oversight

The Chicago Housing Authority, Chicago, Illinois, Did Not Always Ensure That Section 8 Units Met HUD's Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-02-19.

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

                                                                 Issue Date
                                                                          February 19, 2009
                                                                 Audit Report Number
                                                                          2009-CH-1005




TO:         Steven E. Meiss, Director of Public Housing Hub, 5APH


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

SUBJECT: The Chicago Housing Authority, Chicago, Illinois, Did Not Always Ensure That
           Section 8 Units Met HUD’s Housing Quality Standards

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Chicago Housing Authority’s (Authority) Section 8 Housing
             Choice Voucher program (program) under its Moving to Work Demonstration
             program. The audit was part of the activities in our fiscal year 2008 annual audit
             plan. We selected the Authority based upon our analysis of risk factors relating to
             the housing agencies in Region V’s jurisdiction. Our objective was to determine
             whether the Authority administered its program in accordance with the U.S.
             Department of Housing and Urban Development’s (HUD) requirements and its
             program administrative plan regarding the enforcement of housing quality
             standards. This is the second of multiple audit reports that may be issued
             regarding the Authority’s program.


 What We Found

             The Authority’s program administration regarding housing unit conditions and
             timeliness of annual housing unit inspections was inadequate. Of the 65 housing
             units statistically selected for inspection that did not receive a quality control
             inspection by CVR Associates, Incorporated (CVR), the Authority’s inspections
             contractor, 52 did not meet HUD’s housing quality standards, and 23 had exigent
             health and safety violations that existed at the time of CVR’s previous
           inspections. Based on our statistical sample, we estimate that over the next year,
           HUD will pay more than $3 million in housing assistance for units with housing
           quality standards violations that had not received a quality control inspection.

           Further, of the 39 housing units statistically selected for inspection that received a
           quality control inspection by CVR, 33 did not meet HUD’s housing quality
           standards, and 12 had exigent health and safety violations that existed at the time
           of CVR’s previous inspections. Based on our statistical sample, we estimate that
           over the next year, HUD will pay more than $167,000 in housing assistance for
           units with housing quality standards violations that received a quality control
           inspection.

           The Authority also failed to ensure that its housing unit inspections were
           conducted in a timely manner. Of the 300 household files selected for review, 62
           (21 percent) had inspections that were not conducted within the required one year
           of the previous inspections. The number of days late ranged from 4 to 1,001.

What We Recommend

           We recommend that the Director of HUD’s Chicago Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of nearly $102,000 in program funds and implement adequate
           procedures and controls to address the finding cited in this audit report. These
           procedures and controls should help ensure that more than $3.1 million in
           program funds is spent on housing units that meet HUD’s 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 issued because of the audit.


Auditee’s Response

           We provided our inspection review results and supporting schedules to the
           Director of HUD’s Chicago Office of Public Housing and the Authority’s chief
           executive officer during the audit. We also provided our discussion draft audit
           report to the Authority’s chief executive officer, its board chairman, and HUD’s
           staff during the audit. We held an exit conference with the Authority’s chief
           executive officer on January 13, 2009.

           We asked the Authority’s chief executive officer to provide comments on our
           discussion draft audit report by February 5, 2009. The Authority’s chief
           executive officer provided written comments, dated February 3, 2009. The chief
           executive officer generally agreed with our findings and recommendations. The
           complete text of the written comments, along with our evaluation of that response,

                                             2
can be found in appendix B of this report, except for 35 pages of documentation
that was not necessary for understanding the Authority’s comments. A complete
copy of the Authority’s comments plus the documentation was provided to the
Director of HUD’s Chicago Office of Public Housing.




                                3
                           TABLE OF CONTENTS

Background and Objective                                                   5

Results of Audit
      Finding: Controls over Housing Quality Standards Were Inadequate     7

Scope and Methodology                                                     20

Internal Controls                                                         23

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use      25
   B. Auditee Comments and OIG’s Evaluation                               26
   C. HUD’s Regulations and the Authority’s Program Administrative Plan   35




                                           4
                       BACKGROUND AND OBJECTIVE

The Chicago Housing Authority (Authority) was established in April 1934 under the laws of the
State of Illinois to provide decent, safe, and sanitary housing. The Authority is governed by a
10-member board of commissioners (board) appointed by the mayor of Chicago, Illinois, to five-
year staggered terms. The board’s responsibilities include overseeing the Authority’s operations,
as well as the review and approval of its policies. The mayor also appoints the Authority’s chief
executive officer. The chief executive officer is responsible for coordinating established policy
and carrying out the Authority’s day-to-day operations.

In May 1995, the U.S. Department of Housing and Urban Development (HUD) assumed control
of the Authority due to years of management problems and deteriorated living conditions at the
Authority’s developments. HUD selected Quadel Consulting Corporation (Quadel) to
administer, manage, and operate the Authority’s Section 8 Housing Choice Voucher program
(program) in October 1995. The contractor created a subsidiary, CHAC, Inc., which formally
took over the Authority’s program administration in December 1995. The Authority paid the
contractor more than 90 percent of its administrative fee to operate the program.

In 1996, Congress authorized the Moving to Work Demonstration (Moving to Work) program as
a program under HUD. The Authority was accepted into the Moving to Work program on
February 6, 2000, when HUD’s Assistant Secretary for Public and Indian Housing signed the
Authority’s Moving to Work agreement (agreement). Moving to Work allows certain housing
authorities to design and test ways to promote self-sufficiency among assisted families, achieve
programmatic efficiency, reduce costs, and increase housing choices for low-income households.
Congress exempted the Moving to Work participants from much of the United States Housing
Act of 1937 and associated regulations. The agreement requires the Authority to abide by the
statutory requirements in Section 8 of the United States Housing Act of 1937 and the annual
contributions contract, except as necessary for the Authority to implement its Moving to Work
demonstration initiatives.

In April 2007, the Authority issued a request for proposal to provide administration and
operation of the Authority’s program. The two respondents to the request for proposal were
Quadel, the Authority’s current administrator of the program, and CVR Associates, Incorporated
(CVR). Through a series of meetings and negotiations with both vendors, the evaluation
committee determined that it was in the best interest of the Authority to divide the administration
and operations of the program between the two vendors. The division of the program
commenced in June 2008.

CVR began administering and operating the housing quality standards inspections portion of the
Authority’s program after the division. It used a subcontractor, McCright and Associates, to
conduct housing quality standards inspections beginning in June 2008. Although the contractors
administer the program, the Authority is ultimately responsible to HUD for program operations.
As of November 30, 2008, the Authority had 34,651 vouchers funded under the annual
contributions contract with HUD totaling more than $409 million in program funds.


                                                 5
Our objective was to determine whether the Authority administered its program in accordance
with HUD’s requirements to include determining whether (1) the Authority’s inspections were
sufficient to detect housing quality standards violations and provide decent, safe, and sanitary
housing to its residents; (2) the Authority conducted adequate quality control unit inspections to
detect housing quality standards violations; and (3) the Authority complied with HUD’s
regulations and its program administrative plan regarding annual housing unit inspections. This is
the second of multiple audit reports that may be issued regarding the Authority’s program (see
report number 2008-CH-1017, issued on September 30, 2008).




                                                 6
                                          RESULTS OF AUDIT

Finding: Controls over Housing Quality Standards Were Inadequate
The Authority did not adequately enforce HUD’s housing quality standards. Of the 104 program
units statistically selected for inspection (65 non-quality control and 39 quality control), 85 did
not meet minimum housing quality standards, and 35 had material violations that existed before
the Authority’s previous inspections. The violations occurred because the Authority lacked
adequate procedures and controls to ensure that the inspections performed by CVR were
adequate. It also failed to exercise proper supervision and oversight of Quadel to ensure that its
program units’ annual housing quality standards inspections were performed in a timely manner.
As a result, nearly $74,000 in program funds was spent on units that were not decent, safe, and
sanitary. We estimate that over the next year, the Authority will pay more than $3.1 million in
housing assistance for units with housing quality standards violations.


    HUD’s Housing Quality
    Standards Not Met for Non-
    Quality Control Unit
    Inspections

                   As previously mentioned, the Authority contracted with CVR in 2008 to perform
                   housing quality standards inspections of its program units. From the 1,3291 program
                   units that passed CVR’s inspections performed in July 2008, we statistically selected
                   652 units for inspection by using data mining software. We did not include units that
                   received a quality control inspection.  The 65 units were inspected to determine
                   whether the Authority ensured that its program units met HUD’s housing quality
                   standards. Our appraiser inspected the 65 units between September 22 and October
                   10, 2008.

                   Of the 65 units inspected, 52 (80 percent) had a total of 318 housing quality
                   standards violations. In addition, 23 units were considered to be in material
                   noncompliance since they had one or more exigent health and safety violations that
                   predated CVR’s previous inspections. The following table categorizes the 318
                   housing quality standards violations in the 52 units.




1
  There were 55 Section 8 project-based voucher units included in the 1,329 program units that passed CVR’s inspections in July
2008.
2
  There were four Section 8 project-based voucher units included in our sample of 65 program units and one of these four units
failed.

                                                               7
                            Non-quality control unit inspections
                                                         Number of    Number
                           Category of violations        violations   of units
                    Window                                   67          27
                    Electrical                               63          37
                    Smoke/carbon monoxide detectors          30          16
                    Floor                                    21          17
                    Range/refrigerator                       18          17
                    Stairs, rails, and porches               17          14
                    Wall                                     16          12
                    Ceiling                                  12          9
                    Security                                 12          11
                    Other hazards                             9          8
                    Roof/gutters/chimney                      8          5
                    Toilet/wash basin                         7          7
                    Exterior surface                          6          6
                    Site and neighborhood conditions          6          6
                    Lead paint                                5          4
                    Water heater                              5          3
                    Heating equipment                         4          4
                    Evidence of infestation                   3          3
                    Tub or shower in unit                     3          3
                    Interior stairs and common halls          2          2
                    Other interior hazards                    1          1
                    Plumbing/sewer/water supply               1          1
                    Sinks                                     1          1
                    Food preparation/storage                  1          1
                                      Total                  318

            We provided our inspection results to the Director of HUD’s Chicago Office of
            Public Housing and the Authority’s chief executive officer on December 5, 2008.

Window Violations for Non-
Quality Control Inspections

            Sixty-seven window violations were present in 27 of the Authority’s program
            units inspected. The following items are examples of window violations listed in
            the table: windows that do not open or stay up properly, cracked or broken panes,
            and windows that do not lock or close properly. The following pictures are
            examples of the window-related violations.




                                            8
Unit F05: A living room
window had a broken
glass pane.




Unit B03: A broken
crank on a bathroom
window restricted proper
ventilation and made the
window difficult to open.




Electrical Violations for Non-
Quality Control Unit
Inspections

               Sixty-three electrical violations were present in 37 of the Authority’s program
               units inspected. The following items are examples of electrical violations listed in
               the table: exposed fuse box connections, exposed electrical contacts, and missing
               outlet cover plates. The following pictures are examples of the electrical-related
               violations.

                                                9
Unit A06: The electric
panel on a basement wall
was missing four
breakers, exposing
electrical contacts.




Unit H05: A left/front
bedroom wall outlet was
missing a cover plate.
Children between the
ages of 6 and 18 resided
in this unit.




Ceiling Violations for Non-
Quality Control Inspections

               Twelve ceiling violations were present in nine of the Authority’s program units
               inspected. The following items are examples of ceiling violations listed in the
               table: water damage, peeling paint, and cracks. The following pictures are
               examples of the ceiling-related violations.



                                               10
Unit D03: The ceiling
and wall of the
right/center bedroom had
damage caused by roof
leaks.




Unit A04: Ceiling repair
in the kitchen was left
unfinished for several
months and the ceiling
was still experiencing
leaks as evidenced by the
stains. Children under
the age of six resided in
this unit.




HUD’s Housing Quality
Standards Not Met for Quality
Control Inspections

               From the 89 program units that passed a quality control inspection performed by
               CVR in August 2008, we statistically selected 39 units for inspection by using data
               mining software.  The 39 units were inspected to determine whether the Authority
               conducted adequate quality control unit inspections to detect housing quality

                                                11
             standards violations. Our appraiser inspected the 39 units between September 22
             and October 10, 2008.

             Of the 39 units inspected, 33 (85 percent) had a total of 174 housing quality
             standards violations. In addition, 12 units were considered to be in material
             noncompliance since they had one or more exigent health and safety violations that
             predated CVR’s previous inspections. The following table categorizes the 174
             housing quality standards violations in the 33 units.

                                    Quality control unit inspections
                                                             Number of     Number of
                             Category of violations          violations      units
                       Electrical                               44             18
                       Window                                   30             19
                       Smoke/carbon monoxide detectors          15             11
                       Wall                                     14             12
                       Security                                 11             8
                       Stairs, rails, and porches               10             10
                       Range/refrigerator                        9             9
                       Floor                                     7             3
                       Exterior surface                          5             4
                       Other hazards                             5             4
                       Ceiling                                   4             4
                       Heating equipment                         3             3
                       Toilet/wash basin                         3             3
                       Evidence of infestation                   2             2
                       Interior stairs and common halls          2             2
                       Lead paint                                2             2
                       Other interior hazards                    2             1
                       Tub or shower in unit                     2             2
                       Roof/gutters/chimney                      1             1
                       Sinks                                     1             1
                       Site and neighborhood conditions          1             1
                       Water heater                              1             1
                                        Total                   174

             We provided our inspection results to the Director of HUD’s Chicago Office of
             Public Housing and the Authority’s chief executive officer on December 5, 2008.

Electrical Violations for Quality
Control Inspections

             Forty-four electrical violations were present in 18 of the Authority’s program
             units inspected. The following items are examples of electrical violations listed in
             the table: exposed fuse box connections, exposed electrical contacts, and outlets


                                              12
                with open ground connections. The following pictures are examples of the
                electrical-related violations.
 Unit D07: The electric
 panel in the basement
 had 13 breaker
 knockouts missing,
 exposing electrical
 contacts.




Unit K07: An outlet was
hanging outside the
kitchen pantry wall.




 Wall Violations for Quality
 Control Inspections

                Fourteen wall violations were present in 12 of the Authority’s program units
                inspected. The following items are examples of wall violations listed in the table:


                                                13
                 missing handrails, handrails not secured, and handrails not mounted in the correct
                 location. The following pictures are examples of the wall-related violations.
Unit B09: The stairway
to the basement had no
handrail.




Unit G06: The handrail
on the back porch
leaving the kitchen was
too low and stopped
short of the top of stairs.




Exterior Surface Violations for
Quality Control Inspections


                 Five exterior surface violations were present in four of the Authority’s program
                 units inspected. The following items are examples of exterior surface violations
                 listed in the table: holes in exterior walls, crumbling bricks, and deteriorated

                                                 14
                masonry. The following pictures are examples of the exterior surface-related
                violations.

Unit J01: An abandoned
vent through the wall
needed to be
permanently capped to
prevent infiltration. A
child under the age of six
resided in the unit.




Unit H01: The bricks
and mortar joints on the
parapet wall had
deteriorated, and pieces
had fallen to the ground.




Annual Inspections Not
Performed in a Timely Manner

                Of the 31,363 households that received or had an inspection scheduled between
                May 2006 and April 2008, we selected 300 households’ files to determine
                whether Quadel performed the Authority’s annual inspections within one year in

                                               15
            accordance with HUD’s regulations. From January 1, 2007, through April 30,
            2008, Quadel conducted late annual inspections for 62 of the 300 households
            reviewed or 21 percent. In calculating the number of days late, a 30 day grace
            period was added, allowing the Authority 395 days between inspections. For the
            62 households, the range of days late (past the 30-day grace period) was 4 to
            1,001. Of the 62 households, 51 received inspections more than 60 days late, and
            34 of these were more than 180 days late. The Authority received $22,112 in
            program administrative fees for the 62 households residing in units that were
            more than 30 days past due for housing quality standards inspections.

            Quadel’s base annual inspection report was designed to identify the last
            completed annual inspection, rescheduled annual inspection, or initial inspection.
            However, in October 2005, during the implementation of the Authority’s Yardi
            system, errors in the system caused certain records to be excluded in the
            inspection batch process reports. The records only appeared in the quality control
            exception reports used to identify overdue annual inspections and not in the
            inspection batch process reports used to schedule the annual inspections. To
            correct the problem of annual inspections not being scheduled and performed,
            Quadel created an exception report in the system to identify units with an active
            participant for which an annual or initial inspection had not been completed in
            more than 365 days.

            In early 2006, Quadel was recording the initial inspections in its ETL system and
            not entering the initial inspection data into the Authority’s Yardi system. As a
            result of the lacking initial inspection data in the Yardi system, annual inspections
            were not scheduled within 12 months. When Quadel became aware of this
            situation in May 2007, it scheduled annual inspections for the units for which
            initial inspections had not been entered into the Yardi system. Therefore, annual
            inspections for these units were late as a result of a data entry error.

            As of June 2008, Quadel continued to encounter problems in successfully
            building inspection reports in the Authority’s Yardi system, including the
            exception reports. Quadel notified the Authority of the problem and its attempts
            to resolve it. As of December 2008, CVR continued to encounter problems with
            correcting the system but was implementing procedures to reduce the number of
            late inspections.

Weaknesses in the Authority’s
Procedures and Controls over
Its Contractors

            The Authority lacked adequate procedures and controls to ensure that program
            units met HUD’s requirements. It also failed to exercise proper supervision and
            oversight of its contractors. The overall quality of the inspections performed by
            the Authority’s contractors was not in accordance with HUD’s housing quality

                                             16
             standards. Housing quality standards were either not known by CVR’s inspectors
             or not applied appropriately and correctly by the inspectors because they did not
             always conduct accurate and complete inspections. Therefore, CVR did not
             determine during its inspections whether program units complied with HUD’s
             housing quality standards.

             Further, the Authority did not ensure that CVR provided an acceptable level of
             service because it did not effectively monitor CVR. As of December 2008, the
             Authority had not conducted any reviews of CVR regarding the housing quality
             standards inspection process. Therefore, the Authority did not provide effective
             contract oversight, which would include performing quality control housing quality
             standards unit inspections. As a result, it did not verify that CVR conducted
             accurate and complete inspections and ensure that there was consistency among its
             inspectors in the application of HUD’s housing quality standards. Instead, CVR
             performed the quality control inspections, and as evidenced by this finding, the
             quality control inspections were not adequate.

             The Authority also lacked procedures or controls relating to the quality control
             review of inspection timeliness. Its quality control procedures relied on Quadel’s
             correct entry of inspection information into the Authority’s Yardi system.
             Therefore, annual inspections were late as a result of a data entry error, which
             would have been discovered had the Authority effectively monitored its
             contractor. The Authority also did not ensure that all program units that were
             included in the report from the Yardi system were scheduled and inspected by
             Quadel. Although Quadel notified the Authority of its problem with the system
             and its attempts to resolve it, the Authority did not ensure that program units met
             HUD’s requirements by failing to exercise proper supervision and oversight of its
             contractor. As evidenced during the period of May through October 2008, after
             our audit scope ended, inspections for 24 of 133 households that had an annual
             inspection due were either completed late or not at all.

Conclusion

             The Authority’s households were subjected to health- and safety-related
             violations, and the Authority did not properly use its program funds when it failed
             to ensure that units complied with HUD’s housing quality standards and perform
             timely annual inspections of its program units. In accordance with 24 CFR [Code
             of Federal Regulations] 982.152(d), HUD is permitted to reduce or offset any
             program administrative fees paid to a public housing authority if it fails to enforce
             HUD’s housing quality standards. The Authority disbursed $55,971 in program
             housing assistance payments for the 23 non-quality control-inspected units that
             materially failed to meet HUD’s housing quality standards and received $4,404 in
             program administrative fees. It also disbursed $17,572 in program housing
             assistance payments for the 12 quality control-inspected units that materially
             failed to meet HUD’s housing quality standards and received $1,559 in program

                                              17
          administrative fees. Further, the Authority received $22,112 in program
          administrative fees for the 62 households residing in units that were more than 30
          days past due for housing quality standards inspections. As a result, program
          households were subject to conditions that were potentially not decent, safe, or
          sanitary for a prolonged time.

          If the Authority implements adequate procedures and controls regarding its unit
          inspections to ensure compliance with HUD’s housing quality standards, we
          estimate that more than $3 million in future housing assistance payments will be
          spent for units that are decent, safe, and sanitary over the next year. We also
          estimate that more than $167,000 in future housing assistance payments will be
          spent for quality control-inspected units that are decent, safe, and sanitary over the
          next year. Our methodology for these estimates is explained in the Scope and
          Methodology section of this audit report.

Recommendations


          We recommend that the Director of HUD’s Chicago Office of Public Housing
          require the Authority to

          1A. Certify that the applicable housing quality standards violations have been
              corrected for the 85 units (52 non-quality control plus 33 quality control unit
              inspections) cited in this finding.

          1B. Reimburse its program $73,543 ($55,971 plus $17,572) for housing
              assistance payments and $5,963 ($4,404 plus $1,559) in associated
              administrative fees for the 35 units (23 plus 12 units) that materially failed
              to meet HUD’s housing quality standards.

          1C. Implement adequate procedures and controls to ensure that all program units
              meet HUD’s housing quality standards to prevent $3,167,688 ($3,000,564
              plus $167,124) in program funds from being spent over the next year on
              units that are in material noncompliance with the standards.

          1D. Ensure that all inspectors are properly trained, are familiar with housing
              quality standards, and can apply them appropriately.

          1E. Ensure that all supervisory quality control inspectors are properly trained, are
              familiar with housing quality standards, and can apply them appropriately.

          1F. Perform independent housing quality standards inspections to monitor the
              performance of its contractors.




                                           18
1G. Reimburse its program $22,112 from nonfederal funds in associated
    administrative fees for the 62 units that were more than 30 days late in
    receiving their annual inspections.

1H. Implement adequate procedures and controls to ensure that program units
    are inspected at least annually in accordance with HUD’s requirements.




                                19
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

       •   Applicable laws and regulations, the Authority’s 2006 program administrative plan,
           HUD’s program requirements at 24 CFR Parts 982 and 985, HUD Inspection Form
           52580, Housing Inspection Manual-Section 8 Existing Housing Program, and HUD’s
           Housing Choice Voucher Guidebook 7420.10.

       •   The Authority’s household files, policies and procedures, board meeting minutes for
           January 2007 through March 2008, organizational chart, program annual contributions
           contract with HUD, and the contracts between the Authority and its contractors.

       •   HUD’s files for the Authority.

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

Using data mining software, we statistically selected 65 of the Authority’s program units to inspect
from the 1,329 units that passed annual inspections or reinspections by CVR in July 2008. The 65
units were selected to determine whether the Authority’s program units met HUD’s housing quality
standards. Our sampling criteria used a 90 percent confidence level, 50 percent estimated error rate,
and precision of plus or minus 10 percent.

Our sampling results determined that 23 of the 65 units (35 percent) materially failed to meet
HUD’s housing quality standards. Materially failed units were those units that had one or more
exigent health and safety violations that predated the Authority’s previous inspections.

The Authority’s September 2007 through August 2008 housing assistance disbursements listing
showed that the average monthly housing assistance payment was $729 for the 1,329 units in the
population. Projecting our sampling results of the 23 units that materially failed to meet HUD’s
housing quality standards to the population indicates that 470 units or 35.38 percent of the
population contains the attributes tested (would materially fail to meet HUD’s housing quality
standards). The sampling error is plus or minus 9.51 percent. In other words, we are 90 percent
confident that the frequency of occurrence of the attributes tested lies between 25.87 and 44.90
percent of the population. This equates to an occurrence of between 343 and 596 units of the 1,329
units in the population.

       •   The lower limit is 25.87 percent times 1,329 units equals 343 units that materially failed
           to meet HUD’s housing quality standards.
       •   The point estimate is 35.38 percent times 1,329 units equals 470 units that materially
           failed to meet HUD’s housing quality standards.
       •   The upper limit is 44.90 percent times 1,329 units equals 596 units that materially failed
           to meet HUD’s housing quality standards.


                                                 20
Using the lower limit of the estimate of the number of units and the average housing assistance
payment, we estimate that the Authority will annually spend $3,000,564 (343 units times $729
average payment times 12 months) for units that materially fail to meet HUD’s housing quality
standards. This estimate is presented solely to demonstrate the annual amount of program funds
that will be correctly paid over the next year on decent, safe, and sanitary housing if the Authority
implements our recommendation. While these benefits would recur indefinitely, we were
conservative in our approach and only included the initial year in our estimate.

Using data mining software, we statistically selected 39 of the Authority’s program units to inspect
from the 89 units that passed quality control inspections by CVR in August 2008. The 39 units
were selected to determine whether the Authority’s program units met HUD’s housing quality
standards. Our sampling criteria used a 90 percent confidence level, 50 percent estimated error rate,
and precision of plus or minus 10 percent.

Our sampling results determined that 12 of the 39 units (31 percent) materially failed to meet
HUD’s housing quality standards. Materially failed units were those units that had one or more
exigent health and safety violations that predated the Authority’s previous inspections.

The Authority’s September 2007 through August 2008 housing assistance disbursements listing
showed that the average monthly housing assistance payment was $733 for the 89 units in the
population. Projecting our sampling results of the 12 units that materially failed to meet HUD’s
housing quality standards to the population indicates that 27 units or 30.77 percent of the population
contains the attributes tested (would materially fail to meet HUD’s housing quality standards). The
sampling error is plus or minus 9.11 percent. In other words, we are 90 percent confident that the
frequency of occurrence of the attributes tested lies between 21.66 and 39.88 percent of the
population. This equates to an occurrence of between 19 and 35 units of the 89 units in the
population.

       •   The lower limit is 21.66 percent times 89 units equals 19 units that materially failed to
           meet HUD’s housing quality standards.
       •   The point estimate is 30.77 percent times 89 units equals 27 units that materially failed
           to meet HUD’s housing quality standards.
       •   The upper limit is 39.88 percent times 89 units equals 35 units that materially failed to
           meet HUD’s housing quality standards.

Using the lower limit of the estimate of the number of units and the average housing assistance
payment, we estimate that the Authority will annually spend $167,124 (19 units times $733 average
payment times 12 months) for units that materially fail to meet HUD’s housing quality standards.
This estimate is presented solely to demonstrate the annual amount of program funds that will be
correctly paid over the next year on decent, safe, and sanitary housing if the Authority implements
our recommendation. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate.

Using the inspection data provided by Quadel for all inspections scheduled and performed
between May 2006 and April 2008, we determined that the Authority performed housing quality


                                                  21
standard inspections on a total of 31,363 households. The list of inspections was filtered by
tenant identification number and inspection date, and the first 300 were selected for review.

Of the 300 households reviewed, the Authority failed to conduct a timely annual inspection for
62 (21 percent). We calculated $22,112 in improper administrative fees earned by identifying
the average monthly administrative fee received per unit from January 2007 through April 2008,
which was $64.44, and multiplying it by the number of months that the annual inspection was
late between January 1, 2007, and April 30, 2008. Late annual inspections were those with more
than 395 days between scheduled annual inspections or between an initial inspection and an
annual inspection.

We performed our on-site audit work between April and November 2008 at the Authority’s offices
located at 60 East Van Buren, Chicago, Illinois. The audit covered the period January 1, 2007,
through March 31, 2008, but was expanded as determined necessary.

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 finding and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our finding and
conclusions based on our audit objective.




                                                22
                              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 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
              objective:

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

              •       Relevance and reliability of data – Policies, procedures, and practices that
                      management has implemented to provide reasonable assurance that
                      operational and financial information used for decision making and reporting
                      externally is relevant and reliable and fairly disclosed in reports.

              •       Compliance with laws and regulations – Policies and procedures that
                      management has implemented to provide reasonable assurance that program
                      implementation is in accordance with laws, regulations, and provisions of
                      contracts or grant agreements.

              •       Safeguarding of assets and resources – Policies and procedures that
                      management has implemented to prevent or promptly detect unauthorized
                      acquisition, use, or disposition of assets and resources.

              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.


                                               23
Significant Weakness


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

           •      The Authority lacked adequate procedures and controls to ensure compliance
                  with HUD’s requirements and/or its program administrative plan regarding
                  housing quality standards inspections and timeliness of annual unit
                  inspections (see finding).




                                            24
                                     APPENDIXES

Appendix A

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

                  Recommendation                              Funds to be put
                      number               Ineligible 1/      to better use 2/
                         1B                  $79,506
                         1C                                     $3,167,688
                         1G                   22,112
                        Totals              $101,618            $3,167,688


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/   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, if the Authority implements our
     recommendations, it will cease to incur program costs for units that are not decent, safe,
     and sanitary and not inspected annually and, instead, will expend those funds in
     accordance with HUD’s requirements. Once the Authority 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




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 2



Comment 3




Comment 4




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 5



Comment 6




Comment 7


Comment 8

Comment 9

Comment 10

Comment 11

Comment 12
Comment 13




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 14


Comment 15




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 16




                         31
                         OIG Evaluation of Auditee Comments

Comment 1   We adjusted recommendation 1A in the final audit report to require the Authority
            to certify that the applicable housing quality standards violations have been
            corrected for the 85 units (52 non-quality control plus 33 quality control unit
            inspections). HUD regulations at 24 CFR 982.401 require that all program
            housing meet HUD’s housing quality standards at the beginning of the assisted
            occupancy and throughout the tenancy. The Authority will have further
            opportunity to provide supporting documentation to HUD’s staff, who will work
            with the Authority to address the recommendation.

Comment 2   The Authority did not provide sufficient documentation with its written comments
            to support that only 20 regular and 6 quality control inspections did not meet
            housing quality standards.

Comment 3   We acknowledge that the Authority procured a new contractor; however, HUD
            regulations at 24 CFR 982.401 require that all program housing meet HUD’s
            housing quality standards at the beginning of the assisted occupancy and
            throughout the tenancy. Therefore, we reported all violations identified at the
            time of our inspection so that HUD and the Authority could ensure that they were
            corrected.

Comment 4   We disagree that the report did not objectively document deficiencies that were
            preexisting. We performed tenant interviews, consulted with our appraiser, and
            reviewed the Authority’s latest inspection reports in conservatively determining
            whether a housing quality standards violation existed before the last passed
            inspection conducted by the Authority or whether it was noted on the last passed
            inspection conducted by the Authority and was not corrected.

            HUD requires housing authorities to conduct quality control inspections within 90
            days of the initial inspection. Six of our 104 inspections were conducted more
            than 90 days after the Authority’s inspection, with 99 days being the maximum.
            This was a result of the time it took to gather data, select the sample, schedule
            inspections, and give proper notification to the households. Therefore, a majority
            of our inspections that cited deficiencies were conducted within the 90-day
            period. Hence, we maintain that our results are representative of the condition of
            the universe of program units.

            In addition, we agree that the report does not distinguish between possible tenant-
            caused violations and other types, but it was not our intention to report this
            distinction. HUD’s regulations require that units comply with housing quality
            standards regardless of when the deficiency occurred or who was responsible.

Comment 5   We disagree with the Authority’s assertion that an inoperable stove burner is a
            routine failure. HUD’s Housing Choice Voucher Guidebook 7420.10G states that
            the oven must heat and all burners on the stove or range must work. If a tenant

                                             32
            turns on a burner and it does not ignite properly, escaping gas could cause an
            explosion and fire and possible injury or death to the tenants. We reported these
            items as exigent 24-hour violations to the Authority and HUD for immediate
            correction.

Comment 6   We disagree with the Authority’s assertion that ground fault circuit interrupter
            and open ground outlets are not violations of HUD’s housing quality standards.
            HUD’s regulations at 24 CFR 982.401(f)(2), when referring to outlets in both
            sections (ii) and (iii), specifically state that outlets must be in proper operating
            condition. Further, section 10.3 of HUD’s Housing Choice Voucher Program
            Guidebook 7420.10G discusses acceptability criteria for each of 13 housing
            quality standards performance requirements. The acceptability criteria for
            illumination and electricity performance requirements states in part that the public
            housing agency must be satisfied that the electrical system is free of hazardous
            conditions, including improper insulation or grounding of any component of the
            system. If outlets are not functioning as designed, they are a potential hazard. An
            inoperable ground fault circuit interrupter clearly is not “in proper operating
            condition,” and testing ground fault circuit interrupters is the method to ensure
            compliance with this requirement.

Comment 7   According to the City of Chicago’s code (code), not less than one approved
            carbon monoxide detector shall be installed in each residential unit. The code
            states that in every building that is heated by one main central fossil fuel powered
            heating unit that is not exempted under section 13-64-200, one approved carbon
            monoxide detector must be installed in the room containing the central heating
            unit. Therefore, regardless whether the floor was used for living purposes or not,
            we cited missing or inoperable carbon monoxide detectors in a room containing a
            heating unit as a 24-hour exigent health and safety violation based on the code
            because the Authority adopted the code in its program administrative plan with
            regards to smoke and carbon monoxide detectors.

Comment 8   According to HUD’s Housing Choice Voucher Guidebook 7420.10G, the
            condition of all exterior stairs, railings, and porches must not pose a danger to the
            household that would cause tripping or falling. The Section 8 Housing Inspection
            Manual states that unsound or hazardous conditions include stairs, porches,
            balconies, or decks with severe structural defects such as broken, rotting, or
            missing steps; absence of a handrail when there are extended lengths of steps (i.e.,
            generally four or more consecutive steps); or absence of or insecure railings
            around a porch or balcony which is approximately 30 inches or more above the
            ground. The handrail violations that existed were for stairs with four or more
            steps. The handrails were either missing, not secure, or mounted at an incorrect
            height which presented a safety risk. Having handrails mounted too low or too
            high poses a safety hazard because occupants cannot easily use the handrails
            while taking the stairs.




                                             33
Comment 9     According to HUD’s Housing Choice Voucher Guidebook 7420.10G, the
              household will not be exposed to serious infestations. The countertop in the unit
              was pulled away from the wall leaving a gap which impeded sanitation.

Comment 10 According to HUD’s Housing Choice Voucher Guidebook 7420.10G, the
           condition and equipment of interior and exterior stairs, halls, porches, and
           walkways must not present the danger of tripping and falling. Together with our
           appraiser, we determined that television cables that run across a walkway in a unit
           constitute a tripping hazard and could result in injury to the household.

Comment 11 According to regulations at 24 CFR 982.401(h)(2)(ii) and (iii), there must be
           adequate air circulation in the dwelling unit. Bathroom areas must have one
           openable window or other adequate exhaust ventilation. The window in this unit
           provided the only ventilation for the bathroom.

Comment 12 According to HUD’s Housing Choice Voucher Guidebook 7420.10G, section
           10.3, under Food Preparation and Refuse Disposal, all required equipment (stove
           and refrigerator) must be in proper operating condition.

Comment 13 According to HUD’s Housing Choice Voucher Guidebook 7420.10G, the
           household must not be exposed to any dangerous site or neighborhood conditions
           which would seriously and continuously endanger the health or safety of the
           household. The dead trees listed for two units did not cause the unit to fail;
           however, the dead trees were listed as health and safety violations. There were
           five other violations in one unit and 15 violations in the other.

Comment 14 The violations noted in the audit report are consistent with published guidance,
           including the Section 8 Housing Inspection Manual, HUD’s Housing Choice
           Voucher Guidebook 7420.10G, HUD’s regulations (24 CFR 982.401), and the
           Authority’s program administrative plan.

Comment 15 We performed our inspections accurately and appropriately applied HUD’s
           housing quality standards. The violations noted were defined as housing quality
           standards deficiencies without bias; therefore, the amount requested to be
           reimbursed was not reduced.

Comment 16 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, the timeliness of annual inspections was an ongoing problem
           for the Authority after our scope as shown in the audit report. From May through
           October 2008, inspections for 24 of 133 households that had an annual inspection
           due were either completed late or not at all; therefore, the system issues have not
           been entirely resolved.


                                              34
Appendix C

           HUD’S REGULATIONS AND THE AUTHORITY’S
               PROGRAM ADMINISTRATIVE PLAN

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

HUD’s regulations at 24 CFR 982.404 require that owners of program units maintain the units in
accordance with HUD’s housing quality standards. If the owner fails to maintain the dwelling
unit in accordance with HUD’s housing quality standards, the authority must take prompt and
vigorous action to enforce the owner’s obligations. The authority’s remedies for such breach of
the housing quality standards include termination, suspension, or reduction in housing assistance
payments and termination of the housing assistance payments contract. The authority must not
make any housing assistance payments for a dwelling unit that fails to meet the housing quality
standards unless the owner corrects the defect within the period specified by the authority and
the authority verifies the correction. If a defect is life threatening, the owner must correct the
defect within 24 hours. For other defects, the owner must correct them within 30 calendar days.

HUD’s regulations at 24 CFR 982.405(a) require that public housing authorities inspect the unit
leased to a family before the term of the lease, at least annually during assisted occupancy, and at
other times as needed to determine whether the unit meets housing quality standards.

HUD’s regulations at 24 CFR 982.153 state that that the public housing authority must comply
with the consolidated annual contributions contract, the application, HUD regulations and other
requirements, and its program administrative plan.

CHAC, Inc.’s Procedures Manual, dated May 2006, page 13-10, part two, Annual Inspections,
states that once a unit is leased, CHAC is required to inspect the unit annually to ensure that it
continues to meet housing quality standards. The annual inspection process begins 10 months
after the last full inspection and must be completed by the end of the 12th month after the last full
inspection.




                                                 35