oversight

Renton Housing Authority, Renton, Washington, Overpaid Rental Assistance And Did Not Have Sufficient Controls Over Rent Reasonableness

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-06-03.

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

                                                                 Issue Date
                                                                          June 3, 2008
                                                                 Audit Report Number
                                                                              2008-SE-1005




TO:         Harlan Stewart, Director, Region X, Office of Public Housing, 0APH



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region X, 0AGA

SUBJECT: Renton Housing Authority, Renton, Washington, Overpaid Rental Assistance
           And Did Not Have Sufficient Controls Over Rent Reasonableness


                                   HIGHLIGHTS

 What We Audited and Why

      We audited Renton Housing Authority (Authority), Renton, Washington. The review
      was initiated due to a hotline complaint from a Housing Choice Voucher program
      recipient. The complainant stated that the contract rent was unreasonable because it
      exceeded the rent for comparable unassisted units on the premises. The audit objective
      was to determine whether the complaint was valid. We also wanted to determine whether
      the Authority had controls in place to ensure that rents paid to landlords for its Housing
      Choice Voucher program were reasonable.

 What We Found

      The hotline complaint was valid. The contract rent for the complainant’s assisted unit
      was higher than for the comparable unassisted units on the premises by an average of
      more than $100 per month. In addition, the Authority did not have sufficient controls in
      place to ensure rents were reasonable.
What We Recommend


     We recommend that the Director, Region X, Office of Public Housing require the
     Authority to collect $10,884 from the owner that was overpaid due to unreasonable rent.
     Of this amount, $4,212 was paid by the extremely low-income tenant and should be
     returned. We also recommend that the Director, Region X, Office of Public Housing
     review the Authority’s revised procedures to ensure that rent reasonableness
     determinations are carried out in accordance with program regulations and requirements.

     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 a copy of the draft report to the auditee on May 12, 2008, and discussed the
     report with the auditee at the exit conference held on May 14, 2008. The auditee
     provided its written comments to our draft report on May 28, 2008 and agreed with our
     findings. The complete text of the auditee’s response can be found in appendix B of this
     report.




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                             TABLE OF CONTENTS

Background and Objectives                                                            4

Results of Audit
   Finding 1: The Authority Overpaid Rental Assistance and Did Not Have Sufficient   5
              Controls Over Rent Reasonableness

Scope and Methodology                                                                8

Internal Controls                                                                    9

Appendixes
   A.   Schedule of Questioned Costs                                                 10
   B.   Auditee Comments                                                             11
   C.   Criteria                                                                     13
   D.   Schedule of Ineligible Rents by Year                                         14




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                      BACKGROUND AND OBJECTIVES

Housing Choice Voucher Program

The Housing Choice Voucher program was implemented in October 1999 when the U.S.
Department of Housing and Urban Development (HUD) published a final rule implementing the
statutory merger of Section 8 tenant-based and certificate programs. The program assists low-
income families in obtaining decent, safe, and sanitary housing in the private market. Under the
program, the family can choose housing that meets its requirements including single-family
homes, townhouses, and apartments. The assistance is often referred to as tenant based because
it is attached to the family rather than to a specific unit in a project. The voucher is portable; the
tenant family can move from the jurisdiction of its current housing authority to the jurisdiction of
another housing authority operating a Housing Choice Voucher program.

Housing authorities are responsible for administering the program and ensuring compliance with
federal requirements, including rent reasonableness. A housing authority may not approve a
lease until it determines that the initial rent to the owner is a reasonable rent. Also, the housing
authority must make additional determinations of reasonable rent before any rent increases. The
owner certifies that the rent to the owner is not more than rent charged by the owner for
comparable unassisted units on the premises each time the owner accepts a housing assistance
payment. The owner must provide information requested by the housing authority on rents
charged by the owner for other units on the premises or elsewhere.

The basis for the determination of rent reasonableness must be documented by the housing
authority. The documentation begins at initial lease-up with a HUD “request for tenancy” form
submitted by the owner, which includes the contract rents for three comparable units that have
recently been leased by unassisted tenants. In addition to the form, the Authority must document
the analysis and basis of its determination that the rent is reasonable. The rent for an assisted
unit cannot exceed the rents for comparable unassisted units on the premises.

Renton Housing Authority

Renton Housing Authority (Authority), located in Renton, Washington, administers the Housing
Choice Voucher program funded by HUD. As of December 31, 2007, the Authority had 575
units under contract with annual housing assistance and utility allowance payments of $5.2
million. Of the 575 vouchers, 289 are portable vouchers administered by the Authority for other
housing authorities and are valued at $2.8 million.

The audit objective was to determine whether the complainant’s contract rent exceeded the
contract rent for comparable unassisted units on the premises and was, therefore, unreasonable.
We also wanted to determine whether the Authority had controls in place to ensure that rents
paid to landlords for housing choice vouchers were reasonable.




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                                RESULTS OF AUDIT

Finding 1: The Authority Overpaid Rental Assistance And Did Have
Sufficient Controls Over Rent Reasonableness
The complaint was valid. The contract rent for the complainant’s assisted unit was higher than
for the comparable unassisted units on the premises. In addition, the Authority did not have
sufficient controls over rent reasonableness. This occurred because the Authority failed to
ensure that it understood and complied with HUD rent reasonableness requirements and
remedies. As a result, HUD and the Authority did not have adequate assurance that contract
rents were reasonable.



 Rents Paid to the Owner for an
 Assisted Unit Were Not
 Reasonable


       The owner of Whitworth Lane Apartments charged a higher rent for its assisted unit than
       the rent charged for comparable unassisted units on the premises by an average of more
       than $100 per month. The owner received $10,884 in ineligible rents from 1999 through
       2007. The extremely low-income tenant paid $4,212 of the total amount overpaid (see
       appendix D) .

       While the Authority suspected that the rents were unreasonable, it approved rents as
       reasonable on a number of occasions. The Authority was initially notified that the rent
       might be unreasonable in December of 2003 and requested from the owner contract rent
       information for three comparable units. The owner did not provide the requested
       information in violation of the housing assistance payments contract. On several other
       occasions, the Authority requested rent information for comparable units and/or rent rolls
       for the complex, but the owner did not provide the requested information. The Authority
       should not have approved rent increases until the three comparable units or rent rolls
       were provided.

       According to its deputy director, the Authority chose not to pursue this issue with the
       landlord because the tenant did not want to move due to a disability. Further, the
       Authority did not realize that the housing assistance payments contract included a
       requirement that the owner provide any information pertinent to the contract including
       access to all accounts and other records of the owner. The owner’s refusal to supply the
       requested information resulted in an owner breach of contract.

       Although the Authority did not take action against the owner at the time, it can recover
       the overpayments. The contract specifies that the Authority’s nonexercise of any remedy



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     for owner breach of contract does not constitute a waiver of the right to exercise a remedy
     at any time.

The Authority Did Not Have
Sufficient Controls over Rent
Reasonableness

     The Authority did not sufficiently document that the contract rent for assisted units was
     reasonable as required by the regulations. The Authority used a commercially available
     rental survey for Renton, Washington, to determine whether its assisted units had
     reasonable rents. The survey contains rental information on single-family homes,
     townhouses, and apartments. However, the survey only provided a rental range for
     comparable units without information on the quality or location of these units. Without
     this additional information, there is no way to determine whether the comparables were
     of the same quality and in the same market as the requested unit.

     The tenant files included a request for tenancy for the initial lease of the unit. The owner
     submits the request for tenancy which includes contract rents for three comparable units
     recently leased by unassisted tenants. However, the files did not document the basis for
     the Authority’s determination that the rent to the owner was reasonable as required by
     HUD. HUD requires the Authority to document the analysis and basis of its
     determination that the rent is reasonable. The tenant files only included the Authority’s
     certification and the page numbers from the commercial rental survey report. Without
     additional analysis, we were unable to determine whether the rents were reasonable.

Conclusion


     The Authority was proactive when notified of our audit findings. It immediately required
     the owner of Whitworth Lane Apartments to lower the contract rent to the rent of the
     comparable unassisted units on the premises. In addition, the Authority’s deputy director
     created a team of employees to design and implement an amended administrative plan
     and detailed procedures to comply with the rent reasonableness requirements. The
     Authority has implemented the new procedures.

Recommendations



     We recommend that the Director, Region X, Office of Public Housing require the
     Authority to




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1A.    Collect $10,884 plus interest from the owner of Whitworth Lane Apartments that
       was overpaid due to unreasonable rents from January 1, 1999, through December
       31, 2007.

We also recommend that the Director, Region X, Office of Public Housing

1B.    Review the Authority’s revised procedures to ensure that rent reasonableness
       determinations are carried out in accordance with program regulations and
       requirements.

1C.    Pursue administrative sanctions against the owner of Whitworth Lane
       Apartments.




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                         SCOPE AND METHODOLOGY

We performed the audit between November 2007 and April 2008. The audit covered Authority
housing choice vouchers between 2004 and 2007. We expanded our scope for owners that were
paid excessive rents.

To accomplish our audit objectives, we

   •   Reviewed applicable laws, regulations, and other HUD program requirements;
   •   Reviewed guidance applicable to HUD’s Housing Choice Voucher program;
   •   Consulted with Region X, Office of Public Housing staff;
   •   Interviewed Authority staff;
   •   Reviewed and analyzed the Authority’s administrative plan;
   •   Reviewed tenant files;
   •   Obtained and reviewed apartment complex rent rolls; and
   •   Discussed amounts charged with owners and management agents.

We obtained a listing of the tenant files based upon information obtained from HUD data. We
selected an assortment of files for tenants in a variety of apartment complexes with private and
corporate ownership.

We reviewed 12 of 318 Section 8 Housing Choice Voucher program tenant files that were active
during our audit period and had increases in contract rent to determine whether the Authority
complied with HUD regulations. All of the 318 files were for tenants in apartment complexes.

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




                                                8
                              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 in place to ensure that rent reasonableness
                determinations are carried out in accordance with applicable laws and
                regulations.

       We assessed the relevant controls identified above.

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

 Significant Weaknesses


       Based on our review, we believe the following item was a significant weakness:

            •   The Authority did not have policies and procedures in place to ensure that rent
                reasonableness determinations were carried out in accordance with applicable
                laws and regulations (finding 1).




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                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                Recommendation number                   Ineligible 1/

                           1A                             $10,884


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.




                                            10
Appendix B

             AUDITEE COMMENTS




                    11
12
Appendix C
                                      CRITERIA
A.   Regulations at 24 CFR [Code of Federal Regulations] 982.158(f), Program Accounts
     and Records, state, “The PHA [public housing authority] must keep the following
     records for at least three years... (7) Records to document the basis for PHA
     determination that rent to owner is a reasonable rent (initially and during the term of a
     HAP [housing assistance payments] contract); ... ”

B.   Regulations at 24 CFR [Code of Federal Regulations] 982.452, Owner
     Responsibilities, state, “(b) The owner is responsible for... (4) Preparing and furnishing
     to the PHA information required under the HAP contract.”

C.   Regulations at 24 CFR [Code of Federal Regulations] 982.453(b), Owner Breach of
     Contract, state, “The PHA rights and remedies against the owner under the HAP
     contract include recovery of overpayments, abatement or other reduction of housing
     assistance payments, termination of housing assistance payments, and termination of the
     HAP contract.”

D.   Regulations at 24 CFR [Code of Federal Regulations] 982.507, Rent to Owner:
     Reasonable Rent, state,

     “(a) PHA determination.
         (1) The PHA may not approve a lease until the PHA determines that the initial rent to
        owner is a reasonable rent.
         (2) The PHA must redetermine the reasonable rent:
            (i) Before any increase in the rent to owner; …
     (b) Comparability. The PHA must determine whether the rent to owner is a reasonable
     rent in comparison to rent for other comparable unassisted units. To make this
     determination, the PHA must consider:
        (1) The location, quality, size, unit type, and age of the contract unit; and
        (2) Any amenities, housing services, maintenance and utilities to be provided by the
        owner in accordance with the lease.
     (c) Owner certification of rents charged for other units. By accepting each monthly
     housing assistance payment from the PHA, the owner certifies that the rent to owner is
     not more than rent charged by the owner for comparable unassisted units in the premises.
     The owner must give the PHA information requested by the PHA on rents charged by the
     owner for other units in the premises or elsewhere.”




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Appendix D

           SCHEDULE OF INELIGIBLE RENTS BY YEAR
                                                                           Amount
        Year      Contract     Comparable      Monthly       Yearly      overpaid by
                    rent          rent        difference    ineligible      tenant
       1998*         $550          $555           $ 0
       1999*         $575          $555           $ 20       $ 240          $ 240
       2000*         $610          $555           $ 55       $ 660          $ 480
       2001*         $645          $555           $ 90       $ 1,080        $ 900
       2002*         $680          $555           $125       $ 1,500        $ 420
       2003          $695          $555           $140       $ 1,680        $ 360
       2004          $695          $595           $100       $ 1,200        $ 360
       2005          $752          $595           $157       $ 1,884        $ 168
       2006          $752          $655           $ 97       $ 1,164        $ 516
       2007          $778          $655           $123       $ 1,476       $ 768
       Total                                                 $10,884       $4,212

* The owner of Whitworth Lane apartments only provided rental information from 2003 through
2008. Therefore, to be conservative, we used the 2003 comparable unassisted rent for
calculating ineligible rent for 1998-2002.




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