oversight

The Indianapolis Housing Agency, Indianapolis, Indiana, Failed to Operate Its Housing Choice Voucher Program According to HUD's and Its Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-01-23.

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

                                                                 Issue Date
                                                                          January 23, 2009
                                                                 Audit Report Number
                                                                         2009-CH-1002




TO:         Thomas S. Marshall, Director of Public Housing Hub, 5DPH


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The Indianapolis Housing Agency, Indianapolis, Indiana, Failed to Operate Its
           Housing Choice Voucher Program According to HUD’s and Its Requirements

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Indianapolis Housing Agency’s (Agency) Section 8 Housing
             Choice Voucher program. The audit was part of the activities in our fiscal year
             2008 annual audit plan. We selected the Agency’s program based upon our prior
             audits of the Agency’s program and recent press coverage regarding conditions at
             two of the Agency’s Section 8 Project-Based Voucher program apartment
             complexes. Our objectives were to determine whether the Agency effectively
             administered its program and followed the U.S. Department of Housing and
             Urban Development’s (HUD) requirements. This is the third of three audit
             reports on the Agency’s program.

 What We Found

             The Agency failed to administer its Section 8 Housing Choice Voucher program
             according to HUD’s requirements. Further, its administration regarding the
             utilization of available program funding, selection and approval of project-based
             units, and housing conditions for its Section 8 Project-Based Voucher program
             units was inadequate. The Agency’s failure to meet HUD’s lease-up thresholds
             resulted in approximately 1,569 households not being housed in fiscal year 2008
             and more than $8.7 million in program funds not being used to provide decent,
           safe, and sanitary housing for eligible households. By implementing adequate
           procedures and controls regarding its program utilization, we estimate that nearly
           $9 million in excess program funds could be put to better use over the next year.

           The Agency lacked documentation to support its selection and approval of
           Section 8 Project-Based Voucher program projects because it lacked adequate
           procedures and controls to ensure that HUD’s requirements were appropriately
           followed. As a result, it could not support that any of the 11 projects was eligible
           for more than $2 million in project-based assistance and nearly $212,000 in
           program administrative fees received by the Agency were appropriate. We
           estimate that over the next 12 months, the Agency will spend more than $127,000
           in program funds for improper administrative fees.

           Of the 18 Section 8 Project-Based Voucher program units selected for inspection,
           17 did not meet minimum housing quality standards, and 11 had material
           violations that existed before the Agency’s previous inspections. As a result,
           more than $24,000 in program funds was spent on units that were not decent, safe,
           and sanitary. We estimate that over the next year, HUD will pay more than
           $72,000 in housing assistance on units with material housing quality standards
           violations.


What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Agency to reimburse its Section 8 Housing Choice Voucher program
           from nonfederal funds for the improper use of nearly $236,000 in program funds,
           provide documentation or reimburse its program more than $2 million from
           nonfederal funds for the unsupported payments cited in this audit report, and
           implement adequate procedures and controls to address the findings cited in this
           audit report to prevent nearly $9 million in program funds from not being used
           over the next year to house needy families. We also recommend that the Director
           require the Agency to implement a detailed comprehensive written action plan to
           improve its procedures and controls to ensure that the Agency operates its
           program in accordance with HUD’s and its own requirements.

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

Auditee’s Response

           We provided our review results and supporting schedules to the Coordinator of
           HUD’s Indianapolis Office of Public Housing Program Center and the Agency’s


                                            2
executive director during the audit. We provided our discussion draft audit report
to the Agency’s executive director, its board chairman, and HUD’s staff during
the audit. We held an exit conference with the executive director on December
16, 2008.

We asked the executive director to provide comments on our discussion draft audit
report by January 12, 2009. The executive director provided written comments,
dated January 12, 2009. The Agency generally disagreed with our findings and
recommendations. The complete text of the written comments, along with our
evaluation of those comments, can be found in appendix B of this report except for
117 pages of documentation that was not necessary for understanding the Agency’s
comments. A complete copy of the Agency’s comments plus the documentation
was provided to the Director of HUD’s Cleveland Office of Public Housing.




                                 3
                            TABLE OF CONTENTS

Background and Objectives                                                               5

Results of Audit
      Finding 1: The Agency Did Not Operate Its Housing Choice Voucher Program
                 in Accordance with HUD’s and Its Requirements                          6

      Finding 2: The Agency Significantly Underleased Its Housing Choice Voucher
                 Program                                                               10

      Finding 3: The Agency Inappropriately Administered Its Section 8 Project-Based
                 Voucher Program                                                       12

      Finding 4: The Agency’s Section 8 Project-Based Voucher Units Did Not Meet
                 HUD’s Housing Quality Standards                                       15

Scope and Methodology                                                                  20

Internal Controls                                                                      22

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                   24
   B. Auditee Comments and OIG’s Evaluation                                            26
   C. Federal Requirements                                                             45




                                             4
                     BACKGROUND AND OBJECTIVES

The Indianapolis Housing Agency (Agency) is a nonprofit governmental entity created by the
City of Indianapolis, Indiana (City), under State of Indiana law in 1964 to provide decent, safe,
and sanitary housing. The Agency became a division of the City’s Department of Metropolitan
Development on January 1, 1986. It was separated as an independent organization in December
1994 but still operates with oversight by the Metropolitan Development Committee of the
combined City and Marion County, Indiana (City/County), government. The Agency’s
jurisdiction encompasses Marion County, Indiana. A nine-member board of commissioners
governs the Agency. The City’s mayor appoints five board members, the City/County council
appoints two members, and the Agency’s resident council appoints two board members. The
Agency’s executive director is appointed by the board of commissioners and is responsible for
coordinating established policy and carrying out the Agency’s day-to-day operations.

The Agency administers a Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). The Agency provides assistance to
low- and moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing
rents with owners of existing private housing. As of November 30, 2008, the Agency had 6,434
units under contract with annual housing assistance payments totaling more than $34 million in
program funds. Of the 6,434 units, 296 were assisted under the Agency’s Section 8 Project-
Based Voucher program.

This is the third of three audit reports on the Agency’s Section 8 Housing Choice Voucher
program. Our objectives were to determine whether (1) the Agency utilized its program funds to
HUD’s expected lease-up thresholds; (2) the Agency administered its Section 8 Project-Based
Voucher program according to HUD’s requirements; and (3) the Agency’s project-based unit
inspections were sufficient to detect housing quality standards violations and provide decent,
safe, and sanitary housing to its residents. The first audit report (report # 2007-CH-1011, issued
on July 23, 2007) included one finding. The objective of the first audit was to determine whether
the Agency appropriately used its Section 8 administrative fees in accordance with HUD’s and
its requirements. The second audit report (report # 2008-CH-1006, issued on April 15, 2008)
included three findings. The objectives of the second audit were to determine whether (1) the
Agency’s Section 8 Housing Choice Voucher program unit inspections were sufficient to detect
housing quality standards violations and provide decent, safe, and sanitary housing to its
residents; (2) the Agency accurately calculated and maintained required documentation to
support housing assistance and utility allowance payments; and (3) the Agency appropriately
verified that reported zero-income households had income.




                                                5
                                RESULTS OF AUDIT

Finding 1: The Agency Did Not Operate Its Housing Choice Voucher
       Program in Accordance with HUD’s and Its Requirements
As identified in this and our two prior audits, the Agency did not adequately manage its Section
8 Housing Choice Voucher program. It incorrectly used restricted program administrative fees
to pay for expenses that exceeded the program’s reasonable fair share, were unrelated to the
program’s operation, and were unsupported. The Agency’s program administration regarding
housing unit conditions, housing assistance payments, and reported household income was
inadequate. The Agency significantly underleased its program and inappropriately administered
its Section 8 Project-Based Voucher program. As a result, program funds were not used
efficiently and effectively and for eligible purposes.


 Restricted Program
 Administrative Fees Were Used
 Incorrectly

              As identified in our first audit, the Agency failed to comply with HUD’s
              requirements and its cost allocation plan regarding the allocation of administrative
              expenses. Between January 1, 2005, and November 30, 2006, it used Section 8
              administrative fees to pay more than $1.6 million for expenses that exceeded the
              Section 8 Housing Choice Voucher program’s reasonable fair share, allocated
              expenses that were unrelated to the program’s operation, and paid unsupported
              expenses. This noncompliance occurred because the Agency lacked adequate
              procedures and controls to ensure that HUD’s requirements and its cost allocation
              plan were appropriately followed. As a result, fees of more than $1.6 million
              were not used to benefit the Agency’s program. Based on our review, we
              estimate that over the next year, the Agency will use more than $855,000 in fees
              for administrative expenses not related to its program (see finding in report
              #2007-CH-1011).

 Controls over Housing Unit
 Inspections Were Inadequate

              As identified in our second audit, the Agency did not adequately enforce HUD’s
              housing quality standards and the Health and Hospital Corporation of Marion
              County, Indiana’s (Corporation) housing standards. Of the 65 Section 8 Housing
              Choice Voucher program units statistically selected for inspection, 52 did not
              meet minimum housing quality standards and/or the Corporation’s housing
              standards, and 38 had material violations that existed before the Agency’s


                                               6
            previous inspections. The violations existed because the Agency failed to
            exercise proper supervision and oversight of its program unit inspections. The
            Agency also lacked adequate procedures and controls to ensure that its program
            units met HUD’s housing quality standards and/or the Corporation’s housing
            standards. As a result, more than $41,000 in program funds was spent on units
            that were not decent, safe, and sanitary (see finding 1 in report #2008-CH-1006).

            As discussed in finding 4 of this report, the Agency did not adequately enforce
            HUD’s housing quality standards. Of the 18 Section 8 Project-Based Voucher
            program units selected for inspection, 17 did not meet minimum housing quality
            standards, and 11 had material violations that existed before the Agency’s
            previous inspections. The violations existed because the Agency failed to
            exercise proper supervision and oversight of its program unit inspections. The
            Agency also lacked adequate procedures and controls to ensure that its program
            units met HUD’s housing quality standards. As a result, more than $24,000 in
            program funds was spent on units that were not decent, safe, and sanitary (see
            finding 4 in this audit report).

Controls over Housing
Assistance Payments Were
Inadequate

            As identified in our second audit, the Agency failed to always compute housing
            assistance and utility allowance payments accurately. It incorrectly calculated
            housing assistance and utility allowance payments and lacked documentation to
            support housing assistance and utility allowance payments to program landlords
            and households, respectively, because it lacked adequate procedures and controls
            to ensure that HUD’s regulations and its program administrative plan were
            appropriately followed. As a result, it overpaid more than $131,000 and
            underpaid more than $13,000 in housing assistance and utility allowances and was
            unable to support more than $587,000 in housing assistance and utility allowance
            payments made (see finding 2 in report #2008-CH-1006).

The Agency Failed to Include
Reported Household Income

            As identified in our second audit, the Agency incorrectly reported households as
            having zero income when the Agency’s household files contained income
            documentation. It also did not effectively use HUD’s Enterprise Income
            Verification system or other third-party verification methods to determine
            whether households it reported as having zero income had unreported income.
            This condition occurred because the Agency lacked adequate procedures and
            controls to ensure that HUD’s requirements and its program administrative plan
            were appropriately followed. As a result, it unnecessarily paid housing assistance


                                             7
             totaling more than $47,000 for households that had the resources to meet their
             rental obligations (see finding 3 in report #2008-CH-1006).

The Agency Significantly
Underleased Its Housing Choice
Voucher Program

             As discussed in finding 2 of this report, the Agency significantly underleased its
             Section 8 Housing Choice Voucher program despite having funds available to
             house eligible households. This condition occurred because the Agency lacked
             adequate procedures and controls to comply with HUD’s requirements. Its failure
             to meet HUD’s lease-up thresholds resulted in approximately 1,569 households
             not being housed in fiscal year 2008. Overall, the Agency’s failure to meet
             HUD’s lease-up requirements resulted in more than $8.7 million in program funds
             not being used. As a result, the Agency failed to maximize the benefits of its
             program funding to provide assistance to low- and moderate-income households
             seeking decent, safe, and sanitary housing (see finding 2 in this audit report).

The Agency Inappropriately
Administered Its Section 8
Project-Based Program

             Discussed in finding 3 of this report, as of April 2008, the Agency had failed to
             comply with HUD’s requirements for the selection and approval of its 11 projects
             receiving Section 8 project-based assistance. It lacked documentation to support
             its selection and approval of the projects because it did not have adequate
             procedures and controls to ensure that HUD’s requirements were appropriately
             followed. The Agency’s executive director said that he believed that HUD’s
             requirements had been met but could not explain why the supporting
             documentation was missing from the Agency’s files. As a result, the Agency
             could not support that any of the 11 projects was eligible for project-based
             assistance and that $211,680 in Section 8 administrative fees paid to the Agency
             was appropriately earned (see finding 3 in this audit report).

Conclusion

             The previously mentioned deficiencies occurred because the Agency substantially
             lacked adequate procedures and controls to ensure that it properly managed the
             day-to-day operations of its Section 8 Housing Choice Voucher program. It did
             not ensure that it fully implemented HUD’s and its own requirements, resulting in
             the improper use of program funds. The deficiencies in its program were
             significant and demonstrated a lack of effective program management. HUD and
             the Agency should implement a detailed comprehensive plan to improve the


                                              8
          Agency’s program. The plan should include the submission of quarterly reports
          to HUD detailing the Agency’s progress in improving its procedures and controls
          regarding its program in accordance with its plan. The quarterly reports should
          address but not be limited to the issues cited in this finding.

Recommendation

          We recommend that the Director of HUD’s Cleveland Office of Public Housing
          require the Agency to

          1A.    Implement a detailed comprehensive written action plan to improve its
                 procedures and controls to ensure that it operates its Section 8 Housing
                 Choice Voucher program in accordance with HUD’s and its requirements.
                 If the Agency is unable to appropriately implement the plan, HUD should
                 take appropriate action against the Agency.




                                          9
Finding 2: The Agency Significantly Underleased Its Housing Choice
                         Voucher Program
The Agency significantly underleased its Section 8 Housing Choice Voucher program despite
having sufficient funds available to house eligible households. This condition occurred because
the Agency lacked adequate procedures and controls to comply with HUD’s requirements. Its
failure to meet HUD’s lease-up thresholds resulted in approximately 1,569 households not being
housed in fiscal year 2008. Further, the Agency failed to maximize the benefits of more than
$8.7 million in program funding to provide assistance to low- and moderate-income households
seeking decent, safe, and sanitary housing.


 The Housing Choice Voucher
 Leasing Threshold Was Not
 Met


              HUD’s regulations at 24 CFR [Code of Federal Regulations] 985.3(n)(3)(ii)
              require that public housing authorities lease at least 95 percent of their allocated
              yearly vouchers and/or funding to eligible participants in order to receive an
              acceptable program performance rating as a “standard” performer. HUD uses this
              requirement as part of its review and scoring of the Agency’s program.

              In calendar year 2007, the Agency used only 5,648 (71 percent) of the 7,958
              vouchers authorized by HUD. To be considered a “standard” performer by HUD,
              it was required to lease up to 95 percent of its contracted vouchers, or 7,560 units
              (7,958 units authorized by HUD times 95 percent), an additional 1,912 units.
              However, doing so would have exceeded the Agency’s available funding.
              Between January and November 2008, the Agency improved its utilization to an
              average of 5,991 vouchers but was still only using 75 percent of the 7,958
              vouchers authorized by HUD.

              HUD’s Office of Public Housing’s Quality Assurance Division conducted an on-
              site monitoring review in May 2008 with a follow-up review in September 2008.
              In its September 2008 report, HUD calculated that the Agency had a net restricted
              asset balance of $11,797,567 as of December 31, 2007. With the available
              funding, the Agency could have housed an additional 1,837 households in fiscal
              year 2008 using $11,797,214 in program funds.

 The Agency Acknowledged Low
 Utilization

              The Agency’s management acknowledged that low voucher utilization was a
              problem that needed to be addressed. The Agency’s executive director said that
              when HUD designated the Agency as troubled and executed a memorandum of

                                               10
             agreement (agreement), the Agency had to transfer some of its Section 8 staff
             from their normal duties to address issues under the agreement. This situation
             limited the staff’s ability to issue new vouchers to enough families from the
             Agency’s waiting list. Additionally, the Agency’s Section 8 director said that
             high staff turnover and an old waiting list had hindered the Agency’s ability to
             issue enough vouchers. The Agency had not opened its Section 8 waiting list to
             new applications since June 2004.

Conclusion

             The Agency’s Section 8 Housing Choice Voucher program was significantly
             underleased despite having excess program funds totaling nearly $12 million. As
             a result, the Agency did not provide housing assistance to as many households as
             it could have. If the Agency does not improve its voucher utilization, future
             housing assistance to the Agency may be permanently reduced. By implementing
             adequate procedures and controls regarding its program voucher utilization, we
             estimate that funds could be put to better use over the next year by housing more
             than 1,500 eligible households, thereby providing $8,751,882 in additional
             housing assistance to eligible households. Our methodology for this estimate is
             explained in the Scope and Methodology section of this audit report.

Recommendation

             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Agency to

             2A.    Implement adequate procedures and controls to ensure that its program
                    vouchers are fully utilized to the maximum extent possible, thereby
                    providing an additional $8,751,882 in housing assistance to eligible
                    households.




                                             11
Finding 3: The Agency Inappropriately Administered Its Section 8
                  Project-Based Voucher Program
The Agency failed to comply with HUD’s requirements for the selection and approval of its 11
projects receiving Section 8 project-based assistance as of April 2008, including a project in
which the Agency had an identity of interest. It lacked documentation to support its selection
and approval of the projects because it did not have adequate procedures and controls to ensure
that HUD’s requirements were appropriately followed. The Agency’s executive director said
that he believed that HUD’s requirements had been met but could not explain why the
documentation was missing from the Agency’s files. As a result, the Agency could not support
that any of the 11 projects was eligible for project-based assistance and that $211,680 in
administrative fees paid to the Agency was appropriately earned.


 The Agency Lacked
 Documentation to Support That
 HUD’s Requirements Were
 Followed

              The Agency’s files for its 11 Section 8 project-based projects lacked adequate
              documentation to support that its selection and approval of the projects met HUD’s
              requirements. The 11 project files were missing documentation to support that the
              Agency ensured that

              •       265 units in 10 projects had environmental reviews conducted,
              •       219 units in nine projects had a proper rent reasonableness determination,
              •       234 units in seven projects had a housing quality standards inspection
                      conducted,
              •       162 units in six projects had an analysis conducted to demonstrate how the
                      projects would assist low-income people without unduly concentrating
                      them,
              •       135 units in five projects were handicap accessible, and
              •       81 units in three projects had a subsidy layering review.

              The Agency’s executive director told us that he believed the Agency had followed
              all of HUD’s requirements in reviewing and approving project proposals for
              Section 8 project-based assistance. However, the executive director was unable to
              explain why the documentation was unavailable in the Agency’s files except that
              the Agency had experienced significant staff turnover in its Section 8 program.

              As a result, the projects were inappropriately selected and approved for project-
              based assistance and the assistance was not supported. Between January 2007
              and August 2008, the Agency had between 185 and 219 project-based voucher
              units under lease, or an average of 196 units per month. With an average


                                               12
           administrative fee per unit of $54 per month, we estimate that $211,680 in Section
           8 administrative fees was inappropriately earned by the Agency between January
           2007 and August 2008 for the project-based units.

The Agency Inappropriately
Approved Assistance for an
Agency Owned Project


           The Federal Register, Volume 70, Number 197, dated October 13, 2005, 24 CFR
           983.3, defines public housing agency owned as any interest by the public housing
           agency in the building in which the unit is located. HUD regulations at 24 CFR
           983.51(e) permit a public housing agency-owned project to be assisted under its
           Section 8 Project-Based Voucher program only if the HUD field office reviews
           the selection process and determines that the units were appropriately selected
           based on the selection procedures specified in the Agency’s administrative plan.
           The reasonableness of the rental payments to the owner and the housing quality
           standards inspections must be determined by an independent entity.

           The Agency leased the land from a former public housing project to an Illinois
           partnership for use in developing and building a new project to be assisted with
           Section 8 Project-Based Voucher program funds. On July 9, 2003, the Agency
           entered into a memorandum of agreement with the partnership providing that the
           partnership pay the Agency $99 for a 99-year lease with an option for an
           additional 99-year lease period. On December 1, 2004, the Agency entered into
           the 99-year ground lease with the partnership. The partnership was required to
           remove the existing buildings; construct new units on the site; and be responsible
           for all improvements, taxes, utilities, and operating costs.

           Contrary to HUD’s requirements that the Agency disclose its ownership of the
           land and request HUD’s approval, the Agency entered into a Section 8 Project-
           Based Voucher program housing assistance payments contract with the Illinois
           partnership in January 2006. The contract was for 10 of the 237 units at the Red
           Maplegrove/Brokenburr Apartments complex (complex).

           The Agency failed to ensure that the complex met HUD’s requirements for an
           environmental review, conduct a rent reasonableness determination, inspect the
           complex’s units to ensure that they met HUD’s housing quality standards before
           approving the assistance contract, and conduct a subsidy layering review. The
           subsidy layering review was especially necessary since the Agency was aware
           that the complex received Hope VI and HOME Investment Partnerships Program
           funds from HUD. The Agency also conducted the annual housing inspections for
           the project- and tenant-based units at the complex.




                                           13
             As a result of the above deficiencies, HUD could not be assured that tenants in the
             Agency’s Section 8 Project-Based Voucher program resided in decent, safe, and
             sanitary conditions and that the rents paid were appropriate.

Conclusion


             The Authority could not support its use of more than $2 million in program funds.
             From January 1, 2007, to August 31, 2008, the Authority received $211,680 in
             Section 8 administrative fees while inappropriately administering the units in its
             program. In accordance with 24 CFR 982.152(d), HUD may reduce or offset any
             administrative fee to a public housing authority in the amount determined by
             HUD if the public housing authority fails to perform its administrative
             responsibilities correctly or adequately under the program. Given the Authority’s
             substantial noncompliance with HUD’s requirements, we recommend that HUD
             pursue reimbursement of the administrative fees related to the operation of the
             Section 8 Project-Based Voucher program.

Recommendations

             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Agency to

             3A.    Reimburse its program $211,680 from nonfederal funds for the Section 8
                    administrative fees received related to its inappropriate program
                    administration cited in this finding.

             3B.    Provide supporting documentation or reimburse its program $2,081,512
                    from nonfederal funds for the 11 Section 8 project-based projects cited in
                    this finding.

             3C.    Implement adequate procedures and controls to ensure compliance with all
                    federal requirements for the operation of its Section 8 Project-Based
                    Voucher program to prevent administrative fees totaling $127,008 from
                    being paid over the next 12 months for units not eligible for assistance.




                                             14
Finding 4: The Agency’s Section 8 Project-Based Voucher Units Did
             Not Meet HUD’s Housing Quality Standards
The Agency did not adequately enforce HUD’s housing quality standards. Of the 18 Section 8
Project-Based Voucher program units selected for inspection, 17 did not meet minimum housing
quality standards and 11 had material violations that existed before the Agency’s previous
inspections. The violations existed because the Agency failed to exercise proper supervision and
oversight of its program unit inspections. It also lacked adequate procedures and controls to
ensure that its program units met HUD’s housing quality standards. As a result, more than
$24,000 in program funds was spent on units that were not decent, safe, and sanitary. We
estimate that over the next year, HUD will pay more than $72,000 in housing assistance on units
with material housing quality standards violations.


 HUD’s Housing Quality
 Standards Were Not Met


              Based upon our review, the Agency’s project-based units in its multifamily
              buildings were generally well maintained by the owners and met HUD’s housing
              quality standards. However, its project-based single-family and duplex units did
              not appear to meet HUD’s housing quality standards based upon our initial
              review. As of May 30, 2008, the Agency had 221 project-based units under
              contract, of which 78 were either single-family or duplex units. The Agency
              inspected 26 of these units between March 1 and May 30, 2008, and passed 23 of
              the units while failing the remaining three. We selected the 23 units for
              inspection by our appraiser but eliminated five units since three had been vacated
              before our inspections and two had previously been observed during our initial
              review.

              Our appraiser inspected the 18 (23 minus 5) remaining units between August 5
              and August 7, 2008. Seventeen (94 percent) of the units did not meet HUD’s
              housing quality standards, and 11 (61 percent) had material violations that existed
              before the Agency’s previous inspections. The remaining unit met HUD’s
              housing quality standards. Of the 18 units inspected, 17 had 88 housing quality
              standards violations, and 16 had 53 violations that existed when the Agency last
              inspected and passed the units, including six violations that had been cited by the
              Agency in a prior inspection report and reported as having been corrected. The
              11 units were considered to be material failures due to more than one violation
              existing at the time the Agency passed the units or a unit containing an exigent
              health and safety violation.

              For the 11 materially failed units, we estimated that from the time the Agency
              should have identified, cited, and obtained correction or abated the units’ housing
              assistance until June 30, 2008, the Agency inappropriately paid $22,071 in
              housing assistance and improperly received $2,124 in Section 8 administrative

                                               15
           fees. We also estimate that if the Agency fails to make corrections to its
           inspection process, it will pay $72,024 in housing assistance over the next year for
           the 11 units that do not meet HUD’s housing quality standards.

           The following table categorizes the 88 violations in the 17 units.

                                                      Number of
                             Category of violations   violations
                            Windows                       28
                            Electrical                    16
                            Security                      6
                            Other potential
                            hazardous features           6
                            Stairs/rails/porch           5
                            Exterior surfaces            4
                            Stove                        3
                            Ventilation                  3
                            Floors                       2
                            Refrigerator                 2
                            Smoke detector               2
                            Site and neighborhood        2
                            Walls                        1
                            Lead-based paint             1
                            Tub/shower unit              1
                            Roof/gutters                 1
                            Heating equipment            1
                            Ventilation                  1
                            Water heater                 1
                            Plumbing                     1
                            Infestation                  1
                                       Total             88

           We provided our inspection results to the Coordinator of HUD’s Indianapolis Office
           of Public Housing Program Center and the Agency’s executive director on
           November 20, 2008.

Window Violations Were
Identified
           Twenty-eight window violations were present in 12 of the Agency’s units
           inspected. The following items are examples of the window violations listed in
           the table: damaged screens, cracked window panes, and damaged hardware. The
           following picture is an example of the window-related violations.




                                             16
Unit #1766: Broken
window sash
preventing window
from locking.




Electrical Violations Were
Identified
                Sixteen electrical violations were present in 12 of the Agency’s units inspected.
                These defects included unsecured electrical meter box cover plates and broken
                outlet covers. The following picture is an example of the electrical-related
                violations.


Unit #2498: Meter box
cover plate not secured
with a crimp lock to
prevent access to 220-
volt electrical
connections. NOTE:
The cover plate was
removed to emphasize
the danger of the plate
being unsecured.




Stairs/Rails/Porch Violations
Were Identified
                Five stair, rails, or porch violations were present in four of the Agency’s units
                inspected. The following items are examples of stair, rails, or porch violations
                listed in the table: damaged stairs or missing railings. The following picture is an
                example of the stair, rails, or porch violations identified.


                                                 17
  Unit #19: Basement
  stairs missing a
  handrail.




             The Agency’s inspections were not performed at a standard sufficient to meet
             HUD’s housing quality standards due to a lack of understanding of the housing
             quality standards by the Agency’s inspection staff. High turnover of inspection
             staff hindered the Agency from performing its unit inspections in a consistent and
             effective manner. We previously cited the Agency’s inadequate controls over its
             inspection process for its Section 8 Housing Choice Voucher program (see audit
             report #2008-CH-1006).

Conclusion

             The housing quality standards violations existed because the Agency failed to
             exercise proper supervision and oversight of its Section 8 Project-Based Voucher
             program unit inspections. It also lacked adequate procedures and controls to
             ensure that its program units met HUD’s housing quality standards. The
             Agency’s households were subjected to health- and safety-related violations, and
             the Agency did not properly use its program funds when it failed to ensure that
             units complied with HUD’s housing quality standards. In accordance with 24
             CFR 982.152(d), HUD is permitted to reduce or offset any program
             administrative fees paid to a public housing agency if it fails to enforce HUD’s
             housing quality standards. The Agency disbursed $22,071 in housing assistance
             payments for the 11 units that materially failed to meet HUD’s housing quality
             standards and received $2,124 in Section 8 administrative fees.

             If the Agency implements adequate procedures and controls regarding its Section
             8 Project-Based Voucher program unit inspections to ensure compliance with
             HUD’s housing quality standards, we estimate that over the next year, HUD can
             avoid spending more than $72,024 in housing assistance payments on units that
             are not decent, safe, and sanitary. Our methodology for this estimate is explained
             in the Scope and Methodology section of this audit report.


                                             18
Recommendations

          We recommend that the Director of HUD’s Cleveland Office of Public Housing
          require the Agency to

          4A.     Certify, along with the owners of the 17 program units cited in this
                  finding, that the applicable housing quality standards violations have been
                  repaired. If the necessary repairs have not been made, the Agency should
                  abate housing assistance payments to the landlords as appropriate.

          4B.     Reimburse its program $24,195 from nonfederal funds ($22,071 for
                  program housing assistance payments plus $2,124 in associated
                  administrative fees) for the 11 units that materially failed to meet HUD’s
                  housing quality standards.

          4C.     Implement adequate procedures and controls to ensure that all units meet
                  HUD’s housing quality standards to prevent $72,024 in program funds
                  from being spent on units that are not in compliance with HUD’s
                  requirements.




                                           19
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

•   Applicable laws; the Agency’s program administrative plans effective June 2006 and January
    2007; HUD’s program requirements at 24 CFR Parts 5, 85, and 983; HUD’s Public and Indian
    Housing Notices 2001-4 and 2005-1; and HUD’s Housing Choice Voucher Guidebook 7420.10.

•   The Agency’s accounting records; annual audited financial statements for 2003, 2004, and
    2005; program household files; computerized databases; policies and procedures; organizational
    chart; and program annual contributions contract.

•   HUD’s files for the Agency.

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

Finding 2

The annual average housing assistance payment per unit was determined by taking HUD’s
Voucher Management System’s expenses for the first 11 months of fiscal year 2008
($33,417,520) and dividing by the average number of Section 8 voucher units for same period in
fiscal year 2008 (5,991). This gave an average annual voucher payment of $5,578 for fiscal year
2008. The Agency was required to lease up to 95 percent of its contracted vouchers, which was
7,560 units (7,958 units authorized by HUD times 95 percent); however, it only leased an
average of 5,991 vouchers. The Agency needed to lease an additional 1,569 vouchers to meet its
lease-up threshold of 95 percent or 7,560 vouchers. Using the average annual voucher payment
of $5,578 times the number of vouchers that were needed to meet the required 95 percent (1,569)
provides a total of $8,751,882. By implementing adequate procedures and controls over its
program voucher utilization, we estimate that funds could be put to better use over the next year
by housing an additional 1,569 eligible households. This estimate is solely to demonstrate the
annual amount of program funds that could be put to better use if the Agency implements our
recommendation.

Finding 3

We used computerized data and project listings provided by the Agency to identify the 11
projects that had project-based contracts as of April 9, 2008. We reviewed the Agency’s Section
8 Project-Based Voucher program files for the 11 projects to determine whether the Agency
followed HUD’s requirements for its selection of the projects and approval for project-based
housing assistance payments contracts. We used HUD’s Voucher Management System to
identify the number of project-based units each month and the average administrative fee per unit
between January and August 2008. Between January 1, 2007, and August 31, 2008, the Agency
received an average administrative fee of $54 per unit for its project-based units while
administering an average of 196 units for the same period. We estimate that over the next 12


                                                20
months the Agency will spend $127,008 ($54 per unit in administrative fees times 196 units
times 12 months) in program funds for inappropriate administrative fees.

Finding 4

We determined through our initial review that the Agency’s project-based units in its multifamily
buildings were generally well maintained by the owners and met HUD’s housing quality
standards. However, the Agency’s project-based single-family and duplex units did not appear
to meet HUD’s housing quality standards. As of May 30, 2008, the Agency had 221 project-
based units under contract, of which 78 were either single-family or duplex units. The Agency
inspected 26 of these units between March 1 and May 30, 2008, and passed 23 of the units while
failing the remaining three. We selected the 23 (26 minus 3) passed units for inspection by our
appraiser but eliminated five units since three were vacated before our inspection and two had
been observed during our initial review.

We inspected the 18 remaining units (23 minus 5) between August 5 and August 7, 2008.
Seventeen (94 percent) of the units did not meet HUD’s housing quality standards and 11 (61
percent) had material violations that existed before the Agency’s previous inspections. The
remaining unit met HUD’s housing quality standards. Of the 18 units, 17 had 88 housing quality
standards violations and 16 had 53 violations that existed when the Agency last inspected and
passed the units, including six violations that had been cited by the Agency in prior inspection
reports and reported as having been corrected. We considered 11 units to be material failures
due to more than one violation existing at the time the Agency passed the units or a unit
containing an exigent health and safety violation.

For the 11 materially failed units, we determined that from the time the Agency inspected the
units and should have identified, cited, and obtained correction or abated the units’ housing
assistance until June 30, 2008, the Agency inapporopriately paid $22,071 in housing assistance
and improperly received $2,124 in Section 8 administrative fees. As of May 30, 2008, the total
monthly housing assistance payment for the 11 units was $6,002. We estimate that if the Agency
does not make corrections to its inspection process, it will pay $72,024 ($6,002 total monthly
housing assistance payments times 12 months) in housing assistance over the next year for the 11
units that will not meet HUD’s housing quality standards.

We performed our on-site audit work between April and November 2008 at the Agency’s central
office located at 1919 North Meridian Street, Indianapolis, Indiana. The audit covered the period
January 1, 2007, through March 31, 2008, but was expanded when necessary to include other
periods.

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.




                                               21
                              INTERNAL CONTROLS

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

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

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

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

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

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

              We assessed the relevant controls identified above.

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




                                               22
Significant Weakness

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

           •   The Agency lacked adequate procedures and controls to ensure compliance
               with federal requirements and/or its policies regarding managing the day-to-
               day operations of its program, including housing unit conditions, housing
               assistance payment calculations, voucher utilization, and the operation of its
               Section 8 Project-Based Voucher program (see findings 1, 2, 3, and 4).




                                            23
                                   APPENDIXES

Appendix A

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

          Recommendation                                              Funds to be put
              number            Ineligible 1/        Unsupported 2/   to better use 3/
                 2A                                                       $8,751,882
                 3A                  $211,680
                 3B                                      $2,081,512
                 3C                                                           127,008
                 4B                     24,195
                 4C                                                           72,024
                Totals               $235,875            $2,081,512       $8,950,914


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. In these instances, if the Agency
     implements recommendation 2A, it should ensure that it meets HUD’s expected leasing
     thresholds in issuing available vouchers, and it can provide more housing assistance to
     eligible households. If the Agency implements recommendation 3C, it should ensure that
     the Agency provides assistance to only eligible units through its project-based program,
     thereby earning its administrative fees correctly. If the Agency implements
     recommendation 4C, it will cease to incur program costs for units that are not decent,
     safe, and sanitary and, instead, will expend those funds in accordance with HUD’s


                                                24
requirements. Once the Agency successfully improves its controls, this will be a
recurring benefit. Our estimate reflects only the initial year of this benefit.




                                       25
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         28
Ref to OIG Evaluation   Auditee Comments




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 4




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




Comment 7




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 8




                         32
Ref to OIG Evaluation   Auditee Comments




                         33
Ref to OIG Evaluation   Auditee Comments




Comment 9




                         34
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11


Comment 12


Comment 13




                         35
Ref to OIG Evaluation   Auditee Comments




Comment 14




                         36
Ref to OIG Evaluation   Auditee Comments




                         37
Ref to OIG Evaluation   Auditee Comments




                         38
Ref to OIG Evaluation   Auditee Comments




                         39
Ref to OIG Evaluation   Auditee Comments




                         40
Ref to OIG Evaluation   Auditee Comments




                         41
Ref to OIG Evaluation   Auditee Comments




                         42
                          OIG Evaluation of Auditee Comments

Comments 1 The standards referred to by the Agency are HUD’s housing quality standards as
           defined at 24 CFR 982.401. The project-based program incorporates the use of
           HUD’s housing quality standards at 24 CFR 983.101.

Comment 2    As stated in HUD’s Housing Choice Voucher Guidebook, HUD’s housing quality
             standards establishes the minimum criteria necessary for the health and safety of
             program participants. The Agency incorporates additional requirements for the
             inspections of its Section 8 units in its program administrative plan by including
             chapter 10, Minimum Standards for Residential Property and Housing from the
             Code of the Health and Hospital Corporation.

Comment 3    We conducted our audit of the Agency’s program using the applicable federal
             requirements as well as the Agency’s program administrative plan.

Comment 4    The Agency’s proposed actions should improve its procedures and controls over
             its Section 8 Housing Choice Voucher program if fully implemented.

Comment 5    The Agency’s actions should improve its utilization of vouchers for its Section 8
             Housing Choice Voucher program if fully implemented.

Comment 6    We revised the report to reflect that the project-based assistance was unsupported
             due to the lack of documentation.

Comment 7    In accordance with 24 CFR 982.152(d), HUD may reduce or offset any
             administrative fees paid to a public housing agency, in the amount determined by
             HUD, if the agency fails to perform its administrative responsibilities correctly or
             adequately. Further, we specifically discussed during the exit conference held
             with the Agency on December 16, 2008, that the entire administrative fee earned
             was questioned in our findings because it was HUD’s responsibility to determine
             the amount of the fee to be reduced or offset. HUD’s decision can then be
             discussed with us during the audit resolution process.

Comment 8    We agree that the appropriate HUD requirement, 24 CFR 983.3, refers to public
             housing agency owned rather than identity of interest, and we revised the finding
             to reflect the proper terminology. However, the finding accurately explains the
             Agency’s role in the Red Maplegrove/Brokenburr Apartments complex and
             HUD’s requirements for providing the project-based voucher assistance.

Comment 9    During the exit conference held with the Agency on December 16, 2008, we
             discussed the audit resolution process with the Agency. Specifically, HUD will
             work with the Agency to develop a corrective plan to address the audit
             recommendations. The Agency is familiar with the audit resolution process and
             should be aware that it may be afforded the opportunity to provide the supporting
             documentation that was not available to us during the audit.


                                              43
Comment 10 We agree that the caption for the picture was misleading and we revised the
           caption and the report text with regard to the meter box enclosure cover. Our
           appraiser did open the unsecured enclosure cover to show the electrical wiring
           coming from the utility pole to the meter connections. The National Electrical
           Code requires that outdoor electrical equipment, including meters, be installed in
           suitable enclosures and be protected from accidental contact by unauthorized
           personnel.

Comment 11 On page 15 of this audit report, we stated that 11 (61 percent) of the 18 units
           inspected had material violations that existed before the Agency’s previous
           inspections. Our appraiser identified the deficiencies noted in the inspection
           results we provided to the Agency, as witnessed by the Agency’s inspection
           supervisor. The supervisor was also present when we attempted to determine
           whether the deficiencies existed at the time of the Agency’s previous inspections
           by interviewing the households or by the obvious long-term nature of the
           violations. Further, the Agency’s supervisor was proactive in attempting to
           correct the noted deficiencies. He contacted the respective properties’
           maintenance personnel to expedite the needed repairs.

Comment 12 See comment 7.

Comment 13 We agree that the Agency has taken significant measures to improve its
           compliance with HUD’s housing quality standards. Based upon the deficiencies
           noted, additional improvements in quality control review may still be necessary.

Comment 14 We notified the Agency on April 9, 2008, that we selected the Agency for audit
           based upon our prior two audits and the recent press coverage regarding the
           physical conditions at two program-subsidized apartment complexes. The
           Indianapolis Star published a number of articles between October and December
           2007 about the deplorable living conditions at two HUD-subsidized projects
           (Phoenix and Timber Ridge Apartments ) administered by the Agency. On page
           15 of this report, we stated that we did not conduct inspections at the Agency’s
           project-based units in its multifamily buildings because they were generally well
           maintained. The Agency’s enforcement efforts resulted not only in the improved
           physical conditions, but also in removing inappropriate households from the
           projects.




                                              44
Appendix C

                          FEDERAL REQUIREMENTS

Finding 2
HUD’s Housing Choice Voucher Program Guidebook, 7420.10G, sections 8.13 and 24.3, state in
part that a public housing agency must maintain a leasing rate of at least 95 percent of the
number of units under its annual contributions contract. Section 24.1 states that a public housing
agency that has not spent 100 percent of the funds contracted under its annual contributions
contract has not utilized all of the resources provided for its program. The failure of any
authority to use all of the funding contracted for the Housing Choice Voucher program will
always mean that a family in need of housing assistance is not being helped. HUD has a
responsibility to Congress to ensure that the funds authorized for housing assistance are used to
assist the maximum number of families.

HUD’s regulations at 24 CFR 985.3(n)(3)(ii) require that public housing authorities lease at least
95 percent of their allocated yearly vouchers and/or funding to eligible participants in order to
receive an acceptable program performance rating as a “standard” performer. HUD uses this
requirement as part of its review and scoring of the Agency’s program.

Finding 3
Federal Register, Volume 66, Number 10, dated January 16, 2001, 24 CFR 983.11(b) (1997
through September 30, 2005) and 983.58(d), effective October 13, 2005, require compliance
with HUD’s environmental regulations. Housing agencies may not enter into housing assistance
payments contracts unless an environmental review has been completed and HUD has approved
the environmental certification or it was determined that the project was exempt from
environmental laws.

Effective with Federal Register, Volume 66, Number 10, January 16, 2001, 24 CFR 983.257(b)
and (d), effective from January 16, 2001, through September 30, 2005, required housing agencies
to perform a subsidy layering review to prevent excessive public assistance by combining
housing assistance with other governmental housing assistance from federal, state, and local
agencies. Project-based Section 8 assistance may not be paid for units subsidized with any
governmental rent subsidy or subsidy that covers any part of housing operating costs or tenant-
based assistance such as the HOME Investments Partnerships Program. These requirements
were provided in 24 CFR 983.54(a), (c), (d), and (k), effective October 13, 2005.

Effective with Federal Register, Volume 66, Number 10, subpart F, dated January 16, 2001,
housing agencies were prohibited from providing project-based Section 8 assistance for units in a
building if the project-based units were more than 25 percent of the dwelling units in a building
except for single-family dwellings, elderly or disabled buildings, or units occupied by families



                                                45
receiving supportive services. This requirement was also established in 24 CFR 983.56(a) and
(b), effective October 13, 2005.

Effective with Federal Register, Volume 70, Number 197, dated October 13, 2005, 24 CFR
983.205 requires the initial housing assistance payments contract term to be from 1 to 10 years
with the ability to extend the contract for up to an additional five-year term. The Federal
Register, Volume 70, Number 197, also included 24 CFR 983.3, which defines public housing
agency owned as any interest by the public housing agency in the building in which the unit is
located.

Federal Register, Volume 66, Number 10, dated January 16, 2001, requires compliance with
HUD’s housing quality standards for both tenant-based and project-based Section 8 units.
Before and during the term of assistance, units are inspected for compliance with the HUD’s
housing quality standards. In general, the same statutory public housing agency inspection
requirements apply to project-based voucher assistance as to the tenant-based voucher program
(see United States Code, title 42, sections 1437f(o)(8) and 1437f(o)(13)(F)).

United States Code, title 42, chapter 8, subchapter I, subsection 1437f(o)(10)(A), states that the
rent for dwelling units for which a housing assistance payment contract is established under this
subsection shall be reasonable in comparison with rents charged for comparable dwelling units in
the private, unassisted local market.

HUD’s regulations at 24 CFR 983.12(b), 983.252, and 983.256(a) and (b), effective April 1,
1997, through September 30, 2005, required housing agencies to determine the reasonable rents
to the owners comparing the proposed rents with the rents of at least three comparable unassisted
units. Effective with Federal Register, Volume 70, Number 197, dated October 13, 2005,
HUD’s regulations at 24 CFR 983.301(b), (c), and (e) and 983.303(c) and (d) require housing
agencies to perform the rent reasonableness reviews using three comparable unassisted units.

HUD’s regulations at 24 CFR 983.52(a) and (b), effective April 1, 1997, through September 30,
2005, required housing agencies to inspect each proposed project-based unit to determine that it
fully complied with HUD’s housing quality standards before executing a housing assistance
payments contract. Effective with Federal Register, Volume 70, Number 197, October 13, 2005,
24 CFR 983.103(b) and 983.204(a) require that all units pass a housing quality standards
inspection before contract approval.

HUD’s regulations at 24 CFR 983.6(a)(3) from April 1, 1997, through September 30, 2005,
required that project-based assistance be consistent with the goal of deconcentrating poverty and
expanding economic opportunity while avoiding undue concentration of low-income persons.
Effective with Federal Register, Volume 70, Number 197, October 13, 2005, 24 CFR
983.57(b)(1) requires housing agencies to not unduly concentrate low-income persons.

HUD’s regulations at 24 CFR 983.55(a), from April 1, 1997, through September 30, 2005,
required project-based units to comply with disability accessibility requirements of Section 504
of the Rehabilitation Act of 1973. Effective with Federal Register, Volume 70, Number 197,



                                               46
October 13, 2005, 24 CFR 983.102(a) requires housing agencies to comply with Section 504
disability access requirements.

HUD’s regulations at 24 CFR 983.257(c), effective January 16, 2001, through March 31, 2005,
and 983.256, effective April 1, 2005, as well as 24 CFR 983.304(e), effective October 15, 2005,
provide that the agency may reduce rents to owners because of other government subsidies.

HUD’s regulations at 24 CFR 983.253(b), effective January 16, 2001, through September 30,
2005, and 983.59(b), effective October 13, 2005, prohibit the housing agency from determining
rents to the owner or performing housing quality standard inspections for project-based Section 8
units that the agency owns. These activities must be conducted by an independent entity
approved by HUD.

HUD’s regulations at 24 CFR 983.256(a)(1) state that the housing authority may not enter an
agreement to enter into a housing assistance payments contract until the housing authority
determines that the initial rent to the owner under the housing assistance payments contract is a
reasonable rent.

HUD’s regulations at 24 CFR 983.11(b) state that activities under this part are subject to HUD’s
environmental regulations in Part 58. A housing authority may not attach assistance to a unit
unless, before the housing authority enters into an agreement to provide project-based assistance
for the unit, (1) the unit of general local government within which the project is located that
exercises land use responsibility or, as determined by HUD, the county or state has completed
the environmental review required by 24 CFR Part 58 and provided to the housing authority for
submission to HUD the completed request for release of funds and certification and (2) HUD has
approved the request for release of funds.

HUD’s regulations at 24 CFR 983.59(b) requires the following:

(a) The selection of public housing agency owned units must be done in accordance with 24 CFR
983.51(e),
(b) In the case of public housing agency owned units, the following program services may not be
performed by the public housing agency, but must be performed instead by an independent entity
approved by HUD.
   (1) Rent to owner for public housing agency owned units is determined pursuant to Part
      983.301 through 983.305 in accordance with the same requirements as for other units,
      except that the independent entity approved by HUD must establish the initial contract
      rents based on an appraisal by a licensed, state-certified appraiser; and
   (2) Inspection of public housing agency owned units as required by Part 983.103(f).
(c) The independent entity that performs these program services may be the unit of general local
government for the public housing agency jurisdiction (unless the public housing agency is itself
the unit of general local government or an agency of such government) or another HUD-
approved public or private independent entity.




                                                47
HUD’s regulations at 24 CFR 983.304(e) provide that the housing agency may reduce rents to
the owners due to other governmental subsidies including tax credits, grants, or other subsidized
financing.

In accordance with 24 CFR 982.152(d), HUD may reduce or offset any administrative fee to a
public housing agency in the amount determined by HUD if the agency fails to perform its
administrative responsibilities correctly or adequately under the program (for example, public
housing agency failure to enforce housing quality standards requirements).

Finding 4
Federal Register, Volume 66, Number 10, dated January 16, 2001, requires compliance with
HUD’s housing quality standards for both tenant-based and project-based Section 8 units.
Before and during the term of assistance, units are inspected for compliance with the housing
quality standards. In general, the same statutory public housing agency inspection requirements
apply to project-based voucher assistance as to the tenant-based voucher program (see United
States Code, title 42, sections 1437f(o)(8) and 1437f(o)(13)(F)).

Federal regulations at 24 CFR 982.401 require that all Section 8 program housing meet the
housing quality standards performance requirements both at commencement of assisted
occupancy and throughout the tenancy.

In accordance with 24 CFR 982.152(d), HUD may reduce or offset any administrative fee to a
public housing agency in the amount determined by HUD if it fails to enforce HUD’s housing
quality standards.




                                               48