Issue Date June 17, 2008 Audit Report Number 2008-LA-1011 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 City of Phoenix Housing Department’s Controls over Section 8 Tenant Eligibility and Rent Determinations Were Not Adequate HIGHLIGHTS What We Audited and Why We reviewed the City of Phoenix Housing Department’s (Housing Department) Housing Choice Voucher program. We conducted the audit as part of the Office of Inspector General’s (OIG) annual plan. The Housing Department was selected for review because it is the largest housing authority in the state of Arizona and had not previously been audited by OIG. The objective of the audit was to determine whether the Housing Department supported tenant eligibility and rent determinations in accordance with HUD requirements. What We Found The Housing Department did not ensure that tenant eligibility and associated housing assistance payment amounts were properly supported. As a result, it paid $371,469 in unsupported housing assistance and $12,616 in ineligible housing assistance. What We Recommend We recommend that the Director of the U.S. Department of Housing and Urban Development’s (HUD) Los Angeles Office of Public Housing require the Housing Department to (1) support or reimburse $371,469 in unsupported housing assistance payments; (2) reimburse $12,616 in ineligible housing assistance payments; (3) establish and implement an adequate training program, including standardized training materials, to ensure that its staff have the capability to perform tenant eligibility and housing assistance payment determinations in accordance with HUD requirements; and (4) take appropriate action to ensure that a sufficient number of staff are available to administer its Section 8 voucher program. 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 Housing Department the draft report on May 28, 2008, and held an exit conference with auditee officials on June 3, 2008. The auditee agreed with our audit recommendations. The complete text of the auditee’s response can be found in appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Housing Department Did Not Support Tenant Eligibility and 5 Housing Assistance Payments in Accordance with HUD’s Program Requirements Scope and Methodology 9 Internal Controls 11 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 12 B. Auditee Comments 13 C. Schedule of Deficiencies Found in 37 of 60 Files 15 D. Criteria 19 3 BACKGROUND AND OBJECTIVES The City of Phoenix Housing Department (Housing Department) administers approximately 5,270 housing choice vouchers under HUD’s Section 8 program. From July 2005 through June 2007, it paid more than $70 million in housing assistance for the benefit of Section 8 program participants. In addition, it received approximately $5.8 million in Section 8 administrative fees during this period. Housing choice vouchers allow low-income families to choose and rent safe, decent, and affordable privately owned rental housing. Local public housing agencies (agencies) receive federal funds from HUD to administer the voucher program. A housing subsidy is paid to the landlord directly by the agency on behalf of the participating family. The family then pays the difference between the actual rent charged by the landlord and the amount subsidized by the program. Eligibility for a housing voucher is determined by the agency based on the total annual gross income, family size, and other program requirements. During the application process, the agency is required to collect and verify information on family income, assets, and family composition to support the family’s eligibility for participation in the program and the calculated amount of assistance. The objective of the audit was to determine whether tenant eligibility and rent determinations were performed in accordance with HUD requirements and, accordingly, whether the associated housing assistance payments were supported. 4 RESULTS OF AUDIT Finding 1: The Housing Department Did Not Support Tenant Eligibility and Housing Assistance Payments in Accordance with HUD’s Program Requirements The Housing Department did not properly support tenant eligibility and housing assistance payment amounts in 37 of the 60 cases reviewed. This occurred because the Housing Department failed to provide sufficient staff training to prevent frequent processing errors. Insufficient staffing levels may have also contributed to the processing errors. As a result, the Housing Department paid $371,469 in unsupported housing assistance and $12,616 in ineligible housing assistance. Payment Amounts Were Not Supported in 37 of 60 Cases Reviewed We reviewed a random sample of 60 Housing Choice Voucher program tenant files. In 37 of the files, the Housing Department did not have adequate documentation to support the tenants’ eligibility or housing assistance payment amount and/or did not correctly calculate the assistance amount. Our sample included housing assistance payments that occurred during the period July 2005 through June 2007. We noted the following problems during the file reviews: • Tenant income was not calculated correctly. • Tenant income was not verified as required. • Utility allowances were incorrect. • Recertification documents were missing, and/or no recertification was performed. • Required tenant background checks were not documented and/or performed. Each of these problems resulted in unsupported and/or ineligible Section 8 housing assistance payments made by the Housing Department. Details of the deficiencies found are discussed below. Appendix C documents the amount of unsupported housing assistance payments related to each tenant file. Incorrect Income Calculations In nine of the 60 tenant files reviewed, the Housing Department did not calculate the tenant’s income in accordance with applicable program requirements and, therefore, incorrectly determined the associated housing assistance payment amount. Eight of these 5 errors resulted in an overpayment of assistance, and the remaining two errors resulted in an underpayment. Missing Income Verifications The Housing Department must establish procedures to verify that income data used for tenant eligibility reviews are complete and accurate. Three of the sixty tenant files reviewed did not contain required verifications to support the tenant’s income amounts. Incorrect Utility Allowances The Housing Department is required to establish utility allowance standards for use in determining the total Section 8 housing assistance amounts that should be paid to each program participant. Based upon our file reviews, the Housing Department did not select the appropriate utility allowance amount when performing its annual tenant eligibility examinations in two of the files reviewed. Missing Recertification The Housing Department is required to perform a recertification of tenants’ eligibility at least annually to determine whether they continue to meet the program’s qualification requirements. However, in three cases, the files did not include documentation supporting that an annual recertification was performed. Because the tenants’ eligibility for participation in the program was not established, the housing assistance payments for the associated periods were not supported. Criminal Background and Prior Eviction Checks The Housing Department is required to deny eligibility for three years (from the date of eviction), if a household member has been evicted from federally assisted housing for drug-related criminal activity. Eligibility must also be denied to those with a lifetime registration requirement under a state sex offender registration program. Further, the Housing Department’s administrative plan includes additional eligibility criteria related to tenants’ criminal history that could prohibit a potential tenant from participation in the program. The Housing Department must perform background checks necessary to determine whether any household member is ineligible based upon his or her criminal or tenant eviction history. In 30 of the 60 cases reviewed, the Housing Department’s files did not contain evidence documenting that criminal background or prior eviction checks were performed. In 25 of these cases, the Housing Department indicated that its initial tenant files, where background documentation is typically maintained, were not available because they were either missing or had been destroyed. In the remaining 5 cases, the Housing Department’s initial files were available for review; however, there was no documentation supporting the performance of criminal or prior eviction verifications. Because the tenants’ eligibility for participation in the program was not properly 6 established and/or documented in these cases, the associated housing assistance payments for these tenants was unsupported. Quality Control Reviews Also Disclosed Frequent Errors The Housing Department’s own quality control reviews for the period July 2006 through June 2007 also found a high rate of errors for tenant eligibility and housing assistance payment determinations. The Housing Department found that 47 of the 99 files reviewed contained errors similar to those identified as part of our audit, including lack of income verifications, miscalculated income, miscalculated medical expenses, and incorrect utility allowances. According to Housing Department managers, the high error rates were caused in part by insufficient staffing levels. Ineffective staff training procedures also contributed to frequent processing errors. For example, the Housing Department did not have any printed training materials and did not have a process for ensuring all new employees received adequate and consistent training. The Housing Department’s staff performed on-the-job training with new employees, and utilized supervisory reviews of new employees’ files as a means of training, yet did not implement standardized policies or procedures to ensure training was consistent and included coverage of all appropriate details. Conclusion The Housing Department failed to properly support tenant eligibility and housing assistance payment amounts because it did not establish and implement effective staff training procedures to prevent frequent processing errors. The Housing Department did not have any printed training materials and did not have a consistent process for ensuring all new employees received adequate training. According to Housing Department managers, insufficient staffing levels may have also contributed to the high error rates. As a result, the Housing Department paid $371,469 in unsupported Section 8 housing assistance and $12,616 in ineligible Section 8 housing assistance. As described in the scope and methodology section of the report, our audit included a sampling plan that allowed a statistical projection of the amount of the Section 8 housing assistance over or underpaid because the Housing Department improperly calculated the subsidy amounts. Based on the statistical sample testing, we projected the results to the universe of housing assistance payments made from July 1, 2005, through June 30, 2007, and estimated that, if the Housing Department implements our recommendations to eliminate errors in calculating subsidy payments, it would not spend $540,427 on excess 7 Section 8 housing assistance over the next year. Accordingly, we have made recommendations to ensure that adequate controls and procedures are implemented in the future to ensure that Section 8 housing assistance payment amounts are properly calculated and only paid on behalf of eligible tenants. Recommendations We recommend that the Director of the Los Angeles Office of Public Housing require the Housing Department to 1A. Provide supporting documentation or reimburse its program $371,469 from nonfederal funds for the unsupported housing assistance payments. 1B. Reimburse its program $12,616 from nonfederal funds for ineligible housing assistance payments. 1C. Establish and implement a comprehensive training program, including standardized training materials, to ensure that its staff have the capability to consistently perform tenant eligibility and housing assistance payment determinations in accordance with HUD requirements, and prevent future overpayments totaling the projected annualized amount of $540,427. 1D. Evaluate current staffing levels and take appropriate action to ensure that a sufficient number of adequately trained staff are available to correctly perform tenant eligibility and housing assistance payment determinations. 8 SCOPE AND METHODOLOGY We performed our audit work at the Housing Department offices in Phoenix, Arizona from September 2007 through April 2008. The review covered Section 8 housing assistance payments made for the period July 2005 through June 2007. To accomplish our audit objective, we • Reviewed HUD regulations, notices, handbooks, and applicable federal regulations; • Interviewed appropriate officials from HUD’s Office of Public Housing; • Interviewed Housing Department personnel, including Section 8 program administration staff, Applications and Information Division staff, City of Phoenix Finance Division staff, and IT (information technology) department managers and staff; • Reviewed records maintained by HUD pertaining to the Housing Department including recent monitoring review reports; • Reviewed the Housing Department’s administrative plan; To determine whether the Housing Department processed the eligibility and housing assistance payment amount determinations in accordance with HUD requirements, we tested a statistical sample of data obtained from the Housing Department’s automated system used to manage its Section 8 operations. We identified 5,508 participants who were paid $62,783,204 in Section 8 housing assistance payments during the period July 1, 2005, through June 30, 2007. Payments associated with “portable” tenants were excluded from the sample universe since these vouchers were administered by other housing authorities. We noted instances of missing data and discrepancies between reports from the Section 8 housing information system and the accounting system used to issue the Section 8 payments. Accordingly, we performed additional tests on the data provided by the Housing Department and determined it was reliable for statistical sampling purposes. We did not perform a full audit of the Housing Department’s computer systems, and will separately communicate our observations regarding the data issues to Housing Department management. Sampling methodology Using variable sampling methodology, we determined that a sample size of 60 tenants was sufficient to project the improper payments to the universe using a 90 percent confidence level. Based upon the review of the tenant files, we compared the difference between the housing assistance payments that were actually paid versus the amount that should have been paid and estimated that the Housing Department over-paid $1,080,853 in housing assistance payments for the two year period reviewed. This amount represents the calculated point estimate. The actual error resulting from processing errors could have been more or less than the calculated point estimate since we did not review 100 percent of the assistance payments and the sample testing allowed for a 90% confidence level. The sample precision was $1,242,150 and the calculated lower and upper limits were ($161,297) and $2,323,003 respectively. The negative lower limit indicates processing errors could have resulted in a net underpayment of housing assistance payments. Based upon the audit, which found errors that predominantly resulted in assistance overpayments rather than underpayments (see Appendix C), and the fact that the Housing 9 Department’s own quality control reviews disclosed similar findings with an even greater frequency of errors than found during the audit, we believe the use of the calculated point estimate is conservative and represents the most appropriate estimate for the reported amount of funds to be put to better use. Since the audit sample covered a two year period, we used half of the point estimate amount to report an annualized figure for the estimated funds to be put to better use. We performed our audit in accordance with generally accepted government auditing standards. 10 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: • Administration of the Section 8 program including controls over tenant eligibility and housing assistance payment amount determinations, 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 Housing Department did not establish and implement adequate controls to ensure that tenant eligibility and housing assistance payment amounts were properly supported. 11 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible 1/ Unsupported 2/ Funds to be put to better number use 3/ 1A $371,469 1B $12,616 1C $540,427 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/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 3/ Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an OIG recommendation is implemented. This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings which are specifically identified. In this instance, if the Housing Department implements our recommendations, it will cease to incur excess housing assistance payments. Once the Housing Department successfully improves its controls, this will become a recurring benefit. Our estimate reflects only the initial year of this benefit. 12 Appendix B AUDITEE COMMENTS Ref to OIG Evaluation Auditee Comments Comment 1 13 14 Appendix C SCHEDULE OF DEFICIENCIES FOUND IN 37 OF 60 FILES Sample Ineligible Unsupported Total Assistance Number Amount Amount Payments Findings Finding Notes Failed to include 50% of disability income after tenant returned to work for more than one year. (Finding applicable to review 1 $ 1,098 $ 8,899 B effective July 1, 2006) 2 $ - $ - $ 1,448 Did not include child support income of $2,559 for one of two dependants. (Finding applicable to review effective January 1, 3 $ 384 $ 14,291 $ 14,675 A, B 2007) 4 $ - $ 3,096 $ 3,096 A No recertification documentation present. (Finding applicable to review effective July 5 $ - $ 14,184 $ 14,184 A, E 1, 2005) Did not include child support income of $2,878. (Finding applicable to review 6 $ 864 $ 17,242 B effective October 3, 2005) No verification of tenant income. (Finding applicable to review effective August 1, 7 $ - $ 8,217 $ 8,217 A, C 2005) 8 $ - $ 12,964 $ 12,964 A 9 $ - $ 6,477 $ 6,477 A 10 $ - $ 1,532 $ 1,532 A 11 $ 10,651 $ 10,651 A 12 $ - $ 6,312 $ 6,312 A 13 $ - $ - $ 10,842 Overstated tenant child support income. (Finding applicable to review effective 14 $ (486) $ - $ 2,320 B February 1, 2005) 15 $ - $ 3,843 Legend A No background or eviction verification performed B Incorrect income calculation C Income not verified D Incorrect utility allowance E No recertification documentation F Ineligible tenant 15 Sample Ineligible Unsupported Total Assistance Number Amount Amount Payments Findings Finding Notes Apparent resident was a convicted sex offender and was not eligible to receive Section 8 benefits. (Finding applicable to 16 $ 7,906 $ - $ 7,906 A, F review effective March 31, 2007) 17 $ - $ - $ 19,359 No support for claimed income amount (source not determinable). Also, $275/mo assistance not included in income. Indication of child support (on handwritten 50058) yet not addressed by the Housing Department. (Finding applicable to review 18 $ 612 $ 10,476 $ 18,458 B, C effective Aug 1, 2005) Used net Social Security income amount yet the State paid for Medicare insurance - did not address this discrepancy. Deduction was likely due to prior debt to Social Security Administration that a letter in file shows was cancelled - indicating deductions would not continue. (Finding applicable to review 19 $ 137 $ - $ 9,061 B effective February 1, 2006) 20 $ - $ 9,666 $ 9,666 A 21 $ - $ 16,572 $ 16,572 A 22 $ - $ - $ 8,596 Included medicare premium paid by Social Security as a medical expense. An incorrect utility allowance amount was used. Contract does not indicate tenant pays gas hot water and gas heat. Appears landlord may have inappropriately billed for these anyway. (Finding applicable to reviews effective October 22, 2004 and November 1, 2005, 23 $ 141 $ - $ 3,678 B, D respectively) 24 $ - $ 9,594 $ 9,594 A 25 $ - $ 18,113 $ 18,113 A 26 $ - $ - $ 14,695 27 $ - $ 3,375 $ 3,375 A 28 $ - $ 20,481 $ 20,481 A 29 $ - $ 11,909 30 $ - $ - $ 10,459 Legend A No background or eviction verification performed B Incorrect income calculation C Income not verified D Incorrect utility allowance E No recertification documentation F Ineligible tenant 16 Sample Ineligible Unsupported Total Assistance Number Amount Amount Payments Findings Finding Notes 31 $ - $ 10,543 $ 10,543 A 32 $ - $ 22,687 33 $ - $ 10,269 34 $ - $ - $ 1,857 35 $ - $ 10,546 $ 10,546 A 36 $ - $ 9,596 $ 9,596 A Did not follow "Procedure for projection of unstable income" as required by the Housing Department's administrative plan. (Finding applicable to review effective 37 $ 1,474 $ - $ 24,892 B November 10, 2004) No recertification documentation present. (Finding applicable to review effective 38 $ - $ 23,081 $ 23,081 A, E November 1, 2004) 39 $ - $ - $ 15,693 40 $ - $ - $ 12,669 41 $ - $ 11,290 42 $ - $ 14,326 $ 14,326 A 43 $ - $ 14,868 $ 14,868 A 44 $ - $ - $ 10,920 45 $ - $ - $ 9,255 46 $ - $ - $ 12,499 47 $ - $ - $ 20,967 48 $ - $ - $ 14,364 49 $ - $ - $ 23,330 50 $ - $ - $ 18,108 51 $ - $ 9,384 No recertification review documentation was present in the file for action effective 08/01/05. No supporting documentation for apparent second resident - therefore eligibility was not properly determined. (Finding applicable to reviews effective August 1, 2004, August 1, 2005, and August 52 $ - $ 14,268 $ 14,268 A, C, E 1, 2006) 53 $ - $ 8,982 $ 8,982 A Incorrect utility allowance was used. (Finding applicable to reviews effective 54 $ (204) $ 14,144 $ 14,144 A, D September 1, 2005 and September 1, 2006) Legend A No background or eviction verification performed B Incorrect income calculation C Income not verified D Incorrect utility allowance E No recertification documentation F Ineligible tenant 17 Sample Ineligible Unsupported Total Assistance Number Amount Amount Payments Findings Finding Notes Incorrect child support income calculation - Income overstated. (Finding applicable to 55 $ (152) $ 21,856 $ 21,856 A, B review effective October 7, 2005) 56 $ - $ 4,635 57 $ - $ 21,354 $ 21,354 A 58 $ - $ 11,892 $ 11,892 A 59 $ - $ 6,708 $ 6,708 A 60 $ - $ 23,304 $ 23,304 A Total $ 371,469 $ 732,911 $ 12,616 Total Overpayments $ (842) Total Underpayments Legend A No background or eviction verification performed B Incorrect income calculation C Income not verified D Incorrect utility allowance E No recertification documentation F Ineligible tenant 18 Appendix D CRITERIA 24 CFR 982.516(a): The authority must conduct a reexamination of family income and composition at least annually and document in the tenant file third-party verification or why third-party verification was not available. 24 CFR 5.240(c): The responsible entity must verify the accuracy of the income information received from the family and change the amount of the total tenant payment as appropriate, based on such information. 24 CFR 982.158(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. 24 CFR 5.855: Housing authorities are allowed to prohibit admission of individuals who have engaged in criminal activity if the housing authority determines that any household member is currently engaging in or has engaged in during a reasonable time before the admission decision (1) drug-related criminal activity; (2) violent criminal activity; (3) other criminal activity that would threaten the health, safety, or right to peaceful enjoyment of the premises by other residents; or (4) other criminal activity that would threaten the health or safety of the housing authority or owner or any employee, contractor, subcontractor, or agent of the housing authority or owner who is involved in the housing operations. HUD’s housing Choice Voucher Program Guidebook, Chapter 20.7: Housing authorities are required to maintain a housing assistance payments register that includes the name and address of the family; name and address of the owner; dwelling unit size; beginning date of lease term; monthly contract rent payable to owner; monthly family contribution; monthly housing assistance payment to owner; date the family vacated, and the number of days the unit is vacant, if any. The Housing Department’s administrative plan includes eligibility criteria related to tenants’ criminal history that could prohibit a potential tenant’s eligibility for participation in the program. 19
The City of Phoenix Housing Department's Controls over Section 8 Tenant Eligibility and Rent Determinations Were Not Adequate
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-06-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)