Issue Date February 8, 2008 Audit Report Number 2008-LA-1007 TO: K. J. Brockington, Director, Los Angeles Office of Public Housing, 9DPH FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA SUBJECT: The Housing Authority of the County of Los Angeles, Los Angeles, California, Did Not Adequately Administer Its Section 8 Voucher Program HIGHLIGHTS What We Audited and Why We audited the Housing Authority of the County of Los Angeles’ (Authority) Section 8 tenant eligibility determinations for its Section 8 Housing Choice Voucher program. The Authority was selected based on its ranking in our auditability survey and was recommended for audit by the Los Angeles Office of Public and Indian Housing. Our objective was to determine whether the Authority determined tenant eligibility and performed annual reexaminations in accordance with U.S. Department of Housing and Urban Development (HUD) rules and regulations. What We Found Although no eligibility issues were identified during our testing (there was only one new admission within our sample), the Authority did not comply with HUD’s requirements or its own administrative plan in performing reexaminations. It incorrectly calculated housing assistance payments, did not complete tenant reexaminations in a timely manner, and improperly changed reexamination due dates. We attribute these conditions to the Authority’s lack of comprehensive procedures and controls, failure to provide ongoing training to staff and management, inadequate computer system controls, and management not providing the necessary oversight to ensure that the voucher program was administered properly. As a result, the Authority made improper and unsupported housing assistance payments, collected unearned administrative fees in excess of $3.6 million from HUD between 2005 and 2006, and continues to put its program at risk. What We Recommend We recommend that the Director of the Los Angeles Office of Public Housing direct the Los Angeles County Board of Supervisors (Board) to replace the executive director with someone who has sufficient Section 8 experience and who will devote the time necessary to ensure that the Assisted Housing Division is run efficiently. In addition, the Board should direct the new executive director to hire a director with sufficient Section 8 experience to head up the Assisted Housing Division. We also recommend that the Authority reimburse its program $33,464 from nonfederal funds for the overpayment of housing assistance, reimburse the appropriate tenants $2,838 for the underpayment of housing assistance, and provide adequate support or reimburse the program $5,860 from nonfederal funds for the unsupported costs cited in this audit report. We further recommend that HUD require the Authority to add policies and procedures to its administrative plan and update the plan throughout the year to incorporate changes or clarification in guidance, and for HUD to withhold 10 percent of the Authority’s administrative fee for fiscal year 2008 and future years, as necessary, until the Authority ensures that its new computer system has been properly implemented and the data transferred from its current system are accurate. Finally, the Director should direct the Authority to reimburse HUD $3.6 million, which is 10 percent of the Authority’s administrative fee for fiscal years 2005 and 2006. Auditee’s Response We provided the auditee with the draft report on December 21, 2007, and held an exit conference on January 14, 2008. The Authority provided draft written comments at the exit conference and final comments on January 25, 2008. The Authority generally agreed with most of our report findings, but disagreed with some of our conclusions and recommendations. The complete text of the auditee’s response without the voluminous exhibits, along with our evaluation of that response, can be found in appendix B of this report. The exhibits will be made available upon request. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Authority Did Not Perform Annual Reexaminations in Accordance 6 with HUD Rules and Regulations Scope and Methodology 17 Internal Controls 18 Followup on Prior Audits 19 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 20 B. Auditee Comments and OIG’s Evaluation 22 C. Schedule of Housing Assistance Payment Errors 55 D. Schedule of Delinquent Annual Reexaminations 56 E. Criteria 58 3 BACKGROUND AND OBJECTIVES The Housing Authority of the County of Los Angeles (Authority) was created in 1938 to manage and develop affordable housing. Since 1938, the Authority has administered federally funded public housing, rental assistance programs, and services and special programs for residents of public and assisted housing. The Los Angeles County Board of Supervisors created the Los Angeles County Community Development Commission in 1982 and combined it with the Authority. The Community Development Commission manages programs in public and assisted housing, community development, economic development, and housing development and preservation to improve the quality of life in low- and moderate-income neighborhoods. The Authority comprises two divisions of the Community Development Commission. The Housing Management Division manages public housing and related programs and services, while the Assisted Housing Division administers the Housing Choice Voucher program under the U.S. Department of Housing and Urban Development’s (HUD) Section 8 program. The housing choice vouchers allow very low-income families to obtain affordable, decent, and safe housing. HUD’s approved budget authority for the Authority’s program for fiscal years 2005 and 2006 was $179.9 million and $181.6 million, respectively. The Authority currently has 20,721 Section 8 units and 2,964 low-rent units. Under the Section 8 Housing Choice Voucher program, a public housing agency is required to establish a family’s eligibility up front and then reexamine the income and composition at least annually. The reexamination determines the continued eligibility of the family and establishes the housing assistance payment amount. The public housing agency must establish a policy which ensures that reexaminations take effect within a 12-month period for each family. It is important that the public housing agency has tracking and monitoring procedures and systems in place to ensure that the reexaminations are initiated and completed on time. Verifications must be performed at reexamination to substantiate the tenant’s updated certifications. If third-party verification information is not received in a timely fashion, the public housing agency should choose an acceptable alternate form of verification and document its efforts in the tenant’s file. Tenant reexamination information is recorded on HUD Family Report (HUD-50058) and then electronically submitted to HUD’s public housing information center. HUD measures the performance of the public housing agencies that administer the Housing Choice Voucher Program through its Section 8 Management Assessment Program, which scores the agencies in 14 key areas or indicators. These performance indicators show whether public housing agencies help eligible families afford decent rental units at a reasonable subsidy cost as intended by federal housing legislation. The Section 8 Management Assessment Program uses HUD’s national database of tenant information (the accuracy of the public housing agency’s submissions to that system is, therefore, critical) and information from audits conducted by independent auditors. HUD annually assigns each public housing agency a rating for each indicator and an overall performance rating of high, standard, or troubled. If a public housing agency does not adequately perform on any of the 14 indicators or is assigned an overall performance rating of troubled, HUD will conduct on-site reviews to assess the magnitude and 4 seriousness of the problem. The public housing agency must implement a thorough corrective action plan that HUD will monitor to ensure improvement in program management. HUD Performend a 2003 Rental Integrity Monitoring Review In January 2003, the Los Angeles Office of Public Housing performed a rental integrity monitoring review and found that the Authority had conducted no reexaminations or only performed partial annual tenant reexaminations in three years. For the files selected in their sample, the error rate was 37 percent. Some of the other errors included not verifying earned income, not verifying asset income, and not properly calculating the utility allowance. The Authority notified HUD that all of the errors identified had been corrected. A subcontractor, NTI/CVR, performed a rental integrity monitoring re-review in October 2003 and found more errors than in the first review. In 108 files reviewed, the subcontractor found that 79 files (73 percent) contained errors, including the same types of errors identified in the January 2003 rental integrity monitoring review. The re-review also indicated that only 27 of the 36 files that were previously reviewed by HUD had been satisfactorily corrected. Additionally, HUD did not know whether the Authority performed tenant reexaminations for the files in which a reexamination had not been performed or only partially performed. HUD Performed a 2004 Section 8 Management Assessment Program Confirmatory Review In 2003 the Authority received a low Section 8 Management Assessment Program score. In response to the score and the 2003 rental integrity monitoring reviews, HUD performed a Section 8 Management Assessment Program confirmatory review in 2004 to assess the Authority’s Housing Choice Voucher program management and compliance with program requirements. The confirmatory review lowered the Authority’s score, resulting in the Authority’s being designated as a “troubled performer.” The confirmatory review revealed a “serious level of noncompliance with HUD’s Housing Choice Voucher program requirements.” During March 2005, the Authority appealed its score, and the Los Angeles Office of Public Housing denied the appeal. During May 2005, the Authority appealed the score to the General Deputy Secretary of Public and Indian Housing. The appeal was granted for indicator 5 (housing quality standards quality control inspections), elevating the overall rating to standard. The Authority Was Placed under a Corrective Action Plan In response to the 2004 Section 8 Management Assessment Program review and the revised score, HUD’s Los Angeles Office of Public Housing placed the Authority under a corrective action plan for the period August 1, 2005, through February 28, 2006, and designated it as “near troubled.” The Authority submitted progress reports stating that the deficiencies had been corrected. The Los Angeles Office of Public Housing performed a closeout review, but the results were inconclusive in determining whether the Authority had satisfactorily addressed the issues in the corrective action plan. Therefore, the corrective action plan remained open. The objective of the audit was to determine whether the Authority determined tenant eligibility and performed annual reexaminations in accordance with HUD rules and regulations. 5 RESULTS OF AUDIT Finding 1: The Authority Did Not Perform Annual Reexaminations in Accordance with HUD Rules and Regulations Although no eligibility issues were identified for new admissions during our testing (there was only one new admission within our sample), the Authority failed to comply with HUD regulations and its own administrative plan regarding housing assistance payments. In all 25 tenant files reviewed, the Authority made errors in its reexamination process and incorrectly calculated housing assistance payments. The Authority also did not complete 4,710 tenant reexaminations in a timely manner, improperly changed annual reexamination due dates, and did not perform annual reexaminations. This noncompliance occurred because of the Authority’s lack of comprehensive procedures and controls, failure to provide tenant eligibility training to its staff and management, inadequate computer system controls, and management not providing the necessary oversight to ensure that the voucher program was administered properly. As a result, the Authority improperly made $33,464 in overpayments, $2,838 in underpayments, and $5,860 in unsupported payments, and collected administrative fees from HUD in excess of $3.6 million to administer the Section 8 program while not in compliance with program requirements. Although the Authority reorganized its Assisted Housing Division (Section 8) during the course of our audit, and it was placed under its second corrective action plan, the Section 8 program continued to remain at high risk. The Authority Incorrectly Calculated Housing Assistance Payments We reviewed annual reexaminations from 25 tenant files and found that the Authority made errors in its reexaminations process and incorrectly calculated housing assistance payments for each tenant. The tenant files contained a total of 65 reexaminations or HUD Family Reports, 52 of which contained errors. The Authority did not • Calculate tenant income correctly for 17 tenants in accordance with 24 CFR [Code of Federal Regulations] 5.609; • Use the correct utility allowance from its utility allowance schedule for 14 tenants in accordance with 24 CFR [Code of Federal Regulations] 982.517; • Use the correct payment standard for 15 tenants in accordance with 24 CFR [Code of Federal Regulations] 982.505 and chapter 7 of HUD’s Housing Choice Voucher Guidebook, 7420.10G; and • Obtain third-party verification for seven tenants in accordance with 24 CFR [Code of Federal Regulations] 982.516 (see appendix C). 6 In addition, although the Authority had access to Enterprise Income Verification system reports, starting in July 2006, and the LEADER program reports, which are important tools for verifying tenant income and eligibility information, some of this information was not printed or used by the staff when applicable in determining eligibility. These errors resulted in the Authority’s overpaying $33,464 and underpaying $2,838. In addition, there was insufficient reexamination documentation in the Authority’s system to support $5,860 in housing assistance payments for tenant 05. The Authority Did Not Perform Annual Reexaminations in a Timely Manner . Contrary to the Authority’s administrative plan, monitoring procedures, chapter 12 of HUD’s Housing Choice Voucher Guidebook, and 24 CFR [Code of Federal Regulations] 982.516, the Authority was delinquent in performing 4,710 (27 percent) of the 17,723 annual reexaminations required for its Housing Choice Voucher program tenant inventory. We initially identified delinquent annual reexaminations in HUD’s Public Housing Information Center database for fiscal years 2004 through 2006, ranging from 21 in fiscal year 2004 to 9,011 in 2006, although some of these tenants had been terminated from the program. Upon being notified of the delinquencies, the Authority admitted that it had at least 1,900 late reexaminations for current tenants, some dating back to fiscal year 2001. We attempted to match late reexaminations between our Public Housing Information Center list and the Authority’s list. Although some matched, others did not, making it difficult to determine whether the Authority’s list was accurate and complete. During the course of our field work, the Authority ultimately identified that it had been delinquent on 4,710 reexaminations; however, due to the discrepancies with HUD’s data, there may have been additional tenants with delinquent annual reexaminations and others who were delinquent before termination. The Authority reported to HUD in the Section 8 Management Assessment Program for indicator 9, timely reexaminations, that it performed reexaminations satisfactorily. However, this was not the case, and as a result, the Authority received unearned administrative fees from HUD relating to these delinquencies. By failing to conduct reexaminations as required, the Authority paid 1,900 tenants $15.2 million 1 in housing assistance without performing reexaminations as required. 1 This is one year of current housing assistance payments for the 1,900 delinquent tenant reexaminations, not taking into consideration the actual period in which the reexaminations were delinquent. 7 After we discussed the issue with the Authority and notified HUD, the Authority began a concerted effort to bring the delinquent reexaminations current. It also contracted with four retired Housing Authority of the City of Los Angeles employees to assist in completing the delinquent reexaminations. As of April 2007, the Authority had completed reexaminations for all 4,710 tenants, and it had performed quality assurance reviews on a sample of these reexaminations. The Authority’s consultant, The Bronner Group, reviewed 519 of these reexaminations and found that 195 (38 percent) contained errors, resulting in the Authority’s overpaying $4,054 and underpaying $1,902 in housing assistance. We were also told that Authority’s supervisors performed additional quality control reviews; however, the Authority could not provide the number reviewed, errors found, or the amount of housing assistance over/underpayments identified. Although the Authority claimed the tenants’ accounts were adjusted accordingly, it was unable to provide support. The Authority provided a list of delinquent annual reexaminations supposedly reviewed by its supervisors, but our sample review of five tenants found that most were actually reviewed by the consultant. In addition, we noted that in one case, an income discrepancy was ignored and in two cases, the annual reexamination dates were changed without explanation. Additionally, in 13 of the 25 tenant files reviewed, the Authority did not perform annual reexaminations as required (see appendix C). The Authority recently certified in its Section 8 Management Assessment Program that it had correctly calculated tenant rent for indicator 10, annual reexaminations. However, based on the errors and discrepancies noted above, HUD does not have assurance that the delinquent annual reexaminations were performed correctly. The Authority Improperly Changed Annual Reexamination Due Dates Of the 52 annual reexaminations reviewed, 36 (69 percent) were not completed in a timely manner (see appendix D). Of these, 28 were recorded from one to ten months late, while eight were completed early but had late effective dates. These reexaminations did not show up as delinquent because the annual reexamination due dates were changed contrary to chapter 12, section 12.1, of the Authority’s administrative plan; chapter 11, page 104, of the Authority’s admission and occupancy policy; and 24 CFR [Code of Federal Regulations] 982.516. Based on the Authority’s administrative plan, the annual reexamination date is supposed to only change when a family moves to another unit; however, in all 36 cases, the family did not move, but the Authority changed the annual reexamination dates without justification and contrary to its policy. Further, we found six annual reexaminations in which the housing assistance payment amounts remained the same as the prior year and other instances in which the amounts were the same for more than a year, indicating that the tenant data were not updated although a reexamination had been recorded. HUD wrote a finding on this issue in its 8 2003 rental integrity monitoring review report (see Background and Objectives section), so the Authority had been put on notice. Despite the financial impact to the tenants and HUD, it perpetuated the inaccurate due dates and total tenant and housing assistance payments instead of making the appropriate adjustments. Although the Authority’s manipulation of the system would give the appearance that the annual reexaminations had been completed correctly, the housing assistance payments would be inaccurate. Therefore, the Authority’s prior Section 8 Management Assessment Program ascertions to HUD that it performed timely annual reexaminations where false. The Authority’s Administrative Plan Did Not Contain Enough Information to Effectively Assist Its Staff in Performing Their Duties The Authority’s administrative plan was not detailed enough to provide the staff essential guidance in performing their duties or carrying out their everyday tasks. Although the administrative plan cited the applicable Code of Federal Regulations requirements, it failed to provide specifics and examples to the staff regarding important areas that might impact housing assistance payment calculations. For instance, there was insufficient guidance concerning the verification of full-time college student status, which directly impacts the amount of income a family reports. As a result, we noted an instance in which the Authority did not adequately follow up, resulting in its overpaying $5,072 in housing assistance. If the Authority had provided staff with more detailed procedures, the problem might not have occurred. We previously cited the Authority in audit report 2007-LA-1007, dated April 3, 2007, for its administrative plan’s not having sufficient guidance to ensure compliance with HUD’s housing quality standards and inspection requirements. The Authority also had not updated and amended the plan throughout the year when necessary, such as when HUD criteria changed. For example, the Authority did not make an adjustment when there was a change in 24 CFR [Code of Federal Regulations] 5.609(b)(9) in April 2006, impacting the amount of college financial assistance considered as income. The director of contract maintenance and her staff were unaware of the revision more than a year later. Therefore, there may have been a number of annual reexaminations processed after April 2006 with inaccurate income calculations that may have resulted in housing assistance overpayments. 9 The Authority Did Not Provide Essential Training to Its Staff and Management Previously, the executive director had not considered training as an important component of staff and management development in understanding the Section 8 program. New program assistants, responsible for determining tenant eligibility, would receive training from a manager or shadow another program assistant for a few weeks to gain an understanding of the program and the Authority’s systems. They would then be assigned their tenant case load and proceed to perform their duties. If the program assistants needed additional guidance on HUD’s rules and regulations, they would either decipher the information for themselves or obtain it through other program assistants, managers, or the Authority’s administrative plan. However, since the administrative plan was not adequate and managers and other program assistants had also not received formal training, the new staff members could easily misinterpret or receive inaccurate information on HUD’s requirements, which led to incorrect housing assistance payments. After we notified the executive director of the significance of our preliminary results and the Director of the Los Angeles Office of Public Housing advised him of the importance of training, he initiated formal training for the staff. Starting in January 2007, the Authority provided basic Section 8 training for its staff and management that was followed up with basic housing quality standards training. We were informed additional training sessions are planned. The Authority’s Computer System Lacked Essential Controls Restricting Staff from Changing Critical Tenant Reexamination Data The Authority’s computer system was inadequate and lacked the necessary controls to restrict staff from changing information that was essential for determining the housing assistance payments. The Authority also could not provide its general computer control procedures, including those to ensure proper authorization and recording of transactions and activities. The Authority’s system, Emphasys, was designed between 1992 and 1995, and most of the Authority’s staff could access the system. Because the system was always in “edit mode,” critical information such as payment standards, utility allowances, and annual reexamination due dates were not locked after entry and could be changed without proper authorization. This control deficiency had a significant impact on whether the Authority accurately determined the effective dates of the annual reexaminations (as discussed above) and calculated the correct housing assistance payments. Further, its system had a validation feature to detect errors or contradictory information and notify the user to correct the problem. However, we were informed that most of the staff ignored these notifications and continued processing without 10 making corrections or changes. We were also informed that the Authority was about a year behind in obtaining vendor-provided patches. Our analysis of the Authority’s database identified a number of incorrect current and next recertification dates that should have been prevented by the system’s validation feature. For example, for one tenant, the year for the next certification date, June 1, 2001, was before the current certification date of August 19, 2006. In addition, some of the tenants’ next certification dates and original move-in and move-out dates were missing. After informing the Authority of these discrepancies, we were told that there were a number of data entry errors and the program assistants were experiencing difficulty in determining the anniversary dates for the next annual reexaminations. Instead of the program assistants’ determining the annual reexamination dates, the system should populate this information as a control measure. Due to the control deficiencies and inaccurate data, there is no assurance that the Authority used correct annual reexamination due dates. Before the start of the audit, the Authority initiated the planning and selection process of obtaining a new computer system because its system was old and outdated. During the course of the audit, the Authority announced that it had selected YARDI as its new computer system. The YARDI system would have very important fields populated so that the staff would not need to enter the information into the system, thereby minimizing the amount of data entry the case managers would perform in determining housing assistance payments. However, with the inaccurate existing data, HUD does not have assurance that the information in the new system would be accurate and reflect the correct annual reexamination due dates for the tenants currently receiving Section 8. The Authority Reorganized the Assisted Housing Division in an Attempt to Improve Its Ability to Administrer the Section 8 Program After we informed the Authority and HUD of our prelimary results in October 2006, the Authority retracted previous Section 8 Management Assessment Program assertions to HUD in the area of timeliness of reexaminations, and it voluntarily lowered its score. The executive director also announced his plans for a major reorganization of the Authority’s Assisted Housing (Section 8) Division and major changes to upper management. The Authority began the implementation of this process in November 2006. First, the director was removed (this position remained vacant as of October 2007) and the assistant director and manager were removed from their positions and transferred to other departments. The Assisted Housing Division was then divided into three divisions, as follows: 1. The Management Services Division included the compliance unit responsible for performing quality assurance on all of the Section 8 Management Assessment 11 Program indicators. Its director was previously the Community Development Commission’s human resources director, who had little knowledge of Section 8. 2. The Contract Maintenance Division was responsible for the majority of the tenant eligibility functions: interim reexaminations, annual reexaminations, and terminations. Its director was previously the quality assurance principal analyst. 3. The Applications and Eligibility Division was responsible for portability, housing quality standards inspections, lease-up, and determining whether applicants were eligible for Section 8 assistance. The unit supervisor for applications and eligibility was promoted to be the department’s director with no Section 8 knowledge before joining the Authority in May 2006. Of the three directors, only the director of contract maintenance had prior Section 8 experience. Further, As of October 2007, the executive director had appointed the director of management services to be the acting director of the Assisted Housing Division although her backgound was in human resources with no Section 8 experience before November 2006. The director of the Applications and Eligibility Division was also responsible for the Contract Maintenance Division although she also had no previous Section 8 experience. The Authority also contracted with a consultant, the Bronner Group, to assist in the reorganization effort and perform quality control reviews on the delinquent annual reexaminations as noted above. The Authority Was Placed under an Additional Corrective Action Plan In January 2007, the Los Angeles Office of Public Housing, along with HUD’s Recovery and Prevention Center, performed a review to address issues identified in the prior corrective action plan (see Background and Objectives section of the report) and issues identified during the course of our audit. The assessment reconfirmed the Authority’s Section 8 Management Assessment Program score for June 30, 2003, at 63 points instead of the 73 points submitted by the Authority. The Authority received a zero score on the following indicators: • 3, determining of adjusted income; • 6, housing quality standard enforcement; • 7, expanding opportunities; • 9, annual reexaminations; • 10, correct tenant rent calculations; • 12, annual housing quality standards inspections; 12 • 13, lease-up; and • 15, deconcentration bonus. The assessment confirmed that the Authority did not correct the deficiencies identified in the previous corrective action plan, despite its misleading claims to the contrary. In addition, after the assessment was completed, HUD’s Los Angeles Office of Public Housing established a new corrective action plan, signed on August 22, 2007, which will remain in effect until HUD determines that all of the tasks have been completed. Management Failed to Provide Necessary Oversight to Ensure That Vouchers Were Administered Properly The executive director, who was ultimately responsible for ensuring that the Assisted Housing Division determined tenant eligibility and performed reexaminations in compliance with program requirements, was also responsible for nine other divisions in the Community Development Commission. Before the reorganization, the executive director had only met with the senior staff once every two weeks to discuss issues and left the management of the Authority to the director and assistant director of the Assisted Housing Division. As illustrated by the significant problems above, the Authority did not determine tenant eligibility in a manner that complied with program requirements. We attribute these problems to the executive director’s not spending enough time at the Authority, having little involvement in its day-to-day operations, and allowing the previous director of the Assisted Housing Division to run the entire operation. Before HUD’s 2003 review, management should have been aware of the need to implement significant procedures and controls to correct the deficiencies. When HUD identified that there were annual reexaminations that had not been completed for more than a year, management should have taken action to correct housing assistance payment amounts and the inaccurate annual reexamination dates. Instead, the Authority wrote to HUD that it had completed actions to ensure that the problems had been corrected. Our audit and HUD’s 2007 review showed that the problems had not been corrected. Therefore, management willingly and knowingly violated section 10(a) of the Authority’s annual contributions contract and did not comply with 24 CFR [Code of Federal Regulations] 982.516 when it did not perform required annual reexaminations. As stated above, the Authority reorganized the assisted housing division, but we do not know whether the reorganization will improve the administration of the program. We question some of the executive director’s decisions, such as replacing the director and assistant director of the Assisted Housing Division with two individuals who had no Section 8 experience. These positions were responsible for critical Section 8 processes 13 that required program knowledge and experience. The two directors, along with their staff, only recently completed basic Section 8 training. It is unclear how they will be able to effectively interpret HUD rules and regulations and disseminate critical information to staff to ensure proper administion of the program when they, themselves, are in the process of learning this very complex program. This can result in the perpetuation of significant noncompliance issues. We are also concerned with the number of tenants for whom the program assistants were responsible when completing the annual reexamination process. Previously, case managers (now called program assistants) were responsible for performing all tenant eligibility duties for 600 to 700 tenants from new contracts to terminations. Some staff informed us that the case loads were too high to properly complete the reexaminations. After the reorganization, the program assistants had an average caseload of 900 tenants and became responsible for current and delinquent annual reexaminations. Although the executive director created a Termination Division and an Interim Division that would be responsible for completing the terminations process and performing interim examinations, the bulk of the work remained with the program assistants. The distribution of the workload might not be appropriate, given the amount of work that is needed to complete an annual reexamination, and might result in further inaccuracies and delinquent annual reexaminations. Conclusion The Authority’s management did not adequately administer the Section 8 voucher program. Despite HUD’s attempts to provide remedial help through monitoring and a corrective action plan, the executive director did not enact substantive changes until we notified him of our interim results, and some of those changes have left the program at risk. The Authority should have known about these problems before they were identified by HUD in 2003. As a result, the Authority overpaid $33,464, underpaid $2,838, and could not support $5,860 in housing assistance, and it received in excess of $3.6 million in administrative fees (see appendix A) to perform tenant eligibility in 2005 and 2006 that it did not earn. In addition, the program continued to remain at risk due to poor and/or inexperienced management, inaccurate tenant eligibility data in its systems, and reexamination errors which put the accuracy of its housing assistance payments in question. Recommendations We recommend that the Director of the Los Angeles Office of Public Housing 1A. Direct the Authority to reimburse its program $33,464 from nonfederal funds for the overpayment of housing assistance. 14 1B. Direct the Authority to reimburse the appropriate tenants $2,838 from program funds for the underpayment of housing assistance. 1C. Direct the Authority to provide adequate support for the housing assistance payments disbursed or reimburse the program $5,860 from nonfederal funds for the unsupported cost cited in this report (see appendix C). 1D. Review a sample of the 4,710 delinquent annual reexaminations and determine whether they were completed accurately and the housing assistance payments were adjusted as necessary. 1E. Direct the Authority to perform the prior annual reexaminations to make them current on the 13 tenants missing annual reexaminations, ensuring that the correct annual reexamination due dates are used (see appendix C) in accordance with the Authority’s policies and HUD requirements, and make revisions to the housing assistance payments when necessary. 1F. Direct the Authority to correct the annual reexamination dates for the 18 tenants for whom the Authority improperly changed annual reexamination dates (see appendix C) so that they comply with Authority policies and HUD requirements and make revisions to the housing assistance payments when necessary. 1G. Direct the Authority to only change the tenants’ annual reexamination due dates in accordance with its monitoring and administrative policies and HUD regulations. 1H. Require the Authority to add policies and procedures to its administrative plan and include examples to ensure that it is comprehensive enough for staff to use in performing their duties and update the plan throughout the year to incorporate changes or clarification in guidance. 1I. Require the Authority to implement a comprehensive training program for staff and management on its Housing Choice Voucher program, including HUD’s Public Housing Information Center system, to ensure that the information is accurate before submission. 1J. Withhold 10 percent of the Authority’s administrative fee starting in its fiscal year 2008 and future fiscal years, as necessary, until the Authority has had an independent review performed of its YARDI system to ensure that it has been properly implemented and the data transferred from its Emphasys system are accurate. 1K. Direct the Los Angeles County Board of Supervisors to remove the executive director from his respective position and replace him with someone who has sufficient knowledge of the Section 8 program and who will devote the necessary time to ensure that the Section 8 program is run in an efficient and effective manner. 15 1L. Direct the Authority to hire a director for the Assisted Housing Division who has sufficient Section 8 experience to ensure that the Section 8 program is run in an efficient and effective manner and in compliance with HUD requirements. 1M. Require the Authority to reimburse HUD $3,662,972, which is 10 percent of the Authority’s administrative fee for fiscal years 2005 and 2006, in accordance with 24 CFR [Code of Federal Regulations] 982.152, for not adequately administering its program in compliance with HUD requirements. 16 SCOPE AND METHODOLOGY To accomplish our objective, we • Reviewed applicable laws, regulations, and the Authority’s administrative plan. • Reviewed HUD’s program requirements at 24 CFR [Code of Federal Regulations] Parts 5, 960, and 982; HUD’s Public and Indian Housing Notices 2001-15, 2004-01, and 2007-15; the Authority’s consolidated annual contributions contract; and HUD’s Housing Choice Voucher Guidebook, 7420.10G. • Reviewed the Authority’s annual audited financial statements and organizational charts. • Reviewed HUD’s monitoring reports and corrective action plans for the Authority. • Obtained and reviewed the Authority’s tenant files and obtained supporting documentation from its Laserfiche and Emphasys computer systems. We also interviewed appropriate Authority employees and HUD staff. To achieve our objective, we relied in part on the computer-processed data in the Authority’s database. We performed an assessment of the reliability of the data and found the data were not adequate; therefore, we performed additional procedures to verify the information received. We statistically selected 51 of the Authority’s tenants receiving housing assistance payments during our audit using an attribute statistical sampling method developed by our computer audit specialist. Our universe included 17,723 families receiving housing assistance payments. We reduced the sample to 20 of the 51 tenant files due to time constraints imposed by the number of errors encountered in each file reviewed. We determined that one sample tenant had ported to another jurisdiction; therefore, the responsibility for performing the annual reexamination lies with the receiving Authority. As a result, we eliminated this tenant from our sample and reviewed the remaining 19 tenants. We included six tenant file reviews performed during the audit survey that were nonstatistically selected, bringing our total sample to 25 tenants. Only one tenant sampled was a new admission, a transfer from the Housing Opportunities for People With AIDS (HOPWA) program. The Authority noted that one of the 25 vouchers we tested was actually a project-based voucher it had processed as a tenant-based voucher. We extracted delinquent annual reexaminations from the Public Housing Information Center database for the Authority’s fiscal years 2004 through 2006, and reviewed a nonstatistical sample of the tenant information. We also obtained a list from the Authority of delinquent annual reexaminations on tenants who were receiving Section 8 assistance. We performed our on-site work between July 17, 2006, and July 11, 2007, at the Authority’s office located at 12131 Telegraph Road, Santa Fe Springs, California. The audit covered the period July 1, 2004, through June 30, 2006, but was expanded when necessary. We conducted our audit in accordance with generally accepted government auditing standards. 17 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: • Policies and procedures to ensure that annual reexaminations are completed accurately. • Policies and procedures to ensure that valid and reliable data are obtained and maintained. • Policies and procedures to ensure that resource use is consistent with laws and regulations. • Policies and procedures to ensure that resources are safeguarded against waste, loss, and misuse. 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 did not implement adequate procedures and controls to ensure that it complied with HUD requirements. 18 FOLLOWUP ON PRIOR AUDITS Audit of Housing Quality Standards - The Housing Authority of the County of Los Angeles, Audit Number: 2007-LA-1007, Issued April 3, 2007 The fieldwork for this audit was completed in conjunction with this assignment. The report contained two findings that the Authority’s Section 8 units did not meet housing quality standards and the Authority did not complete timely housing quality standards inspections. On June 4, 2007, OIG entered into management decisions with HUD to correct the items mentioned in the recommendations, which were completed and closed by HUD by December 26, 2007. 19 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible 1/ Unsupported 2/ Unreasonable or Funds to be put number unnecessary 3/ to better use 4/ 1A $33,464 1B $2,838 1C $5,860 1M $3,662,972 Totals $33,464 $5,860 $3,662,972 $2,838 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/ Unreasonable/unnecessary costs are those costs not generally recognized as ordinary, prudent, relevant, and/or necessary within established practices. Unreasonable costs exceed the costs that would be incurred by a prudent person in conducting a competitive business. The administrative fees paid to the Authority to administer the Section 8 Housing Choice Voucher program were not fully earned because the Authority did not fulfill its administrative duties relative to tenant eligibility requirements. For fiscal years 2005 and 2006, the Authority received more than $36 million in administrative fees for administering the Section 8 program. We determined that at least 10 percent of the full- time employees in the Authority’s Assisted Housing Division were performing tenant eligibility and reexamination functions. Therefore, we recommend that the Authority reimburse HUD 10 percent of the administrative fees, or $3,662,972. 4/ 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 20 expenditures noted in preaward reviews, and any other savings which are specifically identified. In this instance, if the Authority implements our recommendations, it will ensure that tenants are reimbursed for personal funds they should not have expended as the Authority underpaid the amount of assistance they were entitled to receive under the Section 8 Housing Choice Voucher program. Once the Authority successfully improves its systems and controls, this will be a recurring benefit. 21 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 22 Comment 3 Comment 4 Comment 5 23 Comment 5 Comment 4 Comment 6 24 Comment 6 Comment 7 Comment 8 25 Comment 4 Comment 8 Comment 2 26 Comment 9 Comment 10 27 Comment 1 Comment 4 28 Comment 4 29 30 31 32 33 34 35 36 37 Comment 11 38 Comment 12 39 Comment 13 40 Comment 13 41 Comment 14 Comment 5 42 Comment 8 Comment 8 Comment 6 43 Comment 15 Comment 15 44 Comment 15 45 Comment 16 46 Comment 17 47 48 49 OIG Evaluation of Auditee Comments Comment 1 Our conclusions and recommendations are based on the problems identified with the Authority’s tenant reexaminations within the scope of our audit period. Each tenant file we reviewed had errors impacting the amount of housing assistance payments, and many of the reexaminations had multiple errors as identified in appendix C. Since most of the files we reviewed were selected through a statistical sample, we would expect to see a similar rate of errors throughout the voucher program. HUD had previously identified similar issues in prior years and the auditee purportedly addressed the problems. Per our audit finding, this was not the case. The high rate of errors identified by the auditee’s consultant confirms there were prevalent problems in the auditee’s reexamination process. These problems have contributed to the Authority being put into troubled status and being placed under an additional corrective action plan. Although the Authority’s reorganization and ongoing computer system improvement efforts have been occurring after our audit period, and are therefore outside the scope of our audit, we met with key authority management during the course of our review to obtain an understanding of its progress. We acknowledge that the auditee began implementing changes that should improve its operations if implemented and managed properly, such as the added emphasis on training and a new computer system with additional controls. However, we question some decisions relating to the selection of key management personnel. Comment 2 The Authority takes exception to statements in the report that it made misleading statements and manipulated the system. However, its practice of changing reexamination due dates in violation of its own administrative plan gives the appearance that reexaminations have been done timely, when they may have been overdue. In other instances, reexaminations had information copied from prior reexaminations without verification, a repeat finding from HUD’s earlier reviews. This would also make reexaminations appear falsely current when they were overdue. The Authority answered “yes” to the 2005 Section Eight Management Assessment Program indicator (9) that the authority completes a reexamination for each participating family at least every 12 months, (10) the authority correctly calculates tenant rent, and (12) the authority inspects each unit under contract at least annually. Per the results of our reexamination review, and our previous audit of the Authority’s inspections, this was not the case. In March 2006, the Authority certified it had completed all items under the 2005 corrective action plan. Some of these activities included having all voucher staff trained as needed to properly implement the recertification process, and ensuring that the annual recertification completion dates are within 12 months of the 50 anniversary date and that this information is correctly recorded on the HUD form 50058. Our review indicates this was not the case. Comment 3 All facts and conclusions are documented in the audit workpapers and are fully supported in accordance with generally accepted government auditing standards. Comment 4 The Nelrod Company was contracted by HUD to provide technical assistance to the auditee in conjunction with it most recent corrective action plan. The Nelrod Company began its work after the Board’s acceptance of the contractor on August 28, 2007, and the report was issued on December 14, 2007, all subsequent to the completion of our audit field work. Although the report was not brought to our attention until the exit conference, we have reviewed the subject report and it generally discusses the auditee's new organizational structure, IT conversion progress, and training plans. The report makes observations and additional recommendations concerning these areas and focuses on periods outside of the scope of our audit. The report does not contradict issues discussed in our audit report. Comment 5 The Authority’s ongoing data clean-up efforts have been occurring after our audit period, so determining their full extent is outside the scope of our audit. We have reported on the problems that existed at the time of our review. During the course of the audit, we met with key authority management to discuss progress in its reorganization and other improvements. During those meetings the auditor discussed the need for accurate information to be transferred to the Authority’s new YARDI system. We acknowledge the implementation of the new system is in progress. However, we continue to recommend HUD ensure the Authority fully implements the new system and that the data transferred to the system is accurate, and to withhold funds as necessary to ensure this is done. Comment 6 24 CFR [Code of Federal Regulations] 982.152 and 155 allow HUD to reduce or offset administrative fees and reserves if the Authority fails to perform its administrative responsibilities correctly or adequately under the program. As stated in Appendix A, at least 10 percent of the Authority’s staff work on the tenant eligibility and reexamination function. Based on the issues cited in the report, we have concluded the applicable fee was not properly earned. We have noted prior and current HUD notices that call for penalties or withholding of 10 percent of the administrative fee, such as PIH notices 2007-27, 2006-03, 2005-17, 2000-28, 96-20, etc. In keeping with HUD’s practice we have limited the questioned administrative fees to 10 percent. Comment 7 We have not received any documentation to show that the implementation of the recommendations will result in “severe negative programmatic repercussions.” Information from HUD’s 2007 limited financial management review of the Authority indicated that as of December 31, 2006, it had administrative fees and reserves of almost $8.4 million. 51 Comment 8 The executive director was in charge of the voucher program when the Section 8 issues were initially identified by HUD in 2003 (see the Background and Objectives section), and when they were supposedly corrected under the initial corrective action plan. However, per our audits (including our prior audit report 2007-LA-1007, issued on April 3, 2007) and HUD's 2007 review, the problems continued. The executive director’s previous lack of day-to-day involvement in the operation of the Assisted Housing Division appears to have contributed to its problems. We were informed that once the current changes have been made, the executive director planned to again spend less time at the Authority. We believe a housing authority of this size, with the problems we noted, needs an executive director that can devote sufficient time to ensure the Section 8 program operates properly. The current Assisted Housing Division director is only “acting” in this position. A permanent Division Director needs to be appointed. The acting director has no prior Section 8 experience and her background was in human resources, not the operation of a Housing Choice Voucher program. We previously discussed the lack of Section 8 experience and knowledge among the auditee's new management with the executive director on February 7, 2007. We have no objection to the Authority hiring a second assistant executive director. However, the duties and responsibilities of this position have not been provided to us. Given the above, it is not clear this position will sufficiently make up for the executive director’s lack of involvement. Comment 9 The auditee has not submitted any documentation to support this assertion. There is no such HUD guidance or criteria, and the local HUD hub office could not corroborate the auditee’s claims. According to the system extract pulled by HUD, the Authority had listed that 100 percent of its reexaminations had been completed on time as of June 30, 2005, which was not the case. Comment 10 We have made some adjustments to the report to indicate that planning for the reorganization occurred prior to our notification of preliminary audit results; however, we cannot verify when this planning was initiated or to what extent, because inadequate documentation has been submitted on the matter. It is not clear why the auditee would appoint a “crisis team” in April 2006, per its timeline, immediately after certifying to HUD in March 2006 that it completed all activities on its corrective action plan to resolve these problems. The OIG and HUD were not informed of these planned changes until after we notified the auditee of our preliminary results. As acknowledged in the auditee's comments and timeline, the changes were implemented subsequent to those discussions. 52 Comment 11 The auditee states that its quality control reviews determined that reexaminations “were completed accurately.” However, prior quality control reviews performed by the Bronner Group, reported in December 2006, showed that 40 percent of the reexaminations had errors. The quality control reports provided under attachment 1 included results from reviews performed by unknown persons between January 2007 and September 2007. These reports show various error rates of 20 to 100 percent of the files reviewed (38 percent overall), resulting in under and overpayments. We therefore remain concerned with the accuracy of those reexaminations not tested. Comment 12 Based on the information submitted by the auditee, reexaminations have been performed in 2007 that should make the reexaminations current. However, the effective dates of the reexaminations and projected date of the next reexamination still do not appear to be in accordance with the tenant’s anniversary dates (based on the information we have up to fiscal year 2006). There is also insufficient information to confirm that these reexams were done timely or that all appropriate adjustments have been made to the housing assistance payments or tenants’ rent. Comment 13 We note that during a July 11, 2007, meeting, in which the problems with the Authority’s procedures were discussed, management previously agreed that the administrative plan needed to be revised to include more specific information. We agree there is basic information in the Authority’s administrative plan concerning the verification of full-time student status. However, the narrative was brief and there was insufficient information relating to when information should be obtained to verify students were maintaining their full-time course loads. As a result, we noted a lack of follow up by the Authority staff. Although the auditee provided a staff memo concerning the change in policy, we noted that its director of contract maintenance was not aware of the change almost a year later. This demonstrates the need to maintain an updated and comprehensive source for the Authority’s policies and procedures so that staff can easily identify changes in HUD requirements. The Authority may also develop additional reference material, such as the desk top guides suggested by Nelrod and the Bronner Group that are in compliance with its administrative plan and HUD requirements. In addition to the examples cited in the body of the report, we also noted insufficient information concerning how the Authority handles erroneous housing assistance payments due to the Authority being late in processing a reexamination, as the policy only addresses instances when the tenant causes the reexamination to be late. There was also insufficient information concerning retroactive adjustments to the housing assistance payments when a tenant does not submit information timely that impacts housing assistance payments. 53 Comment 14 The auditee states it has had a commitment to training for the last five years per its budget, which includes amounts for fiscal years 2004 to 2006. Although dollars may have been budgeted, no information has been submitted to show Section 8 staff actually received formal training prior to the reorganization effort. During an October 25, 2006, meeting, the executive director informed us that training had not been considered as important in the past. However, we recognize the auditee's current emphasis on training. Comment 15 We did not perform an audit of the auditee’s existing computer system, but obtained an understanding of the system through discussions with the auditee’s management and technical staff. The auditee provided no documentation on the existing computer system’s procedures or controls. Overall, the system lacked controls and was insufficient to meet the Authority’s needs; however, we acknowledge the Authority is implementing a new system to help resolve existing problems. Comment 16 We stated in the report that the Authority was planning for this change prior to the initiation of the audit. However, we were not informed of this until after our initial finding was presented to the Authority. In any case, we have modified some of the wording in the report to reflect some of the Authority’s concerns. Comment 17 The auditee provides no information to support that the reorganization has reduced caseloads. Based on prior conversations with management, it is our understanding that a special team was assigned to exclusively work on the delinquents to improve the delinquency rate, so it is unclear whether the Authority can maintain its current delinquency rate under the current structure. We remain concerned that high case loads may not give staff enough time to perform reexaminations in compliance with HUD requirements. 54 Appendix C SCHEDULE OF HOUSING ASSISTANCE PAYMENT ERRORS 2 changed re- Improperly performing verification exam dates Total over- calculation calculation Annual re- performed supported exams not allowance Incorrect Incorrect Incorrect Incorrect Total un- standard 3rd party payment payment payment income Tenant earned under- utility Total rent Not 01 X X X X X X X $3,269 02 X X X X X X $24 $48 03 X X X X X X $2,331 04 X X X X X X $1,494 05 X X X X X X X $5,860 $1,192 06 X X X X X X $2,688 $240 07 X X X X $95 08 X X X X X X $84 $1,496 09 X X $132 $378 10 X X X X $74 $246 11 X X X X $231 $15 12 X3 X3 X $168 13 X X $12 14 X X X X $876 $192 15 X X X X $30 16 X X X X $2,160 17 X X X X $1,402 18 X X X X X $5,072 19 X X X X $1,572 20 X X X $3,434 21 X X X $59 $4 22 X X X $146 $189 23 X X X $729 24 X X X X $1,102 25 X X X X $5,118 Total 17 14 15 7 18 13 24 $5,860 $33,464 $2,838 2 The “X” identifies the errors that were found during the review of the tenant files for the Authority’s fiscal years 2005 and 2006. 3 The Authority incorrectly processed a project-based voucher as a tenant-based Housing Choice Voucher and applied an inapplicable payment standard in fiscal year 2005 and an incorrect utility allowance in 2005 and 2006. 55 Appendix D SCHEDULE OF DELINQUENT ANNUAL REEXAMINATIONS Tenant Description Date Date to Effective Actual Timeliness Months created HUD date reexamination late/early date 01 Annual Dec. 3, Dec. 10, Jan. 1, Oct. 1, 2004 Late 3 reexamination 2004 2004 2005 01 Annual Aug. 2, Aug. 3, Sept. 1, Oct. 1, 2005 4 Late/not 11 reexamination 2006 2006 2006 performed 02 Annual May 20, May 21, July 1, July 1, 20054 Early/not 12 reexamination 2004 2004 2004 performed 03 Annual Oct. 19, Oct. 22, Dec. 1, Dec. 1, 20054 Early/not 12 reexamination 2004 2004 2004 performed 04 Annual Nov. 17, Nov. 21, Nov. 24, Nov. 1, 20054 Early/not 11 reexamination 2005 2004 2004 performed 05 Annual Dec. 3, Dec. 10, Feb. 1, Nov. 1, 2004 Late 10 reexamination 2004 2004 2005 05 Annual July 8, July 13, Sept. 1, Nov. 1, 20054 Late/Not 11 reexamination 2006 2006 2006 performed 06 Annual Dec. 22, Dec. 23, Nov. 29, Nov. 1, 20054 Early/not 11 reexamination 2004 2004 2004 performed 07 Annual May 30, June 5, July 1, May 1, 2006 Late 2 reexamination 2006 2006 2006 08 Annual May 27, May 28, July 1, June 1, 2004 Late 1 reexamination 2004 2004 2004 08 Annual Sept. 16, Sept. 19, Oct. 1, June 1, 2005 Late 4 reexamination 2005 2005 2005 09 Annual Nov. 18, Nov. 19, Jan. 1, July 1, 2004 Late 6 reexamination 2004 2004 2005 09 Annual Apr. 28, May 4, May 1, July 1, 2005 Late 10 reexamination 2006 2006 2006 10 Annual Sept. 11, Sept. 17, Nov. 1, May 1, 2004 Late 6 reexamination 2004 2004 2004 10 Annual Sept. 17, Sept. 19, Nov. 1, May 1, 2005 Late 6 reexamination 2005 2005 2005 11 Annual June 22, June 23, July 1, Nov. 1, 2004 5 Early 4 reexamination 2004 2004 2004 4 Annual reexaminations were not performed. The housing assistance payment amount was carried over from the previous year. 5 Annual reexaminations were completed early; however, the effective dates are incorrect. 56 Tenant Description Date Date to Effective Actual Timeliness Months created HUD date reexamination late date 11 Annual May 17, May 20, July 1, Nov. 1, 20055 Early 4 reexamination 2005 2005 2005 13 Annual Aug. 11, Aug. 13, Oct. 1, Mar. 1, 2004 Late 7 reexamination 2004 2004 2004 13 Annual Sept. 26, Sept. 30, Nov. 1, Mar. 1, 2005 Late 8 reexamination 2005 2005 2005 14 Annual July 30, July 30, Sept. 1, Dec. 1, 20045 Early 3 reexamination 2004 2004 2004 14 Annual Sept. 28, Sept. 30, Oct. 1, Dec. 1, 20055 Early 2 reexamination 2005 2005 2005 15 Annual Oct. 25, Oct. 28, Dec. 1, May 1, 2005 Late 6 reexamination 2005 2005 2005 15 Annual Apr. 20, Apr. 21, June 1, May 1, 2006 Late 1 reexamination 2006 2006 2006 16 Annual Sept. 21, Sept. 23, Nov. 1, Oct. 1, 2005 Late 2 reexamination 2005 2005 2005 17 Annual Apr. 12, Apr. 21, June 1, Feb. 1, 2006 Late 4 reexamination 2006 2006 2006 18 Annual Dec. 8, Dec. 9, Feb. 1, Jan. 1, 2006 Late 1 reexamination 2005 2005 2006 20 Annual Feb. 1, Feb. 10, Apr. 1, Dec. 1, 2005 Late 4 reexamination 2006 2006 2006 21 Annual Feb. 24, Feb. 27, Apr. 1, Mar. 1, 2004 Late 1 reexamination 2004 2004 2004 21 Annual Mar. 11, Mar. 11, May 1, Mar. 1, 2005 Late 2 reexamination 2005 2005 2005 21 Annual Mar. 7, Mar. 10, Apr. 1, Mar. 1, 2006 Late 1 reexamination 2006 2006 2006 22 Annual Mar. 29, Apr. 4, Mar. 1, Apr. 1, 20055 Early 1 reexamination 2005 2005 2005 22 Annual Mar. 30, Apr. 6, May 1, Apr. 1, 2006 Late 1 reexamination 2006 2006 2005 23 Annual Feb. 10, Feb. 11, Apr. 1, May 1, 20055 Early 1 reexamination 2005 2005 2005 23 Annual Feb. 15, Feb. 17, Mar. 1, May 1, 20065 Early 2 reexamination 2006 2006 2006 24 Annual Feb. 17, Feb. 22, Apr. 1, May 1, 20055 Early 1 reexamination 2005 2005 2005 25 Annual Nov. 16, Nov. 21, Nov. 3, Aug. 1, 2005 Late 3 reexamination 2005 2005 2005 57 Appendix E CRITERIA The consolidated annual contributions contract, section 10(a), HUD Requirements, states that the housing authority must comply and must require owners to comply with the requirements of the U.S. Housing Act of 1937 and all HUD regulations and other requirements, including any amendments or changes in the law or HUD requirements. 24 CFR [Code of Federal Regulations] 5.609, Annual Income (a) Annual income means all amounts, monetary or not. (b) Annual income includes, but is not limited, to the full amount of wages and salaries, overtime pay, commissions, fees, tips and bonuses, and other compensation for personal services, net income, dividends. It also includes periodic payments received from Social Security, welfare, unemployment, alimony, child support, Armed Forces pay. In addition, as of April 2006, section (9) was added, stating that for Section 8 programs only, any financial assistance in excess of amounts received for tuition that an individual receives under the Higher Education Act of 1965, from private sources, or from an institution of higher education, shall be considered income to that individual, except that financial assistance described in this paragraph is not considered annual income for persons over the age of 23 with dependent children. For purposes of this paragraph, financial assistance does not include loan proceeds for the purpose of determining income. (c) Annual income does not include income for items such as the employment of children under the age of 18 years; a lump-sum addition to family assets; temporary, nonrecurring, or sporadic income; and earnings in excess of $480 for each full-time student 18 years or older. 24 CFR [Code of Federal Regulations] 982.152, Administrative Fee, allows HUD to “…reduce or offset any administrative fee to the PHA [public housing authority], in the amount determined by HUD, if the PHA fails to perform PHA administrative responsibilities correctly or adequately under the program.” 24 CFR [Code of Federal Regulations] 982.152, Administrative Fee Reserve, allows HUD to direct an authority to use funds in its administrative fee reserve to improve administration of the program or to reimburse ineligible expenses. 24 CFR [Code of Federal Regulations] 982.158, Program Accounts and Records (a) 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. The records must be in the form required by HUD, including requirements governing computerized or electronic forms of record- keeping. 58 24 CFR [Code of Federal Regulations] 982.505, Voucher Tenancy: How to Calculate Housing Assistance Payment (a) Use of payment standard. A payment standard is used to calculate the monthly housing assistance payment for the family. The “payment standard” is the maximum monthly subsidy payment. (b) Amount of monthly housing assistance payment. The Public Housing Agency shall pay a monthly housing assistance payment on behalf of the family that is equal to the lower of: (1) The payment standard for the family minus the total tenant payment; or (2) The gross rent minus the total tenant payment (c) Payment standard for a family. (1) The payment standard for a family is the lower of: (i) The payment standard amount for the family unit size; or (ii) The payment standard amount for the size of the dwelling unit rented by the family. 24 CFR [Code of Federal Regulations] 982.516, Family Income and Composition: Regular and Interim Examinations (a) Public Housing Authority responsibility for reexamination and verification (1) The Public Housing Authority must conduct a reexamination of family income and composition at least annually. (2) The Public Housing Authority must obtain and document in the tenant file third party verification, or must document in the tenant file why the third party verification was not available. 24 CFR [Code of Federal Regulations] 982.517, Utility Allowance Schedule (a) Maintaining a schedule (1) The Public Housing Agency must maintain a utility allowance schedule for all tenant-paid utilities, and provide HUD a copy. 24 CFR [Code of Federal Regulations] 982.518, Regular Tenancy; How to Calculate Housing Assistance Payment, states that the monthly housing assistance payment equals the gross rent, minus the higher of (a) The total tenant payment; or (b) The minimum rent as required by law. HUD Notice PIH 2005-17, issued June 15, 2005, (renews and revises Notice 2000-13, issued April 7, 2000), states: “all PHAs that administer public housing or HCV [Housing Choice Voucher] programs must submit, on timely basis, 100 percent of family records to HUD’s PIC [Public Housing Information Center] as set forth by 24 CFR Part 908 and the consolidated annual contributions contract (CACC). PIC is the Department’s official system to track and account for public housing and HCV family characteristics of income, rent, and other occupancy factors. PHAs must submit their Form HUD-50058 records electronically to HUD for all current public housing and HCV families. PHAs must submit accurate records with no fatal edits (edits 59 that cause PIC to reject records to maintain integrity of the PIC data) for HUD to consider the records successfully submitted.” In addition, it states: “PHAs must have a minimum of 95 percent Form HUD-50058 reporting rate for both public housing and HCV at the time of their annual assessment to avoid sanctions.” HUD’s Housing Choice Voucher Guidebook, 7420.10G, April 2001, states as follows: • Chapter 5 (eligibility and denial of assistance): “Accurate determination of income eligibility, allowances, and family rent can occur only with full verification of all factors related to income and family circumstances. While the regulations regarding verification are brief, this activity takes a significant amount of time and attention in administration of the program. Well-designed verification procedures are essential to obtaining full and accurate information, which is essential for the best use of program funds and fair and equitable treatment of all participants. A PHA may resort to use of family certification of facts only when neither a third party nor documents are available.” • Chapter 7 (payment standards): “Payment standards are used to calculate the housing assistance payment (HAP) that the PHA pays to the owner on behalf of the family leasing unit… The level at which the payment standard is set directly affects the amount of subsidy a family will receive and the amount paid by the program participants.” • Chapter 12 (reexaminations): “The PHA is required to reexamine the income and composition of housing choice voucher families at least annually. The annual reexamination determines the continued eligibility of the family and establishes the housing assistance payment (HAP) to be made on behalf of the family… The PHA must establish reexamination procedures that allow for proper and timely verification of all information and advance notification to the family of any rent change. The PHA must establish a policy regarding annual reexamination effective dates that ensures that reexamination for every family takes effect within a 12-month period. It is important that the PHA has tracking and monitoring procedures and systems in place to ensure that the required reexaminations for each assisted family are initiated and completed on time. The PHA’s plan for reexaminations should provide for supervisory monitoring of the timely initiation of the reexamination process, the progress of each reexamination, and its completion.” The Authority’s administrative plan, chapter 12, Reexamination, section 12.1, states that when families move to another unit, reexamination is completed, and the anniversary date changed. The Authority’s admission and occupancy policy, chapter 11, page 104, states that reexaminations should be performed no later than 12 months from the anniversary of the tenant’s move-in day. 60
The Housing Authority of the County of Los Angeles, Los Angeles, California, Did Not Adequately Administer Its Section 8 Voucher Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-02-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)