oversight

The Shreveport Housing Authority, Shreveport, Louisiana, Made Excessive Housing Assistance Payments in Its Section 8 Housing Choice Voucher Program Shreveport, LA

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-05-08.

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

                                                                  Issue Date
                                                                           May 8, 2008
                                                                  Audit Report Number
                                                                           2008-FW-1009




TO:         Cheryl J. Williams
            Director, Office of Public Housing, 6HPH


FROM:       Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Shreveport Housing Authority, Shreveport, Louisiana, Made Excessive
         Housing Assistance Payments in Its Section 8 Housing Choice Voucher Program


                                   HIGHLIGHTS

 What We Audited and Why

             As part of the Office of Inspector General’s strategic plan, we audited the
             Shreveport Housing Authority’s (Authority) Section 8 Housing Choice Voucher
             program (Section 8 program). Our objective was to determine whether the
             Authority ensured that it made housing assistance payments in accordance with
             the U. S. Department of Housing and Urban Development’s (HUD) Section 8
             program requirements.

 What We Found


             The Authority’s contracted Section 8 program administrator, Pendleton
             Development Corporation (Pendleton), made errors in 96 of 107 (90 percent)
             statistically selected sample tenant files out of 3,717 files. The errors included,
             incorrectly calculating family income, paying assistance after families vacated
             units, using incorrect payment standards, miscalculating utility allowances, and
             making other errors that resulted in incorrect assistance payments. Pendleton also
             made errors that did not affect assistance payments but need corrective action.
             This condition occurred because neither the Authority nor Pendleton had adequate
           management controls to ensure compliance with requirements. As a result, the
           Authority paid $18,517 in excess assistance and overcharged families $1,767.
           Further, we estimate that from September 1, 2005, to September 30, 2007, the
           Authority made excess assistance payments of more than $320,000. Additionally,
           the Authority’s Section Eight Management Assessment Program (SEMAP) scores
           for fiscal year 2006 were inaccurate.

What We Recommend


           We recommend that the Director of the Office of Public Housing, New Orleans,
           Louisiana, require the Authority to recertify, within the next six months, all
           families receiving assistance and at the time of the recertifications, review their
           files for any errors occurring within the previous 12 months. The Authority
           should repay its Section 8 program or the families as appropriate for any
           assistance payment errors for the 12 months. The Director should also require the
           Authority to repay, from nonfederal funds, its Section 8 program $18,517 for
           overpayments and reimburse families $1,767 for underpayments identified in the
           audit, and implement adequate procedures and controls over its Section 8 program
           to ensure that tenant eligibility and assistance payments are supported and
           determined in accordance with HUD requirements to avoid paying more than
           $153,000 in excess assistance during the next 12 months.

           We also recommend that the Director increase oversight of the Authority by
           entering into a memorandum of agreement with the Authority, reduce the
           Authority’s fiscal year 2006 SEMAP scores, and ensure that the Authority
           submits accurate SEMAP scores in the future.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We provided our discussion draft report to the Authority on April 23, 2008, and
           held the exit conference on April 29, 2008. We requested a written response by
           May 7, 2008. The Authority provided an 18-page written response along with
           attachments on May 6, 2008. The Authority’s response along with our evaluation
           of the response can be found in Appendix B of this report. We did not include the
           attachments submitted with the response, but they are available for review upon
           request.

           The Authority agreed with our finding and recommendations in the report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding: The Authority Made Excessive Housing Assistance Payments in Its    5
               Section 8 Program

Scope and Methodology                                                            11

Internal Controls                                                                13

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             14
   B. Auditee Comments and OIG’s Evaluation                                      15




                                            3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Shreveport (Authority) was established in 1940 to provide
decent, safe, and sanitary housing for low-income families. The Authority is governed by a mayor-
appointed five-member board of commissioners serving staggered five-year terms. The board of
commissioners appoints the executive director who is charged with the responsibility of overseeing
the day-to-day affairs of the Authority.

The Authority operates a Section 8 Housing Choice Voucher (Section 8) program consisting of
approximately 2,500 Section 8 vouchers. It entered into the first annual contributions contract with
the U. S. Department of Housing and Urban Development (HUD) in the mid 1970s. The Authority
has never operated its Section 8 program with its own staff; rather, it has contracted the program
administration. Since 1990, it has contracted with Pendleton Development Corporation (Pendleton)
as its Section 8 program administrator.

During the audit, the Authority’s administrative coordinator monitored file actions and housing
assistance payments. The Authority terminated its contract with Pendleton on January 31, 2008,
and took over the day-to-day Section 8 program administration.

The Authority’s fiscal year is from October 1 through September 30. It made assistance payments
of more than $13.7 million and $13.3 million for fiscal years 2006 and 2007, respectively.

This is our second audit report on the Authority’s Section 8 program. On November 28, 2007,
we issued audit report 2008-FW-1002, regarding the Authority’s failure to ensure that Section 8
units met housing quality standards. Our objective for this audit was to determine whether the
Authority ensured that it made housing assistance payments in accordance with HUD’s Section 8
program requirements.




                                                 4
                                         RESULTS OF AUDIT

Finding: The Authority Made Excessive Housing Assistance Payments
         in Its Section 8 Program
Pendleton made errors in 96 of 107, (90 percent), statistically selected sample tenant files out of
3,717 files. The errors included, incorrectly calculating family income, paying assistance after
families vacated units, using incorrect payment standards, miscalculating utility allowances, and
making other errors that resulted in incorrect assistance payments. Pendleton also made errors
that did not affect assistance payments but need corrective action. This condition occurred
because neither the Authority nor Pendleton had adequate management controls to ensure
compliance with requirements. As a result, the Authority paid $18,517 in excess assistance and
overcharged families $1,767. Further, we estimate that from September 1, 2005, to
September 30, 2007, the Authority made excess assistance payments of more than $320,000.
Additionally, the Authority’s Section Eight Management Assessment Program (SEMAP) scores
for fiscal year 2006 were inaccurate.




    Ninety-Six of the Tenant Files
    Contained Errors


                   Of the 107 tenant files reviewed, 96, or 90 percent of the sample, contained at
                   least one error.1 The Authority paid $18,517 in excess assistance and overcharged
                   families $1,767 for the 96 corresponding vouchers. The table below shows the
                   types of errors, the amounts overpaid/overcharged, and the number of files with
                   errors.

                                                                               Amount
                                                                    Amount     families   Number
                     Type of error                                  overpaid overcharged of files
                     Incorrectly calculated family                    $ 8,792     $ 1,119        8
                     income
                     Assistance paid after families                      5,496                                10
                     vacated units
                     Use of incorrect payment                            2,330                 168            11
                     standards
                     Miscalculation of utility allowance                 1,069                                77
                     Other errors                                          830                480             20
                     Total overpaid/overcharged                       $ 18,517            $ 1,767
1
      Some files contained multiple errors. We only counted these as one tenant file in arriving at our total of 96 files
      with errors.


                                                            5
                Projecting the results of the sample to the universe of 3,717 vouchers for the
                period, we estimate that the Authority paid at least $320,640 in excess assistance
                from September 1, 2005, through September 30, 2007.

                Pendleton incorrectly calculated family income. Pendleton did not correctly
                calculate the family income for five families when it converted the reported
                incomes to annual amounts.2 Further, the Authority did not verify the reported
                income for three families. We verified the correct income amount and counted
                the difference as ineligible. These errors resulted in excess assistance payments
                of $8,792 and overcharges to families of $1,119.

                The Authority paid $5,496 in assistance after families vacated units. HUD
                requires that assistance payments only be paid to the owner during the lease term
                and while the family is residing in the unit.3 HUD further requires that the
                housing assistance contract terminate automatically when a family vacates the
                unit.4 The Authority failed to comply with the requirements. Even though the
                files contained documents showing that 10 families had vacated their units, the
                Authority continued to make assistance payments to the property owners. The
                Authority inappropriately paid a total of $5,496 in assistance for the 10 families'
                units.

                Pendleton miscalculated utility allowances. Pendleton miscalculated the utility
                allowance in 77 instances because it incorrectly included a utility assessment tax
                on water, gas, and electricity. The Louisiana legislature repealed the utility tax
                assessment, effective July 2003. The Authority was aware that the assessment
                had been repealed and stated that Pendleton was aware of the repeal. However,
                the Authority did not verify that Pendleton made the necessary adjustments to the
                utility allowance calculations. As a result, the Authority paid $1,069 in excessive
                utility allowance payments.

                Pendleton used incorrect payment standards. The Authority’s administrative plan
                requires that payment standards be consistent with the most recent payment
                standards approved by the Authority’s board of commissioners. However,
                Pendleton did not use the correct payment standards when it calculated the
                housing assistance payments for 11 families. As a result, the Authority overpaid
                owners $2,330 and overcharged families $168.

                Other errors affecting assistance payments. Pendleton did not correctly adjust the
                incomes for three families and paid assistance in excess of the lease amounts for
                another two families. As a result, the Authority paid $830 in excess assistance.




2
    24 CFR (Code of Federal Regulations) 5.609(d) and 24 CFR 982.516(f).
3
    24 CFR 982.311(a).
4
    Housing assistance payments contract, part B6(c).


                                                     6
                  Further, Pendleton did not correctly determine utility rates for 15 families,
                  resulting in overcharges to the families of $480.5

                  Other errors did not affect assistance payments but needed corrective actions.
                  Pendleton made other errors, such as failing to terminate assistance after 180 days
                  of zero assistance payments. Pendleton also did not always conduct annual
                  certifications in a timely manner. Further, 18 of the sampled tenant files did not
                  contain required documents.

                  Four families remained on the Authority’s assistance register after 180 days of
                  zero assistance. Some families remained on Authority’s assistance register from
                  nine to eleven months. This condition occurred because Pendleton did not have a
                  system to track when families attained zero assistance status.6 Since the
                  Authority receives administrative fees based on the current number of assisted
                  families, it needs to correctly administer its assistance register to avoid causing
                  HUD to pay excess administrative fees. In addition, failure to remove the
                  families from the assistance register prevents the Authority from providing a
                  voucher to another family in a timely manner.

                  Pendleton generally conducted annual recertifications7 in a timely manner and
                  complied with HUD requirements for determining tenant eligibility. However,
                  we identified three case files in our sample where Pendleton did not conduct the
                  recertifications in a timely manner.

                  Pendleton did not always ensure that the tenant files contained required
                  documentation to support its housing assistance and utility allowance payments.8
                  Of the 107 files reviewed, 18 did not contain documentation required by HUD
                  and the Authority’s administrative plan to support housing assistance and utility
                  allowance payments.

    The Authority and Pendleton
    Lacked Effective Management
    Controls

                  The errors occurred because neither the Authority nor Pendleton had adequate
                  management controls. Although the Authority contracted with Pendleton to
                  administer its Section 8 program, the Authority is required by its annual
                  contribution’s contract with HUD to ensure that housing assistance payments are
                  calculated in accordance with HUD requirements. However, the Authority did
                  not have adequate management controls to ensure that Pendleton complied with

5
    This does not include the utility allowance errors that resulted from incorrectly including the utility tax
    assessment.
6
    24 CFR 982.455.
7
    24 CFR 982.516(a.)
8
    24 CFR 982.158(f).


                                                           7
                  the requirements. The Authority’s written policies and procedures were weak,
                  outdated, and ignored by both Authority and Pendleton staff. In addition, the
                  Authority did not provide adequate oversight of Pendleton. The Authority did not
                  believe that it needed to monitor Pendleton because Pendleton had considerable
                  experience and had administered the Authority’s Section 8 program since 1990.
                  Further, the Authority’s administrative plan was its only policy document for
                  processing certifications. However, the administrative plan had not been updated
                  since 2001.

                  The Authority reviewed Pendleton’s case file certifications, which had been
                  previously reviewed by Pendleton’s quality control staff. However, when the
                  Authority found errors and sent the case files back to Pendleton for corrections,
                  Pendleton did not correct the errors.

                  Lastly, Pendleton did not have adequate management controls or systems to
                  ensure compliance with HUD regulations and the administrative plan regarding
                  the processing of assistance, utility allowances, and payment standards. Further,
                  Pendleton did not ensure that its staff responsible for processing certifications had
                  adequate knowledge of procedures, such as how to correctly use HUD’s
                  Enterprise Income Verification system, an Internet source that public housing
                  agencies use to improve the income verification processes. Although Pendleton
                  had changes in staffing levels and hired new staff, including temporary staff, it
                  did not have written policies and procedures regarding processing certifications.
                  Further, the computer system used by Pendleton was outdated.

    The Authority’s SEMAP Scores
    Were Inaccurate


                  HUD sets performance standards for key areas of Section 8 program management
                  to measure whether a public housing agency administers its program properly and
                  effectively. Pendleton claimed credit for achieving high performer status for the
                  Authority on its 2003, 2004, and 2005 SEMAP scores. The Authority’s SEMAP
                  scores had reflected a standard or high performer since 2002. However, there had
                  been no recent monitoring by HUD to confirm those scores. In addition,
                  documents maintained by the Authority’s staff as well as the Authority’s annual
                  audit reports showed performance problems by Pendleton in administering the
                  Authority’s Section 8 programs. The Authority received a final SEMAP score of
                  78 or a standard rating for its fiscal year ending September 30, 2006. The
                  Authority reported to HUD that it scored a five out of a possible five for each of
                  the following indicators: utility allowance schedule, payment standard, and
                  assistance calculation.9 However, based the errors identified in this finding, the
                  Authority's scores did not accurately reflect the Authority’s true performance.


9
     Pendleton did the SEMAP evaluation and provided results to the Authority.


                                                        8
     Conclusion


                   Neither the Authority nor Pendleton had effective management controls. As a
                   result, the Authority paid $18,517 in excess assistance and overcharged families
                   $1,767. Further, we estimate that from September 1, 2005, to September 30,
                   2007, the Authority made excess assistance payments of $320,640. Additionally,
                   the Authority’s SEMAP scores for fiscal year 2006 were inaccurate. The
                   Authority should, within the next months, recertify all families receiving
                   assistance to ensure that assistance payments are correct. Further, at the time of
                   the recertifications, the Authority should review the files for any errors in
                   assistance payments made during the previous 12 months and repay any amounts
                   to its Section 8 program or the families as appropriate. Further, the Authority
                   should develop and implement policies, procedures, and controls that ensure
                   compliance with requirements, thereby avoiding unnecessary costs of an
                   estimated $153,907 over the next 12 months.10

     Recommendations



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

                   1A. Within six months, recertify all families receiving assistance and, at the time
                       of the recertifications, review their files for any errors occurring within the
                       previous 12 months.

                   1B. Repay, from non federal funds, its Section 8 program or the families as
                       appropriate for any assistance payment errors identified during its file
                       reviews pursuant to recommendation 1A.

                   1C. Repay its Section 8 program, from non federal funds, $18,517 for excess
                       assistance payments.

                   1D. Reimburse tenants, from non federal funds, $1,767 in underpayments or
                       reprogram the funds in accordance with generally accepted accounting
                       principles and HUD requirements.

                   1E. Implement adequate procedures and controls over its housing assistance
                       payments to ensure that tenant eligibility and subsidy payments are
                       supported and determined in accordance with HUD requirements to avoid
                       paying $153,907 in excess assistance during the next 12 months.



10
      Refer to the Scope and Methodology section of this report for an explanation of the estimate.


                                                           9
We also recommend that the Director

1F. Increase oversight of the Authority by entering into a memorandum of
    agreement with the Authority.

1G. Reduce the Authority’s fiscal year 2006 SEMAP scores and ensure that the
    Authority submits accurate SEMAP scores in the future.




                               10
                         SCOPE AND METHODOLOGY

To achieve our objectives, we reviewed

   •   Applicable laws, regulations, and other HUD program requirements;
   •   The Authority’s and Pendleton’s policies, procedures, and internal controls relative to the
       administration of its Section 8 program; and
   •   Files and documents obtained from the Authority and Pendleton.

In addition, we interviewed appropriate officials and staff.

We reviewed a sample of 107 tenant files from a universe of 3,717 tenant files. We used data
maintained by Pendleton in the September 2005 to September 2007 housing assistance payments
registers for background information and in selecting our sample files.

The review generally covered the period September 1, 2005, through September 30, 2007. We
revised the review period as necessary to accomplish our objective. We performed our on-site
work from October 2007 through January 2008 at the Authority’s office located at 2500 Line
Avenue, Shreveport, Louisiana. We conducted the audit in accordance with generally accepted
government auditing standards.

 Statistical Sample Selection and
 Methodology


We used a representative random statistical sample and projected our results to the universe of
3,717 Section 8 vouchers for the period September 2005 to September 2007. We determined
that an error was a case file that did not meet the minimal HUD requirements.

To obtain our statistical sample, we numbered the Section 8 tenant files from 1 to 3,717. The
Office of Inspector General’s (OIG) Information Systems Audit Division calculated the sample
size to be 107, using unrestricted variable sampling techniques, a 90 percent confidence interval,
and a 10 percent sampling precision. We used the random number generator feature of Audit
Control Language software to select 107 random numbers from 1 to 3,717.

We used EZ Quant software to project the results of the 96 case files with errors to the universe
of 3,717 case files. The results showed that the lower limit is 83.7 percent x 3,717 = 3,111 case
files with errors.

Based on the sample results, we used U. S. Department of Health and Human Services software
to project the dollar value of overpayments to the universe. Using a confidence level of 90
percent, we projected that the Authority made excess payments of at least $320,640 from




                                                11
September 1, 2005, through September 30, 2007. Further, we estimated that the Authority could
avoid $153,907 in unnecessary cost during the next 12 months.11




11
     ($320,640/25 months = $12,826 per month) x 12 months = $153,907.


                                                     12
                               INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

•        Effectiveness and efficiency of operations,
•        Reliability of financial reporting, and
•        Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



    Relevant Internal Controls


            We determined the following internal controls were relevant to our audit objectives:

                •      Effectiveness and efficiency of program operations – Policies and
                       procedures that management has implemented to reasonably ensure that a
                       program meets its objectives.

                •      Compliance with laws and regulations – Policies and procedures that
                       management has implemented to reasonably ensure that resources are used
                       consistent with laws and regulations.

            We assessed the relevant controls identified above.

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


    Significant Weaknesses


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

                •   The Authority lacked adequate procedures and controls to ensure compliance
                    with HUD regulations and its administrative plan for processing and
                    calculating housing assistance payments.




                                                 13
                                       APPENDIXES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS
                 AND FUNDS TO BE PUT TO BETTER USE

                     Recommendation                             Funds to be put
                         number              Ineligible 1/      to better use 2/

                            1C                        $18,517
                            1D                                        $     1,767
                            1E                                            153,907

                           Totals                     $18,517          $155,674




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/ Recommendations that funds be put to better use are estimates of amounts that could be used
   more efficiently if an OIG recommendation is implemented. This includes reductions in
   outlays, deobligation of funds, withdrawal of interest subsidy costs not incurred by
   implementing recommended improvements, avoidance of unnecessary expenditures noted in
   preaward reviews, and any other savings which are specifically identified. In this instance,
   the amount represents funds that the Authority needs to remit to the tenants or reprogram in
   accordance with generally accepted accounting principles and HUD requirements and costs
   that can be avoided in the next 12 months by implementing the OIG recommendations.




                                                 14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




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Comment 1




            32
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed with our finding and provided a Corrective Action and
            Improvement Plan. We are encouraged that the Authority is taking steps to
            correct the conditions. We did not make any changes to the draft report based on
            the Authority's comments; however, we changed some of the dollar amounts in
            the report due to additional information identified in one of the tenant files.




                                            33