the missing or incomplete documents during the audit. As a result, the questioned cost cited in recommendation 1A only reflects the missing documentation for the remaining 25 household files (42 minus 17). The Authority’s Contractor Miscalculated Housing Assistance and Utility Allowance Payments The contractor’s miscalculations and its failure to comply with program requirements resulted in housing assistance and utility allowance overpayments of $60,679 and underpayments of $5,718. Of the 71 household files reviewed, 60 (85 percent) contained errors in one or more of their income certifications. The 60 files contained the following errors: • 41 did not have adjusted housing assistance payments when the contractor became aware of the increase in household income, • 38 had incorrect utility allowance standards, • 33 had incorrect payment standards, • 22 had incorrect income calculation errors, • Three had incorrect child care expense allowances, • Three had incorrect payments involving portability, • Three had incorrect minimum rent standards, • Three had incorrect dependent or disability allowances, and • Two had an incorrect medical expense calculation. The Authority’s Procedures and Controls over Its Contractor Had Weaknesses The Authority did not ensure that its contractor provided an acceptable level of service because it did not effectively monitor the contractor. The Authority’s contract requires the contractor to implement a quality control system in which an error rate of no more than 10 percent is acceptable in the calculation of household contribution. The contractor performed a quality control review on 8 of the 71 6 files reviewed; however, it did not identify three files (38 percent) that had errors in housing assistance and utility allowance payments. In addition, of the 71 files statistically sampled, 60 contained errors in one or more of the income certifications, resulting in an 85 percent error rate. According to the Authority’s acting housing choice voucher director, the contractor was solely responsible for implementing quality controls and overseeing housing assistance and utility allowance payments. As of March 2008, the Authority had not conducted any reviews of its contractor regarding the maintaining of documentation to support household eligibility or the calculation of housing assistance payments. The Authority’s quality assurance analyst said that because of our audit and a review by Ernest and Young, the Authority planned to initiate reviews of its contractor regarding the maintaining of documentation to support household eligibility and the calculation of housing assistance payments. In addition, the Authority was aware of previous errors the contractor had made in its housing assistance and utility payments functions. During HUD’s rental integrity review in August 2002, HUD stated that due to serious operational problems in program administration of household eligibility, 51 (28 percent) of the 184 files reviewed had one or more errors. During its integrity monitoring re- review in May 2004, HUD stated that there were approximately 62 instances in which copies of a household member’s Social Security card, birth certificate, or proof of citizenship were missing, and in several instances the Social Security numbers and birth certificate dates were incorrectly entered on the HUD Form 50058 in the files reviewed. There were also 11 files that lacked third-party verification of income or zero income, and the dependent status as a household member. The contractor made a number of errors in managing the Authority’s program. It 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 the Authority’s program administrative plan. The contractor’s executive director stated that the missing eligibility documentation was due to its scanning process of the program household files. According to the executive director, the Authority’s computer system contained sufficient checks to ensure that households would not be approved and vouchers would not be issued for households that had not provided the appropriate documentation and the fact that these households received housing assistance evidenced the existence of the documents despite the contractor’s inability to produce them. The contractor’s quality control supervisor said that errors in the utility allowance calculations could have been caused by shortcuts taken by staff when processing the HUD Form 50058. Further, the contractor did not adequately use HUD’s Enterprise Income Verification system (system) or other similar third-party income verification. For 38 of the 71 households reviewed, when the contractor ran a system report and it indicated an increase in the household’s reported income, the contractor did not conduct an interim certification. The Authority’s program administrative plan 7 requires an interim certification be conducted when there is an increase or decrease in household income that is expected to last at least 30 days. The contractor’s director of compliance and training said that it was not the contractor’s intention to conduct an interim certification every time there was an increase in household income and that the administrative plan needed to be clarified. The Authority’s former housing choice voucher program director agreed with the contractor and said that the administrative plan needed to be clarified. However, as of May 29, 2008, the Authority’s administrative plan had not been updated or clarified. Moreover, the contractor did not consistently communicate to households the program requirements regarding how and when to report increases and/or decreases in annual income. For example, the application for the program required households to report any changes in income; however, the family obligations form only required households to report income if they had previously reported zero annual income. The Authority’s program administrative plan did not address how households would be reimbursed when an underpayment of housing assistance payment occurred. Conclusion As a result of the weaknesses in the Authority and its contractor’s procedures and controls, the Authority disbursed $156,449 in housing assistance and utility allowance payments without required supporting documentation and overpaid $60,679 and underpaid $5,718 in housing assistance and utility allowances. 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 $7,345 in program administrative fees related to the unsupported payments for the 25 households and $36,369 ($29,217 related to the households receiving overpayments plus $7,152 related to the household receiving underpayments) in program administrative fees for the 60 households with incorrect housing assistance and utility allowance payments. Recommendations We recommend that the Director of HUD’s Chicago Office of Public Housing require the Authority to 1A. Provide support or reimburse its program $163,794 ($156,449 in housing assistance and utility allowance payments and $7,345 in associated administrative fees) from nonfederal funds for the unsupported payments and associated administrative fees cited in this finding. 8 1B. Reimburse its program $89,896 ($60,679 in housing assistance and utility allowance payments and $29,217 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 $5,718 for the underpayment of housing assistance and utility allowances cited in this finding. 1D. Reimburse its program $7,152 in associated administrative fees from nonfederal funds for the underpayment of housing assistance and utility allowances cited in this finding. 1E. Implement adequate procedures and controls to ensure that all required documentation is complete, accurate, and maintained in its household files to support the eligibility and calculation of housing assistance and utility allowance payments. 1F. Implement adequate procedures and controls to ensure that its contractor properly calculates housing assistance and utility allowance payments. 1G. Revise its program administrative plan to address how households will be reimbursed when an underpayment of housing assistance and/or utility allowance occurs. 1H. Revise the appropriate document(s) to clarify when it will conduct an interim certification when there is an increase or decrease in household income. 9 Finding 2: Controls over Recovery of Housing Assistance and Utility Allowance Payments for Deceased Individuals Need Improvement The Authority’s contractor did not comply with HUD’s regulations and its program administrative plan regarding the collection of housing assistance and utility allowance payments for deceased individuals. The contractor did not consistently pursue repayment agreements with households’ landlords. This condition occurred because the Authority and its contractor lacked adequate procedures and controls to ensure that the Authority’s program administrative plan was appropriately followed. As a result, the Authority overpaid more than $36,000 in housing assistance and utility allowance payments and underpaid nearly $1,500 in housing assistance and utility allowances. The Authority Did Not Recover Housing Assistance and Utility Allowance Payments for Two Households A review of 110,972 active household members’ Social Security numbers as of September 24, 2007, revealed that 796 were associated with deceased individuals. We statistically selected 32 household members by using data mining software to determine whether the Authority inappropriately provided housing assistance and utility payments and failed to recover any overpayments for the period October 2006 through May 2008. Of the 32 household members’ Social Security numbers reviewed, 27 were associated with deceased individuals, 12 of which resulted in net overpayments of $34,586 (10 overpayments of $36,009 minus two underpayments of $1,4231). For the households where the contractor was aware of the deceased individuals, the contractor recovered overpayments of $21,614, as of May 27, 2008, for nine of the deceased individuals where overpayments were made. In addition, as of June 2008, the contractor initiated action to recover the payment for the one deceased individual and sent letters to advise the two households of the underpayments that were made. However, the contractor informed household 9701934 that $860 in housing assistance payments was underpaid, when actually $1,265 was underpaid. However, balances remain from one household where the contractor did not begin collections within 30 days and only attempted to collect 6 of the 11 months outstanding. As a result, the outstanding net overpayment of housing assistance and utility payments were $12,972 (two overpayments of $14,395 minus two underpayments of $1,423) for four individuals. 1 Although the contractor was informed by the heads of household that a member passed away, it failed to conduct interim certifications to remove the deceased members’ income and/or the dependent allowance from the calculation of housing assistance payments. As a result, the contractor underpaid housing assistance payments of $1,265 for household 9701934 and $158 for household 0950870. 10 The contractor was aware of 18 of the 27 deceased individuals; however, it was not aware of the remaining nine deceased individuals until we informed it. We did not include the outstanding balances for the nine individuals in our previously mentioned totals. The contractor’s procedures manual states that once the contractor becomes aware of an overpayment, an overpayment letter is mailed to the owner. The owner then has 30 days to repay the outstanding balance. If the owner owing money is currently receiving housing assistance payments, the Authority’s account tracking system will automatically deduct the overpayments amount from the owner’s current housing assistance payments. The Authority and Its Contractor Lacked Adequate Procedures and Controls The outstanding net overpayments of $12,972 in housing assistance and utility allowances to program landlords for deceased individuals occurred because the Authority and its contractor lacked adequate procedures and controls to ensure that they appropriately followed the Authority’s program administrative plan. In three instances, the contractor did not respond when notified of deceased individuals. Twice the contractor was informed by the heads of household that a household member passed away and it failed to conduct interim certifications to remove the deceased members’ incomes and/or the dependent allowances from the calculation of housing assistance payments. This resulted in the households paying $1,423 more than they should have. The Authority’s program administrative plan states that if an owner owes money for overpayments of housing assistance, the contractor will provide the owner the opportunity to repay immediately or enter into a repayment agreement. However, the contractor did not attempt to enter into a repayment agreement or seek immediate repayment with an owner who received more than $12,000 in overpaid housing assistance. Since the owner was not receiving housing assistance payments as of May 2008, the contractor could not pursue reimbursement through the Authority’s account tracking system. The contractor’s former finance manager said that the contractor would seek reimbursement when the owner reenters the Authority’s program. However, there is no assurance that the owner will reenter the program. Therefore, the contractor should have sought immediate repayment or a repayment agreement. On June 16, 2008, the contractor sent a demand letter to the owner requesting repayment in full in 30 days. Conclusion HUD lacked assurance that the Authority used its program funds efficiently and effectively when it failed to collect $14,395 and underpaid $1,423 in housing assistance and utility allowances. 11 In accordance with 24 CFR 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 $1,746 in program administrative fees related to the excess amounts not collected on the two deceased individuals that the contractor underpaid assistance and the one deceased individual where the contractor did not attempt to make any collections cited in this finding. Recommendations We recommend that the Director of HUD’s Chicago Office of Public Housing require the Authority to 2A. Ensure that it collects the $14,395 in overpaid housing assistance and utility allowances for the two households cited in this finding or reimburse its program the applicable amount from nonfederal funds. 2B. Reimburse the appropriate households $1,423 for the underpayment of housing assistance and utility allowances cited in this finding. 2C. Reimburse its program $1,746 from nonfederal funds for the inappropriate administrative fees related to the three households cited in this finding. 2D. Implement adequate procedures and controls to ensure funds paid related to deceased tenants are collected according to its administrative plan and interim certifications are performed when household members are reported as deceased. 12 SCOPE AND METHODOLOGY To accomplish our objective, we reviewed • Applicable laws, regulations, the Authority’s 2006 program administrative plan, HUD’s program requirements at 24 CFR Parts 5 and 982, and HUD’s Housing Choice Voucher Guidebook 7420.10. • The Authority’s accounting records; annual audited financial statements for 2004, 2005, and 2006; bank statements; household files; policies and procedures; board meeting minutes for January 2006 through July 2007; organizational chart; and program annual contributions contract with HUD. • HUD’s files for the Authority. We also interviewed the Authority’s employees, and the contractor’s and HUD staff. Finding 1 Using data mining software, we statistically selected 71 of the Authority’s program households from the 34,895 households on the Authority’s program as of September 24, 2007. The 71 households were selected to determine whether the Authority correctly calculated households’ housing assistance payments. Our sampling criteria used a 90 percent confidence level with a 50 percent estimated error rate. Finding 2 Using data mining software, we statistically selected 32 of the Authority’s program individuals from the 796 individuals on the Authority’s program as of September 24, 2007. The 32 individuals were selected to determine if the Authority inappropriately provided housing assistance for deceased individuals and failed to capture the overpayments. Our sampling criteria used a 90 percent confidence level with a 50 percent estimated error rate. We performed our on-site audit work between October 2007 and March 2008 at the contractor’s offices located at 60 East Van Buren Street, 8th Floor, Chicago, Illinois. The audit covered the period January 1, 2006, through August 31, 2007, but was expanded as determined necessary. We performed our audit in accordance with generally accepted government auditing standards. 13 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, • Validity and reliability of data, • 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: 14 • The Authority lacked adequate procedures and controls to ensure compliance with HUD’s regulations and/or its program administrative plan regarding the program eligibility determination, calculation of housing assistance payments, and recovery of overpaid housing assistance for deceased individuals (see findings 1 and 2). Separate Communication of Minor Deficiencies We informed the Authority’s chief executive officer and the Director of HUD’s Chicago Office of Public Housing of minor deficiencies through a memorandum, dated August 25, 2008. 15 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 $163,794 1B $89,896 1C $5,718 1D 7,152 2A 14,395 2B 1,423 2C 1,746 Totals $113,189 $163,794 $7,141 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. 16 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments 17 Ref to OIG Evaluation Auditee Comments Comment 1 18 Ref to OIG Evaluation Auditee Comments Comment 2 Comment 3 19 Ref to OIG Evaluation Auditee Comments Comment 4 Comment 5 Comment 6 20 Ref to OIG Evaluation Auditee Comments Comment 7 Comment 4 21 Ref to OIG Evaluation Auditee Comments Comment 8 Comment 9 22 Ref to OIG Evaluation Auditee Comments Comment 10 Comment 11 23 Ref to OIG Evaluation Auditee Comments Comment 12 Comment 12 24 Ref to OIG Evaluation Auditee Comments Comment 13 Comment 14 25 Ref to OIG Evaluation Auditee Comments Comment 15 26 Ref to OIG Evaluation Auditee Comments Comment 4 27 Ref to OIG Evaluation Auditee Comments Comment 4 28 Ref to OIG Evaluation Auditee Comments Comment 1 29 Ref to OIG Evaluation Auditee Comments Comment 16 Comment 17 Comment 18 30 Ref to OIG Evaluation Auditee Comments Comment 19 Comment 20 31 Ref to OIG Evaluation Auditee Comments Comment 21 Comment 22 Comment 23 32 Ref to OIG Evaluation Auditee Comments Comment 24 Comment 6 33 Ref to OIG Evaluation Auditee Comments Comment 24 Comment 25 Comment 22 Comment 6 Comment 3 Comment 3 34 Ref to OIG Evaluation Auditee Comments Comment 26 Comment 27 35 Ref to OIG Evaluation Auditee Comments Comment 28 Comment 29 36 Ref to OIG Evaluation Auditee Comments Comment 30 Comment 31 37 Ref to OIG Evaluation Auditee Comments Comment 30 Comment 30 38 Ref to OIG Evaluation Auditee Comments Comment 32 Comment 6 Comment 10 39 OIG’s Evaluation of Auditee Comments Comment 1 We agree that the Authority’s contract with its contractor requires the contractor to implement a quality control plan and provide periodic reports to the Authority; however, this does not address that the Authority had not conducted any reviews of its contractor regarding the maintenance of documentation to support household eligibility or the calculation of housing assistance payments as of March 2008. We disagree that the Authority provided documentation that supports an independent review. The documentation provided shows the Authority observed the quality control activities performed by the contractor as stated in the contractor’s quality control plan. The quality control plan states that the contractor is responsible for consistently measuring and monitoring the results of its quality control efforts and the Authority reserves the right to observe quality control activities performed by the contractor. Comment 2 We disagree with the Authority that one cannot draw adequate conclusions regarding the rates of errors in the Authority’s program files based on our sampling rate. The Authority’s statistician’s report agreed with our error rate computation methodology. The statistician’s report noted that the percent of files with errors was computed by dividing the number of files with errors by the total number of files and multiplying the result by 100. In practice, only a sample of files is examined and the percent of sampled files with errors is computed. An inference regarding the actual percent of files with errors is made based upon this sample percent. Our error rate was based on this methodology. In addition, the statistician’s report also stated that based on the number of files sampled and the percent of the sampled files with errors; one can determine a relevant probability or likelihood of an observed sample result. Our methodology for the review of files was discussed with the Authority during our audit. We statistically selected 125 household files from a universe of 34,895 households receiving housing assistance payments as of September 24, 2007, using data mining software. The 125 files reviewed during the survey phase were not limited to household eligibility or the calculation of housing assistance payments. The 71 files noted in this audit report were reviewed to determine whether the Authority and/or its contractor had documentation for and correctly calculated households’ housing assistance and utility allowance payments for the period January 2006 through August 2007. We disagree with the Authority that there was a double-counting of errors and a recommendation for reimbursement for the same housing assistant payment dollars were counted twice for the same program household. 40 Comment 3 We disagree with the Authority that our Office did not take into account the upgrading of the scanning process; we accepted alternate documents and adjusted our findings and recommendations where appropriate. The Authority began its scanning process in October 2006 and completed clearing the queue in June 2008. However, the Authority had not provided us with the missing documents for the remaining 25 households as of August 15, 2008. The Authority will have further opportunity to provide supporting documentation to HUD’s staff, who will work with the Authority, to resolve the recommendation. Comment 4 The Authority is required to adopt a written administrative plan that establishes local policies for the administration of the program in accordance with HUD’s regulations at 24 CFR 982.54. According to HUD’s regulations at 24 CFR 982.516(b)(3), the Authority must conduct an interim certification in accordance with its administrative plan. The Authority’s contractor did not conduct an interim certification in accordance with the administrative plan. The Authority’s administrative plan states that the Authority will conduct an interim certification when there is a decrease or increase in the household’s income that is expected to last at least 30 days. The Authority’s administrative plan, dated September 20, 2005, and December 19, 2006, are in agreement when an interim certification should be conducted. However, the Authority’s procedures manual, dated October 2006, was inconsistent with the Authority’s previous and current administrative plans on when to conduct an interim certification. Because of the inconsistency in the use of the Authority’s policy and procedures, we used the Authority’s administrative plan in accordance with HUD’s regulations. When the Authority’s contractor did not follow the administrative plan, it resulted in housing assistance and utility allowance overpayments. Comment 5 The Authority is correct that a statement was made during the exit conference that finding 2 might be removed from the report and addressed in a separate “minor finding” letter. However, we do not agree with the Authority that it met existing requirements because it did not attempt to recover housing assistance payments in accordance with its requirements. We agree that the Authority is in the process of attempting to recover the housing assistant payments; therefore, we adjusted the report to accurately reflect the Authority’s actions. Comment 6 In accordance with 24 CFR 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. We limited the questioned administrative fee to the gross error amount of the housing assistance payment. Comment 7 We adjusted recommendations 1A, 1B, 1C, 1D, and finding 2 based upon additional documentation provided by the Authority. 41 Comment 8 As previously mentioned in comment 2, the Authority’s statistician’s report agreed with our error rate computation methodology. The Authority’s acceptable margin of error was 10 percent. Per the statistician’s report in practice, only a sample of files is examined and the percent of sampled files with errors is computed. An inference regarding the actual percent of files with errors was made based upon this sample percent. If we find the probability of an observed sample result is less than or equal to 5 percent, we reject the assumption that 10 percent or fewer files contain errors and conclude that more than 10 percent of the files contain errors. We determined that of the 71 files reviewed, 42 (59 percent) had missing or incomplete documents and 60 (85 percent) contained errors in one or more of their income certifications. While the Authority may disagree with the finding, its interest in implementing a new quality assurance program indicates its willingness to further address the importance of this issue. Comment 9 While the Authority may disagree with the finding, its interest in implementing controls and procedures indicates its willingness to further address the importance of this issue. As previously mentioned in comment 5, we do not agree with the Authority that it met existing requirements because it did not attempt to recover housing assistance payments in accordance with its requirements. Comment 10 We disagree that the audit report inaccurately reflected the fact that documentation was provided in many cases. As previously mentioned in comment 3, the Authority will have further opportunity to provide supporting documentation to HUD’s staff, who will work with the Authority, to resolve the recommendation. The recommendations in this report were adjusted to reflect the Authority’s comments and documentation. As noted in the finding 1, the contractor obtained new or original documentation for 17 of the 42 household files after we notified it of the missing or incomplete documents during the audit. As a result, the questioned cost cited in recommendation 1A only reflects the missing documentation for the remaining 25 household files (42 minus 17). Comment 11 We disagree with the Authority that any double counting of unsupported or ineligible payments are presented in this audit report. The four files were reviewed for different purposes (household eligibility and the calculation of housing assistance payments). We did not combine the results of the separate testing. Comment 12 The recommendations in this report were adjusted to reflect the Authority’s comments and documentation provided during and after the issuance of the discussion draft audit report. As previously mentioned in comment 10, the contractor obtained new or original documentation files after we notified it of the missing or incomplete documents during the audit. As a result, the questioned cost cited in recommendation 1A only reflects the missing documentation for the remaining household files where documentation was not provided. 42 Comment 13 We agree with the Authority that HUD’s regulations at 24 CFR 982.305(d) states that after receiving the family request for approval of the assisted tenancy, the public housing authority must promptly notify the family and owner whether the assisted tenancy is approved. We do not agree that this regulation does not require a specific form. The regulation states after receiving the family request for approval refers to HUD form 52517, Request for Tenancy Approval. HUD’s regulations at 24 CFR 982.305(a) states that the public housing authority may not give approval for the family of the assisted tenancy, or execute a housing assistance payment contract, until the public housing authority has determined that all the following meet program requirements: (1) the unit is eligible; (2) the unit has been inspected by the public housing authority and passes housing quality standards; (3) the lease includes the tenancy addendum; (4) the rent to owner is reasonable; and (5) at the time a family initially receives tenant-based assistance for occupancy of a dwelling unit, and where the gross rent of the unit exceeds the applicable payment standard for the family, the family share does not exceed 40 percent of the family’s monthly adjusted income. Eligible families must submit this information to he public housing authority on HUD form 52517 when applying for housing assistance under Section 8 of the U.S. Housing Act of 1937 (42 U.S.C. 1437f). The public housing authority uses the information to determine if the family is eligible, if the unit is eligible, and if the lease complies with program and statutory requirements. In addition, HUD form 52517 requires an owner and household signature. As previously mentioned in comment 10, the contractor obtained new or original documentation files after we notified it of the missing or incomplete documents during the audit. As a result, the questioned cost cited in recommendation 1A only reflects the missing documentation for the remaining household files where documentation was not provided. In addition, we did not question program administrative fees or housing assistance payments for the files where only the request for tenancy approval was not provided. Comment 14 We adjusted recommendation 1A based upon alternative documentation provided by the Authority. Comment 15 The audit report does not reflect double counting of housing assistance payments. The recommendations are reflected of the separate errors found in the household files. The 71 files were reviewed to determine whether the Authority and/or its contractor had documentation for and correctly calculated households’ housing assistance and utility allowance payments. We determined 25 files had missing or incomplete documents and the contractor miscalculated and failed to comply with program requirements resulted in housing assistance and utility allowance overpayments and underpayments in 60 household files. The differences noted in attachment 3 were due to work in progress. The original numbers dated May 7, 2008, were noted in a draft finding outline and was 43 updated due to additional work. The schedule dated July 16, 2008, was the result of the additional work and supporting documentation provided by the Authority. Comment 16 We disagree with the Authority. The Authority did not provide documentation to support that it conducted quality control reviews of its contractor. It provided us with its Authority wide housing choice voucher review conducted by its internal audit division. The final review was released on February 3, 2005, with an overall risk rating of high. A high observation includes control weaknesses that are causing disruption of the process or adversely affecting the Authority’s ability to achieve process objectives. The review noted that it did not appear that responsibility for contract administration and performance management had been clearly defined. It also noted that it did not appear that the Authority was effectively reviewing its contractor’s performance results in a timely manner to ensure they met the established performance measurements. It further stated that 7 of the 17 (41 percent) of the quality control standards required of the contractor were above the tolerable percentage of error for the majority of the year. Moreover, the internal review found the Authority’s current quality control measures at its contractor were inadequate. The Authority also provided us an onsite review conducted by Nan McKay and Associates of a representative sample of the Authority’s tenant-based Section 8 files. On-site work was performed from November 28 through November 30, 2008. The purpose of the review was to provide Nan McKay and Associates with a deeper understanding of how public housing authorities’ policies and procedures impact the execution of program requirements. This was clearly not a quality control review on the behalf of the Authority. In addition, the Authority provided us with its reviews of its contractor to confirm its 2007 section eight management assessment program scores. The contractor provided the Authority the supporting documentation and the Authority stated that it reviewed the documentation and found an error only in the deconcentration bonus indicator. There were no errors found in the other section eight management assessment program indicators. The Authority did not pull independent samples to review; it relied on the contractor’s supporting documentation, information in the Authority’s system, and information that was entered into HUD’s systems. The Authority only confirmed indicator 4, utility allowance schedules, with an outside entity. These three reviews provided by the Authority only further emphasizes that the Authority’s weaknesses in its procedures and controls over its contractor. Comment 17 We revised this audit report to show that the Authority’s contract requires the contractor to implement a quality control system in which an error rate of no more than 10 percent is acceptable in the calculation of household contribution. 44 Comment 18 The Authority did not provide sufficient documentation with its written comments to support that the three files we identified did not have errors in housing assistance and utility allowance payments. Comment 19 We disagree with the Authority that HUD’s rental integrity reviews in August 2002 and 2004 have no relevance to this audit. The prior reviews conducted by HUD shows that the Authority was aware of previous errors the contractor made in its housing assistance and utility payments functions. In addition, the errors noted in HUD’s rental integrity reviews were the same issues we identified during our audit which further emphasizes that the Authority has weaknesses in its procedures and controls over its contractor. Comment 20 We revised the report based on the documentation received from the Authority during and after the issuance of the discussion draft audit report. Comment 21 We disagree with the Authority that the entire discussion regarding the Authority’s use of HUD’s Enterprise Income Verification system should be removed from this audit report. Per the Authority’s program administrative plan, an interim reexamination must be conducted if a family’s increase in income is expected to last at least 30 days. As previously mentioned in comment 4, the Authority must conduct an interim certification in accordance with its administrative plan in accordance with HUD’s regulations at 24 CFR 982.516(b)(3). For 38 of the 71 households reviewed, when the contractor ran a system report and it indicated an increase in the household’s reported income, the contractor did not conduct an interim certification, resulting in an over/underpayment of housing assistance and utility allowance payments. Comment 22 The Authority did not provide sufficient documentation to show that its program administrative plan was revised on July 15, 2008. Comment 23 While the Authority may disagree with the finding, its interest in revising the application form to avoid any possibility for confusion on the part of the applicant as to the procedures for reporting changes in income indicates the Authority’s willingness to further address the importance of this issue. Comment 24 While the Authority may disagree with the finding, its interest in implementing controls and procedures indicates the Authority’s willingness to further address the importance of this issue. Comment 25 While the Authority may disagree with the finding, its interest in implementing controls and procedures indicates the Authority’s willingness to further address the importance of this issue. As previously mentioned in comment 22, the Authority did not provide sufficient documentation to show that its program administrative plan was revised. 45 Comment 26 The audit report accurately reflects that the Authority’s contractor recovered overpayments of $21,614. Additional language was added to the audit report to reflect the contractor’s attempts to collect the remaining amount. The Authority did not provide sufficient documentation to show that it made efforts to reimburse the appropriate households $1,423 for the underpayment of housing assistance and utility allowances cited in this audit report. Comment 27 The sub-heading was revised to reflect that the Authority had not recovered housing assistance and utility allowance payments for two households. Comment 28 We added additional language to the audit report to accurately reflect the contractor’s attempts to collect the remaining amount for the deceased household. Comment 29 We added additional language to the audit report to accurately reflect the contractor’s attempts to repay the underpaid housing assistance payments. Comment 30 We added additional language to the audit report to accurately reflect the contractor’s attempts to recover the overpaid housing assistance payments and repay the underpaid housing assistance payments. Comment 31 The Authority’s efforts are commendable. The Authority’s proposed actions, if fully implemented, should substantially improve its procedures and controls to ensure that funds paid related to deceased tenants are collected according to its administrative plan and interim certifications are performed when household members are reported as deceased. Comment 32 See comment 6. The administrative fees were only questioned during the time the Authority was not seeking recovery or repayment for the underpaid and overpaid housing assistance payments for the three households cited in the audit report. 46 Appendix C FEDERAL REGULATIONS AND THE AUTHORITY’S REQUIREMENTS HUD’s regulations at 24 CFR 982.54 require the public housing authority to adopt a written administrative plan that establishes local policies for the administration of the program in accordance with HUD requirements. The administrative plan states the public housing authority’s policies on matters for which the public housing authority has discretion to establish local policies. The public housing authority must administer the program in accordance with its administrative plan. The Authority’s agreement executed on February 6, 2000, part II, article I (A), states that the Authority is subject to the requirements of the annual contributions contracts, the United States Housing Act of 1937, and other HUD requirements, except as necessary to implement the Authority’s activities described in the memorandum of approval and resident protection agreement. The revised contract between the Authority and its contractor, effective December 1, 2002, section 7.01, states that an event of default as the contractor’s material failure to perform the contractor’s services in accordance with the performance standards set forth in exhibit B under the agreement or material failure to comply with the quality controls set forth in exhibit E under the agreement. According to exhibit E, quality control plan, the goal for integrity of basic program functions including 50058 preparations, housing assistance payments calculation, and compliance with lead-based paint regulations covering all programs, is 10 percent error rate. Also, the error rate goal for the accuracy of primary participant file review or quality control reviews and error correction reports from initial file reviews to assess performance of the quality control specialist is 10 percent. Section 2.18 of the revised contract effective December 1, 2002, state there shall be a contract performance review committee ("review committee"), which shall consist of the Authority chief of staff, managing director of resident services, director of section 8, other Authority staff as designated by the Authority, and contractor representatives designated by the contractor. The review committee shall meet no less frequently than quarterly to review management issues, the operating budget, and other matters related to the smooth, orderly and efficient management and operation of the section 8 programs. These meetings shall take place within the month following the end of each quarter if possible, and shall be scheduled by the Authority with advance notice and agenda provided to all parties. At least three (3) days prior to each scheduled quarterly meeting of the review committee, or as otherwise agreed to by the parties, the contractor shall submit a copy of its most recent written monthly performance report and quarterly community impact report to each representative serving on the committee, as specified in exhibit D, as well as financial and budget reports, and such other information as the Authority and the contractor agree is reasonably required or may be required by the terms of this agreement or for purposes of any specific meeting. It shall be the duty of the review committee to: (1) review and resolve any 47 differences regarding the contractor's performance relative to contract goals, including status of incentive goals and claims for payment of incentive fees; (2) discuss and resolve issues, if any, impeding the ability of the contractor to achieve the performance standards and/or performance incentive fees; (3) review the operating budget and actual operating expenses and reports; (4) review any requests by the contractor for operating budget amendments; (5) review and discuss any and all performance deficiencies of the contractor so that the contractor can take steps to correct said deficiencies, including such steps as may be suggested by the review committee consistent with the Agreement; and (6) consider any other matters affecting or regarding the Authority’s section 8 programs and their administration by the contractor. Finding 1 HUD’s regulations at 24 CFR 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, as applicable, the public housing authority may prescribe in administrative instructions. HUD’s regulations at 24 CFR 5.230(a) state that 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 shall sign one or more consent forms. HUD’s regulations at 24 CFR 5.508 require evidence of citizenship or eligible immigration status for each household member regardless of age. For U.S. citizens or U.S. nationals, the evidence consists of a signed declaration of U.S. citizenship or U.S. nationality. HUD’s regulations at 24 CFR 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. 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 payments 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; and other records specified by HUD. HUD’s regulations at 24 CFR 982.201 state that the public housing authorities must follow certain criteria when determining the family’s eligibility for the programs. The family must meet the family, citizenship, and income eligibility requirements. HUD’s regulations at 24 CFR 982.305(b)(ii) states that the public housing authority may not give approval for the family of the assisted tenancy or execute a housing assistance payment contract until the authority has determined that the landlord and the tenant 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). 48 HUD’s regulations at 24 CFR 982.516(a)(1) state that the public housing authority must conduct a reexamination of family income and composition at least annually. HUD’s regulations at 24 CFR 5.240(c) state that the public housing authority must verify the accuracy of the income information received from a household 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 982.516(a)(1) require the public housing authority to conduct a reexamination of family income and composition at least annually. The public housing authority must obtain and document in the household file third-party verification or why third-party verification was not available for the following factors: (1) reported family annual income, (2) the value of assets, (3) expenses related to deductions from annual income, and (4) other factors that affect the determination of adjusted income. At any time, the public housing authority may conduct an interim reexamination of family income and composition. HUD’s regulations at 24 CFR 982.451 require the public housing authority to determine the amount of the monthly housing assistance payment in accordance with HUD regulations and other requirements. The Authority’s administrative plan at part III General Administration, Interim Reexaminations, states that the rent and other charges shall remain in effect for the period between regularly scheduled reexaminations except that a family previously receiving a zero housing assistance payment must report within 30 days any change in income that will last more than 30 days and a decrease or increase in income expected to last at least 30 days. A decrease in the tenant’s total tenant payment, whether completed at annual, biennial or interim reexamination, will be effective the first day of the month following the month in which the change was reported, provided the change was reported within the required 30 days. An increase in the tenant’s total tenant payment, whether completed at an annual, biennial or interim reexamination, will be effective the first day of the second month following the date the change occurred, except in cases in which underreporting of income by the participant has occurred. Finding 2 HUD’s regulations at 24 CFR 982.516(b)(3) states that the housing authority must conduct an interim certification in accordance with its administrative plan. The Authority’s program administrative plan, section III, General Administration, Reexamination of Household Composition, Income, Allowances and Rent, requires the Authority to conduct an interim certification when there is a change in family composition. The Authority’s program administrative plan, section III, General Administration, Repayment Agreement, states that the Authority will provide the owner the opportunity to repay immediately or enter into a repayment agreement. Also, the owners who are currently receiving housing assistance payments will automatically have the overpayment deducted from their current housing assistance payments unless otherwise agreed upon by the Authority. 49 The Authority’s program procedures manual, chapter 18, part 9, states once the Authority becomes aware of an overpayment, an overpayment letter is mailed to the owner. The owner then has 30 days to repay the outstanding balance. If the owner owing money to the Authority is currently receiving housing assistance, the Yardi System will auto-deduct the overpayments amount from the owner’s current assistance payments. 50
The Chicago Housing Authority, Chicago, Illinois, Needs to Improve Its Controls Over Housing Assistance and Utility Allowance Payments
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)