oversight

The City of Hartford, Connecticut, Did Not Always Comply with Its Annual Contributions Contracts and HUD Regulations in Administering Its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-05.

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

                                                                Issue Date
                                                                       January 5, 2009
                                                                Audit Report Number
                                                                       2009-BO-1004




TO:         Robert P. Cwieka, Acting Director, Office of Public Housing, Boston Hub,
            1APH


FROM:       John A. Dvorak, Regional Inspector General for Audit, Region 1, 1AGA

SUBJECT: The City of Hartford, Connecticut, Did Not Always Comply with Its Annual
           Contributions Contracts and HUD Regulations in Administering Its Housing
           Choice Voucher Program


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the City of Hartford, Connecticut’s (City) administration of its
             Housing Choice Voucher program (Voucher program) as part of our annual audit
             plan. Our overall audit objective was to determine whether the City properly
             administered its Voucher program in compliance with its annual contributions
             contracts and HUD regulations.


 What We Found


             The City generally administered its Voucher program in compliance with its
             annual contributions contracts and HUD regulations with regard to tenant
             eligibility requirements, properly calculating and supporting housing assistance
             payments, ensuring reasonable subsidized rents, and adequately using its
             authorized vouchers. However, we identified questioned costs and opportunities
             for funds to be put to better use totaling more than $2.4 million. Specifically,
           housing did not always meet minimum standards, the City continued to pay for
           housing with uncorrected housing quality standards deficiency violations, it could
           not support administrative fees charged, and it did not properly account for tenant
           fraud recoveries.

           Of the housing units we inspected, 47 percent did not meet minimum standards,
           and 27 percent had serious safety hazards. We estimate that the City may pay
           more than $1.5 million over the next year for units with material deficiencies if it
           does not monitor its contract inspectors and implement effective quality control
           procedures. In addition, rent payments were made when owners failed to correct
           deficiencies within required timeframes. If this condition is not corrected, we
           estimate that the City may pay more than $225,000 for housing with uncorrected
           deficiencies.

           The City could not support more than $623,000 in administrative fees charged to
           the program. It also did not properly account for and monitor tenant fraud
           recoveries due to inadequate accounting controls and oversight of its contract
           administrator. During the audit, the contractor implemented corrective actions,
           and we estimate that the City will now receive more than $17,000 in additional
           funds from HUD in 2009.


What We Recommend

           We recommend that the Director of HUD’s Boston Office of Public Housing
           require the City to (1) implement controls to ensure that housing units meet
           minimum housing quality standards and abate rents when units are not repaired
           within required timeframes; (2) implement a reasonable method for allocating
           salaries, benefits, and other costs to its Voucher program and repay the program
           for any unsupported costs; and (3) properly monitor, account for, and report
           tenant fraud recoveries to HUD.

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

Auditee’s Response


           We provided the City the draft report on November 19, 2008, and held an exit
           conference on November 24, 2008. The City generally concurred with our
           findings and recommendations. The complete text of the auditee’s response,
           along with our evaluation of that response, can be found in appendix B of this
           report.



                                             2
             TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding 1: The City Did Not Always Ensure That Its Housing Units Met         5
      Housing Quality Standards and Abate Rents When Required
      Finding 2: The City Could Not Support $623,229 in Costs Charged to the       9
      Voucher Program
      Finding 3: The City Did Not Account for and Report Tenant Fraud Recoveries   12
      in Accordance with HUD’s Regulations

Scope and Methodology                                                              15

Internal Controls                                                                  18

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               20
   B. Auditee Comments and OIG’s Evaluation                                        21
   C. Summary of Deficiencies Observed during Inspector General Housing            29
      Inspections
   D. Summary of Housing Units Not Abated When Required                            30




                                           3
                      BACKGROUND AND OBJECTIVES

The Housing Choice Voucher program (Voucher program) is the federal government’s major
program for helping very low-income families, the elderly, and the disabled to afford decent,
safe, and sanitary housing in the private market. Participants are free to choose any housing that
meets program requirements. Public housing agencies administer U.S. Department of Housing
and Urban Development (HUD)-funded vouchers, which pay a housing subsidy directly to the
landlord on behalf of the participating family. Public housing agencies also determine family
eligibility based on income and family size and determine the amount of tenant subsidy. The
agencies verify family income and composition and ensure that units meet minimum housing
quality standards annually.

The City of Hartford (City) received more than $32 million in Voucher program funds from HUD
to support more than 4,500 families during its fiscal year 2007. The City has contracted out the
day-to-day duties of its Voucher program and paid its contract administrator 93.25 percent of the
administrative fees the City received from HUD. The contractor’s duties include all major
program functions including lease-up, accounting for and administering rent subsidies, fraud
recoveries, housing inspections, complying with HUD’s requirements, and submitting required
reports to HUD. The City is responsible for program oversight, and to ensure the program is
administered according to the rules and regulations prescribed by HUD in accordance with its
annual contributions contract and 24 CFR (Code of Federal Regulations) Part 982.

Our overall audit objective was to determine whether the City properly administered its Voucher
program in compliance with its annual contributions contracts and HUD regulations. Our
specific audit objectives were to determine whether

   •   Tenants met eligibility requirements,

   •   Housing assistance payments were properly calculated and supported,

   •   Subsidized rents were reasonable,

   •    The City adequately used its authorized vouchers,

   •   Housing met minimum standards and rents were abated for units that did not meet the
       minimum housing standards,

   •    The City used Voucher program funds only for the program, and

   •   The City adequately monitored and accounted for tenant fraud recoveries.




                                                4
                                       RESULTS OF AUDIT

Finding 1: The City Did Not Always Ensure That Its Housing Units Met
Housing Quality Standards and Abate Rents When Required
Our review of 55 recently inspected housing units showed that 26 units did not meet minimum
standards. Of the 26 units that failed our inspections, 21 units were materially noncompliant
with housing quality standards, and 15 units had serious safety hazards. We estimate that the
City may pay more than $1.5 million over the next year for units with material deficiencies if it
does not establish effective management controls. In addition, our review showed that inspectors
did not always verify that life-threatening deficiencies were repaired within 24 hours and did not
abate more than $7,000 in rent for units that were not repaired within required timeframes.
These conditions occurred because the City failed to monitor its contract inspectors and ensure
that they complied with HUD’s requirements. We estimate that the City may avoid paying more
than $225,000 in housing costs for substandard housing during the next year if it abates rents for
noncompliant units when required.


    Housing Did Not Meet
    Minimum Standards


                  We conservatively selected and inspected a statistical sample of 55 housing units
                  from 717 recently inspected housing units.1 Our inspections showed that 26 units
                  were not compliant with HUD’s minimum housing standards and failed inspections
                  (see appendix C). In addition, 21 of the 26 units were materially noncompliant with
                  housing quality standards.

                  The housing units that were materially noncompliant had deficiencies that created
                  substantially unsafe and/or unsanitary tenant living conditions, including
                  nonfunctioning electrical safety devices, inoperable smoke detectors, infestations,
                  and broken windows. By contrast, those units that were not considered to be
                  materially deficient had deficiencies such as a broken electrical cover, baseboard
                  heaters separating from the wall, and a water-damaged common entryway ceiling
                  that was delaminating and coming down. These types of deficiencies resulted in
                  violations of HUD’s minimum housing standards but not to a high enough degree to
                  consider the units materially deficient.

                  In addition, we identified serious safety hazards at 27 percent (15 of 55) of the
                  units we inspected. The majority of units, 13 of 15, failed for inoperable ground
                  fault circuit interrupters near water sources, which posed life-threatening shock
                  hazards. This condition occurred because inspectors did not test these electrical

1
 The City’s contract inspectors inspected these 717 units within 90 days of our initial inspection on May 6, 2008,
and conduct over 4,500 inspections annually. We limited our universe to these recently inspected housing units.

                                                         5
                 circuits to ensure that they were installed and working properly. The other two
                 units failed for inoperable smoke detectors. One detector adjacent to a bedroom
                 was a carbon monoxide detector that the inspectors improperly signed off as an
                 operable smoke detector. The other deficient smoke detector was disconnected
                 from electricity and had a dead battery. As a result of our audit, the City revised
                 its administrative plan and added the requirement to test ground fault circuit
                 interrupters.

                 By projecting the 21 failed units in our sample to the 717 units in the universe, we
                 estimate that 200 of the 717 units may be materially noncompliant with HUD’s
                 housing quality standards. If corrective action is not taken, we estimated the City
                 may spend more than $1.5 million in the next 12 months on these 200 materially
                 noncompliant units.


 The Contractor Did Not Verify
 Life Threatening Deficiencies
 Were Repaired Within 24
 Hours

                 We also selected and reviewed a statistical sample of 44 tenant files from a
                 universe of 4,580 active tenants.2 This review showed that inspectors did not
                 always verify that life-threatening deficiencies were repaired within the required
                 24 hours. The contract inspectors identified inoperable smoke detectors in 14 of
                 the 44 housing units. Inspectors prepared letters requesting that owners sign and
                 return the letters to verify that the deficiencies were repaired within 24 hours.
                 However, the files showed that 5 of 14 owners did not certify that corrective
                 action was taken within 24 hours. In addition, logs documenting follow-up on
                 emergency repairs did not show that the repairs were completed within 24 hours.
                 By projecting the five deficient units in our sample to the universe of 4,580 units,
                 we estimate that at least 162 life-threatening safety hazards might not have been
                 verified as repaired within 24 hours.6 The contract administrator ultimately
                 verified that the smoke detectors were repaired, but not ensuring that the smoke
                 detectors were working properly within 24 hours put the family at great risk.
                 Quality control reports prepared by the contractor showed that it did not always
                 follow up on 24-hour violations adequately, and there was no evidence that the
                 City reviewed these reports or took corrective action.




4 As of April 2, 2008.

                                                   6
    The City Did Not Always Abate
    Payments

                 Federal regulations require prompt and vigorous action to abate payments for
                 housing that does not meet minimum quality standards and is not repaired within
                 the required period.3 Our review of 44 tenant files showed that inspectors
                 successfully identified deficiencies in 33 units and verified that 24 units were
                 repaired within the required period. However, they did not abate payments for
                 nine units that were not repaired or not verified as having been repaired within the
                 required period.4 Specifically, the contractor did not inspect or verify that smoke
                 detectors in five units were repaired before making the monthly rent payments.
                 The contractor inspected the other four units and verified that the repairs had not
                 been completed. The inspectors verified that these deficiencies were ultimately
                 repaired; however, they did not process $7,726 in required abatements for the nine
                 units (see appendix D). This condition occurred because the contractor did not
                 follow HUD’s requirements and was not detected because the City failed to
                 adequately monitor its contract inspectors and ensure that payments for
                 substandard units were abated when required.

                 Based on our sample showing that rents for nine units were not abated when
                 required, we determined that rents for at least 4815 units were not abated when
                 required. If corrective action is not taken, we estimate that the City may pay more
                 than $225,000 next year for deficient units that are not repaired within the
                 required period.


    The City Did Not Monitor Its
    Contract Inspectors


                 The City relied on its contract inspectors to monitor its housing inspection
                 program. However, the contractor’s quality control program limited inspections
                 to a sample of newly occupied units only6 and failed to verify the reliability of the
                 more than 4,500 annual housing inspections.7 The contractor’s limited quality
                 control inspection reports indicated problems with the inspection program when

3
  Payment is not authorized for units that fail to meet minimum standards unless the defect is repaired within the
period specified by the public housing agency and the agency verifies the correction. Life-threatening defects must
be corrected within 24 hours. Other defects must be corrected within 30 days or an agency-approved extension (24
CFR 982.404(a)(3)).
4
  During the 18-month period reviewed, January 1, 2007, through June 30, 2008.
5
  Of the total 4,580 program units.
6
  During the period August 2007 through February 2008.
7
  Quality control inspections should include a cross-section of initial and annual inspections according to the
Housing Choice Voucher Program Guidebook 7420.10G, indicator 5, HQS [housing quality standards] Quality
Control Inspections.
8
   Between July 1, 2005, and June 30, 2008.

                                                         7
             they showed that more than 27 percent of recently inspected units failed to meet
             minimum standards. Although the City received the contractor’s reports, we
             found no evidence that the City reviewed the contractor’s quality control reports,
             verified that they were accurate, questioned why annual inspections were not
             tested, or investigated the high failure rate.


Conclusion


             The City failed to monitor its contract inspectors and ensure that they complied
             with HUD’s requirements. As a result, tenants lived in units that did not meet
             minimum standards, safety devices to protect tenants from fire and electrical
             shock hazards did not operate properly, and the City paid for housing that did not
             meet minimum standards. Unless the City corrects these deficiencies, it will
             incorrectly pay more than $1.5 million for substandard housing and fail to abate
             units with uncorrected deficiencies.


 Recommendations



             We recommend that the Director of HUD’s Boston Office of Public Housing
             require the City to

             1A.    Certify, along with the owners of the 26 program units cited in this
                    finding, that the applicable housing quality standards violations have been
                    corrected.

             1B.    Develop and implement adequate procedures and controls, including
                    improving use of quality control inspection reports, to ensure that all units
                    meet HUD’s housing quality standards and prevent $1,531,200 in program
                    funds from being spent over the next year on units that are in material
                    noncompliance with the standards.

             1C.    Implement controls to ensure that units with deficiencies that are required
                    to be repaired in 24 hours are repaired and the repairs are verified.

             1D.    Repay its Voucher program $7,726 from nonfederal funds for units that
                    remained in noncompliance with housing quality standards and were not
                    abated when required.

             1E.    Implement controls to ensure that housing assistance payments are abated
                    when required to avoid paying $225,044 in housing assistance on units
                    with violations that are not corrected timely over the next year.

                                              8
                                       RESULTS OF AUDIT

Finding 2: The City Could Not Support $623,229 in Costs Charged to
the Voucher Program
The City received more than $12 million to administer its Voucher program during the period
July 1, 2005, through June 30, 2008. The City paid the majority of these costs to its contract
administrators for eligible program costs. However, it could not provide sufficient
documentation to support more than $623,000 that it charged the program for salaries, benefits,
and indirect costs. This condition occurred due to weak accounting controls and the lack of
supporting records. As a result, the Voucher program’s administrative reserve account may be
understated, and these funds may not be available for future expenses or to house additional
families. The City recognized that its procedures and records required improvement and hired a
certified public accountant to improve its record-keeping procedures.



    Contractor Costs Were Eligible
    Program Costs


                  City staff spent the majority of their time on other programs and relied on the
                  contract administrator to manage the City’s Voucher program. The contractor’s
                  duties included all major program functions including lease-up, accounting for and
                  administering rent subsidies, fraud recoveries, housing inspections, complying with
                  HUD’s requirements, and submitting required reports to HUD. The City paid the
                  contractor the majority of the $12 million that HUD provided to administer the
                  program.8 We determined that these payments were eligible program costs.


    The City Could Not Support the
    Costs It Charged to the
    Program


                  The City could not support its method of charging its Voucher program for its
                  salaries and other indirect costs. This condition occurred due to weak accounting
                  controls and the lack of supporting records. Federal regulations and the City’s
                  contract with HUD9 require the City to maintain records to support all program



8
    Between July 1, 2005, and June 30, 2008.
9
    24 CFR 982.152 and the City’s annual contributions contract, HUD Form 52520.

                                                        9
                  costs10 and to use program funds only for the program. Although City staff
                  maintained time cards to record the amount of time they spent on various projects,
                  the City did not use the time cards or any other reasonable method for
                  determining the amount of salary and benefit costs attributed to its Voucher
                  program and did not have a method for identifying indirect costs incurred to
                  manage the program. As a result, the City could not show that it incurred the
                  $623,229 in costs charged to the Voucher program.11

                  The City agreed to establish an auditable method for supporting the salaries and
                  indirect costs charged to the program and hired a certified public accountant to
                  update its central service cost allocation plan and departmental indirect cost plan
                  to serve as a basis for determining the total administrative fees earned by the City.
                  The expected delivery date was May of 2008; however, the plan had not been
                  completed by the end of our audit.


     The City Had $7,681 in
     Administrative Reserves

                  HUD requires program administrators to maintain an administrative fee reserve
                  account. When the amount of funds HUD provides for program administration
                  exceeds the amount required to administer the program, the excess funds must be
                  credited to the reserve account.12 The excess funds in the reserve account provide
                  a buffer that may be used when additional funds are needed to administer the
                  program. In addition, the reserve may be used to subsidize families’ rent
                  payments. Although the City received more than $12 million to administer its
                  Voucher program during the last three years, it only maintained $7,681 in its
                  administrative fee reserve account.



     Conclusion


                  The City did not maintain adequate records to support more than $623,000 in
                  administrative costs charged to its Voucher program. As a result, the Voucher
                  program’s administrative reserve account may be understated, and funds may not
                  be available for future expenses or to house additional families. Also, the City
                  failed to maintain adequate reserves in its administrative fee reserve account

10
   Records must be kept for at least three years, 24 CFR 982.158 and the annual contributions contract, section 14,
page 3.
11
   Between July 1, 2005, and June 30, 2008.
12
   The City must credit to its administrative fee reserve at fiscal year-end (1) the amount by which administrative
fees paid by HUD exceed the City’s administrative expenses plus (2) interest earned on the administrative fee
reserve (24 CFR 982.155).

                                                         10
          should its expenses exceed the amount HUD provides to fund the Voucher
          program.


Recommendations



          We recommend that the Director of the HUD’s Boston Office of Public Housing
          require the City to

          2A.     Provide supporting documentation to show that $623,229 in costs was
                  properly chargeable to its Voucher program or repay from nonfederal
                  funds any unsupported costs to its administrative reserve account.

          2B.     Develop, document, and implement a reasonable method for allocating
                  salaries and benefits and other costs to its Voucher program.




                                         11
                                   RESULTS OF AUDIT

Finding 3: The City Did Not Account for and Report Tenant Fraud
Recoveries in Accordance with HUD’s Regulations
 The contract administrator collected and returned more than $452,000 in fraud recoveries to the
Voucher program.13 However, the funds were not properly reported, which caused an
understatement of housing assistance payments and a reduction in funds that the City received in
2008. This condition occurred because the City lacked oversight and the contract administrator
had improper accounting procedures. The City is now correctly reporting housing assistance
payments and tenant fraud recoveries to HUD, and the Voucher program should receive an
additional $17,649 in calendar year 2009.



     The City Did Not Report
     Tenant Fraud Recoveries


                Tenant fraud recoveries can include a number of situations, perhaps the most
                common being the underreporting of tenant income, which result in an
                overpayment of housing assistance to owners. When this fraud is discovered, the
                public housing agency may pursue the tenant for repayment of the funds. These
                repayments are referred to as fraud recoveries. HUD regulations, directives,
                guidebooks, and user manuals provide policies and procedures for accounting for
                and reporting tenant fraud recoveries.14

                The contract administrator identified, collected, and returned more than $452,000 in
                tenant fraud recoveries to the program. However, the City lacked policies and
                procedures for accounting for and monitoring tenant fraud recoveries collected by its
                contract administrator. Consequently, it did not know how much each tenant owed,
                the nature of the repayment, or the terms of repayment agreements. Further, the City
                lacked awareness of how fraud recoveries were paid, tracked, or reconciled by its
                contract administrator. As result, the contractor continued to not report fraud
                recoveries on Voucher Management System reports and financial data schedules
                provided to HUD.




13
   During our audit period July 2005 through September 2008.
14
   24 CFR Part 792; HUD directive PIH [Public and Indian Housing] 2006-3; HUD’s Housing Choice Voucher
Program Guidebook 7420-10G, chapter 20-9; Voucher Management System Users Manual.
15
   $8,779 = $125,216 - $116,436.

                                                   12
     Improper Accounting Led to
     Reduced Program Funding

                   HUD calculates the amount of housing assistance payment funds provided to
                   agencies by multiplying the previous year’s housing assistance payments by an
                   annual adjustment factor. However, the contractor understated the City’s 2007
                   housing assistance payments by $116,000 in the Voucher Management System
                   because it subtracted the fraud recovery funds from the housing assistance
                   payments requested. This error resulted in HUD’s reducing the City’s 2008
                   funding by more than $125,000. As a result, the City’s program net funds were
                   reduced by $8,779 in 2008.15 In addition, if the City fails to ensure that its 2008
                   housing assistance payments are properly reported to HUD, its net funding will be
                   reduced by more than $17,000 in calendar year 2009 as calculated in the
                   following table.

                                                                              Actual       Projected
                      Description                                             2008           2009
                    Unreported fraud recoveries                                 $116,436      $234,069
                    Times annual adjustment factor                                 106%          106%
                    Times proration factor                                     101.453%      101.453%
                    Amount of reduced annual housing assistance funding         $125,215      $251,719
                    Offset due to returning fraud recoveries to the program   $(116,436)    $(234,069)
                    by reducing the amount of housing assistance expenses
                    Net reduction In funds available to house families          $8,779        $17,649




     Conclusion


                   Lack of reporting and improper accounting procedures for tenant fraud recoveries
                   caused Voucher Management System reports to be understated and resulted in
                   reduced funds to the City to house low-income families. In addition, the City’s
                   lack of oversight provided no assurance that fraud recoveries collected by its
                   contractor would be properly accounted for, reported to HUD, and returned to the
                   program in the future.




15
     $8,779 = $125,216 - $116,436.

                                                     13
Recommendations


          We recommend that the Director of HUD’s Boston Office of Public Housing
          require the City to

          3A.     Implement policies and procedures to properly monitor, account for, and
                  report tenant fraud recoveries, thereby resulting in additional program
                  funding totaling $17,649 for fiscal year 2009.




                                          14
                         SCOPE AND METHODOLOGY

We conducted our audit between March and October 2008. We completed our fieldwork at the
City’s offices located at 250 Constitution Plaza in Hartford, Connecticut, the City’s contract
administrator’s offices, and various housing units selected for review. Our audit covered the period
July 1, 2005, through June 30, 2008, and was extended when necessary to meet our audit objectives.

To accomplish our audit objectives, we

   •   Reviewed relevant HUD regulations, including 24 CFR Part 982 and the Housing Choice
       Voucher Guidebook 7420.10.G.

   •   Interviewed City staff and its contract administrators to determine what controls were in
       place to ensure compliance with HUD’s requirements.

   •   Inspected a statistical sample of 55 housing units and recorded and summarized the
       inspection results (see details below).

   •   Reviewed a statistical sample of 44 tenant files to obtain the results of inspections and
       determine whether the City performed adequate follow-up and abated rents for units that
       did not meet minimum housing standards (see details below).

   •   Reviewed 100 percent of the City’s contractor’s quality control housing inspections
       completed between August 2007 and February 2008 to identify problematic areas and
       determine whether the reviews included a cross-section of initial and annual inspections.

   •   Interviewed City staff and officials and reviewed documentation to determine whether
       the City could support the amount of administrative costs charged to the program.

   •   Interviewed the City’s staff and contract administrator and reviewed documentation to
       determine whether the City adequately monitored and accounted for tenant fraud
       recoveries.

To test and evaluate our results we selected two statistical samples:

1. We selected a sample of recently inspected housing units to determine whether they met
   HUDs’ housing quality standards. We evaluated units materially noncompliant that had a
   life-threatening deficiency such as an inoperable smoke detector or ground fault circuit
   interrupter, a serious safety hazard such as broken glass, or a serious health hazard such as
   rodent or roach infestation. We evaluated units with other deficiencies that did not meet
   HUD’s minimum requirements as deficient. We ranked units as materially noncompliant,
   deficient, or compliant with HUD’s requirements.

   We selected a statistical sample of 55 of the City’s subsidized units to inspect. The sample
   was based on the 717 inspections conducted by the City’s contract administrators during the
                                                15
   period February 6 through May 6, 2008. We obtained the sample based on a confidence
   level of 90 percent, a precision level of 10 percent, and an assumed error rate of 67 percent.
   We used 67 percent as our presumed error rate based on our initial sample results.

   We inspected the sample of 55 units and determined that 26 of the 55 units were deficient.
   Further, we determined that the 21 units were in material noncompliance due to unsafe or
   unsanitary living conditions. Projecting the results of the 21 units that were in material
   noncompliance with housing quality standards to the universe indicated that 200 (rounded
   up) or 27.83 percent of the 717 units contained the attributes tested. The sampling error was
   plus or minus 10.35 percent. Therefore, we are 90 percent confident that the frequency of
   occurrence of the attributes tested lies between 27.83 and 48.54 percent of the universe. This
   equates to an occurrence of between 200 and 348.

   •   The lower limit is 27.83 percent of 717 units = 200 units in material noncompliance with
       minimum housing quality standards (rounded up).

   •   The point estimate is 38.18 percent of 717 units = 274 units in material noncompliance
       with minimum housing quality standards.

   •   The upper limit is 48.54 percent of 717 units = 348 units in material noncompliance with
       minimum housing quality standards.

   By conservatively using the lower limit and the average annual housing assistance payments
   for all housing choice vouchers for the period January 2007 through March of 2008, we
   estimate that the City will spend $1,531,200 (200 units x $7,656 average housing assistance
   payment within the next 12 months) for units that are in material noncompliance with
   housing quality standards.

2. We selected a statistical sample of 44 of the City’s program vouchers and the associated
   tenant files to determine whether the City abated rents for units that did not meet the
   minimum housing standards. The sample was based on the 4,580 vouchers and related
   housing units administered by the City as of April 2, 2008. We obtained the sample based on
   a confidence level of 90 percent, a precision level of 10 percent, and an assumed error rate of
   21 percent. We used 21 percent as our presumed error rate based on our initial sample
   results.

   We reviewed documentation generated between January 1, 2007, and June 30, 2008. We
   inspected the sample of 44 tenant files and determined that 9 of the 44 units were deficient.
   Projecting the results of the nine units that were not abated when required to the universe
   indicated that 481 or 10.5 percent of the 4,580 units contained the attributes tested. The
   sampling error was plus or minus 9.95 percent. Therefore, we are 90 percent confident that
   the frequency of occurrence of the attributes tested lies between 10.5 and 30.41 percent of the
   universe. This equates to an occurrence of between 481 and 1,393.




                                               16
   •   The lower limit is 10.5 percent of 4,580 units = 481 units in material noncompliance with
       minimum housing quality standards.

   •   The point estimate is 20.45 percent of 4,580 units = 936 units in material noncompliance
       with minimum housing quality standards.

   •   The upper limit is 30.41 percent of 4,580 units = 1,393 units in material noncompliance
       with minimum housing quality standards.

   By conservatively using the lower limit, the average monthly housing assistance payments
   for all housing choice vouchers between January 2007 and March 2008, and the average
   period rents were not abated from our sample, we estimated that the City may spend at least
   $225,044 within the next 12 months for units that should have been abated as follows:

        481 Estimated units that were not abated when required
   x    $638 Average monthly housing assistance payment (payments)
   x    1.10 Average number of months payments were not abated (actual from sample)
   $337,566 Projected payments that were unabated for 18-month period (January 1, 2007-
             June 30, 2008)

   $225,044 Projected unabated annual housing payments (12/18 months x $337,566)

We performed our review 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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective(s).




                                               17
                              INTERNAL CONTROLS

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

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.
   •   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:

              •       Controls over housing quality standards and housing inspections.

              •       Controls over accounting and maintaining adequate support for
                      administrative expenses charged to the program.

              •       Controls over monitoring the contract administrator’s performance and
                      adequately accounting for and reporting tenant fraud recoveries.

              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:

              •       Controls over housing inspections and inspection reports did not ensure that
                      housing units met minimum standards, exigent conditions were verified as
                                               18
    having been repaired within 24 hours, and rents were abated when units were
    not repaired within the required timeframes (see finding 1).

•   Procedures to properly allocate costs to the program were insufficient (see
    finding 2).

•   Accounting controls did not ensure that tenant fraud recoveries were
    accounted for and reported in accordance with HUD’s requirements (see
    finding 3).

•   Controls over the City’s contract administrator did not ensure that the
    program met all of HUD’s requirements and adequately accounted for and
    reported tenant fraud recoveries (see findings 1 and 3).




                             19
                                        APPENDIXES

Appendix A

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

The audit identified questioned costs and funds to be put to better use totaling $2,404,848 as
follows:

 Recommendation              Ineligible 1/    Unsupported 2/        Funds to be put to better
        number                                                                         use 3/
            1A                                                                   $1,531,200
            1B                    $7,726
            1C                                                                      $225,044
            2A                                        $623,229
            3A                                                                       $17,649

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

2/     Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
       or activity when we cannot determine eligibility at the time of the audit. Unsupported
       costs require a decision by HUD program officials. This decision, in addition to
       obtaining supporting documentation, might involve a legal interpretation or clarification
       of departmental policies and procedures.

3/     Recommendations that funds be put to better use are estimates of amounts that could be
       used more efficiently if an Office of Inspector General (OIG) recommendation is
       implemented. These amounts include 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 that are specifically identified. Specifically, the $1,531,200 is based on
       the estimated 200 units in material noncompliance with minimum housing quality
       standards and represents the annual amount of funds that could be put to better use on
       decent, safe, and sanitary housing if the City implements our recommendation; the
       $225,044 is based on the 481units that we estimated were not abated when required and
       represents the annual amount in payments the City may avoid if it implements our
       recommendation and abates rents when required; and the $17,649 is the net increase in
       program funds that will be available to administer the program in 2009 if the City
       properly accounts for and reports tenant fraud recoveries.



                                                 20
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         21
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2

Comment 2




                         22
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2


Comment 3



Comment 2


Comment 4


Comment 4


Comment 2




                         23
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 5




                         24
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         25
                       OIG Evaluation of Auditee Comments

Comment 1   The results are not misrepresentative and identify violations according to
            HUD regulation and guidance. The auditee’s statement that the report
            extrapolates our results to the entire population is inaccurate and misleading.
            In fact, we reported on only 717 of the more than 4,500 inspections the auditee
            conducts each year. As the auditee states, more than 50% of units failed for
            faulty ground fault circuits. Had we extrapolated our results to the entire
            population the number of units with exigent electrical safety hazards would be
            even more egregious.

            In addition, the report factually identifies units that were not compliant. We
            agree the report does not separate between pre-existing violations, post-
            inspection deficiencies, or tenant-caused violations, but it was not our
            intention to report these distinctions. This is because HUD regulations require
            that units comply with the HQS regardless of when the deficiency occurred or
            who was responsible.

            We acknowledge that it is not possible to verify with certainty whether a
            deficiency was present during the previous inspection unless a quality control
            inspection is conducted immediately after the inspection under review.
            However, HUD requires administrators to conduct quality controls inspections
            within 90 days of the initial inspection. The majority of our inspections that
            cited deficiencies were conducted within the 90 period. Therefore, we
            maintain that our results are representative of the condition of the universe of
            leased housing units.

            The finding is not unbalanced and we disagree the finding unreasonably held
            the City and its inspectors accountable. The fact is that 50 percent of the units
            failed for inoperable ground fault circuit interrupters the inspectors failed to
            test. The failure to identify and correct this significant amount of potential life
            threatening electrical hazards alone supports our audit finding and requires
            immediate corrective action. Furthermore, identifying and correcting these
            hazards was clearly not beyond the inspectors' control as stated in the auditee's
            response as evidenced by the City's agreement to take prompt corrective
            action and test these circuits in the future.




                                           26
                       OIG Evaluation of Auditee Comments



Comment 2   We agree that the deficiencies cited for VQ-1758, VXF-468, VQ-2523, VXG-
            455, VN-67, and VQ-660 may have been tenant caused or have occurred after
            the auditee’s initial inspection. However, HUD regulations require that units
            comply with the HQS regardless of when the deficiency occurred or who was
            responsible. Thus, the report identifies these units as not compliant.

Comment 3   We reported this unit as noncompliant due to several bathroom deficiencies,
            including the (1) wash basin was leaking from trap, (2) baseboard heater was
            not secured to the wall, and (3) access to the window was blocked by a
            temporary wall. Although we did not classify the unit as materially
            noncompliant, it clearly did not meet HQS.

Comment 4   These units had an inoperable ground fault circuit interrupters the inspectors
            did not test and thus were materially noncompliant. See comment 2 for our
            response regarding post inspection deficiencies.

Comment 5   The auditee’s argument that the installation of ground fault circuit
            interrupters is not required by HUD is separate and distinct from the
            deficiency we reported that the ground fault circuit interrupters were not
            being tested when they were installed.

            It is common sense that ground fault circuit interrupters should be in proper
            working order. The very reason they were installed was to protect against
            life threatening electrical shocks. To state they did not test ground fault
            circuit interrupters because HUD did not specifically instruct them to; and
            to suggest that testing ground fault circuit interrupters required a higher
            standard of care than HUD required is inaccurate and disingenuous. Quite
            simply, this is a safety and compliance issue that the inspectors and City
            had missed and the City has agreed to correct. Specifically, we cite the
            following HUD Regulations and guidance;

               •   HUD Regulations for the Housing choice Voucher program at 24
                   CFR 982.401 par. (f) (2) (ii) and (III), require that electrical
                   installations must be "in proper operating condition". An inoperable
                   ground fault circuit interrupter clearly is not "in proper operating
                   condition" and testing ground fault circuit interrupter is the method
                   to ensure compliance with this requirement.




                                          27
                   OIG Evaluation of Auditee Comments


Comment 5   •   HUD's Inspection Form 52580a items 3.3, Electrical Hazards, states
                "In addition to the previously mentioned hazards, outlets that are
                located where water might splash or collect are considered an electrical
                hazard." Although the inspection form does not specifically cite that
                ground fault circuit interrupters must be tested; testing these circuits
                near water sources is clearly the only way to ensure that they are
                operating safely.

            •   HUD’S Housing Choice Voucher Guidebook also states; “The PHA
                must be satisfied that the electrical system is free of hazardous
                conditions, including: exposed, uninsulated, or frayed wires, improper
                connections, improper insulation or grounding of any component of
                the system, overloading of capacity, or wires lying in or located near
                standing water or other unsafe places.”(HUD HCVP Guidebook
                7420.10 Chap 10.3, Performance Requirements and Acceptability
                Standards, Illumination and Electricity. Once again, although HUD
                did not specifically cite ground fault circuit interrupters it is clear in
                   OIG
                order    Evaluation
                      to be            of Auditee
                            satisfied the electricalComments
                                                     system is free of hazardous
                conditions inspectors should test GFCI’s near water sources.




                   OIG Evaluation of Auditee Comments

                   OIG Evaluation of Auditee Comments




                                       28
Appendix C

            SUMMARY OF DEFICIENCIES OBSERVED DURING INSPECTOR GENERAL
                               HOUSING INSPECTIONS


                                    Materially
                          non-        non-                                     Other                                                   Entry                                 Ceiling
                        compliant   compliant     Exigent          Smoke     electrical   Infest-   Broken                 Chipping     trip                                  and      Plumbing   Internal
 Test #     Voucher #   with HQS    with HQS     condition GFCI   detector    hazards      ation     glass Mold    Stove    paint     hazards   Windows   Heating Lighting    walls      leaks     doors     Other
   1         VQ-2020        1           1                                                              1                       1          1                           1         1                              1
   2         VQ-2570        1           1           1       1                    1                                  1
   3         VQ-2456        1           1           1       1                                                                                      1                  1                                       1
   4         VQ-1087        1           1           1                1                                         1                                                      1
   5         VQ-1669        1           1           1       1                                                                                                                                                 1
   7         VQ-2995        1           1           1       1        1                      1                       1                                                                                         5
   9          VM-49#        1           1                            1                      1                  1              1                    1                           1                              1
  10         VQ-2451        1           1           1       1
  11         MB-1299        1           1           1       1        1                      1                  1                                                                                              1
  13          VXV-5*        1           1                                                             1                       1                                       1                                       2
  14         VXF-468        1                                                                                                                                                   1
  15         VQ-2232        1           1           1                1
  16         VXG-600*       1           1           1       1        1                                                                  1          1
  19          VXN-27        1           1           1       1
  21         VQ-2204        1           1           1       1                               1                                                                                                                 1
  22         VQ-3005        1           1                                        1
  24         VQ-2334        1           1                                                   1                                                      1        1                                        1        1
  28          PO-599        1           1                                                                                               1
  30          VQ-496        1           1           1       1                    1                    1                                            1                  1                              1
  32         VXG-455        1                                                    1
  33           VN-67        1           1           1       1                                         1             1                                                 1
  34         VQ-2544        1                                                                                                           1                   1
  39         VQ-1758        1                                                                                                                      1
  40          VQ-660        1           1           1       1                                                                                                                             1
  41           VH-93        1           1           1       1
  42         VQ-2523        1                                                                                                                      1        1                             1
          Totals           26          21           15     13        6           4          5         4        3     3        3         4          7        3         6        3          2          2        14




Abbreviations
HQS - Housing Quality Standards
GFCI – ground fault circuit interrupter




                                                                                                          29
Appendix D

      SUMMARY OF HOUSING UNITS NOT ABATED WHEN
                     REQUIRED



                        Date         Date passed           Required       Amount         Amount
       Voucher         failed                              abatement      abated        not abated
        VXW-18      Apr. 20, 2007    June 22, 2007         $      1,014   $         -   $           1,014
        VXQ-83      Aug. 1, 2007     Sept. 25, 2007        $        330   $         -   $             330
         MD-55      May 21, 2007     July 24, 2007         $        586   $         -   $             586
                      Aug. 15,
        VXJ-179         2007         Sept. 14, 2007        $        232   $         -       $         232
        VQ-2383      Dec. 3, 2007   Lease terminated       $      6,480   $     3,240   $           3,240
        VQ-335      Dec. 20, 2007    Jan. 17, 2008         $        433   $         -   $             433
        VXT-13      June 19, 2007    Aug. 10, 2007         $        255   $         -   $             255
        VQ-493      June 19, 2007    Aug. 14, 2007         $      1,213   $         -   $           1,213
        HP-227      Dec. 31, 2007    Feb. 26, 2008         $        423   $         -   $             423
        Total                                                  $ 10,966       $ 3,240           $   7,726

Note – Although two units were repaired within 30 days, VXJ-179 VQ-335, these units required
abatement because the contractor did not verify that smoke detectors, requiring repair within 24
hours, were repaired prior to making the monthly housing assistance payment to the owner.




                                                      30