oversight

The Cincinnati Metropolitan Housing Authority, Cincinnati, Ohio, Needs to Improve Its Controls over 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-1010




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


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

SUBJECT: The Cincinnati Metropolitan Housing Authority, Cincinnati, Ohio, Needs to
           Improve Its Controls over Section 8 Housing Assistance Payments

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Cincinnati Metropolitan Housing Authority’s (Authority) Section
             8 Housing Choice Voucher program (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. This is the second of three planned
             audit reports on the Authority’s program.

 What We Found

             The Authority’s program administration regarding housing assistance payments
             calculations, documentation to support households’ eligibility for housing
             assistance, and its Section 8 project-based certificate contract was inadequate.
             The Authority incorrectly calculated households’ payments resulting in more than
             $44,000 in overpayments and more than $11,000 in underpayments for the period
             July 2006 through August 2008. Based on our statistical sample, we estimate that
             over the next year, HUD will overpay more than $925,000 in housing assistance
             and utility allowances.
           The Authority also did not ensure that its households’ files contained the required
           documentation to support its housing assistance and utility allowances. Of the
           111 files statistically selected for review, 31 did not contain documentation
           required by HUD and the Authority’s program administrative plan to support
           nearly $216,000 in housing assistance and utility allowance payments.

           The Authority failed to appropriately manage its Section 8 project-based
           certificate contract. It improperly received more than $87,000 in program
           administrative fees for 51 months while it made housing assistance payments for
           units without valid housing assistance payments contracts, including payments for
           20 months to an owner that notified the Authority that it did not want to renew its
           contract.

           We informed the Authority’s executive director and the Director of HUD’s
           Cleveland Office of Public Housing of a minor deficiency through a
           memorandum, dated May 1, 2009.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of more than $135,000 in program funds, provide documentation or
           reimburse the applicable program nearly $238,000, and implement adequate
           procedures and controls to address the finding cited in this audit report to prevent
           more than $925,000 in program funds from being spent on excessive housing
           assistance and utility allowances over the next year.

           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 Cleveland Office of Public Housing and the Authority’s executive director
           during the audit. We provided our discussion draft audit report to the Authority’s
           executive director, its board chairman, and HUD’s staff during the audit. We held
           an exit conference with the executive director on April 16, 2009.

           We asked the executive director to provide comments on our discussion draft
           audit report by May 1, 2009. The executive director provided written comments,
           dated April 30, 2009. The executive director generally disagreed with our
           findings and recommendations. The complete text of the written comments,
           along with our evaluation of those comments, can be found in appendix B of this
           report except for 625 pages of documentation that was not necessary for
           understanding the Authority’s comments. A complete copy of the Authority’s
                                             2
comments plus the documentation was provided to the Director of HUD’s
Cleveland Office of Public Housing.




                              3
                            TABLE OF CONTENTS

Background and Objective                                                            5

Results of Audit
      Finding 1: Controls over Housing Assistance Payments Were Inadequate          6

      Finding 2: Controls over Section 8 Project-Based Certificate Contract Were
                 Inadequate                                                        10

Scope and Methodology                                                              13

Internal Controls                                                                  15

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use               17
   B. Auditee Comments and OIG’s Evaluation                                        18
   C. Federal Requirements and the Authority’s Program Administrative Plan         27




                                             4
                      BACKGROUND AND OBJECTIVE

The Cincinnati Metropolitan Housing Authority (Authority) was established in 1933 under
Section 3735.27 of the Ohio Revised Code to provide decent, safe, and sanitary housing. In
2006, the Authority merged with the Hamilton County, Ohio Housing Authority’s Section 8
Housing Choice Voucher program. The Authority serves households in neighborhoods
throughout Cincinnati, Ohio, and Hamilton County. A five-member board of commissioners
governs the Authority. Board members are appointed for five-year terms. The commissioners
are appointed by the Probate Court (one appointment), the city manager (two appointments, one
of which must be a public housing resident), Hamilton County Board of Commissioners (one
appointment), and the Court of Common Pleas (one appointment). The board makes operational
and budgetary decisions regarding the use of federal funds allocated for housing. The
Authority’s executive director is appointed by the board of commissioners and is responsible for
coordinating established policy and carrying out the Authority’s day-to-day operations.

The Authority administers a Section 8 Housing Choice Voucher program (program) funded by
the U.S. Department of Housing and Urban Development (HUD). It provides assistance to low-
and moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing rents
with owners of existing private housing. As of December 2008, the Authority had 9,925 units
under contract with annual housing assistance payments totaling more than $59 million in
program funds.

This is the second of three planned audit reports on the Authority’s program. Our objective was
to determine whether the Authority administered its program in accordance with HUD’s
requirements to include determining whether the Authority (1) accurately calculated housing
assistance and utility allowance payments, (2) maintained adequate documentation to support
household eligibility, and (3) adequately administered its Section 8 project-based certificate
contract. The first audit report (report number 2008-CH-1012, issued on September 23, 2008)
included one finding. The objective of the first audit was to determine whether the Authority’s
inspections were sufficient to detect housing quality standards violations and provide decent,
safe, and sanitary housing to its households.




                                               5
                               RESULTS OF AUDIT

Finding 1: Controls over Housing Assistance Payments Were
                             Inadequate
The Authority did not comply with HUD’s requirements and its program administrative plan
when issuing housing assistance and utility allowance payments. It failed to consistently
compute payments accurately and maintain documentation to support all payments to program
landlords and households. These deficiencies occurred because the Authority lacked adequate
procedures and controls to ensure that its calculations were accurate and that HUD’s
requirements and its program administrative plan were appropriately followed. As a result, it
overpaid more than $44,000 and underpaid more than $11,000 in housing assistance and utility
allowances and was unable to support nearly $216,000 in housing assistance and utility
allowances paid. Based upon our statistical sample, we estimate that over the next year, the
Authority will overpay more than $925,000 in housing assistance and utility allowances.


 The Authority Made Incorrect
 Housing Assistance and Utility
 Allowance Payments

              We statistically selected 111 household files from a universe of 13,353
              households that received housing assistance payments during the period July 2006
              through August 2008 using data mining software. The 111 files were reviewed to
              determine whether the Authority accurately verified and calculated the income
              information received from households for their housing assistance and utility
              allowances for the period July 1, 2006, through August 31, 2008. Our review was
              limited to the information maintained by the Authority in its household files.

              According to HUD’s regulations at 24 CFR (Code of Federal
              Regulations)5.240(c), public housing authorities must verify the accuracy of the
              income information received from program households and change the amount of
              the total tenant payment, tenant rent, or program housing assistance payment or
              terminate assistance, as appropriate, based on such information.

              The Authority’s miscalculations resulted in overpayments of $44,144 and
              underpayments of $11,082 in housing assistance and utility allowances. The
              Authority incorrectly calculated housing assistance and utility allowances for 61
              (55 percent) households in one or more certifications. The 61 files contained
              miscalculations of the households’ annual income and income deductions and the
              use of an incorrect utility reimbursement schedule and/or incorrect payment
              standard.

              Of the $44,144 in overpaid housing assistance and utility allowances, $36,525 (58
              households) was a result of the Authority’s calculation errors and $7,589 (three
                                               6
            households) was a result of households’ underreporting their income to the
            Authority. However, the Authority’s files contained the correct income
            information for the three households. One file contained a report from HUD’s
            Enterprise Income Verification system and the other two files contained third-
            party income verifications showing the correct income information. The $11,082
            in underpaid housing assistance and utility allowances was a result of the
            Authority’s calculation errors.

            The 61 files contained the following errors:

               •   49 had annual income calculation errors by the Authority for one or more
                   certifications,
               •   29 had incorrect utility reimbursement calculations for one or more
                   certifications,
               •   Seven had incorrect payment standards for one or more certifications,
               •   Four had incorrect income adjustments for one or more certifications, and
               •   Three had unreported income by the households for one or more
                   certifications.

            The Authority received $3,949 in program administrative fees related to the 58
            households that were overpaid housing assistance and utility allowances for the
            period July 1, 2006, through August 31, 2008.

Household Files Lacked
Eligibility Documentation

            The Authority lacked documentation to support housing assistance and utility
            allowance payments totaling $215,865 for the period July 1, 2006, through
            August 31, 2008. Of the 111 household files statistically selected for review, 31
            files (28 percent) were missing or contained incomplete or late documents as
            follows:

               •   22 were missing the disclosure of information on lead-based paint,
               •   16 were missing the original application,
               •   11 did not have the lease and housing assistance payments contract
                   executed within 60 days of each other,
               •   Nine were missing rent reasonableness determinations for the leased unit,
               •   Eight were missing a current lease,
               •   Eight did not have the annual recertification performed annually,
               •   Six were missing a housing assistance payments contract,
               •   Six were missing a request for tenancy approval,
               •   Five were missing proof of the properties’ ownership,
               •   Four were missing proof of a criminal background check,
               •   Three were missing signed U.S. citizenship certification,
               •   Three were missing birth certificates,
               •   Three were missing Social Security cards, and
                                             7
              •   Two were missing HUD Form 9886, Authorization for the Release of
                  Information and Privacy Act Notice.

           The 31 files did not include documentation required by HUD’s regulations and
           the Authority’s program administrative plan. Of the required documentation to
           support housing assistance payments and utility allowances, the disclosure of
           information on lead-based paint and the original application were not a
           determining factor in the computation of the unsupported housing assistance
           payments cited in this audit report.

           The Authority obtained acceptable new or original documentation for 12 of the 31
           household files after we notified it of the missing or incomplete documents during
           our audit. This resulted in a reduction in recommendation 1D of $108,042. As a
           result, the questioned cost cited in recommendation 1D only reflects the missing
           documentation for the remaining 19 files (31 minus 12). The Authority should
           ensure that any new supporting documentation that it provides to HUD reflects
           the accurate date on which it was completed and should not be postdated to reflect
           the original date on which the document should have been completed.

The Authority’s Procedures
and Controls Had Weaknesses

           The weakness regarding incorrect calculations, inappropriate payments, and
           missing documentation occurred because the Authority lacked adequate
           procedures and controls to ensure that it appropriately followed HUD’s
           regulations and its program administrative plan. Although the Authority’s
           process for performing certifications gave its housing specialists discretion to
           review previous file documentation, it did not require them to do so. Therefore, if
           an error was made on a prior certification, that error could continue from one
           certification to another. However, this was not the only cause for the incorrect
           calculations of housing assistance payments and utility allowances. Fifty-two
           errors were made in calculating household income for one or more certifications
           as a result of the collection and completion of appropriate eligibility
           documentation.

           The Authority conducted peer reviews of 50 percent of the initial certifications
           and 33 percent of its recertifications. Supervisors conducted monitoring reviews
           of 1 in 10 certifications. These reviews were performed in the same manner as
           the certifications that the housing specialists performed. The Authority randomly
           chose certifications for review instead of performing a full file review. It ensured
           that all new housing specialists received formal training and extensive training
           with a supervisor and shadowed housing specialists before performing
           certifications. Also, the Authority conducted training with all housing specialists
           using the results from peer and supervisory reviews. Although the Authority had
           external and internal training processes and performed monitoring reviews of the
           certifications, the certification errors occurred. Therefore, additional procedures

                                             8
             and controls are needed to ensure full implementation of HUD’s regulations and
             the Authority’s program administrative plan.

Conclusion


             As a result of its procedural and control weaknesses, the Authority overpaid
             $44,144 and underpaid $11,082 in housing assistance and utility allowances and
             disbursed $215,865 in housing assistance and utility allowance payments without
             supporting documentation. If the Authority implements adequate procedures and
             controls regarding its housing assistance and utility allowances to ensure
             compliance with HUD’s regulations and its program administrative plan, we
             estimate that more than $925,000 in payments will be accurately spent over the
             next year based on the error rate found in our sample. Our methodology for this
             estimate is explained in the Scope and Methodology section of this audit report.

Recommendations

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

             1A.    Reimburse its program $40,474 ($36,525 in housing assistance and utility
                    allowance payments and $3,949 in associated administrative fees) from
                    nonfederal funds for the overpayment of housing assistance and utility
                    allowances cited in this finding.

             1B.    Pursue collection of the $7,589 from the three households cited in this
                    finding or reimburse its program the applicable amount from nonfederal
                    funds for the overpaid housing assistance and utility allowances.

             1C.    Reimburse the appropriate households $11,082 for the underpayment of
                    housing assistance and utility allowances cited in this finding.

             1D.    Provide supporting documentation or reimburse its program $215,865 in
                    nonfederal funds for the unsupported payments related to the 31
                    households cited in this finding, of which $108,042 in housing assistance
                    and utility allowance payments for 19 files remains unsupported.

             1E.    Implement adequate procedures and controls regarding its housing
                    assistance and utility allowance payments to ensure that it complies with
                    HUD’s regulations and the Authority’s program administrative plan. By
                    implementing adequate procedures and controls, the Authority should help
                    to ensure that $925,125 in program funds is appropriately used for future
                    payments.




                                             9
Finding 2: Controls over Section 8 Project-Based Certificate Contract
                           Were Inadequate
The Authority’s controls regarding the management of its Section 8 project-based certificate
program were inadequate. The Authority inappropriately made housing assistance payments for
units without valid housing assistance payments contracts, including payments for 20 months to
an owner that had notified the Authority that it did not want to renew its contract. This condition
occurred because the Authority lacked adequate procedures and controls regarding its Section 8
project-based certificate program. As a result, it received more than $87,000 in program
administrative fees while placing HUD program funds at risk.


 The Authority Failed to
 Properly Manage Its Project-
 Based Certificate Program

               The Authority did not ensure that its Section 8 project-based certificate contract
               (contract) was properly managed. The contract, effective in November 1991,
               stated that the original term was for three years with no more than two five-year
               renewals. The Authority failed to execute the appropriate renewal contract for the
               units. It was aware that it was late in renewing the contract in 1994 and that it did
               not renew the contract in 1999.

               The Authority was aware that it could not execute renewal contracts after April
               2004 but continued to do so. Its former attorney, the Authority’s current
               executive director, advised the previous executive director that the contract ended
               on April 30, 2004, if all renewals had been issued appropriately. The previous
               executive director did not agree and directed the attorney to execute the renewal
               contract for part of the project for one year beginning May 1, 2004. The
               remainder of the project was issued renewal contracts by someone other than the
               Authority’s attorney. These renewal contracts were issued under the Authority’s
               Section 8 Moderate Rehabilitation program rather than the Section 8 project-
               based certificate program.

               Renewal contracts for all units were executed after the original contract’s 13-year
               limit was exceeded. The renewals were inappropriately executed on an annual
               basis from May 1, 2004, through April 30, 2007, and only one renewal contract
               executed in 2004 addressed the appropriate contract, program, and annual
               contributions contract. The Authority did not renew any type of contract after
               April 30, 2007, but continued to make housing assistance payments, conduct
               annual inspections, and conduct certifications/recertifications of households.
               During our audit, we notified HUD of the contract issues. In July 2008, HUD
               directed the Authority to process the households into its Section 8 Housing
               Choice Voucher program. This process was completed on September 30, 2008.



                                                10
             The Authority continued to pay housing assistance, without a valid housing
             assistance payments contract, totaling $21,917 for units for which the owner of
             one property under the contract provided documentation to the Authority
             terminating the renewal contract that expired on April 30, 2007.

             The Authority also failed to appropriately select families from the waiting list for
             its Section 8 project-based certificate units. It allowed the owners to select
             families and then notify the Authority of the selection when a unit became empty
             so it could process the family for eligibility to receive housing assistance
             payments. Section 1.4(A)(3) of the contract states that all vacant contract units
             must be rented by the owner to eligible families on the Authority’s waiting list
             referred by the Authority. However, if the Authority does not refer a sufficient
             number of interested applicants to the owner within 30 days of the owner’s
             notification to the Authority of a vacancy, the owner may advertise for or solicit
             applicants.

The Authority Lacked
Adequate Procedures and
Controls


             The Authority’s failure to manage its contract correctly occurred because of a lack
             of adequate procedures and controls within its Special Programs Section. At the
             time we conducted our review, the Authority was not aware of this weakness and
             had to be directed by HUD to convert the remaining households under the project-
             based certificate program to tenant-based housing choice vouchers.

Conclusion


             As a result of its weakness, the Authority placed HUD program funds at risk by
             not executing the appropriate housing assistance payments contracts. Although
             low- and very low-income households were housed, the Authority was required to
             have an executed housing assistance payments contract for the project-based
             certificate program. From May 1, 2004, beyond which date the contract period
             with appropriate renewals could not continue, until the Authority properly
             transferred the households to its Housing Choice Voucher tenant-based program
             in September 2008, the Authority paid $824,245 in housing assistance payments
             without valid housing assistance payments contracts.

             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 $87,130 in
             program administrative fees for the inadequate management of its Section 8
             project-based certificate contract from May 1, 2004, through August 31, 2008.
             Therefore, HUD should require the Authority to reimburse the inappropriate
             program administrative fees received.
                                              11
Recommendations

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

          2A.     Reimburse its program $87,130 in program administrative fees related to
                  the improper administration of its Section 8 project-based certificate
                  contract cited in this finding.

          2B.     Provide supporting documentation or reimburse its program $21,917 in
                  nonfederal funds for the payments cited in this finding.




                                          12
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

   •   Applicable laws, regulations, HUD’s program requirements at 24 CFR Part 982, and HUD’s
       Housing Choice Voucher Guidebook 7420.10.

   •   The Authority’s accounting records; annual audited financial statements for fiscal years
       2005, 2006, and 2007; program administrative plans effective April 2006, April 2007, and
       April 2008; program household files; computerized databases; policies and procedures;
       program annual contributions contracts; board meeting minutes for calendar years 2006,
       2007, and 2008; and organizational chart.

   •   HUD’s files for the Authority.

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

Finding 1

We statistically selected 111 of the Authority’s program household files from the 13,353
households that received housing assistance payments from July 1, 2006, through August 31,
2008, using data mining software. Our analysis purposely disregarded any cross-participation
such as if the household was a port-out or had been on the Authority’s Section 8 Moderate
Rehabilitation program at anytime. Thus, the applicable household was eliminated from the
housing assistance payments register. This was done because the Authority was not able to
provide the data as requested due to software limitations. The 111 household files were selected
to determine whether the Authority appropriately calculated the households housing assistance
and utility allowance payments and maintained documentation to support the households’
program eligibility.

Our sampling method was an unrestricted variable with a 90 percent confidence level and
precision level of plus or minus 10 percent. Using variable sampling difference estimation
techniques with a 90 percent confidence level, the sample results support an estimate that the
Authority overpaid its program participants $1,927,344 during our audit period.

       Summary for difference values (population = 13,353; sample/size = 111)
Number of nonzero items 61                      Confidence level 90 percent
                  Mean $297.59                       Lower limit $1,927,344
     Standard deviation $977.39                   Point estimate $3,973,660
              Skewness 2.95                           Upper limit $6,019,976
  Standard error (mean) $92.38                 Precision amount $2,046,316
   Standard error (total $1,233,594            Precision percent 44.65 percent
                                                    t-value used 1.658824187414

We annualized the sample results for the audit period (25 months) by dividing $1,927,344 by 25
months and then multiplying that amount by 12 months. Because this figure represents the more
                                                13
conservative lower limit projection, we are 95 percent certain that the overpaid amount annually
was at least $925,125. Our sample results determined that 65 of the 111 (59 percent)
households’ housing assistance and utility allowances were overpaid.

Unless the Authority implements adequate procedures and controls regarding the disbursement
of housing assistance and utility allowance payments to ensure compliance with HUD’s
regulations and its program administrative plan, we estimate that $925,125 in payments will be
misspent over the next year. This estimate is presented solely to demonstrate the annual amount
of program funds that could be put to better use for appropriate payments if the Authority
implements our recommendation. While these benefits could recur indefinitely, we were
conservative in our approach and only included the initial year in our estimate.

We performed our on-site audit work between September 2008 and March 2009 at the
Authority’s office located at 1044 West Liberty Road, Cincinnati, Ohio. The audit covered the
period July 1, 2006, through August 31, 2008, but was expanded when necessary to include other
periods.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               14
                              INTERNAL CONTROLS

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

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

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined that the following internal controls were relevant to our audit
              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 management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               15
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 regarding the calculation of household income and
               housing assistance and utility allowance payments, household eligibility, and
               management of its Section 8 project-based certificate contract (see findings 1
               and 2).

Separate Communication of a
Minor Deficiency

           We informed the Authority’s executive director and the Director of HUD’s
           Cleveland Office of Public Housing of a minor deficiency through a
           memorandum, dated May 1, 2009.




                                            16
                                   APPENDIXES

Appendix A

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

           Recommendation                                          Funds to be put
               number            Ineligible 1/    Unsupported 2/    to better use 3/
                  1A                 $40,474
                  1B                   7,589
                  1C                                                       $11,082
                  1D                                   $215,865
                  1E                                                       925,125
                  2A                  87,130
                  2B                                     21,917
                 Totals             $135,193           $237,782          $936,207


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

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

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements
     recommendation 1E, it will ensure that program funds are spent according to federal
     requirements. Once the Authority successfully improves its controls, this will be a
     recurring benefit. Our estimate reflects only the initial year of this benefit.




                                             17
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




Comment 1




Comment 9




                         22
Ref to OIG Evaluation   Auditee Comments




Comment 10




Comment 11




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 12




                         24
                         OIG Evaluation of Auditee Comments

Comment 1   We reviewed the supporting documentation that the Authority provided
            concerning the housing assistance payment calculations and the household
            eligibility documents and revised our audit report accordingly.

Comment 2   We agree that four files had the correct housing assistance payment calculations.
            However, the other seven files contained calculation errors. Using the
            documentation provided by the Authority, we adjusted the files in error from 65 to
            61 files containing incorrect calculations and adjusted our audit report
            accordingly.

Comment 3   The Authority provided acceptable new or original documentation for 12 of the 31
            household files after we notified it of the missing or incomplete documents during
            our audit. As previously stated in finding 1, we revised our audit report
            accordingly.

Comment 4   Lead-base paint disclosure forms are required to be signed by the tenant according
            to 24 CFR 982.305(b)(1) which states that before the beginning of the initial term
            of the lease for a unit, the landlord and the tenant must have executed the lease
            (including the HUD-prescribed tenancy addendum) and the lead-based paint
            disclosure as required in section 35.92(b) of this title.

Comment 5   We reviewed nine files for households that entered the program in 2008. Three
            (33 percent) of the nine files contained missing or incomplete documentation. We
            disagree with the Authority’s perception that its peer review audits have made a
            tremendous positive impact on the quality of the household files and the housing
            assistance payment calculations.

Comment 6   We revised the number of files with errors from 62 to 58, the overpayment of
            housing assistance and utility allowance payments, and the corresponding
            administrative fees.

Comment 7   We acknowledge that the Authority pursued collection of the $1,563 in
            unreported income. We agreed with the supporting documentation provided for
            one of the three households cited. However, the amount of reimbursement was
            increased for another household because the Authority confirmed that the
            household failed to report income after receiving a warning letter stating that the
            Authority would remove the household from the program.

Comment 8   We disagree with the Authority’s calculations. However, we did revise the
            amount of the underpayment of housing assistance and utility allowances based
            upon the documentation provided by the Authority.

Comment 9   We disagree with the Authority’s assessment that its peer review audits were
            adequately addressing its file errors.



                                             25
Comment 10 We do not dispute the fact that the Authority was aware of the problems with its
           project-based certificate program since its executive director was legal counsel at
           the time when the contract expired. However, no corrective actions were taken
           until we identified the issue during our phase 1 audit in April and May 2008. We
           contacted HUD’s Cleveland Office of Public Housing and it directed the
           Authority to issue housing choice vouchers to the affected households.

Comment 11 The Authority made more than $800,000 in housing assistance payments without
           a housing assistance payments contract. It was required to operate its program in
           accordance its annual contributions contract with HUD. Section 10 of its annual
           contributions contract requires the Authority to comply with the Housing Act of
           1937, all HUD regulations, its administrative plan and use the program forms
           required by HUD. See comment 11.

Comment 12 HUD regulations at 24 CFR 305(c)(2) state that the public housing authority may
           not pay any housing assistance payments to the owner until the housing assistance
           payments contract has been executed. The Authority contends that every effort
           was made to correct the mistake quickly. However, to date, the Authority has not
           provided an executed housing assistance contract with the landlord.




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Appendix C

      FEDERAL REQUIREMENTS AND THE AUTHORITY’S
            PROGRAM ADMINISTRATIVE PLAN

Finding 1
HUD’s regulations at 24 CFR 5.216(a) state that each assistance applicant must submit the
complete and accurate Social Security number assigned to the applicant and to each member of
the household who is at least six years of age. The documentation necessary to verify the Social
Security number of an individual is a valid Social Security number issued by the Social Security
Administration or such evidence of the Social Security number as HUD and, were applicable, the
authority may prescribe in administrative instructions.

HUD’s regulations at 24 CFR 5.508(c) state 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.

HUD’s regulations at 24 CFR 5.508(a) and (b) require each family member, regardless of age, to
submit the following evidence to the responsible entity:

(1) For U.S. citizens or U.S. nationals, the evidence consists of a signed declaration of U.S.
citizenship or U.S. nationality. The responsible entity may request verification of the declaration
by requiring presentation of a United States passport or other appropriate documentation, as
specified in HUD guidance.

(2) For noncitizens who are 62 years of age or older or who will be 62 years of age or older and
receiving assistance under a Section 214-covered program on September 30, 1996, or applying
for assistance on or after that date, the evidence consists of a signed declaration of eligible
immigration status and proof of age document.

(3) For all other noncitizens, the evidence consists of a signed declaration of eligible immigration
status, one of the documents referred to in section 5.510, and a signed verification consent form.

(c) Declaration: (1) For each family member who contends that he or she is a U.S. citizen or a
noncitizen with eligible immigration status, the family must submit to the responsible entity a
written declaration, signed under penalty of perjury, by which the family member declares
whether he or she is a U.S. citizen or a noncitizen with eligible immigration status. For each
adult, the declaration must be signed by the adult. For each child, the declaration must be signed
by an adult residing in the assisted dwelling unit who is responsible for the child.

HUD’s regulations at 24 CFR 982.153 state 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.

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HUD’s regulations at 24 CFR 982.158(a) state that the public housing authority must maintain
complete and accurate accounts and other records for the program in accordance with HUD
requirements in a manner that permits a speedy and effective audit. During the term of each
assisted lease and for at least three years thereafter, the authority must keep (1) a copy of the
executed lease, (2) the housing assistance payments contract, and (3) the application from the
family. The authority must keep the following records for at least three years: records that
provide income, racial, ethnic, gender, and disability status data on program applicants and
participants; unit inspection reports; lead-based paint records as required by part 35, subpart B,
of this title; records to document the basis for authority determination that rent to owner is a
reasonable rent (initially and during the term of a contract); and other records specified by HUD.

HUD’s regulations at 24 CFR 982.305(a) state that the public housing authority may not give
approval for the family of the assisted tenancy or approve a housing assistance contract until the
authority has determined that the following meet program requirements: the unit is eligible, the
unit has been inspected by the housing authority and passes HUD’s housing quality standards,
and the rent to the owner is reasonable.

HUD’s regulations at 24 CFR 982.305(b)(1) state that before the beginning of the initial term of
the lease for a unit, the landlord and the tenant must have executed the lease (including the HUD-
prescribed tenancy addendum) and the lead-based paint disclosure as required in section 35.92(b)
of this title.

HUD’s regulations at 24 CFR 982.305(c) state that when a housing assistance payments contract
is executed, the public housing authority must use its best efforts to execute the housing
assistance payments contract before the beginning of the lease term. The housing assistance
payments contract must be executed no later than 60 calendar days from the beginning of the
lease term. The public housing authority may not make any housing assistance payments to the
owner until the housing assistance payments contract has been executed. Any housing assistance
payments contract executed after the 60-day period is void, and the public housing authority may
not make any housing assistance payments to the owner.

HUD’s regulations at 24 CFR 982.451(a)(2) state that the term of the housing assistance
payments contract is the same as the term of the lease.

HUD’s regulations at 24 CFR 982.505(b)(4) state that if the payment standard amount is
increased during the term of the contract, the increased payment standard shall be used to
calculate the monthly housing assistance payment for the family beginning at the effective date
of the family’s first regular reexamination on or after the effective date of the increase in the
payment standard amount.

HUD’s regulations at 24 CFR 982.516(a)(1) require the public housing authority to conduct a
reexamination of family income and composition at least annually. The public housing authority
must obtain and document in the client file third-party verification of the following factors or
must document in the client file why third-party verification was not available: (i) reported
family annual income, (ii) the value of assets, (iii) expenses related to deductions from annual
income, and other factors that affect the determination of adjusted income. At any time, the
public housing authority may conduct an interim reexamination of family income and


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composition. Interim examinations must be conducted in accordance with policies in the public
housing authority’s administrative plan.

HUD’s regulations at 24 CFR 982.54(a) state that the public housing authority must administer
the program in accordance with its administrative plan.

The Authority’s administrative plan states:

Chapter 8, Section B, Disallowance of Earned Income from Rent Determinations for Persons
with Disabilities. The amount that is subject to the disallowance is the amount of incremental
increase in income of a family member who is a person with disabilities. The incremental
increase in income is calculated by comparing the amount of the family member’s income before
the beginning of qualifying employment or increase in earned income to the amount of such
income after the beginning of employment or increase in earned income.

Chapter 8, Section R, Seasonal Employment. The Authority will annualize current income and
then conduct an interim reexamination when income changes.

Chapter 12, Section C, Rent Adjustments.
Failure to Report Accurate Information. If it is found the resident has misrepresented or failed to
report to their Housing Specialist the facts upon which his/her rent is based so that the rent being
paid is less than what should have been charged, then the increase in rent will be made
retroactive. Failure to report accurate information is also grounds for termination in accordance
with the Authority’s administrative plan.

Chapter 12, Section G, Timely Reporting of Changes in Income (and Assets). Standard for
Timely Reporting of Changes. The Authority requires that families report interim changes to the
Authority within 10 business days of when a change occurs. Any information, documentation,
or signature needed from the family which is needed to verify the change must be provided
within 10 business days of the change.

Procedures When the Change Is Reported in a Timely Manner. The Authority will notify the
family and the owner of any change in the housing assistance payment to be effective according
to the following guidelines: increases in the tenant rent are effective on the first of the month
following at least 30 days notice and decreases in the tenant rent are effective the first month
following that in which the change was reported. However, no rent reductions will be processed
until all the facts have been verified, even if a retroactive adjustment results.

Finding 2
HUD’s regulations at 24 CFR 982.152(d) state that HUD may reduce or offset any
administrative fee to a public housing authority, in the amount determined by HUD if the public
housing authority fails to perform its administrative responsibilities correctly or adequately under
the program.

HUD Section 8 Housing Assistance Payments Program, Section 8 Certificate Program Project
Based Assistance, Part 1, Housing Assistance Payments Contract, Contract Number PBA-00-1.

                                                29
Section 1.1 Effective Date, Term and Contents of Contract. The term of this contract for each
stage is three years beginning on the effective date of the contract for that stage. Stage one –
June 1, 1991. The last day of the Contract term for each stage shall not be later than April 30,
1994.

Section 1.1.C, Renewal of Contract. If the public housing authority determines that there are
sufficient funds, the Owner may renew the Contract after the end of the initial term up to two
additional terms of five years per term. To renew the Contract, the Owner must give written
notice to the public housing authority, in the form prescribed by the public housing authority, not
less than 90 days before the end of the term to be renewed.

Section 1.4, Leasing of Units, Section A.3, Selection of Tenants. All vacant contract units must
be rented by the owner to eligible families on the public housing authority waiting list referred
by the public housing authority. However, if the public housing authority does not refer a
sufficient number of interested applicants to the owner within 30 days of the owner’s notification
to the public housing authority of a vacancy, the owner may advertise for or solicit applications
from very low income, or if authorized by the public housing authority in accordance with HUD
requirements, lower income families. The owner must refer the families to the public housing
authority to determine eligibility.

Section 1.10, Notice of Contract Termination by Owner. Not less than 90 days before
termination of this Contract, the Owner must give notice of the proposed termination in
accordance with HUD requirements to the public housing authority, HUD, and each assisted
tenant. The Owner’s notice must specify the reasons for the termination with sufficient detail to
enable HUD to evaluate whether the termination is lawful and whether there are additional
actions that can be taken by HUD to avoid the termination. For purposes of this section,
“termination” means expiration of the Contract at the end of the Contract term (including
expiration of the Contract because the Owner does not renew the Contract pursuant to section
1.1.C).

Section 1.19.A, Transfer of the Contract or Property. The Owner agrees that the Owner has not
made and will not make any transfer in any form, including sale or assignment, of this Contract
or the property without prior written consent of the public housing authority.

Section 1.26, HUD Requirements. The Agreement and Contract must be interpreted and
implemented in accordance with HUD requirements.

Section 1.28, Entire Agreement. The Agreement to Enter Into Housing Assistance Payments
Contract and this Contract, including exhibits, are the entire Agreement between the public
housing authority and the Owner. No changes in this Contract may be made except in writing
signed by both the Owner and the public housing authority.




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