oversight

The Housing Authority of the City of Allentown, Pennsylvania, Did Not Ensure That Its Section 8 Housing Choice Voucher Program Units Met Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-07-14.

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

                                                                Issue Date
                                                                    July 14, 2008
                                                                Audit Report Number
                                                                    2008-PH-1009




TO:        Dennis G. Bellingtier, Director, Office of Public Housing, Pennsylvania State
            Office, 3APH



FROM:      John P. Buck, Regional Inspector General for Audit, Philadelphia Regional
            Office, 3AGA

SUBJECT:   The Housing Authority of the City of Allentown, Pennsylvania, Did Not
            Ensure That Its Section 8 Housing Choice Voucher Program Units Met
            Housing Quality Standards

                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Housing Authority of the City of Allentown’s (Authority)
           administration of its housing quality standards inspection program for its Section
           8 Housing Choice Voucher program as part of our fiscal year 2008 audit plan.
           This is our second audit report issued on the Authority’s program. The audit
           objective addressed in this report was to determine whether the Authority
           adequately administered its Section 8 housing quality standards inspection
           program to ensure that its program units met housing quality standards in
           accordance with U.S. Department of Housing and Urban Development (HUD)
           requirements.

 What We Found

           The Authority did not adequately administer its inspection program to ensure that
           its program units met housing quality standards as required. We inspected 57
           housing units and found that 51 units did not meet HUD’s housing quality
           standards. Moreover, 47 of the 51 units had exigent health and safety violations
           that the Authority’s inspectors neglected to report during their last inspection.
           The Authority spent $80,316 in program and administrative funds for these 47
           units.

           The Authority did not properly abate rents when units failed its housing quality
           standards inspections. We reviewed 30 program units that did not pass the
           Authority’s housing quality standards inspections and determined that the
           Authority should have abated housing assistance payments for 13 units. The 13
           units remained in a failing status for as long as three months. However, the
           Authority failed to abate the program rents or terminate the contracts for these
           units, resulting in improper payments of $8,504 in housing assistance.

           We estimated that over the next year if the Authority does not implement
           adequate procedures and controls to ensure that its program units meet housing
           quality standards and that abatement requirements are enforced, HUD will pay
           $1.3 million in housing assistance and administrative fees on units that materially
           fail to meet HUD’s housing quality standards and for units that should have had
           assistance payments abated.

What We Recommend

           We recommend that HUD require the Authority to ensure that housing units
           inspected during the audit are repaired to meet HUD’s housing quality standards,
           reimburse its program for the improper use of $80,316 in program funds for units
           that materially failed to meet HUD’s housing quality standards, and implement
           adequate procedures and controls to ensure that in the future, program units meet
           housing quality standards to prevent an estimated $1.2 million from being spent
           annually on units that materially fail to meet HUD’s housing quality standards.
           Further, we recommend that HUD require the Authority to reimburse its program
           $8,504 for the 13 units for which it did not abate assistance payments and develop
           and implement management controls to ensure that employees comply with HUD
           policies and procedures concerning abatements, thereby preventing an estimated
           $34,016 from being spent annually on units that should have had assistance
           payments abated.

           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 discussed the report with the Authority during the audit and at an exit
           conference on June 5, 2008. The Authority provided written comments to our
           draft report on June 11, 2008. The Authority acknowledged that it needed to

                                             2
improve its inspection program and that it had implemented management
improvements to address some of the issues addressed in the audit report.
However, the Authority contested some of the violations that we identified,
asserting that we overstated the amount of ineligible funds included in the report.
The complete text of the Authority’s response, along with our evaluation of that
response, can be found in appendix B of this report.




                                 3
                            TABLE OF CONTENTS

Background and Objectives                                                     5

Results of Audit
      Finding 1: Controls over Housing Quality Standards Were Inadequate       6
      Finding 2: The Authority Did Not Abate Housing Assistance Payments as   16
      Required

Scope and Methodology                                                         19

Internal Controls                                                             21

Appendixes

   A. Schedule of Questioned Costs and Funds to Be Put to Better Use          23
   B. Auditee Comments and OIG’s Evaluation                                   24




                                             4
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Allentown (Authority) was established in 1938 by the City of
Allentown, Pennsylvania, under the laws of the Housing Authority Law of the Commonwealth of
Pennsylvania to provide affordable housing for qualified individuals in accordance with the rules
and regulations prescribed by the U.S. Department of Housing and Urban Development (HUD).
A five-member board of commissioners governs the Authority. The current executive director of
the Authority is Daniel Farrell. The Authority’s main administrative office is located at 1339 Allen
Street, Allentown, Pennsylvania.

Under the Section 8 Housing Choice Voucher program, the Authority is authorized to provide
leased housing assistance payments for more than 1,430 eligible households. HUD authorized
the Authority the following financial assistance for housing choice vouchers:

          Authority fiscal year         Annual budget authority                Disbursed
                 2006                        $ 6,095,606                      $ 6,095,606
                 2007                        $ 7,559,453                      $ 7,559,453
                Totals                       $13,655,059                      $13,655,059

HUD regulations at 24 CFR [Code of Federal Regulations] 982.305(a) state that a public
housing authority may not execute a housing assistance contract until it has determined that the
unit has been inspected and meets HUD’s housing quality standards.

HUD regulations at 24 CFR 982.405(a) require public housing authorities to perform unit
inspections before the initial move-in and at least annually. The authority must inspect the unit
leased to a family before the term of the lease, at least annually during assisted occupancy, and at
other times as needed to determine whether the unit meets housing quality standards.

Our audit objective was to determine whether the Authority adequately administered its Section
8 housing quality standards inspection program to ensure that its program units met housing
quality standards in accordance with HUD requirements.




                                                 5
                                RESULTS OF AUDIT

Finding 1: Controls over Housing Quality Standards Were Inadequate
The Authority did not adequately enforce HUD’s housing quality standards. Of 57 program
units selected for inspection, 51 did not meet minimum housing quality standards, and 47
materially failed to meet housing quality standards. The Authority’s inspectors did not report
237 violations, which existed at the units when they performed their inspections. The violations
occurred because the Authority lacked adequate procedures and controls to ensure that its
program units met HUD’s housing quality standards. As a result, the Authority spent $80,316 in
program and administrative funds for 47 units that materially failed to meet HUD’s housing
quality standards. We estimate that over the next year, HUD will pay more than $1.2 million in
housing assistance for units that materially fail to meet housing quality standards.



 Section 8 Tenant-Based
 Housing Units Were Not in
 Compliance with HUD’s
 Housing Quality Standards


              We statistically selected 57 units from unit inspections passed by the Authority’s
              inspectors during the period August 1 to October 31, 2007. The 57 units were
              selected to determine whether the Authority ensured that the units in its program
              met housing quality standards. We inspected the selected units between
              December 3, 2007, and January 11, 2008.

              Of the 57 units inspected, 51 (90 percent) had 335 housing quality standards
              violations. Additionally, 47 of the 57 units (83 percent) were considered to be in
              material noncompliance since they had exigent health and safety violations that
              predated the Authority’s last inspection and were not identified by an Authority
              inspector. Of the 51 units with housing quality standards violations, 10 had a
              violation that was noted on the Authority’s previous inspection report, and the
              Authority later passed the units. However, during our inspection, it was
              determined that the violations had not been corrected. The 47 units had 236 total
              violations (including the 10 identified by the Authority but not corrected) that
              existed before the Authority’s last inspection report. The Authority’s inspectors
              did not identify or did not report 226 violations that existed at the time of their
              most recent inspections. HUD regulations at 24 CFR 982.401 require that all
              program housing meet HUD’s housing quality standards at the beginning of the
              assisted occupancy and throughout the tenancy. The following table categorizes
              the 335 housing quality standards violations in the 51 units that failed the housing
              quality standards inspections.



                                               6
                                                    Number of      Number       Percentage
                       Type of violation            violations     of units      of units
             Structure and materials                   142            47            92
             Illumination and electricity              108            37            73
             Smoke detectors                            20            14            27
             Interior air quality                       18            14            27
             Space and security                         16            11            22
             Food preparation and refuse disposal       10            10            20
             Thermal environment                        10             7            14
             Sanitary condition                          7             5            10
             Sanitary facilities                         4             4             8
             Total                                     335

            We provided our inspection results to the Director of HUD’s Office of Public
            Housing, Pennsylvania State Office, and to the Authority’s executive director
            during the audit.


Housing Quality Standards
Violations Were Identified


            The following pictures illustrate some of the violations we noted while
            conducting housing quality standards inspections at the Authority’s leased
            housing units.




                                            7
Inspection #16: Holes in the boiler’s flue allow carbon monoxide to enter the basement.
This violation was not identified during the Authority’s October 25, 2007, inspection.




Inspection #53: A hole in the water heater’s flue allows carbon monoxide to enter the
basement. This violation was not identified during the Authority’s October 29, 2007,
inspection.




                                  8
Inspection #16: Broken 2x4 makeshift handrail needs to be replaced and be constructed
with an intermediate support. This violation was not identified during the Authority’s
October 25, 2007, inspection.




Inspection #32: The handrail at the basement stairway stops too short from the bottom of
the stairs. This violation was not identified during the Authority’s August 14, 2007,
inspection.




                                  9
Inspection #14: A junction box in the rear porch has a hole and a wire that is not secured
with a wire connector. This violation was not identified during the Authority’s August 14,
2007, inspection.




Inspection #38: A wall lamp on a third floor stairway wall is missing the insulator over
the socket, exposing electrical contacts. This violation was not identified during the
Authority’s August 27, 2007, inspection.




                                  10
Inspection #25: The stairway to the basement does not have a handrail. This violation
was not identified during the Authority’s September 11, 2007, inspection.




Inspection #30: An asbestos sheet on the basement ceiling has a frayed edge. This
violation was not identified during the Authority’s September 13, 2007, inspection.




                                  11
                           Inspection #8: The front stoop has no handrail. (Note
                           adjacent stoops have handrails.) This violation was not
                           identified during the Authority’s August 17, 2007,
                           inspection.


The Authority Lacked
Procedures and Controls to
Ensure Compliance with HUD’s
Housing Quality Standards


          Although HUD regulations and the Authority’s administrative plan required the
          Authority to ensure that its program units met housing quality standards, it failed
          to do so. This violation occurred because (1) the Authority lacked adequate
          procedures and controls to ensure that its program units met housing quality
          standards as required by HUD regulations and its own Section 8 administrative
          plan, (2) the Authority did not conduct adequate housing quality standards quality
          control inspections, and (3) the Authority experienced a high turnover rate of
          inspectors.



                                             12
                 The Authority Lacked Adequate Procedures and Controls to Ensure That Its
                 Program Units Met Housing Quality Standards as Required by HUD
                 Regulations and Its Own Section 8 Administrative Plan

                 The Authority lacked adequate procedures and controls to ensure that its program
                 units met housing quality standards as required by HUD regulations and its own
                 Section 8 administrative plan. HUD regulations at 24 CFR 982.401 define
                 HUD’s housing quality standards. The Authority’s Section 8 administrative plan
                 requires the Authority to inspect its Section 8 units based upon HUD’s housing
                 quality standards and its own requirement that all units meet the minimum
                 standards set forth in the local codes. However, the administrative plan and
                 inspection procedures provided by the Authority’s Section 8 coordinator primarily
                 address the type, scheduling, notification to tenant and owner, and followup of
                 housing quality standards inspections rather than detailed instructions for
                 determining the nature and extent of violations and deficiencies. The Authority
                 relied on the inspectors’ knowledge of housing standards and experience to
                 conduct the detailed steps necessary for adequate inspections rather than
                 providing them with inspection procedures. This omission resulted in incomplete
                 and inconsistent inspection results.

                 The Authority Did Not Conduct Adequate Housing Quality Standards
                 Quality Control Inspections

                 The Authority did not conduct adequate quality control inspections. HUD
                 regulations at 24 CFR 985.3 require public housing authorities to conduct quality
                 control inspections on a sample of units under contract during the Authority’s
                 fiscal year. Additionally, HUD regulations at 24 CFR 985.3 specify that the
                 sample is to be drawn from recently completed housing quality standards
                 inspections (i.e., performed during the three months preceding reinspection) and
                 is to be drawn to represent a cross section of neighborhoods and the work of a
                 cross section of inspectors.

                 The Authority acknowledged that it had not performed housing quality standards
                 quality control inspections between June 2007 and March 2008. 1 The Authority’s
                 housing quality standards quality control inspection reports before that time
                 lacked any formal critique of the Authority’s inspection process or of inspector
                 performance. The Authority’s Section 8 coordinator provided the inspectors with
                 a listing of common housing quality standards violations observed during the
                 housing quality standards quality control inspections. However, the listing was
                 dated after the audit commenced. While the coordinator stated that she discussed
                 the results of the quality control inspections with the inspectors, she did not
                 document the discussions. Further, she stated that the Authority’s inspectors did
                 not attend Section 8 staff meetings because of their workload. Consequently, the


1
 The Authority conducted no quality control inspections for the period from which we selected our sample,
August 1 through October 31, 2007.

                                                       13
             Authority’s housing quality standards quality control inspections did not provide
             the intended level of supervision and communication.

             The Authority Experienced a High Turnover Rate of Inspectors

             The Authority experienced a high turnover in its Section 8 inspector position with
             three different persons in the position between mid-August 2007 and January
             2008. One of the inspectors was employed for approximately six weeks before
             resigning. The effective result was that there was only a single inspector
             conducting housing quality standards inspections during that period. The Section
             8 coordinator stated that the increased workload added to the lack of adequate
             inspections.


Conclusion


             The Authority’s tenants were subjected to health- and safety-related violations, and
             the Authority did not properly use its program funds when it failed to ensure that
             units complied with HUD’s housing quality standards as required. In accordance
             with HUD regulations at 24 CFR 982.152(d), HUD is permitted to reduce or
             offset any program administrative fees paid to a public housing authority if it fails
             to perform its administrative responsibilities correctly or adequately, such as not
             enforcing HUD’s housing quality standards. The Authority disbursed $72,479 in
             housing assistance payments to owners for the 47 units that materially failed to
             meet HUD’s housing quality standards and received $7,837 in program
             administrative fees for these units.

             If the Authority implements the recommendations in this report to ensure
             compliance with HUD’s housing quality standards, we estimate that $1.2 million in
             future housing assistance payments will be spent on units that are decent, safe, and
             sanitary. Our methodology for this estimate is explained in the Scope and
             Methodology section of this report.

Recommendations

             We recommend that the Director of the Office of Public Housing, Pennsylvania
             State Office, direct the Authority to

             1A.    Certify, along with the owners of the 51 units cited in this finding, that the
                    applicable housing quality standards violations have been corrected.

             1B.    Reimburse its program $80,316 from its administrative fee reserve or
                    nonfederal funds ($72,479 for housing assistance payments and $7,837 in
                    associated administrative fees) for the 47 units that materially failed to meet
                    HUD’s housing quality standards.

                                               14
1C.   Develop and implement controls to ensure that program units meet housing
      quality standards, thereby ensuring that $1,243,989 in program funds is
      expended only on units that are decent, safe, and sanitary.

1D.   Develop and implement controls to ensure that supervisory quality control
      inspections are conducted and documented and that feedback is provided to
      inspectors.




                              15
Finding 2: The Authority Did Not Abate Housing Assistance Payments
as Required
The Authority did not abate housing assistance payments after its inspectors determined program
units did not meet housing quality standards. We reviewed 30 program units that failed the
Authority’s own housing quality standards inspections and determined that it should have abated
the housing assistance payments for 13 units but did not do so. This occurred because the
Authority’s policy was to suspend housing assistance payments and retroactively pay owners
rather than abate the payments as required. As a result, for the units reviewed, the Authority
made ineligible housing assistance payments of $8,504 because it paid owners for units that
continued to have housing quality standards violations although the time period for the owners to
make the necessary repairs had expired. We estimate that over the next year, HUD will pay
more than $34,000 in housing assistance for units that the Authority should have abated.


 The Authority Did Not Abate
 Failed Units as Required


              The Authority did not abate housing assistance payments as required. HUD
              regulations at 24 CFR 982.404(a) require public housing authorities to take
              prompt and vigorous action to enforce the owners’ obligations and state that the
              authorities must not make any housing assistance payments for a dwelling unit
              that fails to meet the housing quality standards unless the owner corrects the
              defect within the period specified by the authority and the authority has verified
              the correction. The timeframe for correction of life-threatening violations will be
              no more than 24 hours and other violations within no more than 30 calendar days.
              The Authority made ineligible housing assistance payments totaling $8,504
              because it paid owners for units that continued to have housing quality standards
              violations although the time period for the owners to make the necessary repairs
              had expired. Using documentation supporting the series of inspections related to
              the sample of 57 housing units addressed in finding 1 of this report, we
              determined that 30 of the units failed the Authority’s housing quality standards
              inspection at least once in the series of inspections leading up to the Authority’s
              last inspection that passed the unit. We found that the owners completed
              necessary repairs within 30 days for 17 of the 30 program units. For the 13 units
              that the owners did not repair within 30 days, the Authority failed to abate
              payments for all 13 units (100 percent) as required. The 13 units were in a failed
              status between one and three months after the original failed inspection.




                                               16
The Authority Misinterpreted
HUD Regulations


             The Authority’s policy and procedures addressing abatements were not consistent
             with HUD regulations. Section 6 of the Authority’s administrative plan states that
             the Authority “will not make any assistance payments for a dwelling unit in which
             housing quality standards deficiencies have not been corrected after the notice
             period has expired.” The plan also states that “if a unit fails to meet housing
             quality standards and the owner and tenant have been given a deficiency notice
             that provides a specified time for compliance, and all deficiencies have not been
             corrected within that period, the housing assistance payment will be suspended
             (abated).” As written, the policy equates the words suspended and abated.
             Consequently, the Authority incorrectly interpreted the regulations and routinely
             made assistance payments for units with housing quality standards deficiencies
             that were not corrected within the prescribed periods as long as the units
             eventually passed reinspection. However, contrary to the policy, the Authority
             neither suspended nor abated payments to the owners of the 13 units, but
             continued to make housing assistance payments for the periods that the units were
             in a failed housing quality standards condition.


Conclusion


             Contrary to HUD regulations, the Authority made assistance payments for units
             that had housing quality standards violations although the time period for the
             owners to make the necessary repairs had expired. As a result, the Authority
             made ineligible housing assistance payments totaling $8,504 because it failed to
             abate assistance payments as required.

             If the Authority implements the recommendation in this report to ensure compliance
             with HUD regulations for enforcing housing quality standards, we estimate that over
             a one-year period, $34,016 in housing assistance payments will be properly abated
             for units that were not in compliance with housing quality standards and those funds
             subsequently spent on housing units that are decent, safe, and sanitary. Our
             methodology for this estimate is explained in the Scope and Methodology section of
             this report.


 Recommendations


             We recommend that the Director of the Office of Public Housing, Pennsylvania
             State Office, direct the Authority to



                                              17
2A.   Reimburse its program $8,504 from its administrative fee reserve or
      nonfederal funds for the housing assistance payments identified by the
      audit that were not abated as required.

2B.   Develop and implement controls to ensure that the Authority complies
      with HUD regulations concerning abatements and thereby put $34,016 in
      program funds to better use over a one-year period.

2C.   Revise the policy in its administrative plan regarding abatement of
      assistance in accordance with HUD regulations.




                               18
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

   •   Applicable laws; regulations; the Authority’s administrative plan; and HUD’s program
       requirements at 24 CFR [Code of Federal Regulations] Part 982, HUD’s Housing Choice
       Voucher Guidebook 7420.10G, and HUD’s Housing Inspection Manual.

   •   The Authority’s accounting records, annual audited financial statements for 2006, check
       register, tenant files, computerized databases including housing assistance payments and
       housing quality standards inspection data, board meeting minutes from 2006 and 2007, and
       organizational chart.

   •   HUD’s monitoring reports for the Authority.

We also interviewed the Authority’s employees, HUD staff, and program households.

To achieve our audit objective, we relied in part on computer-processed data in the Authority’s
database. Although we did not perform a detailed assessment of the reliability of the data, we
did perform a minimal level of testing and found the data to be adequate for our purposes.

We statistically selected 57 of the Authority’s program units to inspect from 268 unit inspections
passed by the Authority’s inspectors during the period August 1 to October 31, 2007. We
selected the sample using the U.S. Army Audit Agency Statistical Sampling System, version 6.3,
software. The 57 units were selected to determine whether the Authority’s program units met
housing quality standards. The sampling criteria used a 90 percent confidence level, 50 percent
estimated error rate, and precision of plus or minus 10 percent.

Our sampling results determined that 47 of 57 units (83 percent) materially failed to meet HUD’s
housing quality standards. Materially failed units were those with at least one exigent health and
safety violation that predated the Authority’s previous inspections or was on the last inspection
report, and the violation had not been corrected at the time of our inspection. All units were
ranked, and we used auditors’ judgment to determine the material cutoff line.

Based upon the sample size of 57 from a total population of 268, an estimate of 83 percent (47
units) of the sample population materially failed housing quality standards inspections. The
sampling error is plus or minus 7.35 percent. There is a 90 percent confidence that the frequency
of occurrence of program units materially failing housing quality standards inspections lays
between 75.10 and 89.81 percent of the population. This equates to an occurrence of between
201 and 240 units of the 268 units in the population. We used the most conservative numbers,
which is the lower limit or 201 units.

We analyzed the applicable Authority databases and estimated that the annual housing assistance
payment per recipient in our sample universe was $6,189. Using the lower limit of the estimate
of the number of units and the estimated annual housing assistance payment, we estimate that the


                                               19
Authority will spend $1,243,989 (201 units times $6,189 estimated average annual housing
assistance) annually for units that are in material noncompliance with HUD’s housing quality
standards.

Using documentation supporting the series of inspections related to the sample of 57 housing
units that we inspected, we determined that 30 of the units failed the Authority’s housing quality
standards inspection at least once in the series of inspections leading up to the Authority’s last
inspection that passed the unit. The Authority should have abated housing assistance payments
to owners of 13 of the 30 units because the owners did not make repairs within 30 calendar days
as required. For the other 17 units, although the units failed an inspection, abatement of the
assistance payment was not necessary because the owners made repairs within 30 calendar days
as required. For the 13 units that the owners did not repair within 30 days, the Authority failed
to abate payments for all 13 units (100 percent) as required. The units were in a failed status
between one and three months after the original failed inspection. We calculated $8,504 of
ineligible payments by identifying the monthly assistance payment on the Authority’s housing
assistance payment register for the 13 units, verifying the payment amount to documentation in
the tenant file, and prorating the monthly assistance by the number of days the unit was in failed
status by month after 30 days from the date of the Authority’s last inspection and totaling the
amounts. Since we reviewed units from a universe of inspections that occurred during a three-
month period of activity and considering that the Authority was not abating assistance payments
for any units, we multiplied $8,504 by four to conservatively estimate that the Authority could
put $34,016 to better use over a period of a year by abating assistance payments as required.

These estimates are presented solely to demonstrate the annual amount of program funds that
could be put to better use on decent, safe, and sanitary housing if the Authority implements our
recommendations. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate.

We performed our on-site audit work from October 2007 through June 2008 at the Authority’s
main administrative office located at 1339 Allen Street, Allentown, Pennsylvania. The audit
covered the period October 1, 2006, through October 31, 2007, but was expanded when
necessary to include other periods.

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




                                                20
                             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 objective:

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

                  •   Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                  •   Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              We assessed the relevant controls identified above.

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


 Significant Weakness

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

                  •   The Authority lacked sufficient procedures and controls to ensure that unit
                      inspections complied with HUD regulations, that units met minimum

                                               21
housing quality standards, and that assistance payments were abated for
units that did not meet housing quality standards.




                        22
                                   APPENDIXES

Appendix A

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

                    Recommendation                        Funds to be put
                        number            Ineligible 1/    to better use 2/
                           1B              $80,316
                           1C                               $1,243,989
                           2A                $8,504
                           2B                                  $34,016
                          Total            $88,820          $1,278,005


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (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 Authority implements our
     recommendations, it will cease to incur program costs for units that are not decent, safe,
     and sanitary and, instead, will expend those funds for units that meet HUD’s standards.
     Once the Authority successfully improves its controls, this will be a recurring benefit.
     Our estimate reflects only the initial year of this benefit.




                                             23
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         24
Comment 1




Comment 2


Comment 3




Comment 4

Comment 5



Comment 6




            25
Comment 7




Comment 8

Comment 9

Comment 8

Comment 10

Comment 11

Comment 12

Comment 13




             26
Comment 14




Comment 15




Comment 16




             27
Comment 17

Comment 15



Comment 15



Comment 15


Comment 15



Comment 15




             28
29
     Comment 18
     Comment 19

     Comment 20
     Comment 18
     Comment 21
     Comment 18
     Comment 22
     Comment 18




30
     Comment 23

     Comment 18

     Comments 24, 18
     Comment 25

     Comment 18

     Comment 26

     Comment 18
     Comment 27
     Comment 18




     Comment 28
     Comment 29




31
     Comment 18
     Comment 30
     Comment 31
     Comment 18


     Comment 32
     Comment 18



     Comment 33
     Comment 18
     Comment 34

     Comment 35
     Comment 18

     Comment 36
     Comment 18


     Comment 37




32
     Comment 18


     Comment 38
     Comment 18


     Comment 39
     Comment 18
     Comment 40
                         OIG Evaluation of Auditee Comments

Comment 1   We are encouraged by the Authority’s statements that it takes the findings very
            seriously and has implemented management improvements to address some of the
            issues included in the audit report. During the audit resolution process, HUD will
            verify the Authority’s actions and determine whether they adequately address the
            recommendations.

Comment 2   The conclusions in the audit report are supported by audit work performed in
            accordance with generally accepted government auditing standards.

Comment 3   As we explained in our meeting to discuss the finding outlines and at the exit
            conference, we used our professional knowledge, tenant interviews, and the
            Authority’s latest inspection reports in determining whether a housing quality
            standards violation existed prior to the last passed inspection conducted by the
            Authority or if it was on the last passed inspection conducted by the Authority and
            was not corrected. During our inspections, the auditor and the HUD OIG housing
            inspector questioned the tenants about the violations identified during the
            inspections in order to determine whether the violations were preexisting or not.
            The HUD OIG housing inspector documented the preexisting conditions on the
            inspection report and took pictures of the violations, as needed. We provided
            copies of all our inspection reports and the corresponding photographs to the
            Authority during the audit. Representatives from the Authority accompanied us
            on all of our inspections. The representatives intermittently made comments
            pertaining to violations that we identified. We considered the comments in
            making our determinations.

            The lack of complaints by owners and tenants does not directly correlate to a lack
            of deficiencies in the units. The tenants may have registered complaints with the
            owner and not the Authority. The owners and the tenants simply may not know
            that deficiencies, such as those we identified during our inspections, were
            violations of HUD’s housing quality standards.

Comment 4   The Authority’s objection to the support for the finding is without merit. As
            indicated in the first paragraph on page three of its response, the Authority admits,
            by its own analysis, that 25 units could be substantiated as having preexisting
            conditions. Further, as stated earlier, we used our professional knowledge, tenant
            interviews, and the Authority’s latest inspection reports in determining whether a
            housing quality standards violation existed prior to the last passed inspection
            conducted by the Authority or if it was on the last passed inspection conducted by
            the Authority and was not corrected. Contrary to the Authority’s assertion, we
            interviewed the Authority’s inspectors and considered their comments in making
            our determinations. Further, the testimony of the tenant is a valid method to use
            in determining the existence of deficiencies. For example, section 10.9 of HUD’s
            Housing Choice Voucher Program Guidebook, 7420.10G, states that for SEMAP
            purposes, a housing quality standards deficiency found at the time of the quality
            control reinspection represents a “fail” quality control inspection. When rating an

                                             33
              individual inspector’s performance, the quality control inspector should take into
              account whether the failed item occurred since the previous inspector was on site.
              Often the tenant can describe when the deficiency occurred and will be helpful in
              making this determination.

Comment 5     We disagree with the Authority’s assertion. We did not determine that 100
              percent of all conditions were preexisting. As stated on page 6 of this report, we
              determined that of 335 total violations that we reported, the Authority’s inspectors
              did not report 237 violations which existed at the units when they performed their
              inspections, and 10 units had a violation that was noted on the Authority’s
              previous inspection report, but the violation was not corrected. Therefore, the
              percentage of violations that we determined were preexisting was 74 percent (247
              divided by 335).

Comment 6     Preexisting violations are such, regardless of source or cause.

Comment 7     We have considered the Authority’s response and revised the final audit report as
              deemed appropriate. Our evaluation of the Authority’s objections to deficiencies
              that the audit identified in specific units is included in the comments to the
              Authority’s spreadsheet found on pages 30 through 32 of this report. We noted
              that the Authority’s spreadsheet included a column with the heading “Contested
              Preexisting Condition” which includes all violations we reported for the
              respective unit. However, as mentioned in Comment 5 above, we did not
              categorize all violations as preexisting.

Comment 8     In consultation with our certified HUD inspector, we used our professional
              knowledge, tenant interviews, and the Authority’s latest inspection reports to
              determine whether a violation existed prior to the last passed inspection
              conducted by the Authority. In the event that we could not reasonably make that
              determination, we did not categorize the violation as preexisting. We provided
              the Authority with factual documentation for all of our inspections addressed in
              this report.

Comment 9     The Authority incorporated the City of Allentown property code in its
              administrative plan. Section 1743.06 of the City’s property code requires that all
              plumbing fixtures be properly connected to an approved water system. Our
              inspector asserted that all existing plumbing codes require shut-off valves at
              plumbing fixtures. We requested that the Authority provide evidence that the
              City’s code does not require shut-offs unless the water lines or sink have been
              replaced but the Authority did not do so.

Comment 10 We disagree with the Authority’s assertion. Although we identified violations
           relating to kitchen stove burners in nine units, in only one instance did we
           determine that the violation was preexisting. In that instance, the determination
           that the violation was preexisting was supported by statements made by the
           tenant.


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Comment 11 We disagree with the Authority’s assertion. Although we identified 13 instances
           of missing or disconnected smoke alarm batteries, we did not cite a missing
           smoke detector battery as a preexisting violation in any of our inspection reports.

Comment 12 We disagree with the Authority’s assertion. We did not cite the clogged drain as a
           preexisting violation. Further, we identified nine other violations in this unit and
           determined that eight of the nine violations were preexisting.

Comment 13 We did not conclude that the Authority did not perform the required number of
           quality control inspections; rather we concluded that the Authority did not
           perform adequate quality control inspections. In its response, the Authority
           confirms, by its own corrective actions, that its quality control inspection
           procedure was inadequate, prompting it to make significant changes to the
           procedure to “more adequately spread those inspections throughout the fiscal
           year, include all inspection types, include a representative sample of all
           inspectors, provide feedback to each inspector, and determine if additional QC
           inspections are needed if QC inspection results warrant.” Nonetheless, we are
           encouraged that the Authority has taken corrective action to address this issue.

Comment 14 We did not hold the Authority to a higher standard. The standards delineated in
           the City of Allentown Housing Code did not affect our inspection results. In the
           few instances in which the Authority questions the applicability of the local code,
           the violations alone did not result in our determination that the unit failed the
           inspection. Further, regulations at 24 CFR [Code of Federal Regulations]
           982.54(c) require the Authority to administer its Section 8 program in accordance
           with its administrative plan. Further, 24 CFR 982.54(d) requires that the
           Authority’s administrative plan cover the Authority’s policies on procedural
           guidelines and performance standards for conducting required housing quality
           standards inspections. The Authority’s current Administrative Plan (dated April
           1, 2006) states that “All units must meet the minimum standards set forth in the
           City of Allentown Housing Code. In cases of inconsistency between the Code and
           these HQS, the stricter of the two shall prevail”. The language of this
           requirement is explicit and remained essentially unchanged in the Authority’s
           administrative plans dated February 25, 2004, March 15, 2000, and July 24, 1996.
           The July 24, 1996, administrative plan indicates that Authority’s board approved
           the plan and that the Authority submitted the plan to HUD on July 25, 1996. The
           Authority’s past failure to administer its program in accordance with these
           provisions of its administrative plan, as required, does not relieve it from its
           obligation to do so in the future.

Comment 15 We are encouraged by the Authority’s statements that it has taken corrective
           action and will continue to take corrective action to address the recommendations.

Comment 16 We did not inflate the amount of ineligible funds. We used a conservative
           methodology to compute the ineligible funds. As we explained during the audit,
           for the units that had preexisting violations, we did not calculate any ineligible
           housing assistance payments for the first 30 days after the date of the Authority’s

                                              35
              inspection. Also, see Comment 8. Further, the Authority stated that by its
              calculation, the OIG has inflated the amount of ineligible funds by $36,278. This
              figure was also shown on the last page of the attached spreadsheet. However, the
              amount of funds listed on the spreadsheet total $35,065 not $36,278.

Comment 17 Contrary to HUD requirements, 47 units that we inspected materially failed to
           meet HUD’s housing quality standards and the Authority disbursed $72,479 in
           housing assistance payments and received $7,837 in program administrative fees
           for these units.

Comment 18 In consultation with our certified HUD inspector, we used our professional
           knowledge, tenant interviews, and the Authority’s latest inspection reports to
           determine whether a violation existed prior to the last passed inspection
           conducted by the Authority. In the event that we could not reasonably make that
           determination, we did not categorize the violation as preexisting.

Comment 19 We disagree with the Authority’s assertion that the opened ground outlet is not a
           violation of HUD’s housing quality standards because the outlet is functional.
           The regulations at 24 CFR 982.401(f)(2), when referring to outlets in both
           sections (ii) and (iii), specifically state that outlets must be in proper operating
           condition. Further, section 10.3 of HUD’s Housing Choice Voucher Program
           Guidebook, 7420.10G, discusses acceptability criteria for each of 13 housing
           quality standards performance requirements. The acceptability criteria for
           illumination and electricity performance requirements states in part that the public
           housing agency must be satisfied that the electrical system is free of hazardous
           conditions, including improper insulation or grounding of any component of the
           system. Additionally, the Authority is inconsistent in its interpretation of the
           housing quality standards regarding electrical outlets with an open ground. While
           the Authority asserts that the ungrounded outlet is not a violation because the
           “outlet is functional per HQS”, the Authority’s inspectors cited an open ground as
           a violation in their inspection reports.

Comment 20 The step presents a tripping hazard. The regulations at 24 CFR 982.401(g)(2)(iv)
           require that the condition and equipment of exterior stairs, porches, walkways,
           etc., must not present a danger of tripping and falling.

Comment 21 We did not cite the lack of a knob and the inoperable burner as preexisting
           violations.

Comment 22 We disagree with the Authority's contention. When our inspector made the
           notation “GFCI has reversed hot/neutral poles*”, he determined the condition was
           preexisting because the GFCI was improperly wired. That is, the GFCI has two
           sets of terminals. One set is for the “hot” wire to be connected and the second set
           for the neutral wire to be connected. However, in this case the wires were not
           connected to the proper terminals. The regulations at 24 CFR 982.401(f)(2)
           require that outlets must be in proper operating condition. Further, section 10.3 of
           HUD’s Housing Choice Voucher Program Guidebook, 7420.10G, discusses

                                              36
              acceptability criteria for each of 13 housing quality standards performance
              requirements. The acceptability criteria for illumination and electricity
              performance requirements states in part that the public housing authority must be
              satisfied that the electrical system is free of hazardous conditions, including
              improper connections of any component of the system.

Comment 23 We did not cite the violations pertaining to the burner, screen and smoke detector
           as preexisting conditions.

Comment 24 The violation cited was preexisting for reasons previously explained with a
           similar violation in another unit. See Comment 20.

Comment 25 We note the Authority’s acknowledgement of the applicability of the City of
           Allentown property code to its Section 8 Housing Choice Voucher units, but we
           disagree with the Authority’s contention. The regulations at 24 CFR
           982.401(g)(2)(iv) require that the condition and equipment of interior stairs must
           not present a danger of tripping and falling. Additionally, section 10.3 of HUD’s
           Housing Choice Voucher Program Guidebook, 7420.10G, states that handrails are
           required when four or more steps (risers) are present, and protective railings are
           required when porches, balconies, and stoops are 30 inches off the ground. In this
           unit, a health and safety hazard existed because there were four steps, the
           elevation was more than 30 inches, and there was no handrail or railing on the
           open side of the steps to prevent tripping and falling.

Comment 26 We did not cite the evidence of roach infestation in the kitchen as a preexisting
           violation. The violation involving the reversed hot/neutral on the outlet was
           previously explained with similar violations in other units.

Comment 27 The violations involving the reversed hot/neutral on the outlet, the shut off valves
           for the water lines, and the lack of a handrail were previously explained with
           similar violations in other units.

Comment 28 The violation was previously explained with similar violations in other units.

Comment 29 The violations involving the shut off valves for the water lines and the open
           ground were previously explained with similar violations in other units.

Comment 30 See Comment 22. Additionally, the Authority is inconsistent in its interpretation
           of the housing quality standards regarding GFCI outlets. While the Authority
           asserts that the faulty GFCI outlet is not a violation because “GFCI not required
           by HQS”, the Authority’s inspectors cited a faulty GFCI as a violation in their
           inspection reports.

Comment 31 Storm sashes are not specifically required, but existing windows need to have all
           of their components in place and in working condition. The violations involving
           the open ground were previously explained with similar violations in other units.
           The Authority’s statement that the garage is detached from the house and would

                                              37
              not impact living space is not correct. The garage is directly under the living
              quarters. The oil fired steam heating unit for the living quarters is housed in the
              garage. Neither the brick walls of the garage nor the steam lines to the living
              quarters which run the length of the garage are insulated. Consequently, the air
              infiltration from the drafty garage door reduces the efficiency of the heating unit
              and increases utility costs for the tenant.

Comment 32 We did not cite the inoperable smoke detector and the garbage in the back yard as
           preexisting violations. The violation involving the open ground was previously
           explained with similar violations in other units.

Comment 33 Storm doors are not specifically required, but if they are present they need to be in
           good condition and operate safely.

Comment 34 The violation involving handrails and guardrails was previously explained with
           similar violations in other units.

Comment 35 The violation was previously explained with similar violations in other units.

Comment 36 We did not cite the faucet leak, loose carpet strip, broken switch cover plate, the
           protruding nail, exposed wires, and evidence of mice infestation as preexisting
           violations. Regarding the bedroom door, we considered the Authority’s comment
           and determined that the gap could reasonably be judged as passing with comment
           rather than a violation of housing quality standards. We revised the audit report
           accordingly.

Comment 37 We did not cite the inoperative burner and the missing drain stop as preexisting
           violations. The violation concerning the GFCI was previously explained with
           similar violations in other units.

Comment 38 We did not cite the missing storm door glass, or the violations pertaining to the
           smoke detectors as preexisting violations. Storm doors are not specifically
           required, but if they are present they need to be in good condition and operate
           safely. Further, the Authority’s inspectors had noted the broken storm door latch
           handle on its previous inspection report, but during our inspection we determined
           that the violation had not been corrected.

Comment 39 Storm doors are not required, but if they are present they must not pose a safety
           hazard to the occupants. We did not cite the violations pertaining to the screens
           and door as preexisting violations. The violation concerning the GFCI was
           previously explained with similar violations in other units.

Comment 40 The violations involving the shut off valves for the water lines and handrails were
           previously explained with similar violations in other units. Regarding the
           handrail, section 10.3 of HUD’s Housing Choice Voucher Program Guidebook,
           7420.10G, states that handrails are required when four or more steps (risers) are


                                               38
present. In this case, a handrail is required even if it is not contiguous with the
existing railings.




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