oversight

The High Point Housing Authority, High Point, North Carolina, Needs to Improve

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-17.

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

                                                                 Issue Date
                                                                     August 17, 2009
                                                                 Audit Report Number
                                                                     2009-AT-1010




TO:         Michael A. Williams, Director, Office of Public Housing, Greensboro, NC, 4FPH


            //signed//
FROM:       James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT: The High Point Housing Authority, High Point, North Carolina, Needs to Improve
          Internal Controls over Its Section 8 Program


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the High Point Housing Authority’s (Authority) U.S. Department of
             Housing and Urban Development (HUD) Section 8 Housing Choice Voucher
             program pursuant to a citizen’s complaint. Our objectives were to determine
             whether the Authority properly (1) enforced HUD’s housing quality standards,
             (2) calculated Section 8 administrative fees, and (3) determined housing
             assistance subsidies and issued vouchers to qualified participants.

 What We Found


             The Authority’s administration of the Housing Choice Voucher program with
             respect to enforcement of housing quality standards, calculation of administrative
             fees, rent reasonableness determinations, and eligibility of landlords was
             inadequate due to missing or ineffective controls.

             For the sample of 15 units we inspected, 12 (80 percent) did not meet minimum
             housing quality standards. In addition, the Authority paid rental assistance for
           four units that were in material noncompliance with housing quality standards for
           conditions that existed at the time of the last Authority inspection.

           The Authority received excessive administrative fees during fiscal year 2008
           because it did not remove over income tenants from its program on a timely basis.
           Our testing showed that the Authority correctly calculated housing assistance
           subsidies and issued vouchers to qualified participants for our 12 sampled tenants.
           However, the Authority did not properly document rent reasonableness using
           recent comparable unit data prior to signing housing assistance payment contracts
           and did not prescreen landlords as required by HUD.

What We Recommend


           We recommend that the Director of the Greensboro Office of Public Housing
           require the Authority to repay its voucher program from non-federal funds for rental
           assistance paid landlords for units in material noncompliance with housing quality
           standards. We also recommend that the Authority perform a special inspection of a
           representative sample of its units to determine the extent of noncompliance and
           develop and implement controls for ensuring that its units meet standards. Further,
           the Authority must implement controls to ensure that its administrative fees are
           correct, rent reasonableness determinations are made on a timely basis using
           appropriate comparable data, and its landlords qualify.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish to us copies of any correspondence or directives issued as a result
           of the audit.

Auditee’s Response


           We discussed the findings with the Authority and HUD officials during the audit.
           We provided the draft report to the Authority on July 15, 2009, and discussed the
           findings with Authority officials at an exit conference on July 27, 2009. The
           Authority provided its written comments on July 31, 2009. Authority officials
           expressed general agreement with the findings and recommendations.

           The complete text of the Authority’s response can be found in Appendix B of this
           report.




                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and Sanitary    5
      Finding 2: The Authority Did Not Have Adequate Controls for Effective        10
                 Section 8 Administration

Scope and Methodology                                                              12

Internal Controls                                                                  14

Appendixes
   A. Schedule of Questioned Costs                                                 16
   B. Auditee Comments                                                             17




                                            3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of High Point, North Carolina, (Authority) was chartered in 1940 as a
non-profit corporation under the General Statutes, Article 157, of the state of North Carolina. Its
primary objective is to provide decent, safe, and sanitary housing to the low-income citizens of
High Point, North Carolina, in accordance with regulations set forth by the U.S. Department of
Housing and Urban Development (HUD). The Authority is located at 500 East Russell Avenue,
High Point, North Carolina.

A seven-member board of commissioners appointed by the mayor of High Point governs the
Authority. Mr. Bob Davis is the chairman of the board, and Mr. Robert Kenner has been the
executive director since January 20, 2003.

The Authority administers approximately 1,350 units funded under the Housing Voucher Choice
program. HUD’s Greensboro, North Carolina, Office of Public Housing oversees the Authority.
The Authority is budgeted to receive $4.9 million for HUD housing assistance payments during
fiscal year 2009.

Our objectives were to determine whether the Authority properly (1) enforced HUD’s housing
quality standards, (2) calculated Section 8 administrative fees, and (3) determined housing
assistance subsidies and issued vouchers to qualified participants.




                                                 4
                                 RESULTS OF AUDIT

Finding 1: Tenants Lived in Units That Were Not Decent, Safe, and
           Sanitary
Our inspection of 15 units showed that 12 units (80 percent) did not meet minimum housing
quality standards. Of the 12 units not meeting standards, four were in material noncompliance
with housing quality standards. This condition occurred because Authority management did not
place sufficient emphasis on housing quality standards by implementing controls sufficient to
ensure that units met minimum housing quality standards and inspections complied with HUD
requirements. As a result, tenants lived in units that were not decent, safe, and sanitary, and the
Authority made housing assistance payments for units that did not meet standards. For the units
sampled, the Authority spent $9,106 for four units in material noncompliance.


 Units Were in Material
 Noncompliance with Standards


               We inspected 15 units from 1,247 units under contract for compliance with
               HUD’s housing quality standards. An Authority inspector accompanied us on the
               inspections and generally agreed with our results. HUD regulations (24 CFR
               [Code of Federal Regulations] 982.401(a)(3)) require that assisted units meet
               housing quality standards both at commencement of assisted occupancy and
               throughout the assisted tenancy.

               Of the 15 units inspected, 12 units (80 percent) having a total of 48 housing
               quality standards violations did not meet minimum housing quality standards.
               Additionally, four of the units were in material noncompliance with housing
               quality standards. These units were in material noncompliance because they had
               one or more material deficiencies that existed at the time of the Authority’s
               previous inspection. We determined that the Authority spent $9,106 in housing
               assistance payments for units in material noncompliance with housing quality
               standards.

               Electrical violations were the most frequently occurring deficiency. Nine of the
               failing units had one or more such deficiencies. Examples of deficiencies are
               shown below.




                                                 5
  Exposed wiring




Missing outlet cover




         6
              Cracked foundation and missing window pane in crawlspace




                  Leaking kitchen sink with a pot to contain the water


The Authority Did Not Have
Adequate Internal Controls

           Authority management had not placed appropriate emphasis on housing quality
           standards requirements. Until recently, the Authority used only one inspector for
           up to 1,350 Housing Choice Voucher program units. Interviews with Authority
           staff indicated that the Authority’s two inspectors were performing 10 to 15
           inspections per day and allowing only 20 to 30 minutes, including travel time, per
           inspection. In one case, a handwritten note on a form indicated that the inspection
           had been performed in 15 minutes. This inspection was performed on a large
           three-bedroom unit with multiple living areas and an additional bathroom. Such a


                                            7
             small amount of time is generally not sufficient to adequately perform an
             inspection.

             The inspectors lacked guidance and oversight. Our interviews with staff
             performing inspections revealed inconsistent treatment for some requirements.
             For instance, in some cases, inspectors did not immediately notify owners of life-
             threatening conditions or require correction of the condition(s) within 24 hours as
             the regulations (24 CFR 982.404 (a)(3)) require. Instead, owners were notified by
             mail, which resulted in such conditions existing for at least several days. The
             Authority’s Section 8 administrative plan did not clearly require correction of
             such conditions within 24 hours. It stated that such conditions must be corrected
             within 24 hours of “notice.” When notification is made by mail, the regulatory
             requirement is impossible to meet.

             The files did not contain documentation evidencing that a complete inspection
             had been performed for any of the 15 units sampled. The inspectors hand wrote
             inspections in the field and entered the results into the computer system upon
             return to the office. For the 15 units sampled, all of the inspection forms
             contained missing or incomplete information.

             Deficiencies were also found regarding the required supervisory reinspections.
             According to staff, these inspections were not performed until a month or more
             after the original inspection. The passage of time makes it more difficult for the
             supervisor to determine whether identified deficiencies existed at the time of the
             original inspection or occurred later. In addition, the Authority did not maintain
             records sufficient to evidence the results of the inspections or how the results
             were used to improve the quality of future inspections.


Conclusion


             Because Authority management did not place sufficient emphasis on housing
             quality standards requirements and did not implement adequate internal controls,
             HUD issued housing assistance payments for units that were in material
             noncompliance with standards. Management must emphasize the importance of
             housing quality standards and implement policies and procedures to better ensure
             that it complies with HUD requirements and gives tenants the opportunity to live
             in decent, safe, and sanitary conditions.




                                              8
Recommendations



          We recommend that the Director of the Greensboro Office of Public Housing
          require the Authority to

          1A.     Repay its Housing Choice Voucher program $9,106 from non-federal funds
                  for housing assistance payments made for units which were both in material
                  noncompliance and had conditions that existed at the time of the Authority’s
                  last inspection.

          1B.     Inspect the 12 units that did not meet minimum housing quality standards to
                  verify that the landlords took appropriate corrective actions to make the
                  units decent, safe, and sanitary. If appropriate actions were not taken, the
                  Authority should abate the rents or terminate the contracts.

          1C.     Develop and implement an internal control plan, including a staffing plan,
                  and make any necessary adjustments to its Section 8 administrative plan
                  and/or any other Authority policies or procedures to ensure that its units
                  meet HUD’s housing quality standards.

          1D.   Perform a special inspection of a representative sample of its units to
                determine the extent of housing quality standards noncompliance. The
                Authority should report the results of these inspections to you, along with
                an explanation of how the results were used to develop its new internal
                control plan.




                                             9
Finding 2: The Authority Did Not Have Adequate Controls for
           Effective Section 8 Administration
The Authority generally complied with the Section 8 administrative requirements but did not
have adequate controls. For the 12 tenant files reviewed, the Authority correctly calculated
housing assistance subsidies and issued vouchers to qualified participants. However, lack of
effective controls resulted in the Authority’s (1) not removing some tenants from the program on
a timely basis, (2) not adequately reviewing rents for reasonableness before entering into housing
assistance payments contracts, and (3) failing to prescreen landlords. As a result, the Authority
received an overpayment of $428 in administrative fees, may have paid excessive rental
assistance, and may have ineligible landlords.


 Tenants Were Not Removed from
 the Program on a Timely Basis


               The Authority did not consistently remove over income tenants from the program
               in accordance with HUD’s requirements. HUD regulations (24 CFR 982.455)
               require that any individual no longer receiving a housing assistance payment be
               removed from the program within 180 calendar days. Our review of tenants
               removed from the program during 2008 showed that five tenants had not been
               removed on a timely basis. As a result, the Authority received excessive
               administrative fees totaling $428. We did not review years before 2008 because
               of a HUD change in the fee calculation method. Before 2008, the number of
               active tenants for each month did not impact the administrative fees received by
               the Authority.

 Rent Reasonableness Was Not
 Adequately Documented


               A review of 12 tenant files showed that the Authority had not adequately
               documented rent reasonableness. HUD regulations (24 CFR 982.507(a)) prohibit
               a public housing authority from approving a lease before it establishes that the
               rent is reasonable. For all 12 tenants, the supporting documentation in the files
               was dated after the lease and housing assistance contract had been approved.
               Authority staff stated that they performed an informal check of the rents, which
               was not documented, before signing the contract.

               Although the contract rents for sampled units were reasonable based on the
               documentation in the files, some of the comparable data used were questionable,
               since the data were several years old. The rents for proposed program units
               should be evaluated based on comparable units currently or very recently placed
               on the market. According to the Housing Choice Voucher Guidebook (7420.10G,
               section 9.3), the age of comparable unit data should not exceed two years. For 7

                                               10
             of the 12 tenant files reviewed, the age of the comparable data was more than two
             years.

Landlords Were Not Prescreened


             None of the 12 tenant files reviewed contained documentation evidencing that the
             Authority had prescreened landlords before their participation in the program.
             HUD regulations (24 CFR 982.306(a)) state that the Authority must not approve a
             landlord who has been debarred from participation in federal programs or issued a
             limited denial of participation that excludes or restricts participation in HUD’s
             programs. Authority staff stated that they screened to ensure that their staff and
             officials were not Section 8 landlords but did not screen prospective landlords to
             detect possible instances of debarment or limited denial of participation.


Conclusion


             Although the Authority generally complied with HUD’s Section 8 administrative
             requirements, the implementation of additional controls should provide better
             assurance that the administrative fee calculations are properly calculated based on
             the correct number of tenants, rents paid to landlords are reasonable, and
             landlords are eligible.

Recommendations



             We recommend that the Director of the Greensboro Office of Public Housing
             require the Authority to

             2A.    Repay HUD $428 for excess administrative fees for fiscal year 2008 and
                    implement controls to ensure that former program participants are removed
                    from the computer systems on a timely basis.

             2B.    Require the Authority to review all rents for reasonableness using
                    appropriate comparables, and implement controls to better ensure that the
                    rent reasonableness determination for future contracts are made with
                    appropriate comparables on a timely basis.

             2C.    Require the Authority to screen the existing landlords to ensure their
                    eligibility, and implement controls to better ensure the eligibility of new
                    landlords.




                                               11
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we

       Reviewed applicable laws, regulations, and other HUD program requirements;
       Reviewed the Authority’s Section 8 policies, procedures, and administrative plan;
       Interviewed HUD and Authority management and staff;
       Reviewed the Authority’s latest independent public accountant report and HUD program
       monitoring reviews; and
       Obtained a download of the Authority’s Section 8 units for the Housing Choice Voucher
       program.

We inspected 15 units from 1,247 units on the Authority’s Section 8 Housing Choice Voucher
program. Our results showed that 12 of the 15 units did not meet minimum housing quality
standards, and four were in material noncompliance. We based our assessment on prior
Authority inspection reports and our observations and judgment of the condition of the units
during inspection. We judged the units to be in material noncompliance because they had one or
more material deficiencies that existed at the time of the Authority’s previous inspection. All
units were ranked, and we used auditors’ judgment to determine the material cutoff line.

In order to give each unit an equal chance for inspection, we randomly selected 20 units (15 plus 5
extra for replacements) from the Authority’s program. Since the universe contained 1,247 units, we
generated a random starting point and selected every 63rd unit (1,247 / 20 = 62.35), until we had
selected 20 units. We elected not to extend the review by selecting and inspecting a statistical
sample of the Authority’s units. We made this decision because officials from the local HUD
office and the Authority agreed to implement recommendations designed to improve housing
quality based on our survey results. The inspection results apply only to the units inspected and
cannot be projected to the universe or population.

We determined that the Authority had expended $9,106 in housing assistance payments for units
in material noncompliance by

       Identifying those units in material noncompliance for conditions that clearly were present
       during the Authority’s last inspection,
       Determining the amount of time between the Authority’s last inspection and our
       inspection,
       Deducting one month for the standard amount of time the Authority would have allowed
       the landlord to make to required repairs, and
       Calculating the amount of housing assistance paid to the landlord for the period.

To perform our tenant file reviews, we relied upon computer-processed data provided by the
Authority. Specifically, we relied upon a spreadsheet that contained data on housing subsidies
and tenant recertification data. We analyzed the data and concluded that the data were
sufficiently reliable for our purposes of sample selection.

                                                12
For the tenant file reviews, we selected a sample of 12 tenant files from a listing of 1,827 tenants on
the Authority’s program during the audit period. In order to give each tenant an equal chance for
selection, we performed a random selection by generating a random starting point and selecting
every 152nd (1,827 /12 = 152.25) tenant from the list until we had selected 12. Since we did not
use a statistical sample, the file review results apply only to the files reviewed and cannot be
projected to the universe or population.

We conducted our fieldwork from March to May 2009 at HUD’s Greensboro, North Carolina, field
office and the Authority’s offices in High Point, North Carolina. Our audit period was from January
2006 to December 2008, but we expanded the audit period as needed to accomplish our objectives.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                  13
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

         Program operations,
         Relevance and reliability of information,
         Compliance with applicable laws and regulations, and
         Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined that the following internal controls were relevant to our audit
              objectives:

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

                  Safeguarding of resources - Policies and procedures that management has
                  implemented to reasonably ensure that resources are safeguarded against waste,
                  loss, and misuse.

              We assessed the relevant controls identified above.

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

 Significant Weaknesses

              Based on our review, we believe that the following items are significant weaknesses:

                  The Authority did not have internal controls in place to ensure that Section 8
                  units met housing quality standards (see finding 1).



                                                14
The Authority did not have controls for effective Section 8 administration (see
finding 2).




                             15
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                            Recommendation
                                    number         Ineligible 1/
                                 1A                      $9,106
                                 2A                         428

                                  Total                  $9,534

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.




                                            16
Appendix B

             AUDITEE COMMENTS




                    17
Ref to OIG Evaluation




                        18
Ref to OIG Evaluation




                        19