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 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 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
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)