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)