oversight

The Des Moines Municipal Housing Agency, Des Moines, Iowa, Did Not Always Assign Proper Voucher Sizes or Accurately Calculate Overpayments From Unreported Income In Its Section 8 Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-04-22.

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

                                                                 Issue Date
                                                                          April 22, 2008
                                                                 Audit Report Number
                                                                          2008-KC-1003




TO:        Andrew L. Boeddeker, Director, Office of Public Housing, 7APH

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: The Des Moines Municipal Housing Agency, Des Moines, Iowa, Did Not
           Always Assign Proper Voucher Sizes or Accurately Calculate Overpayments
           From Unreported Income In Its Section 8 Housing Choice Voucher Program


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Des Moines Municipal Housing Agency’s (Agency) Section 8
             Housing Choice Voucher program. We selected the Agency for an audit based on
             its ranking in our regional risk analysis of public housing authorities. Our audit
             objectives were to determine whether the Agency (1) properly considered family
             composition and reasonable accommodation requests when applying payment
             standards and (2) took appropriate action when the tenants’ files had indications
             of unreported income.


 What We Found


             The Agency allowed 59 of the 148 households we reviewed to have units that
             were larger than permitted by regular subsidy standards. As a result, it made
             excess subsidy payments totaling more than $78,000 during our audit period. If
             the Agency strengthens its controls, it could avoid additional overpayments
             exceeding $206,000.




                                              1
           The Agency also improperly processed 16 of the households we reviewed with
           indications of unreported income. As a result, it did not pursue the proper amount
           owed from the affected households and overpaid $20,998 in subsidies.


What We Recommend


           We recommend that the Director of the U.S. Department of Housing and Urban
           Development’s (HUD) Kansas City Office of Public Housing require the Agency
           to reimburse its program from administrative fee reserves and develop and
           implement procedures to ensure that each tenant receives the proper voucher size.

           We also recommend that the Director of HUD’s Kansas City Office of Public
           Housing require the Agency to develop and implement controls to ensure the
           proper correction for unreported income.

           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 the draft report to the Agency on March 26, 2008, and held an exit
           conference on March 28, 2008. Based on our discussions with the Agency during
           the exit conference, we provided them with a revised draft report on April 8,
           2008. The Agency provided its written response on April 15, 2008. The Agency
           generally disagreed with our audit findings.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                      4

Results of Audit
      Finding 1: The Agency Allowed Households to Have Larger Units Than       5
      Justified
      Finding 2: The Agency Failed to Properly Correct for Unreported Income   9

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 Des Moines Municipal Housing Agency (Agency) has been an enterprise fund of the City of
Des Moines, lowa, since April 1, 1994. The purpose of the Agency is to administer the public
housing programs authorized by the United States Housing Act of 1937, as amended. These
programs are subsidized by the federal government through the U.S. Department of Housing and
Urban Development (HUD).

The Section 8 program provides rental assistance to low-income families and elderly or disabled
individuals who rent from a private landlord. Eligibility for the Section 8 program is determined
by family composition, arrest history, past participation in federally subsidized programs, and
income guidelines established by HUD, which provides the program’s funding. The Agency
served approximately 2,900 households participating in the Section 8 program throughout Polk
County and spent approximately $15.4 million during fiscal year 2007 on these tenants.

A housing authority must adopt a written administrative plan that establishes local policies for
administration of the Section 8 program in accordance with HUD requirements. The
administrative plan states housing authority policy on matters for which the authority has
discretion to establish local policies. The authority must administer the program in accordance
with its administrative plan.

Housing authorities are ultimately responsible for ensuring that the right people receive the right
amount of subsidy, and they must maintain a high degree of accuracy in administering the
Housing Choice Voucher program. Nonetheless, errors, omissions, fraud, and abuse will occur,
and housing authorities must have measures in place so that any irregularity can be quickly
detected and resolved as efficiently, professionally, and fairly as possible. When a housing
authority makes an error, HUD requires it to take immediate action to correct the family payment
and subsidy amount. HUD requires the housing authority to repay, out of its administrative fee
reserves, the amount of overpaid subsidy due to housing authority error or omission.

Our audit objectives were to determine whether the Agency (1) properly considered family
composition and reasonable accommodation requests when applying payment standards and (2)
took appropriate action when the tenants’ files had indications of unreported income.




                                                4
                                RESULTS OF AUDIT

Finding 1: The Agency Allowed Households to Have Larger Units Than
Justified
The Agency allowed 59 of the 148 households we reviewed to have units that were larger than
permitted by regular subsidy standards. The Agency did not have adequate controls and did not
provide adequate training to its staff. As a result, it made excess subsidy payments totaling more
than $78,000 during our audit period. If the Agency strengthens its controls, it could avoid
additional overpayments exceeding $206,000.



 Larger Units Than Justified


               The Agency allowed 59 of the 148 households we reviewed to have units that
               were larger than permitted by regular subsidy standards without proper
               justification and approval. HUD’s Housing Choice Voucher Guidebook explains
               that housing authorities should generally assign vouchers for units with the
               smallest number of bedrooms needed to house a family without overcrowding.
               The authorities establish their unit size rules based on household composition and
               can grant exceptions when justified. The Agency’s administrative plan requires
               the director to provide written approval of exceptions to the subsidy standards.
               The director did not approve any of these exceptions. The various categories of
               errors observed are displayed in the table below.

                                        Primary errors                            Number
                   Unnecessary extra bedroom allowed for occasional                 14
                     caregiver or live-in aide
                   Family composition errors                                          13
                   Lacked nexus between medical note and extra bedroom                16
                   Other processing errors                                            12
                   Extra space not used for approved medical or exercise               5
                     equipment
                   Total                                                             60*
                  * One tenant had two errors counted separately.

               The Agency unnecessarily granted 14 households extra bedrooms for occasional
               caregivers and live-in aides. Occasional caregivers live somewhere other than the
               unit and the documentation did not otherwise explain the need for the extra
               bedrooms. The Agency did not require the tenants to identify the live-in aides
               and, consequently, could not conduct the required background investigations.




                                                5
The Agency also granted larger unit sizes to 13 households because it allowed
extra bedrooms for family members who should have been required to share
bedrooms. Its administrative plan states that two children of the same gender are
required to share a bedroom unless there is a five-year difference in age, and
children of the opposite gender are required to share a bedroom if both are three
years old or younger. The Agency granted these tenants extra bedrooms, although
the children residing in the units did not meet the criteria to have their own
bedrooms.

In addition, the Agency granted 16 households larger units, although the tenant’s
disabilities did not directly justify the extra bedrooms requested. In each case, the
documentation provided by the tenants did not establish their need for the extra
bedrooms given. In the case of one tenant, the Agency granted her an extra
bedroom when she submitted a doctor’s note claiming that she had rheumatoid
arthritis and Gastro Esophageal Reflux Disease. The medical note did not
establish the tenant’s need for the extra bedroom, as it did not explain the link
between her condition and the extra room.

Further, the Agency made miscellaneous errors when it incorrectly granted extra
bedrooms to 12 households. These errors included

•      Lack of documentation to support the extra bedroom,
•      Failure to change the tenant’s unit size when the family composition
       changed, and
•      Granting extra bedrooms when the tenants did not require them but,
       instead, needed in-home recertifications

In one instance, the tenant lived with her son in a two-bedroom unit. The son
passed away, and the Agency should have adjusted her room size to a one-
bedroom unit at her next annual recertification exercise. The case manager had a
note in the file stating that the tenant would receive a one-bedroom unit at her
next annual recertification exercise. However, during the annual recertification,
the Agency failed to change the tenant’s unit size, and she remained in the two-
bedroom unit without documentation justifying the extra bedroom.

Finally, the Agency allowed five households to receive extra bedrooms to
accommodate medical or exercise equipment, but the tenants did not use the extra
space for the approved purpose. In one instance, the tenant was given extra space
for the storage of exercise equipment. During our inspection, she stated that she
had exercise equipment which she shared with her mother, who was storing the
equipment at her own residence. The tenant was using the extra room as a
bedroom and not as an exercise room.




                                  6
Inadequate Controls and
Training


            The Agency had inadequate controls and did not adequately train staff.
            Specifically, it did not provide explicit and detailed instructions to case managers
            for determining the proper unit size. The Agency also did not adequately oversee
            its case managers to ensure that errors were detected and promptly corrected. In
            addition, the Agency did not have staff verify that extra rooms were being used as
            intended.

            The Agency did not provide staff with adequate training that would help them in
            properly processing reasonable accommodation requests as well as other requests
            for extra bedrooms. It provided training that did not address the specific areas in
            which staff members exhibited processing deficiencies.

Potential to Save $206,000


            The Agency made excess subsidy payments totaling more than $78,000 during
            our audit period. If the Agency strengthens its controls, it could obtain future
            savings exceeding $206,000. This estimate is based on the current monthly
            excess subsidy payment of $5,724 times 36 months (average number of months a
            tenant stays in a unit). The following table identifies the amounts associated with
            each type of error.

                          Primary errors                      Excess          Future
                                                             subsidy          savings
                                                            payments
              Extra bedroom allowed for occasional              $20,127          $46,188
                caregiver or live-in aide
              Family composition errors                         $19,796          $23,076
              Lacked nexus between medical note and             $23,198          $72,216
                extra bedroom
              Other processing errors                           $15,228          $45,684
              Extra space not used for approved medical              $0          $18,900
                or exercise equipment
              Total                                             $78,349         $206,064




                                             7
Recommendations

          We recommend that the Director of HUD’s Kansas City Office of Public Housing
          ensure that the Agency

          1A.     Reimburses its program $78,349 in excess housing assistance payments
                  from its administrative fee reserves.

          1B.     Applies the proper payment standard for the households identified as
                  having a higher payment standard than justified.

          1C.     Provides staff administering the voucher program with additional training
                  on HUD and Agency requirements.

          1D.     Develops and implements procedures to ensure that each tenant receives
                  the proper voucher size to avoid $206,064 in future overpayments.




                                           8
Finding 2: The Agency Failed to Properly Correct for Unreported
Income
The Agency improperly processed 16 of the households we reviewed with indications of
unreported income. It did not have adequate controls and training to prevent errors. As a result,
it did not pursue the proper amount owed from the affected households and overpaid nearly
$21,000 in subsidies. These errors reduced the amount available in Section 8 funding for future
use.



   Unreported Income Errors



               The Agency did not properly process 16 of the households we reviewed with
               indications of unreported income. The various categories of errors are displayed
               in the table below.

                                         Errors                     Number
                Improperly calculated income and amount owed due to   11
                  unreported income
                Improperly determined period during which income       6
                  was unreported
                Failed to verify indications of unreported income      4
                Total                                                 21*
                * The 16 households had a total of 21 errors.

               The Agency improperly calculated the income and repayment amounts when it
               discovered unreported income for 11 households. In one of the files reviewed, the
               tenant earned unreported income over a period of several months. The Agency
               calculated the amount earned during those months rather than projecting it over
               12 months, which is necessary to obtain an annualized amount before calculating
               the monthly income. In another file reviewed, the Agency improperly calculated
               the amount owed by the tenant because it failed to consider the monthly subsidy
               amount received. The Agency sought to recoup more than it had paid out as
               monthly subsidies.

               The Agency also improperly determined the period during which six tenants had
               unreported income. Its administrative plan states that when a tenant’s income
               increases, his rent will increase on the first day of the second month after the
               change was reported. In one of the files reviewed, the Agency discovered that the
               tenant had unreported income over a seven-month period but only sought
               repayment for a two-month period. In another file, the Agency started calculating
               the repayment amount from April 2007 when the tenant’s job started in January
               2007.


                                                9
           Finally, the Agency failed to verify unreported income when indications existed
           in the files of four tenants. In one of the files reviewed, the tenant had been
           receiving supplemental security income since he entered the program in 2006 but
           had not disclosed it to the Agency. The Agency ran the tenant’s Enterprise
           Income Verification report and discovered that the tenant had $8,435 in
           unreported income leading to an overpayment of $2,136 in housing subsidies.
           However, the Agency did not initiate proceedings to collect the funds.

 Inadequate Controls and
 Training

           The Agency had inadequate controls and did not adequately train its staff.
           Specifically, it did not provide staff with sufficiently detailed instructions for
           calculating amounts owed from tenants with unreported income. In addition, it
           used a worksheet to calculate the amount owed that did not take into account the
           subsidy amount received by the tenant. Finally, the Agency did not adequately
           oversee its case managers to ensure that errors were detected and promptly
           corrected.

           The Agency also did not provide its staff with adequate training that would help
           them in properly processing cases of unreported income.

 Effect of Errors


           The Agency did not pursue the proper amount owed from the affected households
           and overpaid nearly $21,000 in subsidies. These errors reduced the amount
           available in Section 8 funding for future use.

Recommendations


           We recommend that the Director of HUD’s Kansas City Office of Public Housing
           ensure that the Agency

           2A.      Pursue collections of $20,998 in excess housing assistance payments from
                    tenants with unreported income.

           2B.      Provides staff administering the voucher program with additional training
                    on HUD and Agency requirements.

           2C.      Develops and implements controls to ensure the proper corrections for
                    unreported income.



                                            10
                         SCOPE AND METHODOLOGY

To accomplish our audit objective, we
         • Interviewed HUD and Agency staff,
         • Reviewed independent public accountant reports,
         • Reviewed the Agency’s policies and procedures,
         • Reviewed HUD’s monitoring reports concerning the Agency, and
         • Reviewed HUD federal regulations and the Housing Choice Voucher Guidebook

To perform our review, we used an Agency spreadsheet of tenants during our audit period, its
accounts receivable system, HUD’s Public and Indian Housing Information Center system, and
its Enterprise Information Verification system to select various samples for testing. We relied
upon an Agency spreadsheet, which contained data on housing assistance subsidy payments
made during our 14-month audit period for the households that we sampled. We analyzed the
data and concluded that the data were sufficiently reliable for our purposes of sample selection
and calculating the actual amount of the overpaid housing assistance.

To determine whether the Agency granted units that were too large, we analyzed the data for
2,811 households contained in HUD’s Public and Indian Housing Information Center system.
We identified 148 households with more bedrooms than authorized by the Agency’s
administrative plan based on the marital status of the head of household and the ages and genders
of the children. We reviewed the files of these households to determine whether there was
adequate justification for a larger unit. We also inspected the units of 35 of the households that
were allowed an extra bedroom for equipment storage to determine whether they were using the
space for the approved purpose. For households that did not have adequate justification for an
extra room for one or more recertification periods, we determined the amount of overpaid
housing assistance based on data in the Agency’s payment spreadsheet. We generally
determined the future savings based on the August 2007 overpayment amount and multiplied it
by 36 months [$5,724 x 36 months = 206,064]. We used 36 months because this is the average
length of time a tenant stays in a unit based on a HUD study.

To determine whether the Agency properly calculated the housing assistance payments made
during our audit period, we selected a random sample of 10 households from the Agency’s
spreadsheet of tenants. We reviewed this sample for all aspects of housing assistance
calculations and found that four of the households had indications of unreported income and the
Agency did not properly correct for any of them.

We expanded our testing related to unreported income by selecting two additional samples. We
selected 12 of the 177 households with high amounts of possible unreported income on a
December 2007 Enterprise Information Verification report. We also randomly selected nine
households from the Agency’s accounts receivable listing. We reviewed the tenant files of these
21 households to determine whether there were indications of unreported income and if there
were, whether the Agency properly calculated the amount owed, adjusted the tenant’s income
amount going forward, and notified the Office of Inspector General (OIG) of overpaid subsidies



                                               11
exceeding $3,000. The results of our testing apply only to the items tested and were not
projected to the universe.

We performed our audit between September 2007 and February 2008 at the Agency’s office
located at 100 East Euclid Avenue, Suite 101, in Des Moines, Iowa. Our audit period generally
covered July 1, 2006, through August 31, 2007.

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




                                               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:

              •     Controls over the calculation of housing assistance payments.

              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 items are significant weaknesses:

              •       The Agency did not have adequate controls to ensure the proper payment
                      standard for the appropriate unit size (see finding 1).
              •       The Agency did not have adequate controls to ensure the proper correction
                      for unreported income (see finding 2).


 Separate Communication of
 Minor Deficiencies

              Minor internal control and compliance issues were reported to the auditee by a
              separate letter dated April 7, 2008.



                                               13
                                      APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE
                 Recommendation             Ineligible 1/   Funds to be put
                        number                               to better use 2/
                                1A                $78,349
                                1D                                $206,064
                                2A                $20,998
                             Totals               $99,347         $206,064


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
     polices 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. For recommendation 1B, these funds represent subsidy payments that would
     not be paid on units that are larger than necessary if the Agency implements our
     recommendation. These funds would instead be used to house additional Section 8
     voucher program participants. Once the Agency improves its controls, this will be a
     recurring benefit. Our estimate for recommendation 1B reflects the initial three years of
     this benefit. These amounts do not include potential offsetting costs incurred to
     implement our recommendations.




                                             14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         15
16
Comment 1




Comment 2




Comment 3




            17
Comment 4




Comment 5




            18
Comment 6


Comment 7




Comment 5




            19
Comment 8




Comment 9




Comment 10




             20
                         OIG Evaluation of Auditee Comments

Comment 1   We amended the subject line to read “The Des Moines Municipal Housing
            Agency, Des Moines, Iowa, Did Not Always Assign Proper Voucher Sizes or
            Accurately Calculate Overpayments From Unreported Income In Its Section 8
            Housing Choice Voucher Program”

Comment 2   We disagree that the paragraph referenced in the administrative plan addresses
            “emergency situations” only and not processing reasonable accommodation
            requests on a daily basis. The administrative plan states
                   The criteria and standards prescribed within apply to all families applying for housing;
                   however, reasonable exceptions to the standards listed above may be made in emergency
                   situations, and in some cases, relationship, age, gender, health, or disability of family
                   members may warrant assignment of a larger or smaller unit by DMMHA staff or at the
                   request of the applicant family. Written approval of such cases will be made by the
                   Director.

            We believe that this paragraph pertains to the granting of larger units due to age,
            health, or disability, and not just emergency situations.

Comment 3   Although granting extra bedrooms to occasional caregivers and respite workers
            does not violate federal regulations, the agency must ensure that all those
            receiving extra bedrooms actually need them. If an occasional caregiver or
            respite worker spends a few hours a day helping a tenant and is not expected to
            sleep in the unit, the extra bedroom is not warranted. In these 8 cases, the Agency
            did not document that the tenant would have someone regularly sleeping
            overnight and did not obtain the Director’s prior approval for the extra bedroom.

Comment 4   The Agency’s administrative plan states that “...children of the opposite gender
            shall be required to share a bedroom if both are three years old or younger.” The
            policy does not state that children of opposite sexes will receive their own
            bedrooms once they turn 3. Three years old or younger means that the children
            will receive their own bedrooms once they turn 4. It does not appear that the
            Agency always granted 3 year olds their own bedrooms, as we identified several
            households with children of the opposite sexes 3 years and younger who shared a
            bedroom. HUD regulations require the Agency to follow its administrative plan.

Comment 5   In these 4 files without a doctor’s note or other such documentation, there is no
            support for granting the tenant an extra room for that recertification period. The
            2004 Joint Statement of the Department of Housing and Urban Development and
            the Department of Justice states that a tenant “should explain what type of
            accommodation she is requesting and, if the need for the accommodation is not
            readily apparent or known to the provider, explain the relationship between the
            requested accommodation and her disability.” The Agency did not document in
            the tenant files that they were aware of the tenants’ need for the extra bedroom.
            Notes in the file for other recertification periods did not show a nexus (see
            Comment 6).


                                                 21
Comment 6     The 2004 Joint Statement of the Department of Housing and Urban Development
              and the Department of Justice states
                     To show that a requested accommodation may be necessary, there must be an identifiable
                     relationship, or nexus, between the requested accommodation and the individual’s
                     disability.

                     A housing provider may not ordinarily inquire as to the nature and severity of an
                     individual’s disability... However, in response to a request for a reasonable
                     accommodation, a housing provider may request reliable disability-related information
                     that (1) is necessary to verify that the person meets the Act’s definition of disability (i.e.,
                     has a physical or mental impairment that substantially limits one or more major life
                     activities), (2) describes the needed accommodation, and (3) shows the relationship
                     between the person’s disability and the need for the requested accommodation… In most
                     cases, an individual’s medical records or detailed information about the nature of a
                     person’s disability is not necessary for this inquiry.

              In these 10 cases, while the files had doctor statements that an extra bedroom was
              necessary (meeting item 2 above), these notes did not show the relationship
              between the person’s disability and the need for an extra bedroom (item 3 above).
              This can be accomplished without obtaining specific information about an
              individual’s disability. For example, a tenant who requests an extra bedroom so
              that a spouse can sleep separately in a hospital bed does not have to disclose the
              particular disability requiring this bed.

Comment 7     We did not cite any error as a result of a disabled tenant working outside of
              his/her home.

Comment 8     We used the Agency’s policy when calculating unreported income as we
              incorporated the 10 day allowance for reporting and calculated the rent increase as
              of the first day of the second month after the income should have been reported.

Comment 9     The example mentioned by the Agency was misstated. The tenant started a new
              job on January 5, 2007, and had 10 days to report the income. The tenant had
              until January 15 to report the income and the rent increase would have been
              effective on March 1, 2007, not April 1, 2007. According to the Agency’s policy,
              it should have collected the unreported income starting with March 2007.

Comment 10 While there is no single right way to calculate unreported income, there are
           incorrect ways. The errors that we reported in our finding could not be
           rationalized and were not fair. The Agency did not always annualize the tenant’s
           income and therefore did not always calculate the proper unreported income and
           repayment amounts. In one case, the Agency discovered unreported income
           totaling $8,326 over a 7 month period beginning just before the tenant entered the
           Section 8 program. The Agency mistakenly used this amount as an annual figure
           and divided it by 12 to calculate the monthly income, which caused it to only
           calculate a repayment amount of $500.



                                                     22