oversight

The State of Connecticut Department of Social Services Did Not Always Properly Determine or Support Tenant Eligibility and Rent Calculations for the Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-04-08.

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

                                                                 Issue Date
                                                                          April 8, 2009
                                                                 Audit Report Number
                                                                              2009-BO-1005




TO:         Donna J. Ayala, Director, Office of Public Housing, Boston Hub, 1APH


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


SUBJECT: The State of Connecticut Department of Social Services Did Not Always
           Properly Determine or Support Tenant Eligibility and Rent Calculations for
           the Housing Choice Voucher Program


                                   HIGHLIGHTS

 What We Audited and Why

             We initiated this audit as part of our annual audit plan to determine whether the
             State of Connecticut Department of Social Services (agency) properly
             administered its Housing Choice Voucher program (Voucher program) in
             compliance with its annual contributions contracts and U.S. Department of
             Housing and Urban Development (HUD) regulations. Our objectives focused on
             whether tenant eligibility, rent determinations, and annual reexaminations were
             performed in accordance with HUD requirements and the associated housing
             assistance payments were adequately supported. This is the second of three
             planned audit reports issued regarding the agency’s Voucher program.


 What We Found


             The agency did not comply with HUD requirements in the administration of its
             Voucher program. Specifically, our review of 66 tenant files found that the
             agency’s contractor did not adequately support tenant eligibility, properly
                   calculate rent payments, or always perform timely annual reexaminations for 49
                   of the tenants. As a result of these errors, the agency paid $194,821 in
                   unsupported rent and $31,971 in overpaid rent and underpaid $9,269 in rent to
                   landlords and limited-income households1 for these 49 tenant files. Based on our
                   testing, we estimate that errors may exist in 74 percent (or 4,558) of the 6,139
                   files in our universe.


    What We Recommend


                   We recommend that the Public Housing Program Center Coordinator require the
                   agency to support or reimburse its program $194,821 for unsupported rent
                   payments, reimburse its program $31,971 for ineligible rent payments, reimburse
                   $9,269 for rent underpayments to tenants and landlords, and implement a
                   corrective action plan.

                   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 agency the draft report on March 19, 2009, and held an exit
                   conference on March 24, 2009. The agency agreed with our findings and
                   recommendations.

                   We received the agency’s response on March 31, 2009. The complete text of the
                   auditee’s response, along with our evaluation of that response, can be found in
                   appendix B of this report.




1
    This amount includes housing assistance payments and utility reimbursements.

                                                          2
                            TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding 1: The Agency Did Not Always Properly Determine or Support Tenant   5
      Eligibility and Rent Calculations in Accordance with HUD Requirements

Scope and Methodology                                                             12

Internal Controls                                                                 14

Appendixes
   A. Schedule of Questioned Costs                                                16
   B. Auditee Comments and OIG’s Evaluation                                       17
   C. Schedule of Errors Found in 49 of the 66 Files                              20




                                             3
                      BACKGROUND AND OBJECTIVES


The State of Connecticut Department of Social Services (agency) provides a broad range of
services to the elderly; persons with disabilities; families; and individuals who need assistance in
maintaining or achieving their full potential for self-direction, self-reliance, and independent
living. The agency is designated as a public housing authority for the purpose of administering
the Section 8 program under the Federal Housing Act. It is headed by the commissioner of
social services, and there are deputy commissioners for administration and programs. There is a
regional administrator responsible for each of the three service regions. By statute, there is a
statewide advisory council to the commissioner, and each region must have a regional advisory
council. The agency administers most of its programs through offices located throughout the
state.

The agency’s Housing Services Unit oversees the Section 8 Housing Choice Voucher program
(Voucher program), as well as its Rental Assistance, Transitionary Rental Assistance, and
Security Deposit Guarantee programs. The agency receives Voucher program funding from the
U.S. Department of Housing and Urban Development (HUD). It received more than $107
million in Voucher program funding from July 1, 2006, through August, 2008. It also earned
more than $8.6 million in administrative fees for the same period.

The agency’s Voucher program is a statewide program. The agency contracts the administration
of its Voucher program to J. D’Amelia & Associates, LLC. J. D’Amelia & Associates, LLC,
subcontracts operation of the Voucher program throughout Connecticut to seven local public
housing authorities and one community action organization.

The agency must operate its Voucher program according to rules and regulations prescribed by
HUD in accordance with the United States Housing Act of 1937, as amended, and its annual
contributions contract.

Our objectives were to determine whether tenant eligibility, rent determinations, and annual
reexaminations were performed in accordance with HUD requirements and, accordingly,
whether the associated housing assistance payments were adequately supported.




                                                 4
                                        RESULTS OF AUDIT

Finding 1: The Agency Did Not Always Properly Determine or Support
Tenant Eligibility and Rent Calculations in Accordance with HUD
Requirements
The agency did not always comply with HUD requirements in the administration of its Voucher
program. Specifically, it did not ensure that its contractor adequately supported tenant eligibility,
properly calculated rent payments, and/or performed timely annual reexaminations in 74 percent
of the files reviewed.2 The agency’s contractor also did not always upload annual
reexaminations and interim adjustments to HUD’s Public and Indian Housing Information
Center system (HUD’s system).3 These conditions occurred because the agency’s’ contractor
and subcontractors did not consistently follow established procedures. Additionally, high staff
turnover at the subcontractor offices and not enough adequately trained staff may have
contributed to the errors. Further, the agency and its contractor did not have an adequate quality
control process in place to consistently detect and correct these errors. However, even when its
own monitoring showed a substantial number of errors, the agency did not enforce contract
provisions and levy penalties for substandard performance. As a result of the errors identified,
the agency paid $194,821 in unsupported rent and $31,971 in overpaid rent for the tenant files
reviewed. In addition, it underpaid $9,269 in rent to landlords and limited-income households.4


    Tenant Files Sampled
    Contained Errors


                  We reviewed a statistical sample of 66 tenant files. For 49 of the tenant files, the
                  agency did not have adequate documentation in the file to support the tenant’s
                  eligibility, improperly calculated rent payments, and/or failed to conduct timely
                  annual reexaminations. Projecting these results to the universe of tenants
                  indicates that as many as 4,558 tenant files may have contained similar errors.

                  Our sample included housing assistance payments made from November 1, 2006,
                  to October 31, 2008.5 We identified the following types of errors during our
                  reviews:

                       •   Tenant eligibility was not adequately documented (eight files).


2
  Of the 66 tenant files reviewed, 49 contained errors, with some files having multiple errors. The projected results
to the universe of tenants indicate that 4,558 of Social Services’ 6,139 tenant files may have contained similar errors.
3
  These errors were not included in the projection.
4
  This amount includes housing assistance payments and utility reimbursements.
5
  Not all file reviews covered this entire period due to different recertification dates for each tenant. In most cases,
we reviewed multiple calculations including recertifications and interim adjustments.

                                                           5
                      •    Rent determinations and utility reimbursements were not properly
                           calculated and/or supported (45 files).
                      •    Annual reexaminations were not performed in a timely manner. (13 files)

                  See appendix C for errors identified for our sample.6

    Tenant Eligibility Was Not
    Adequately Supported


                  Tenant eligibility was not always adequately supported. The agency required that
                  Social Security cards and birth certificate be provided as well as a declaration of
                  citizenship by the tenant. However, the required documentation was not in 8 of
                  the 66 files reviewed. See appendix C for errors identified for our sample.

                  In 39 of the tenant files, there was inadequate documentation to show that the
                  contractor performed a criminal background check for each adult household
                  member. However, the agency’s administrative plan did not state how the
                  criminal background checks would be documented once they were destroyed after
                  the initial certification. The agency’s contractor performed and provided new
                  criminal background checks and was also able to support eligibility for 64 of the
                  66 tenants at the time of initial admission to the Voucher program through the
                  new criminal background checks. However, two tenants and/or their household
                  members were not eligible to participate in the Voucher program at initial
                  admission . As a result of our audit, the agency’s contractor initiated a new
                  procedure for consistently documenting that background checks were performed
                  as required by HUD regulations.


    Rents Were Not Properly
    Calculated and/or Supported

                  Our review disclosed 45 tenant files with incorrect and/or unsupported rent
                  determinations. These errors included

                      •    Incorrect payment standards,
                      •    Incorrect calculations of income,
                      •    Incorrect utility allowances,
                      •    Incorrect and/or unsupported deductions to income,
                      •    Inadequate documentation to justify a larger voucher size than allowed,
                           and
                      •    Missing housing assistance payments contracts.


6
 Total files with errors were 51; however, we did not include two files with an error in our computation since there
was no impact on the rent calculation. Total errors in our finding were 49.

                                                          6
                    In some instances, incorrect payment standards or incorrect utility allowances
                    were used; however, they did not affect the rent calculations.7 Also, the
                    subcontractor staff did not adequately follow up when there were discrepancies
                    with tenant or third-party documentation, and exceptions made by contractor
                    and/or subcontractor staffs were not always documented. See appendix C for
                    errors identified for our sample.


    Annual Reexaminations Were
    Performed Late

                    Annual reexaminations were performed late for 13 of the 66 tenant files reviewed.
                    In some cases, annual reexaminations were more than five months late. This
                    condition generally occurred due to insufficient staffing and an inadequate
                    recertification process at one of the subcontractor offices. This subcontractor had
                    its Section 8 assistant

                        •    Scheduling annual reexaminations and inspections;
                        •    Obtaining recertification documents from the tenants, landlords, and third
                             parties;
                        •    Tracking missing documents;
                        •    Interviewing all tenants;
                        •    Performing quality control reviews; and
                        •    Obtaining various reports such as U.S. Department of Labor reports and
                             Enterprise Income Verification system reports for all Voucher program
                             tenants and for its state programs.

                    Before June 2008, there were two individuals performing this function. The staff
                    would then enter the information into the computer system and contact tenants or
                    landlords if they had questions regarding the information.

                    As a result of this process, by the time the staff entered the information into the
                    computer system, the annual reexaminations were late. In some cases, the
                    supporting documentation used for the annual reexaminations was more than 120
                    days old. For example, one annual reexamination due in November 2006 was not
                    completed until May 2007 and was effective June 1, 2007. The supporting
                    documentation obtained for the recertification, such as the personal declaration,
                    bank verifications, and income documentation was dated July 2006, almost a full
                    year earlier. See appendix C for errors identified for our sample.




7
    We considered these to be errors; however, we did not include them in the computation of errors.

                                                           7
Annual Reexaminations and
Interim Adjustments Were Not
Always Noted in HUD’s System

           In 31 tenant files reviewed, the agency did not upload the annual reexaminations
           and/or interim adjustments to HUD’s system. In many instances, multiple annual
           reexaminations and/or interim adjustments were not uploaded to the system. The
           contractor stated that its subcontractors had contracts with the software company
           to upload the HUD system data. If there were any errors when the information
           was uploaded and the information was rejected by HUD’s system, the software
           company was responsible for notifying the subcontractors. The subcontractors
           would then make the corrections and resubmit the information to HUD’s system.
           However, this process did not always take place. Also, because the contractor’s
           computer software did not maintain historical data, if the annual reexamination
           and/or interim adjustment were not correctly uploaded to HUD’s system before
           the next reexamination or interim adjustment was completed, the contractor could
           not upload the previous one to the system.

           As a result of our audit, the contractor stated that it had begun uploading the
           annual reexaminations and interim adjustments to HUD’s system for all of the
           subcontractors and was following up on errors to ensure that all of the data were
           uploaded to the system.

           Some of the HUD system data were also incorrectly classified. For example,
           annual reexaminations were sometimes classified as interim adjustments. Under
           the contractor’s previous DOS (disk operating system)-based computer program,
           when an annual reexamination was late, it would not allow the contractor the
           option of making it an annual reexamination, so it would be entered as an interim
           adjustment or other change of unit. See appendix C for errors identified for our
           sample.


Quality Control Processes Were
Inadequate

           The agency’s and its contractor’s quality control processes were inadequate. The
           agency’s quality control reviews consistently identified a number of deficiencies
           in the tenant files, but it did not adequately address the cause of the deficiencies
           with the contractor. The quality control processes at the subcontractor level was
           also inadequate. For example:

               •   The subcontractor supervisors did not maintain documentation showing
                   how they selected files for review or how they verified that rent
                   calculations were correct.



                                             8
   •   The subcontractor quality control reviews identified only a fraction of the
       rent determination errors..
   •   Two of the subcontractor caseworkers were promoted to supervisors and
       reviewed their own rent determinations made when they were
       caseworkers.
   •   In one case, a subcontractor employee who performed quality control
       reviews for the subcontractor stated that she did not check the rent
       calculations since they were calculated by the computer. She only ensured
       that all documentation that she was responsible for obtaining was in the
       file.

Additionally, the Section Eight Management Assessment Program (SEMAP)
results for indicator 3, adjusted annual income, were not supported for 2007 or
2008. The support used for the 2007 SEMAP results was based on the
subcontractor quality control sheets; however, the subcontractors did not
document how their sample was selected as required and did not maintain
documentation to show how they verified that annual income calculations were
accurate. For the 2008 SEMAP results, the contractor stated that files were
selected from the tenant directory; however, there was no written support showing
how the adjusted annual income was verified for the sample. In addition, there
were quality control sheets for only some of the files. The subcontractors also
submitted quality control sheets to the contractor in 2008; however, the scores
used for SEMAP indicator 3, adjusted annual income, were based on the
contractor’s unsupported quality control reviews.

Further, some of the files reviewed that had deficiencies were previously selected
and reviewed by the contractor and/or subcontractor. In several instances, the
contractor and/or subcontractor did not identify the deficiencies.

The agency and contractor staff attributed the errors to high staff turnover, human
error and decentralization of the program. Because the agency’s program covers
the state of Connecticut, its contractor subcontracts with seven public housing
authorities and one community action organization throughout the state. The
contractor further stated that it was more difficult to ensure consistency due to the
number of subcontractors. The contractor acknowledged that some of the staff at
the subcontractor offices may not have been adequately trained and some may
have had larger workloads than they should have. The contractor also
acknowledged that the inadequate processes at some of the subcontractor offices
may have attributed to the number of errors identified.




                                  9
Contract Requirements Were
Not Enforced


              The agency allowed a 15 percent error rate before penalties would be imposed on
             the contractor. Although it identified significant deficiencies in many tenant files
             at various subcontractor offices used by the contractor, it did not penalize the
             contractor for performance problems. The agency did not adequately enforce
             contract provisions for inadequate performance by its contractor.

             By allowing an error rate as high as 15 percent, it would be acceptable to the
             agency to have as many as 921 tenant files with errors of the 6,139 vouchers in
             the agency’s program. We consider an error rate of 15 percent to be unacceptably
             high because the SEMAP score criteria for the indicators we audited only allow
             error rates for high performers to be as high as

                        •   2 percent for accurate tenant rent calculations,
                        •   5 percent for late reexaminations, and
                        •   10 percent for accurately determining adjusted annual income.

             The agency should revise its contract at renewal to incorporate acceptable
             SEMAP error rates to obtain the high performer rating expected by HUD.


Conclusion


             The agency did not fully comply with HUD requirements when it did not ensure
             that its contractor adequately supported tenant eligibility, properly calculated rent
             payments, and/or performed timely annual reexaminations in 49 of the 66 files
             (74 percent) reviewed. The error rate, when projected to the universe of tenants,
             indicates that as many as 4,558 of 6,139 tenant files may have contained similar
             errors. Also, the agency did not enforce contract penalties for inadequate contract
             performance when it identified significant deficiencies with tenant files at various
             subcontractor offices. It also failed to ensure that the causes of the errors were
             adequately addressed.

             These errors resulted in the agency paying $194,821 in unsupported rent and
             $31,971 in overpaid rent for the tenant files reviewed. The agency also underpaid
             $9,269 in rent to landlords and limited-income households.

             As a result of our audit, the agency’s contractor began taking corrective action on
             the issues identified. For example, the contractor had taken some corrective
             action with its subcontractor staff and had increased staffing levels. However, the
             agency needs to adequately monitor its contractor in the areas identified in this


                                              10
          report and enforce contract penalties if the contractor does not adequately correct
          the deficiencies in its administration of the Voucher program in a timely manner.


Recommendations



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

          1A. Provide supporting documentation or reimburse its program $194,821 from
              nonfederal funds for the unsupported housing assistance payments
              identified.

          1B. Reimburse its program $31,971 from nonfederal funds for ineligible housing
              assistance payments identified.

          1C. Reimburse $9,269 in underpayments from nonfederal funds or
              administrative fee reserves to the appropriate households and landlords.

          1D. Implement a corrective action plan to reduce the number of errors in tenant
              files.

          1E. Revise its contract at renewal to incorporate SEMAP error rates for a high
              performer rating.

          1F.   Establish and implement controls to ensure that quality control reviews and
                sample selection for SEMAP are adequately documented and supported.




                                           11
                               SCOPE AND METHODOLOGY

We conducted our audit between August 2008 and February 2009. We completed our fieldwork at
the agency located at 25 Sigourney Street, Hartford, Connecticut, and its contractor, J. D’Amelia &
Associates, LLC’s main office located in Waterbury, Connecticut, and at the seven public housing
authorities and one community action organization. Our audit covered the period July 1, 2006,
through June 30, 2008, and was extended when necessary to meet our audit objective.

To accomplish our audit objective, we

•     Reviewed applicable laws, regulations, public and Indian housing notices, HUD’s program
      requirements at 24 CFR (Code of Federal Regulations) Parts 5 and 982, HUD’s Housing
      Choice Voucher guidebook 7420.10, the agency’s administrative plan, and the agency’s
      contract with the contractor responsible for the administration of its Voucher program.

•     Interviewed pertinent HUD, agency, contractor, and subcontractor staff .

•     Reviewed the agency’s, its contractor’s, and its subcontractors’ quality control processes.


•     Reviewed the database of tenants to verify Social Security numbers of heads of household.

•      Reviewed the database of landlords against the agency, contractor, and subcontractor
      employees for potential conflicts of interest.

•     Reviewed 2007 and 2008 supporting documentation for SEMAP indicator 3, adjusted annual
      income.

•     Performed 66 file reviews to determine whether (1) the tenants met eligibility requirements,
      (2) rents and payments were properly calculated/supported, and (3) annual reexaminations
      were performed in a timely manner. We also verified whether annual reexaminations and
      interim adjustments were uploaded into HUD’s system.8

We statistically selected a sample of 66 of the agency’s tenants to determine whether the tenants
met eligibility requirements, the rents and payments were properly calculated, and annual
reexaminations were performed in a timely manner. The sample was based on the number of
active Section 8 housing choice voucher tenants on the agency’s housing assistance payment roll
as of September 2008. We included both regular housing choice vouchers and enhanced
vouchers. Our universe of Section 8 housing choice voucher tenants to be used for our sample
selection was 6,139. We obtained the sample based on a confidence level of 90 percent, a
precision level of 10 percent, and an assumed error rate of 50 percent.



8
    We did not include the missing HUD system uploads in the computation of errors.

                                                         12
We determined that the agency did not adequately support tenant eligibility, properly calculate
rent payments, and/or perform timely annual reexaminations in 49 of the 66 tenant files.
Projecting the results to the universe indicates that 4,558 or 74.24 percent of the universe
contained the attributes tested. The sampling error was plus or minus 8.81percent. In other
words, we are 90 percent confident that the frequency of occurrence of the attributes tested lies
between 65.44and 83.05 percent of the universe. This equates to an occurrence of between 4,017
and 5,098 tenants of the 6,139 tenants in the universe.

   •   The lower limit was 65.44 percent of 6,139 tenants = 4,017 tenants whose eligibility was
       not supported, rent was not properly calculated, and/or annual reexamination was not
       timely.

   •   The point estimate was 74.24 percent of 6,139 tenants = 4,558 tenants whose eligibility
       was not supported, rent was not properly calculated, and/or annual reexamination was not
       timely.

   •   The upper limit was 83.05 percent of 6,139 tenants = 5,098 tenants whose eligibility was
       not supported, rent was not properly calculated, and/or annual reexamination was not
       timely.

Since we did not question dollars associated with the results above and because the agency’s quality
control reviews showed similar results, we used the point estimate to project the number of potential
errors in the universe for the report.

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:

              •   Controls over tenant eligibility, rent determinations, and timeliness of annual
                  reexaminations;

              •   Controls over the quality control process; and

              •   Controls over contract monitoring and enforcement.


              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 agency lacked controls to ensure subsidy calculations were properly
                      calculated and supported and performed in a timely manner.


                                                14
•   The agency lacked procedures for performing quality control inspections
    and implementing penalties when contract provisions were not met.




                             15
                                     APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


      Recommendation              Ineligible 1/     Unsupported 2/      Funds to be put
             number                                                      to better use 3/
                      1A                                 $194,821
                      1B               $31,971
                      1C                                                         $9,269


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, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, the funds to be put to better use represent
     amounts to be paid to tenants and landlords for housing assistance that was underpaid
     because of the errors identified in the tenant files we reviewed.




                                               16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                                  17
        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                                  18
                         OIG Evaluation of Auditee Comments

Comment 1   OIG acknowledges that there were several components that were reviewed in
            each file and that 74 percent of the agency’s files may have one or more errors
            based on any one of these components. Therefore, the report reader should not
            draw the conclusion that there was a 74 percent error rate for all attributes tested
            in the files reviewed. However, it is not OIG’s practice to calculate error rates
            using the number of components/subcomponents reviewed in each file, as even
            one error resulted in an incorrect or partially unsupported rental payment. In
            addition, we agree that there were many components that comprised the complete
            file review including tenant eligibility, rental payment calculations, and timely
            reexaminations. We believe the agency's proposed corrective actions, if properly
            implemented, will significantly reduce the number of errors and improve program
            performance.

Comment 2   The agency and its' contractor indicates that the errors would have been or were
            corrected regardless of HUDOIG's audit, which was misleading and not totally
            accurate. The data relied upon for the tenants eligibility and rent calculations
            were incorrect or not supported resulting in the audit exception. These
            deficiencies result in unsupported or questioned costs until such time that the
            tenant' new annual examination or interim examination based on something
            changing, such as a household move or income change. When this occurred, the
            contractor would re-document the tenant’s income and allowable deductions and
            recalculate the rent calculations and the errors would be corrected, going forward.
            However, the contractor did not go back and correct prior mistakes by making the
            necessary underpayments /overpayments to tenants and landlords or collecting
            monies owed. In addition, OIG acknowledges that much of the supporting
            documentation has been updated and/or provided during the audit and will
            provide the documentation to HUD program officials to facilitate audit resolution,
            upon request.

Comment 3   OIG acknowledges that the agency’s contractor has begun making significant
            changes in its quality control process over its subcontractors. We believe the
            agency's response and proposed corrective actions, if properly implemented, will
            significantly reduce the number of errors and improve program performance.

Comment 4   The agency agreed to revise its contract at renewal to incorporate SEMAP error
            rates. However, the agency did not compute the overall error rate of its contractor
            for the files it reviewed. Therefore, in its revised contract, the agency should
            better define what will be included as an error in its calculation of the error rate
            and how it will compute the overall error rate for the contractor. For example,
            the agency should consider not only incorrect rent calculations as an error, but
            also include late recertifications, and missing eligibility documents, HAP
            contracts, rent reasonableness determinations, and third party verifications as
            errors.



                                             19
Appendix C

     SCHEDULE OF ERRORS FOUND IN 49 OF THE 66 FILES9

                   Sample       Overpaid      Underpaid       Unsupported      Total Dollars
                  Number        Amount         Amount           Amount          Reviewed       Findings

                          1             $0              $0          $12,520    $12,520          E

                          2             $0            $306                $0   $23,494          D, E

                          3             $0            $150                $0   $9,176           E

                          4             $0              $0                $0   $14,800

                          5             $0              $0                $0   $7,938

                          6             $0          $1,320           $7,172    $7,172           A, E

                          7         $1,131            $118                $0   $9,433           E

                          8            $84            $224           $2,530    $2,614           E

                          9             $0              $0                $0   $1,906

                         10           $423              $0                $0   $8,678           C, E

                         11             $0            $420                $0   $10,650          C, D, E

                         12         $1,140             $22           $1,632    $13,118          B, D, E

                         13             $0              $0                $0   $1,125

                         14             $0            $504          $12,116    $12,116          B, D, E

                         15             $0              $0                $0   $4,517           B

                         16           $156            $128                $0   $10,310          D, E

                         17         $2,376              $0                $0   $9,610          E

                         18             $0            $180           $6,852    $6,852           E

                         19             $0              $0           $5,950    $6,550           E

                         20            $82              $0                $0   $13,009          B

                         21           $369            $110          $17,573    $18,074          C, D, E

                         22             $0              $0                $0   $14,126

9
 Sample numbers 42 and 56 contained errors which did not affect the rent calculation. These are included in the
schedule of errors but were not included in our computation of 49 files.

                                                        20
Sample    Overpaid     Underpaid   Unsupported    Total Dollars
Number    Amount       Amount       Amount         Reviewed       Findings

     23          $0           $0             $0   $5,154

     24        $309           $0         $1,052   $7,835          B, C, E

     25          $0         $587         $5,707   $13,837         B, D, E

     26          $0           $0             $0   $6,484

     27        $471         $791        $16,416   $17,202         C, D, E

     28          $0           $0             $0   $5,371

     29       $2,864          $0             $0   $11,072         A, D, E

     30        $340           $0             $0   $13,516         C, E

     31         $99           $0             $0   $9,745          E

     32         $75           $0        $17,250   $17,325         A, E

     33          $0           $0          $144    $9,012          E

     34          $0         $154             $0   $3,508          E

     35       $2,594          $0             $0   $16,151         E

     36          $0           $0             $0   $16,108

     37       $5,469          $0             $0   $15,104         C, E

     38       $1,578          $0         $2,759   $4,337          A, E

     39          $0           $0             $0   $6,174

     40          $0         $948          $240    $11,994         B, D, E

     41        $541         $563         $1,703   $10,208         E

     42          $0           $0             $0   $23,355         D

     43          $0         $132        $16,878   $16,878         A, E

     44          $0           $0             $0   $10,540

     45        $994           $0         $3,882   $10,365         B, E

     46        $420           $0        $10,956   $20,280         B, C, D, E

     47          $0           $0             $0   $5,257

     48          $0         $540             $0   $13,999         D, E

     49          $0           $0             $0   $6,426          B
     50       $1,498          $0             $0    $23,324        B, C, E

                              21
                     Sample        Overpaid         Underpaid         Unsupported       Total Dollars
                     Number           Amount          Amount            Amount           Reviewed       Findings

                            51                $0              $59                  $0   $14,176         D, E

                            52             $144                $0            $15,424    $15,568         E

                            53                $0               $0                  $0   $0              A

                            54                $0               $0                  $0   $13,854

                            55                $0            $134             $11,614    $11,614         A, C, E

                            56                $0               $0                  $0   $11,822         C

                            57             $144                $0             $8,095    $8,239          E

                            58           $3,110                $0                $75    $18,293         E

                            59                $0               $0                  $0   $5,154

                            60                $0            $970                   $0   $22,018         C, D, E

                            61                $0               $0             $5,187    $37,187         B, C, E

                            62           $2,374                $0                  $0   $13,660         E

                            63           $3,110                $0             $4,874    $7,984          B, E

                            64                $0            $909                   $0   $9,502          C, E

                            65                $0               $0                  $0   $4,640

                            66              $76                $0             $6,220    $6,296          A, E

                        Totals          $31,971           $9,269          $194,82110    $748,356

                       Legend:
                                 A     Eligibility not supported
                                 B     Annual exam not completed in a timely manner
                                 C     Incorrect utility allowance
                                 D     Incorrect payment standard
                                 E     Rent payments incorrectly calculated/supported




10
     The 26 of 49 errors resulted in unsupported subsidy paid which is 26 percent of the total dollars reviewed.

                                                               22