oversight

The Chicago Housing Authority, Chicago, Illinois, Needs to Improve Its Controls over Its Section 8 Housing Assistance Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-05-19.

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

                                                                 Issue Date
                                                                          May 19, 2009
                                                                 Audit Report Number
                                                                          2009-CH-1009




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, Needs to Improve Its
           Controls over Its Section 8 Housing Assistance Payments

                                    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. This is the third of multiple audit reports that may
             be issued regarding the Authority’s program.

 What We Found

             The Authority’s program administration regarding zero-income households and
             the recovery of overpayments of housing assistance and utility allowances for
             duplicate individuals was inadequate. The Authority failed to comply with its
             program administrative plan regarding zero-income household reviews. It did not
             effectively use HUD’s Enterprise Income Verification system or other third-party
             verification methods to appropriately adjust the housing assistance payments or
             seek repayment of overpaid housing assistance when the Authority became aware
             of the unreported income. As a result, the Authority overpaid nearly $60,000 in
           housing assistance and utility allowances for the period January 1, 2007, through
           September 30, 2008.

           The Authority also failed to ensure that its program participants did not receive
           multiple subsidies. Of the 59 households reviewed, 17 received multiple
           subsidies totaling more than $16,000 in housing assistance and utility allowances.

           We informed the Authority’s chief executive officer and the Director of HUD’s
           Chicago Office of Public Housing of minor deficiencies through a memorandum,
           dated May 4, 2009.

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 $91,000 in program funds and implement adequate
           procedures and controls to address the findings cited in this audit report. These
           procedures and controls should help to ensure that over the next year, more than
           $578,000 in program funds will be spent on housing assistance that meets HUD’s
           and Authority’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 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 staff on April 8, 2009.

           We asked the chief executive officer to provide comments on our discussion draft
           audit report by April 29, 2009. The chief executive officer provided written
           comments, dated April 29, 2009. The executive director generally agreed with
           our findings and recommendations. The complete text of the written comments,
           along with our evaluation of that response, can be found in appendix B of this
           report except for 164 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.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                             4

Results of Audit
      Finding 1: The Authority’s Zero-Income Households Had Unreported Income        6

      Finding 2: The Authority’s Program Participants Received Multiple Subsidies   12

Scope and Methodology                                                               16

Internal Controls                                                                   18

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                20
   B. Auditee Comments and OIG’s Evaluation                                         21
   C. Federal Regulations and the Authority’s Requirements                          31




                                             3
                      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.

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 choice 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 to the extent necessary for the Authority to implement its Moving to Work demonstration
initiatives.

In June 2008, the Authority executed an amended and restated agreement with HUD. The amended
agreement supersedes the terms and conditions of one or more annual contributions contracts
between the Authority and HUD to the extent necessary for the Authority to implement its Moving
to Work demonstration initiatives as laid out in its annual Moving to Work plan as approved by
HUD.

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.
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 geographically. The division of the program
commenced in June 2008. Although the contractors administer the program, the Authority is
ultimately responsible to HUD for program operations.




                                               4
As of March 14, 2009, the Authority had 48,191 units under contract with annual housing
assistance payments totaling more than $445 million in program funds. The Authority paid the
contractors more than 90 percent of its administrative fee to operate the program.

Our objective was to determine whether the Authority administered its program in accordance
with HUD’s requirements and its program administrative plan to include determining whether
the Authority (1) appropriately adjusted the housing assistance payments or pursued the proper
amount owed from the applicable household and (2) recovered the overpayment of housing
assistance improperly provided for dependents claimed in multiple households. This is the third
of multiple audit reports that may be issued regarding the Authority’s program (see report
number 2008-CH-1017, issued on September 30, 2008, and report number 2009-CH-1005,
issued on February 19, 2009).




                                               5
                                 RESULTS OF AUDIT

Finding 1: The Authority’s Zero-Income Households Had Unreported
                               Income
The Authority did not effectively use HUD’s Enterprise Income Verification system (system) or
other third-party verification methods to determine that reported zero-income households had
unreported income. Of the 47 households statistically selected for review, 20 had unreported
income that affected their housing assistance and utility allowance payments. Further, the
Authority failed to properly determine the certification effective date and/or accurately calculate
the annual income for 21 households. These deficiencies occurred because the Authority lacked
adequate procedures and controls to ensure that it performed appropriate income verifications
and accurately calculated reported income. As a result, it unnecessarily paid housing assistance
and utility allowances totaling nearly $60,000 for households that were able to meet their rental
obligations. We estimate that over the next year, the Authority will pay more than $553,000 in
housing assistance for reported zero-income households that had unreported income.



 Households Had Unreported
 Income

               We statistically selected 47 household files from a universe of 1,335 households
               that reported zero income during the period January 1, 2007, through September
               30, 2008, using data mining software. The 47 files were reviewed to determine
               whether the Authority properly adjusted the housing assistance payments or
               entered into a repayment agreement for the overpaid subsidy once it became
               aware of the unreported income for households claiming zero income. Our
               review was limited to the information maintained by the Authority in the
               households’ files and HUD’s system.

               Through third-party verifications, reports in HUD’s system, or information
               received from program households, Quadel was aware of unreported income for
               18 of the 47 (38 percent) households reviewed. Although Quadel was informed
               of the unreported income, it failed to seek a repayment of the overpaid housing
               assistance totaling $37,475 for the 18 households, which was contrary to the
               Authority’s program administrative plan.

               The following are examples of households for which Quadel was aware of the
               unreported income but did not seek repayment:

                   •   Household T0012428 had Social Security income, which was confirmed
                       through HUD’s system, totaling $9,984. The household file contained an
                       Enterprise Income Verification report, dated March 21, 2008, showing that
                       a household member was receiving Social Security benefits from March
                       2005 through April 2008. However, Quadel did not attempt to recover the

                                                 6
                  overpaid housing assistance. Since the household had income, the
                  Authority overpaid $1,878 in housing assistance and utility allowances
                  from the household’s date of admission on February 12, 2007, through
                  April 30, 2008.

              •   Household 9709315 had employment income, which was confirmed
                  through third-party employment verification, totaling $7,042. The
                  household file contained a third-party employment verification received
                  by the Authority on approximately April 2, 2008, stating that a household
                  member was employed from December 1, 2007, through April 30, 2008.
                  However, Quadel did not attempt to recover the overpaid housing
                  assistance. Since the household had income, the Authority overpaid
                  $1,920 in housing assistance and utility allowances from January 1
                  through April 30, 2008.

           In addition to the 18 households that Quadel was aware of having unreported
           income; two households reporting zero income had income from employment
           and/or benefits, which Quadel was not aware of until we informed it. Quadel was
           not aware of the unreported income because when it ran the Enterprise Income
           Verification report, the unreported income was not listed. Although Quadel
           would not have learned of the unreported income until the household’s next
           recertification or until it ran the next Enterprise Income Verification report, the
           housing assistance payments for the two households were overpaid $1,826 in
           housing assistance and utility allowances.

           As a result of the Authority’s failure to properly adjust the housing assistance
           payments or pursue repayment for its zero-income households with unreported
           income totaling $186,168, HUD paid $39,301 ($37,475 plus $1,826) in housing
           assistance for the 20 (18 plus 2) households having income that were able to meet
           their rental obligations. As of April 29, 2009, Quadel had entered into six
           repayment agreements to recover the overpaid housing assistance for the 20
           households. The Authority recaptured the overpaid housing assistance totaling
           $88 for 1 of the 20 households; therefore, overpaid housing assistance payments
           of $39,213 ($39,301 minus $88) were outstanding as of April 29, 2009.

Reported Income Was Not
Accurately Calculated

           Of the 47 households reviewed, 21 reported income to Quadel either within a 30-
           day period or later. Although Quadel had the necessary income information to
           adjust the housing assistance and utility allowances, it failed to accurately
           determine the annual income and/or the certification effective date, which was
           contrary to the Authority’s program administration plan.

           According to the Authority’s administrative plan, an interim certification is made
           effective on the first day of the second month following the date change for
           certifications resulting in increases in total tenant payment, if the change in

                                            7
           income is reported within the required 30-day period. Also, interim certifications
           are made effective on the first day of the first month following the date change, if
           there is an increase in the total tenant payment when the change in income is not
           reported within the required 30-day period. Further, a change in income resulting
           in a decrease in total tenant payment is made effective on the first day of the
           month following the month in which the change was reported.

           As a result of Quadel’s failure to accurately calculate reported income, housing
           assistance and utility allowance payments totaling $20,524 were overpaid for the
           21 households. The following are examples of households for which Quadel did
           not properly determine the certification effective date:

              •   Household 0903943 reported income from Supplemental Security Income,
                  effective October 2006, on October 26, 2006. Also, according to a third-
                  party verification of benefits, the household’s income from Supplemental
                  Security Income began in October 2006. According to the Authority’s
                  administrative plan, the interim certification should have been effective
                  December 1, 2006. However, Quadel did not include the income until
                  July 1, 2007. Because Quadel calculated the household’s annual income
                  as zero while the household had income, housing assistance and utility
                  allowances totaling $744 were overpaid between January 1 and June 30,
                  2007.

              •   Household 9732844 reported loss of income, effective July 2008, on June
                  30, 2008. Quadel conducted a third-party verification on approximately
                  June 27, 2008, and determined that the household’s last day of
                  employment was June 27, 2008. According to the Authority’s
                  administrative plan, the interim certification should have been effective
                  July 1, 2008. However, Quadel conducted an interim certification, to be
                  effective May 1, 2008, with annual income of zero. Because the zero-
                  income certification was effective two months earlier, housing assistance
                  and utility allowances totaling $958 were overpaid from May 1 through
                  June 30, 2008.

The Authority’s Procedures and
Controls over Its Contractor
Had Weaknesses

           The Authority lacked adequate procedures and controls to ensure that housing
           assistance and utility allowance payments met HUD’s requirements and the
           Authority’s program administrative plan. It also failed to exercise proper
           supervision and oversight of its contractor, Quadel. The overpayment of $59,737
           ($39,213 plus $20,524) in housing assistance occurred because Quadel lacked
           adequate controls to accurately adjust the housing assistance payments or pursue
           repayment of the overpaid housing assistance when it became aware of the
           unreported income. Quadel also did not effectively use HUD’s system in
           determining unreported income for households claiming zero income. Of the 47

                                             8
files reviewed, 10 files contained an Enterprise Income Verification report
indicating income from employment and/or benefits during the time the
household claimed zero income. However, Quadel failed to take action by
generating repayment agreements to recapture the overpaid housing assistance
and utility allowances.

Neither Quadel nor the Authority’s other contractor, CVR Associates,
Incorporated, implemented quality controls for the review of zero-income
households. According to the senior quality management specialist for Quadel,
the quality controls that were in place dealt with eligibility and calculation errors,
which occurred approximately one month after the certification was completed.
For example, a certification completed in January that is to be effective in April is
reviewed for quality control purposes in February. This process will not identify
the unreported income because the information regarding the unreported income
will not be available until the household’s next recertification, which will take
place in two years or at the time when Quadel runs an Enterprise Income
Verification report, which also usually occurs in two years, unless an interim
certification is conducted. Thus, the quality control review conducted in February
will not identify unreported income relating to the certification.

The Authority’s contract requires the contractors to implement a quality control
system in which an error rate of no more than 10 percent is acceptable in the
determination of household’s adjusted income. Quadel performed a quality
control on 6 of the 47 files reviewed; however, it did not identify two files (33
percent) that contained overpayments due to not properly adjusting the housing
assistance when it had the necessary income information. This error was due to
the timing of the quality control reviews conducted by Quadel. As stated earlier,
information regarding unreported income was not available at the time of the
quality control review.

The Authority had been aware of weaknesses in its program quality controls since
November 22, 2006. The Authority’s consultant, Nan McKay and Associates,
conducted an assessment of the Authority’s program in fiscal year 2006. The
review identified a weakness in the Authority conducting quality controls of the
program. Specifically, it identified the following:

   •   The sample rental integrity management review showed errors in the files
       and problems with the Authority’s program administrative plan’s
       guidance, and

   •   The Authority did not receive ongoing reports during the year on
       performance standards. Therefore, if there were problems during the year,
       the Authority might not be made aware of the issues.

As of January 20, 2009, the Authority had not conducted any reviews of its
contractors regarding households reporting zero income. When asked what action
the Authority took in response to the review conducted by Nan McKay and
Associates, the Authority’s Nan McKay consultant said that the Authority was

                                  9
             establishing a Section 8 housing choice voucher quality control division. As of
             April 29, 2009, according to the Authority’s chief executive officer, the quality
             control department was fully staffed and training had commenced for the targeted
             program areas. However, the specific procedures and tools that will be used in
             the review of zero-income households were under development.

Conclusion

             As a result of weaknesses in the Authority’s procedures and controls, it
             improperly disbursed $59,737 in housing assistance and utility allowance
             payments. If the Authority does not implement adequate procedures and controls
             over its zero-income households, we estimate that it could pay more than
             $553,000 in excessive housing assistance and utility allowances over the next year
             based on the error rate found during our review. Our methodology for this
             estimate is explained in the Scope and Methodology section of this audit report.

             For households reporting zero income, the Authority required a zero-income
             checklist and zero-income affidavit to be completed at every recertification.
             However, these forms were not present in the files of 16 households reporting
             zero income. Because the zero-income affidavit and zero-income checklists do
             not always have an impact on the housing assistance payments, we did not count
             the housing assistance payments as unsupported when the forms were missing.
             However, because the household files were not effectively managed, we
             determined that the administrative fees received for managing household files
             were improperly received.

             In accordance with 24 CFR [Code of Federal Regulations] 982.152(d), HUD may
             reduce or offset any administrative fee to public housing authorities, in the
             amount determined by HUD, if the authorities fail to perform their administrative
             responsibilities correctly or adequately under the program. The Authority
             received $13,579 in program administrative fees for the 33 households with
             incorrect housing assistance and utility allowance payments or missing zero-
             income certification documentation.

Recommendations

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

             1A.    Pursue collection from the applicable households or reimburse its program
                    $37,387 from nonfederal funds for the overpayment of housing assistance
                    and utility allowances for the households cited in this finding.

             1B.    Pursue collection from the applicable households or reimburse from
                    nonfederal funds $1,826 in overpaid housing assistance and utility
                    allowances for the two households cited in this finding.

                                             10
1C.   Reimburse its program $20,524 from nonfederal funds for the
      overpayment of housing assistance and utility allowances due to not
      properly including reported income.

1D.   Reimburse its program $13,579 from nonfederal funds for the improper
      administrative fees related to the 33 households cited in this finding.

1E.   Implement quality control procedures to verify zero-income status after
      the quarter uploads are complete in HUD’s system; reinforce to
      contractors the recapture requirements for unreported income; and perform
      a 100 percent review of zero-income files to ensure checklists and
      affidavits are in tenant files to ensure that all housing assistance and utility
      allowance payments meet HUD and its requirements and prevent
      $553,405 in improper housing assistance and utility allowance payments
      during the next year.

1F.   Review the remaining 1,288 (1,335 minus 47) households claiming zero
      income between January 1, 2007, and September 30, 2008, to determine
      whether the households had unreported income. For households that
      received excessive housing assistance and utility allowance payments, the
      Authority should pursue collection and/or reimburse its program the
      applicable amount from nonfederal funds and/or terminate housing
      assistance for the applicable households.

1G.   Provide documentation to support the implementation of its quality
      controls over the program to ensure proper supervision and oversight of its
      contractor.




                                11
Finding 2: The Authority’s Program Participants Received Multiple
                              Subsidies
The Authority did not have adequate controls over household members claimed as dependents
under its program. It allowed nine members to be claimed as dependents in multiple households
under its program. This condition occurred because the Authority and Quadel lacked adequate
controls to ensure that household members were not included in more than one household. As a
result, HUD funds were not used efficiently and effectively as households received more in
housing assistance than they were entitled to receive.


 System Errors Were Ignored

              Using the HUD’s system and the Authority’s multiple-subsidies report from its
              Yardi system, we identified 407 households that were potentially receiving
              multiple subsidies as of October 27, 2008. Using data mining software, we
              statistically selected 59 households from the 407 active program households. The
              59 files were reviewed to determine whether the Authority provided multiple
              subsidies and if so, whether a repayment agreement was executed to recapture any
              overpayment of housing assistance. Our review was limited to the information
              maintained by the Authority in the households’ files, HUD’s Public and Indian
              Housing information Center and system, and the Tenant Rental Assistance
              Certification System. The 59 households were managed by Quadel from January
              1, 2007, through June 30, 2009.

              Four of the households included nine members that were claimed as dependents in
              more than one household within the Authority’s program. According to the
              Authority’s executive vice president of resident services, the Authority’s Yardi
              system prompts an error message when an individual is being added to the system
              if a Social Security number matching the individual’s Social Security number
              already exists. However, according to the executive vice president, the
              Authority’s contractor, Quadel, overrode the error message and continued to add
              duplicate individuals as program participants. Quadel’s program services director
              said that Quadel was aware that its staff was overriding the Yardi system error
              message but that the system error did not take into account whether the Social
              Security number in the system was associated with a current or past program
              participant.

              Quadel’s program services director emphasized that the Yardi system would catch
              potential multiple subsidies due to duplicate individuals in the program at the time
              of subsidy payment. The system would not make a payment if the Social Security
              number belonging to a member in one household was the same as the Social
              Security number belonging to the head of household of the second household.
              However, the system did not match the Social Security number of a family
              member in the first household to a family member in the second household. In
              cases such as these, payments were not stopped. The four households receiving


                                               12
           multiple subsidies within the Authority’s program included a family member in
           one household and a family member in a second household; therefore, the
           multiple subsidies were not stopped. The Authority overpaid housing assistance
           totaling $1,982 for the four households.

           The following are examples of household members claimed in more than one
           household within the Authority’s program:

              •   Household 9719573 consisted of three minor household members from
                  November 20, 2007, through June 30, 2008, who were also members of
                  the Authority’s program household 0968909 from September 1, 2007,
                  through June 30, 2008. Quadel allotted household 9719573 dependent
                  allowances for minors that did not reside in the household and calculated a
                  higher bedroom size that to which the household was entitled. As a result,
                  the Authority overpaid $1,444 in housing assistance and utility allowances
                  from November 2007 through June 2008.

              •   Household 0841874 consisted of a minor household member from January
                  1, 2007, through June 30, 2008, who was also a member of the Authority’s
                  program household 0972436 from February 4, 2008, through February 28,
                  2009. Quadel allotted household 0841874 dependent allowances for the
                  family member that did not reside in the household and calculated a higher
                  bedroom size that to which the household was entitled. As a result, the
                  Authority overpaid housing assistance and utility allowances totaling $484
                  from March 1 through June 30, 2008.

           In addition to addressing its system-generated warnings, Quadel failed to address
           errors generated by HUD’s Public and Indian Housing Information Center. The
           center’s system generated errors for 6 of the 59 households identified with
           duplicate dependents in the Authority’s program as well as other housing
           authorities’ programs. Because the system-generated errors were not addressed,
           one of the six households received an overpayment of $28 in housing assistance
           from the Authority.

The Authority Did Not
Recover Overpaid Subsidies


           Although the Authority inappropriately provided overpayments of housing
           assistance to 12 of the 59 households, it failed to seek repayment of the overpaid
           housing assistance payments when it became aware of the overpayments. In
           September 2008, Quadel identified individuals potentially receiving multiple
           subsidies through a report generated by the Authority in its Yardi computer
           system and/or through the multiple-subsidies report from HUD’s Public and
           Indian Housing Information Center. According to the Authority’s administrative
           plan, if Quadel determines that a household received excess rental assistance, it
           was Quadel’s responsibility to seek repayment.


                                           13
             Repayment may include tenant repayment of excess assistance in full, tenant
             repayment of excess assistance through a repayment agreement, a decrease in
             prospective rental assistance without the use of a formal repayment agreement, or
             repayment through legal action.

The Authority and Its
Contractor Lacked Adequate
Controls


             The overpayment of $17,586 ($1,982 plus $28 plus $15,576) in housing
             assistance and utility allowances to program participants occurred because the
             Authority and Quadel lacked adequate controls to ensure that household members
             were not included in more than one household and overpaid housing assistance
             was recaptured in accordance with the Authority’s administrative plan.

             According to Quadel’s quality control plan, Quadel will ensure that the
             households meet the program eligibility requirement by providing the Social
             Security number and other such documents relating to eligibility. Of the 17
             households receiving multiple subsidies, two (12 percent) did not have a file copy
             of the Social Security card and/or birth certificate for members who were included
             in more than one household. In addition, Quadel conducted a quality control
             review of one of the two household files in which eligibility documents were
             missing and failed to identify that the documents were missing.

             Further, Quadel did not effectively use the Authority’s Yardi system and HUD’s
             Public and Indian Housing Information Center to prevent households from
             receiving multiple subsidies when its staff overrode the duplicate Social Security
             number system errors and continued to add duplicate individuals as program
             participants.

             Although Quadel administered the Authority’s program, the Authority is
             ultimately responsible to HUD for program operations. The Authority did not
             ensure that Quadel provided an acceptable level of service because it did not
             effectively monitor the contractor.

Conclusion


             The Authority did not use its program funds efficiently and effectively when it
             failed to recapture $17,586 in housing assistance and utility allowances for 17
             households. As of April 29, 2009, the Authority recaptured the overpaid subsidy
             through repayment agreements totaling $958 for January 1, 2007, through June
             30, 2008, for 8 of the 17 households identified as receiving excess subsidies.
             Therefore, housing assistance payments of $16,772 ($17,730 minus $958) were
             overpaid for individuals that were dependents in more than one household. If the
             Authority does not implement adequate controls over duplicate household
             members, we estimate that it could pay more than $25,000 in excessive housing

                                             14
          assistance and utility allowances over the next year based on the error rate found
          during our review. Our methodology for this estimate is explained in the Scope
          and Methodology section of this audit report.

          In accordance with 24 CFR 982.152(d), HUD may reduce or offset any
          administrative fee to public housing authorities, in the amount determined by
          HUD, if the authorities fail to perform their administrative responsibilities
          correctly or adequately under the program. The Authority received $863 in
          program administrative fees related to the excess amounts not collected on five
          households about which Quadel had received warnings through the Authority’s
          and HUD’s computer systems.

Recommendations

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

          2A. Pursue collection from applicable households or reimburse its program
              $16,772 from nonfederal funds for the overpayment of housing assistance and
              utility allowances cited in this finding.

          2B. Reimburse its program $863 from nonfederal funds for the inappropriate
              program administrative fees related to the five households cited in this finding.

          2C. Implement quality control procedures to ensure that individuals are not
              listed in more than one household within its program by addressing its and
              HUD’s system warnings; upgrade its system to ensure warnings cannot be
              overridden and generate procedures for addressing its and HUD’s system
              warnings; reinforce to its contractors the recapture requirements for
              overpaid housing assistance payments; implement quality control
              procedures to conduct periodic reviews of its contractors to ensure that
              errors are accurately identified to prevent $25,028 in improper housing
              assistance and utility allowance payments during the next year.




                                           15
                        SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

       •      Applicable laws, regulations, the Authority’s 2006 program administrative plan,
              HUD’s program requirements at 24 CFR Parts 5 and 982, and HUD’s Housing
              Choice Voucher Guidebook 7420.10.

       •      The Authority’s accounting records; annual audited financial statements for 2004,
              2005, and 2006; bank statements; household files; policies and procedures; board
              meeting minutes for January 2007 through April 2008; organizational chart; and
              program annual contributions contract with HUD.

       •      HUD’s files for the Authority.

We also interviewed the Authority’s employees and board chairman and the contractors’ and
HUD’s staff.

Finding 1

Using data mining software, we statistically selected 47 of the 1,335 households reported as
having zero income during the period January 1, 2007, through September 30, 2008. The 47
files were reviewed to determine whether the Authority properly adjusted the housing assistance
payments or entered into a repayment agreement for the overpaid subsidies once it became aware
of the unreported income for households claiming zero income. Our sampling criteria used a 90
percent confidence level and precision of plus or minus 10 percent.

Our sampling results determined that 32 households received excessive housing assistance and
utility allowance payments due to unreported income by the household and/or exclusion of
income by Quadel. Based on our sample review results, using difference estimation
methodology, we are 95 percent confident that the amount overpaid due to unreported income
and/or exclusion of income over the next year will be at least $553,405. This amount was
determined by limiting the estimated difference lower limit of overpaid housing assistance to one
year. We divided the estimated difference lower limit of $968,459 by 21 months and then
multiplied by 12 months.

Finding 2

From the 407 active program households potentially receiving multiple housing subsidies as of
October 27, 2008, we statistically selected 59 households using data mining software. The 59
files were reviewed to determine whether the Authority provided multiple subsidies and if so,
whether a repayment agreement was executed. Our sampling criteria used a 90 percent
confidence level and precision of plus or minus 10 percent.

Our sampling results determined that 17 households received excessive housing assistance and
utility allowance payments due to the Authority’s and Quadel’s failure to prevent households


                                               16
from being claimed in more than one household and not recapturing overpaid subsidies when
they became aware of the overpaid housing assistance. Based on our sample review results,
using difference estimation methodology, we are 95 percent confident that the amount overpaid
over the next year due to program participants’ receiving multiple subsidies will be at least
$25,028. This amount was determined by limiting the estimated difference lower limit of
overpaid housing assistance to one year. We divided the estimated difference lower limit of
$37,542 by 18 months and then multiplied by 12 months.

We performed our on-site audit work between October 2008 and March 2009 at the Authority’s
offices located at 60 East Van Buren Street, 10th Floor, Chicago, Illinois. The audit covered the
period January 1, 2007, through June 30, 2008, but was expanded as determined necessary.

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




                                                17
                              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,
   •   Validity and reliability of data,
   •   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 objective:

              •       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 internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.


 Significant Weaknesses

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

                                               18
           •   The Authority lacked adequate controls to ensure compliance with HUD’s
               regulations and/or its program administrative plan regarding zero-income
               households and recovery of overpaid housing assistance for duplicate
               individuals (see findings 1 and 2),
           •   Quality control reviews of zero-income households (see finding 1),
           •   Procedures to verify zero-income status after the quarter uploads were
               completed in HUD’s system (see finding 1),
           •   Recapturing of overpaid housing assistance (see findings 1 and 2),
           •   Authority’s computer system and procedures for addressing its and HUD’s
               system warnings (see finding 2), and
           •   Periodic reviews of the contractors’ quality control reviews (see findings 1
               and 2).

Separate Communication of
Minor Deficiencies

           We informed the Authority’s chief executive officer and the Director of HUD’s
           Chicago Office of Public Housing of minor deficiencies through a memorandum,
           dated May 4, 2009.




                                            19
                                   APPENDIXES

Appendix A

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

               Recommendation                             Funds to be put to
                   number              Ineligible 1/      better use 2/
                     1A                    $37,387
                     1B                       1,826
                     1C                      20,524
                     1D                      13,529
                     1E                                            $553,405
                     2A                     16,772
                     2B                        863
                     2C                                              25,028
                    Totals                 $90,901                 $578,433


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 these instances, if the Authority implements our
     recommendations, it will cease to incur program costs for the overpayment of housing
     assistance and, instead, will expend those funds in accordance with HUD’s requirements
     and the Authority’s program administrative plan. Once the Authority successfully
     improves its controls, this will be a recurring benefit. Our estimate reflects only the
     initial year of this benefit.




                                            20
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




Comment 5




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7




                         24
Ref to OIG Evaluation   Auditee Comments




                         25
Ref to OIG Evaluation   Auditee Comments




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9




                         27
Ref to OIG Evaluation   Auditee Comments




                         28
Ref to OIG Evaluation   Auditee Comments




                         29
                        OIG’s Evaluation of Auditee Comments

Comment 1   We adjusted the final audit report to reflect the changes discussed with the
            Authority on April 22, 2009.

Comment 2   We adjusted recommendation 1A based upon additional documentation provided
            by the Authority.

Comment 3   We disagree with the Authority that only $1,838 of housing assistance and utility
            allowance payments were overpaid. Based on the documentation provided by the
            Authority during the audit, we determined the Authority overpaid $1,878 in
            housing assistance and utility allowance payments. The Authority should pursue
            collection from the household or reimburse from nonfederal funds $1,878 in
            overpaid housing assistance and utility allowances.

Comment 4   See Comment 1.

Comment 5   Although the Authority had not determined if the three households should repay
            the overpaid housing assistance and utility allowance payments or be removed
            from the program does not remove the fact that the housing assistance payments
            were overpaid. Therefore, we did not remove the $14,558 from our
            recommendation.

Comment 6   The Authority did not provide any documentation with its written comments to
            support that it did not overpay housing assistance and utility allowances due to
            not properly including reported income. According to the housing choice voucher
            guidebook, in cases where the error or omission is the fault of the Authority, the
            family and owner are not responsible for repayment. Therefore, the Authority
            should reimburse its program $20,524 from nonfederal funds for the overpayment
            of housing assistance and utility allowances.

Comment 7   In accordance with 24 CFR 982.152(d), HUD may reduce or offset any
            administrative fee to public housing authorities, in the amount determined by
            HUD, if the authorities fail to perform their administrative responsibilities
            correctly or adequately under the program.

Comment 8   The Authority’s proposed actions to implement its quality control division over its
            program should substantially improve its procedures and controls to ensure that
            proper supervision and oversight of its contractors, if fully implemented. 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 9   We adjusted recommendation 2A based upon additional documentation provided
            by the Authority.




                                             30
Appendix C

        FEDERAL REGULATIONS AND THE AUTHORITY’S
                    REQUIREMENTS

HUD’s regulations at 24 CFR 982.54 require the public housing authority to adopt a written
administrative plan that establishes local policies for the administration of the program in
accordance with HUD requirements. The administrative plan states the public housing
authority’s policies on matters for which the public housing authority has discretion to establish
local policies. The public housing authority must administer the program in accordance with its
administrative plan.

The Authority’s Moving to Work agreement amended on June 26, 2008, part I (A), states that the
Authority is subject to the requirements of the annual contributions contracts, the United States
Housing Act of 1937, and other HUD requirements, except as necessary to implement the
Authority’s activities described in the memorandum of approval and resident protection
agreement.

The contract between the Authority and the contractors, effective June 2, 2008, exhibit C, states
that the contractors will be expected to achieve high performer status during the contract term.
The contractor shall perform the services in a manner that meets or exceeds the performance
standards. The contractor’s performance will be evaluated by satisfying the contract and federal
performance standards for determination of adjusted income; i.e., income verification is properly
completed for the correct determination of adjusted income, and the appropriate utility allowance
is used for certification. High performer percentage is 90.

Finding 1

Federal regulations at 24 CFR 5.240(c) states that the responsible entity must verify the accuracy
of the income information received from the family and change the amount of the total tenant
payment, tenant rent or Section 8 housing assistance payment or terminate assistance, as
appropriate, based on such information.

Federal regulations at 24 CFR 982.152(d) state that HUD is permitted to reduce or offset any
Section 8 administrative fees paid to a public housing authority if it fails to perform its
administrative responsibilities adequately.

Federal regulations at 24 CFR 982.516 (d) (1) state that the public housing authority must adopt
policies prescribing how to determine the effective date of a change in the housing assistance
payment resulting from an interim redetermination.

HUD’s regulations at 24 CFR 982.516(f) states that the public housing authority must establish
procedures that are appropriate and necessary to ensure that income data provided by applicant
or participant families is complete and accurate.


                                                31
HUD’s Public and Indian Housing Notice 2005-9, section 4(e), states that families can be
required to report all increases in income between reexaminations and the Authority may
conduct more frequent interim reviews for families reporting no income.

The Authority’s administrative plan at part III, general administration, interim reexaminations,
pages 33 to 34, states that rent and other charges shall remain in effect for the period between
regularly scheduled reexaminations except that a family previously receiving a zero housing
assistance payment, must report, within 30 days, any change in income that will last more than
30 days. Decrease in the tenant’s total tenant payment, whether completed at an annual,
biennial, or interim reexamination, will be effective the first day of the month following the
month in which the change was reported, provided the change was reported within the required
30 days. Increase in the tenant’s total tenant payment, whether completed at an annual, biennial,
or interim reexamination, will be effective the first day of the second month following the date
the change occurred, except in cases in which underreporting of income by the participant has
occurred.

The Authority’s administrative plan at part III, general administration, interim reexaminations,
pages 34-35, states that CHAC, Inc. (Section 8 program administrator for the Authority) will
schedule special reexaminations every 180 days (6 months) for families reporting zero income.
At the interim reexaminations, the head of household will be asked about changes in income, and
any changes reported will result in a change in rent. If no change is reported, the head of
household will be required to sign a certificate of zero income, indicating that the income for the
household has not changed. At the annual reexamination, families reporting zero income will be
required to have all adult household members sign a certification of $0 income and any
appropriate releases, allowing CHAC, Inc., to obtain further confirmation of the family’s
income. Failure to comply with these reexamination requirements will be considered grounds
for termination of assistance.

The Authority’s administrative plan at part III, general administration, interim reexaminations,
page 35, states that if CHAC, Inc., determines that a household has received excess rental
assistance, it is the responsibility of CHAC, Inc., to seek repayment (recovery) of such
assistance. Repayment may include: tenant repayment of excess assistance in full, tenant
repayment of excess assistance through the use of a repayment agreement, decrease in
prospective rental assistance without the use of a formal repayment agreement, or repayment
through legal action.

Finding 2

Federal regulations at 24 CFR 982.551(h)(1)(2)(3), state that the family must use the assisted
unit for residence by the family. The unit must be the family’s only residence. The composition
of the assisted family residing in the unit must be approved by the Authority. The family must
promptly inform the Authority of the birth, adoption, or court-awarded custody of a child. The
family must request the Authority’s approval to add any other family member as an occupant of
the unit. No other person (i.e., nobody but a member of the assisted family) may reside in the
unit (except for a foster child or live-in aide as provided in paragraph (h)(4) of this section). The
family must promptly notify the Authority if any family member no longer resides in the unit.


                                                 32
Federal regulations at 24 CFR 982.311(d) state that if the family moves out of the unit, the public
housing agency may not make any housing assistance payment to the owner for any month after
the month when the family moves out. The owner may keep the housing assistance payment for
the month when the family moves out of the unit.

Federal regulations at 24 CFR 982.152(d) state that HUD is permitted to reduce or offset any
Section 8 administrative fees paid to a public housing authority if it fails to perform its
administrative responsibilities adequately.

The Authority’s administrative plan at part III, general administration, interim reexaminations,
pages 33-34, states that rent and other charges shall remain in effect for the period between
regularly scheduled reexaminations except that the participant must report in writing to the
administrator, within 30 days, any change in household composition.

The Authority’s administrative plan at part III, general administration, interim reexaminations,
page 35, states that if CHAC, Inc., determines that a household has received excess rental
assistance, it is the responsibility of CHAC, Inc., to seek repayment (recovery) of such
assistance. Repayment may include tenant repayment of excess assistance in full, tenant
repayment of excess assistance through the use of a repayment agreement, decrease in
prospective rental assistance without the use of a formal repayment agreement, or repayment
through legal action.




                                                33