oversight

The Lake Metropolitan Housing Authority, Painesville, Ohio, Needs to Improve Its Controls over Housing Assistance and Utility Allowance Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-14.

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

                                                                  Issue Date
                                                                          August 14, 2009
                                                                  Audit Report Number
                                                                          2009-CH-1012




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


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

SUBJECT: The Lake Metropolitan Housing Authority, Painesville, Ohio, Needs to Improve
           Its Controls over Housing Assistance and Utility Allowance Payments

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Lake Metropolitan Housing Authority’s (Authority) Section 8
             Housing Choice Voucher program (program). The Authority was selected for
             audit based upon a congressional request from the Honorable Steven C.
             LaTourette. 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 to
             include determining whether the Authority accurately calculated housing
             assistance and utility allowance payments and maintained required documentation
             to support household eligibility. This is the first of three planned audit reports
             regarding the Authority’s program.

 What We Found

             The Authority’s program administration regarding housing assistance payment
             calculations and documentation to support households’ eligibility for housing
             assistance was inadequate. Of the 100 files statistically selected for review, 88
             did not contain documentation required by HUD and the Authority’s program
             administrative plan to support more than $801,000 in housing assistance and
             utility allowance payments. The Authority also incorrectly calculated or issued
             households’ payments for 86 of the 100 household files, resulting in more than
             $30,000 in overpayments and more than $4,200 in underpayments for January
           2007 through July 2008. Further, the Authority improperly received more than
           $40,000 in program administrative fees for the households with incorrect and
           unsupported housing assistance payments. Based on our statistical sample, we
           estimate that over the next year, the Authority will overpay nearly $255,000 in
           housing assistance and utility allowances.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to provide documentation or reimburse its program more
           than $836,000 from nonfederal funds for the unsupported payments cited in this
           audit report, reimburse its program from nonfederal funds for the improper use of
           more than $71,000 in program funds, and implement adequate procedures and
           controls to address the finding cited in this audit report to prevent more than
           $259,000 in program funds from being spent on excessive housing assistance and
           utility allowance payments.

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

Auditee’s Response

           We provided our file 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 also provided our discussion draft audit report to the
           Authority’s executive director, its board chairperson, and HUD’s staff during the
           audit. We held an exit conference with the executive director on June 30, 2009.

           We asked the executive director to provide comments on our discussion draft
           audit report by July 18, 2009. The executive director provided written comments,
           dated July 17, 2009. The executive director agreed with our finding and
           recommendations. The complete text of the auditee’s response along with our
           evaluation of that response can be found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                          4

Results of Audit
      Finding: Controls over Housing Assistance and Utility Allowance Payments
               Need Improvement                                                   5

Scope and Methodology                                                            12

Internal Controls                                                                14

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             16
   B. Auditee Comments and OIG’s Evaluation                                      17
   C. Federal Requirements and Authority’s Program Administrative Plan           28




                                            3
                      BACKGROUND AND OBJECTIVE

The Lake Metropolitan Housing Authority (Authority) was created in October 1965 pursuant to
Section 3735.01 of the Ohio Revised Code to provide safe and sanitary housing to low-income
families. In 1977, the Authority began administering federal housing programs, beginning with
the Section 8 rental housing assistance program. The Authority’s jurisdiction was expanded to
include all of Lake County, Ohio, in 1982. The Authority is a political subdivision of the State
of Ohio and is governed by a seven-member board of commissioners appointed for five-year
terms by local elected officials. 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 its 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 June 1, 2009, the Authority had 1,381 units under
contract with annual housing assistance payments totaling more than $8.8 million in program
funds.

The Authority certified to troubled status on its Section Eight Management Assessment Program
rating for the fiscal year ending June 30, 2008. As a result, HUD performed an on-site
confirmatory review in February 2009 to assess the magnitude and seriousness of the Authority’s
noncompliance with program performance requirements. HUD and the Authority executed a
corrective action plan, effective February 2009, in order to correct the deficiencies cited in the
confirmatory review.

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 and (2) maintained required documentation to
support household eligibility. This is the first of three planned audit reports regarding the
Authority’s program.




                                                4
                               RESULTS OF AUDIT

Finding: Controls over Housing Assistance and Utility Allowance
                    Payments Need Improvement
The Authority did not comply with HUD’s requirements and its program administrative plan
regarding housing assistance and utility allowance payments. It failed to maintain required
documentation to support payments to program landlords and households and consistently
compute and issue payments accurately. These conditions occurred because the Authority
lacked adequate procedures and controls to ensure that its calculations and payments were
accurate and that HUD’s requirements and its program administrative plan were appropriately
followed. As a result, the Authority was unable to support more than $800,000 in housing
assistance and utility allowance payments and overpaid more than $30,000 and underpaid more
than $4,200 in housing assistance and utility allowances. Based on our statistical sample, we
estimate that over the next year, the Authority will overpay nearly $255,000 in housing
assistance and utility allowances.



 The Authority Lacked
 Documentation to Support
 More Than $800,000 in Housing
 Assistance and Utility
 Allowance Payments

              We statistically selected 100 household files from a universe of 1,560 households
              receiving housing assistance payments from January 2007 through July 2008
              using data mining software. The 100 files were reviewed to determine whether
              the Authority had documentation for households’ housing assistance and utility
              allowance payments and whether the payments issued were accurate. Our review
              was limited to the information maintained by the Authority in its households’
              files.

              The Authority lacked documentation to support housing assistance and utility
              allowance payments totaling $801,330 for January 2007 through July 2008. The
              documentation was required by HUD’s regulations and the Authority’s program
              administrative plan. Of the 100 household files reviewed, 88 files (88 percent)
              had missing or incomplete documents as follows:

                  ¾ 66 were missing the HUD-prescribed tenancy addendum (Form HUD-
                    52641-A),
                  ¾ 35 were missing the households’ initial application,
                  ¾ 17 were missing and one had an incomplete disclosure of information
                    regarding lead-based paint,
                  ¾ Eight were missing a rent reasonableness determination,
                  ¾ Eight were missing the request for tenancy approval (Form HUD-52517),



                                              5
               ¾ Six were missing and three had incomplete or invalid housing assistance
                 payments contracts (Form HUD-52641),
               ¾ Six were missing and two had incomplete or invalid lease agreements,
               ¾ Four were missing signed U.S. citizenship certifications, and
               ¾ One was missing proof of a criminal history check for all adult family
                 members.

            The Authority obtained new or original documentation for 81 of the 88 household
            files after we notified it of the missing or incomplete documents during the audit.
            For two additional household files, the Authority confirmed and provided
            documentation that supported that the household members were deceased. These
            actions resulted in a reduction in recommendation 1A to $12,000 ($10,928 in
            housing assistance and utility allowance payments and $1,072 in associated
            administrative fees). For the remaining five household files, the Authority was
            unable to obtain the fully executed documentation since either (1) the households
            were no longer in the program and could not be contacted, (2) prior landlords
            were not cooperative, or (3) the landlord was deceased. As a result, the
            questioned cost cited in recommendation 1A only reflects the missing
            documentation for the remaining five household files (88 minus 83).

The Authority Made Incorrect
Housing Assistance and Utility
Allowance Payments


            The Authority’s miscalculations and its failure to comply with program
            requirements resulted in housing assistance and utility allowance overpayments of
            $30,401 and underpayments of $4,268. Of the 100 files reviewed, 86 (86 percent)
            contained either calculation or issuance errors that affected the amount of
            assistance paid in one or more of the subsidy determinations. These files included
            60 household files with overpayments and 26 household files with
            underpayments. The 86 files contained the following errors:

               ¾ 67 had incorrect utility allowances,
               ¾ 55 had calculation errors relating to annual income,
               ¾ 33 had an incorrect payment standard,
               ¾ 26 had inappropriate income deductions and/or allowances,
               ¾ 11 had income certifications that were processed in an untimely manner,
               ¾ 10 had incorrect issuances of assistance,
               ¾ Five had incorrect contract rents,
               ¾ Five did not have proper retroactive adjustments in housing assistance for
                 households that reported an increase in income in an untimely manner, and
               ¾ One had an incorrect repayment agreement calculation.




                                             6
The Authority’s Procedures
and Controls Had Weaknesses


           The Authority did not maintain the required program documentation and made
           incorrect housing assistance and utility allowance payments to program landlords
           and households because it lacked adequate procedures and controls to ensure that
           HUD’s regulations and its program administrative plan and procedures were
           followed.

           The Authority did not provide sufficient guidance or instructions to its program
           staff that were responsible for determining eligibility and calculating and issuing
           housing assistance and utility allowance payments as follows:

              •   The Authority’s purge procedures implemented during the audit scope did
                  not ensure that all documentation required to determine a household’s
                  eligibility and assistance in the program was maintained in the household
                  files.

              •   The Authority’s program administrative plan provided limited or no
                  details regarding the Authority’s discretionary matters. As a result, the
                  certification specialists were not always aware of the proper procedures
                  for performing subsidy determinations. While the calculation methods
                  used by the certification specialists were, in some instances,
                  understandable, the calculations were not always consistent or in
                  accordance with the Authority’s procedures manual.

              •   Pertinent program information was not always disseminated to the
                  program staff. For example, a board resolution was passed to revise the
                  payment standards to 110 percent of the fair market rents, effective May 1,
                  2006. However, the program staff was not aware of the revised payment
                  standards and, therefore, continued to use the payment standards that were
                  effective January 1, 2006. This occurred for 24 of the 100 household files
                  reviewed.

              •   The applicability of pertinent program information was not always clear to
                  the program staff. For instance, the Authority had two versions of the
                  utility allowance schedules, effective April 2006. The documentation
                  provided by the Authority indicated that the utility allowances were
                  revised in 2006, but there was no indication as to when the revised
                  schedules went into effect, and the staff was not aware of the revised
                  utility allowance schedules. Further, in April 2007, the Authority added
                  the air conditioning allowance to the utility allowance schedules, but the
                  staff was not provided clear directions as to when the air conditioning
                  allowance was applicable.




                                             7
The Authority did not provide adequate training to its staff to ensure that HUD’s
requirements and its program administrative plan and procedures were followed
based upon the following items:

   •   The program administrative plan and other applicable policies and
       procedures were not always followed regarding the calculation of income,
       assets, and other factors. Instead, the certification specialists either relied
       on the subsidy determinations performed by previous staff or obtained
       verbal instructions from each other.

   •   The program staff did not receive sufficient training when the Authority
       implemented the PHA-Web software program in July 2007. Further, the
       program staff did not have access to reference materials regarding the use
       of the software. As a result, the program staff was unfamiliar with many
       of the features of the software program.

   •   The program staff made inadvertent errors. For example, the
       documentation maintained in the household files indicated proper
       calculations; however, these calculations were not reflected in the HUD-
       50058 family report because they were not updated in the software
       program.

   •   Although the majority of the staff passed formal rent calculation and/or
       certification specialist training, some believed that they were misguided
       when provided on-the-job training.

The Authority performed inadequate quality control reviews as follows:

   •   The Authority performed quality control reviews between July 2007 and
       June 2008 on the annual and initial examinations for 14 of the 100
       households included in our statistical sample. The Authority’s quality
       control review results agreed with our results for 10 of the 14 households.
       For the remaining four households, the reviewer failed to identify errors
       regarding utility allowances and asset income.

   •   The reviewer provided guidance regarding asset income that conflicted
       with the Authority’s standard policies and procedures. After the quality
       control reviews were completed, the program staff was provided the
       results to make the appropriate adjustments; however, we could not
       determine whether the reviewer always followed up on the corrective
       actions made by the program staff. This resulted in an inaccurate
       correction for at least one file.

   •   The program staff indicated that the reviewer did not provide additional
       training or guidance based upon the quality control review results.




                                  8
The executive director acknowledged that the Authority’s program administrative
plan was outdated; therefore, the Authority took steps to revise the plan. The
program administrative plan received board approval in April 2009. In addition,
the Authority contracted with outside consultants to receive a clear and
independent review of its program. The consultant’s contract included the
implementation of the Authority’s Section Eight Management Assessment
Program auditing system in May 2008.

During the course of the audit, the Authority took the following measures to
improve its program:

   •   In November 2008, the Authority streamlined its file organization,
       verification, and calculation procedures to ensure consistency of its
       operations.

   •   In November 2008, the Authority contracted out the criminal background
       check responsibilities for program households.

   •   In January 2009, the Authority sought and obtained HUD approval to
       revise the request for tenancy approval document (Form HUD-52517) to
       reduce errors involving the utility allowance.

   •   In February 2009, the Authority provided training to its program staff
       regarding the PHA-Web software and HUD’s Section Eight Management
       Assessment Program compliance. Training was also regularly provided to
       address topics that arose as a result of the quality control reviews or other
       issues. In May 2009, the Authority provided formal rent calculation
       training to its staff, conducted by Nan McKay. In addition, the Authority
       planned to provide training to the staff on each section of the revised
       program administrative plan.

   •   As of February 2009, the Authority implemented corrective action
       procedures toward staff that fall below the acceptable error rate based
       upon the quality control reviews.

   •   In February 2009, the Authority restructured the staff by modifying the
       responsibilities for the certification specialist I position (formerly called a
       program interviewer) and creating the certification specialist II position.
       In addition, in April 2009, the Authority added a program assistant
       manager position with responsibilities including performing quality
       control reviews to ensure compliance.

   The Authority’s staff stated that they recognized the importance of being
   accountable for their work and taking ownership of the household files they
   review because this contributes to the Authority’s Section Eight Management
   Assessment Program rating. We did not review any household files since the




                                  9
                   Authority implemented its new procedures. Therefore, we did not determine
                   whether the new procedures had improved the Authority’s weaknesses.

Conclusion

             As a result of the weaknesses in the Authority’s procedures and controls, the
             Authority disbursed $801,330 in housing assistance and utility allowance
             payments without supporting documentation and overpaid $30,401 and underpaid
             $4,268 in housing assistance and utility allowances.

             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 $1,072 in program administrative fees related to the unsupported
             payments for the five households and $39,581 in program administrative fees for
             the 86 households with incorrect housing assistance and utility allowance
             payments.

             Unless the Authority implements adequate procedures and controls regarding its
             disbursement of payments to ensure compliance with HUD’s regulations and its
             program administrative plan, we estimate that nearly $255,000 in payments will
             be misspent over the next year. Our methodology for this estimate is explained in
             the Scope and Methodology section of this audit report. The Authority could put
             these funds to better use if proper procedures and controls are put in place to
             ensure the accuracy of housing assistance and utility allowance payments.


Recommendations

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

             1A.      Provide supporting documentation or reimburse its program $836,136
                      ($801,330 in housing assistance and utility allowance payments and
                      $34,806 in associated administrative fees) from nonfederal funds for the
                      unsupported payments and associated administrative fees cited in this
                      finding, of which $12,000 ($10,928 in housing assistance and utility
                      allowance payments and $1,072 in associated administrative fees) remains
                      to be supported or should be reimbursed.

             1B.      Reimburse its program $69,982 ($30,401 in housing assistance and utility
                      allowance payments and $39,581 in associated administrative fees) from
                      nonfederal funds for the overpayment of housing assistance and utility
                      allowances cited in this finding.




                                              10
1C.    Reimburse the appropriate households $4,268 for the underpayment of
       housing assistance and utility allowances cited in this finding.

1D.    Implement adequate procedures and controls when purging household
       files to ensure that all required file documentation is complete, accurate,
       and maintained in its household files to support the eligibility of housing
       assistance and utility allowance payments.

1E.    Implement adequate procedures and controls to properly calculate housing
       assistance and utility allowance payments. By implementing adequate
       procedures and controls, the Authority should help to ensure that $254,960
       in net program funds is appropriately used for future payments.

1F.    Ensure that its staff responsible for performing the household
       recertifications are knowledgeable of HUD’s and its program policies and
       procedures, including its software programs, by providing adequate
       training.

1G.    Ensure that its staff responsible for performing quality control reviews are
       knowledgeable of HUD’s and its program policies and procedures to
       ensure that mistakes made during the household recertifications are not
       overlooked and corrective actions are taken to prevent the errors from
       recurring.

We also recommend that the Director of HUD’s Cleveland Office of Public
Housing

1H.    Revise the February 2009 corrective action plan with the Authority to
       ensure that it encompasses the recommendations cited in this finding.




                                11
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

               •   Applicable laws; regulations; and HUD’s program requirements at 24 CFR Parts
                   5 and 982, HUD’s Public and Indian Housing Notice 2004-1, 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; general ledgers; bank statements; board
                   meeting minutes from June 2006 through September 2008; organizational chart;
                   program household files; program annual contributions contract with HUD;
                   program policies and procedures; and program administrative plan, effective
                   January 2000.

               •   HUD’s reports and files for the Authority’s program.

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

Using data mining software, we statistically selected 100 households from the universe of 1,560
households that received housing assistance payments from January 2007 through July 2008.
The 100 files were reviewed to determine whether the Authority (1) had documentation to
support the households’ housing assistance and utility allowance payments and (2) correctly
calculated and issued the payments for the period January 2007 through July 2008. Our sample
selection included households receiving tenant-based voucher assistance and included a 90
percent confidence level and a precision of plus or minus 10 percent.

To determine our statistical sample, we requested a data file listing all participants and related
housing assistance or utility allowance payment disbursements from the Authority’s program for
our audit period of July 1, 2006, through May 31, 2008. The Authority underwent a software
conversion during July 2007. Due to the software conversion, data before January 2007 were
unable to be obtained in the format required for the statistical sample determination. Therefore,
we modified the scope to January 1, 2007, through July 31, 2008.

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 nearly $255,000 in payments
will be misspent over the next year using data mining software. Because this figure represents
the more conservative lower limit projection, we are 90 percent certain that the amount overpaid
annually was at least $254,960. Our sample results determined that 60 of the 100 (60 percent)
households’ housing assistance and utility allowances were overpaid. 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.




                                                12
We performed our on-site audit work from July 2008 through July 2009 at the Authority’s program
office located at 189 First Street, Painesville, Ohio. The audit covered the period January 1, 2007,
through July 31, 2008, but was expanded as necessary.

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




                                                 13
                              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 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:




                                               14
•   The Authority lacked adequate procedures and controls when purging files to
    ensure that required documentation to determine a household’s eligibility and
    assistance in the program was maintained in the household files.

•   The Authority lacked adequate procedures and controls to ensure compliance
    with HUD’s requirements, its program administrative plan, and its procedures
    manual regarding the calculation and issuance of housing assistance and
    utility allowance payments.

•   Quality control reviews did not always identify housing assistance and utility
    allowance calculation and/or issuance errors or ensure that corrective actions
    were taken to prevent errors from recurring.




                                 15
                                   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                                       $836,136
                1B                 $69,982
                1C                                                            $4,268
                1E                                                           254,960
               Totals              $69,982               $836,136           $259,228


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 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 procedures and controls, this
     will be a recurring benefit. Our estimate reflects only the initial year of this benefit.




                                               16
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         17
Ref to OIG Evaluation   Auditee Comments




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         19
Ref to OIG Evaluation   Auditee Comments




                         20
Ref to OIG Evaluation   Auditee Comments




                         21
Ref to OIG Evaluation   Auditee Comments




                         22
Ref to OIG Evaluation   Auditee Comments




                         23
Ref to OIG Evaluation   Auditee Comments




                         24
Ref to OIG Evaluation   Auditee Comments




                         25
Ref to OIG Evaluation   Auditee Comments




                         26
                        OIG Evaluation of Auditee Comments

Comment 1   We adjusted recommendations 1A, 1B, and 1C based upon additional
            documentation provided by the Authority.




                                          27
Appendix C

 FEDERAL REQUIREMENTS AND AUTHORITY’S PROGRAM
              ADMINISTRATIVE PLAN

HUD’s regulations at 24 CFR 5.230(a) state that each member of the family of an assistance
applicant or participant who is at least 18 years of age and each family head and spouse
regardless of age shall sign one or more consent forms.

HUD’s regulations at 24 CFR 5.240(c) state that 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.

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 U.S. 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 5.609 state that annual income means all amounts, monetary or
not, which go to or on behalf of the family head or spouse (even if temporarily absent) or to any
other family member or are anticipated to be received from a source outside the family during
the 12-month period following admission or annual reexamination effective date, and which are
not specifically excluded. Annual income also means amounts derived (during the 12-month
period) from assets to which any member of the family has access. Annual income includes but
is not limited to (1) the full amount, before any payroll deductions, of wages and salaries,
overtime pay, commissions, fees, tips and bonuses, and other compensation for personal
services; (2) the net income from the operation of a business or profession; (3) interest,



                                                28
dividends, and other net income of any kind from real or personal property; (4) the full amount
of periodic amounts received from Social Security, annuities, insurance policies, retirement
funds, pensions, disability or death benefits, and other similar types of periodic receipts,
including a lump-sum amount or prospective monthly amounts for the delayed start of a periodic
amount; (5) payments in lieu of earnings, such as unemployment and disability compensation,
worker’s compensation and severance pay; (6) welfare assistance payments; (7) periodic and
determinable allowances, such as alimony and child support payments, and regular contributions
or gifts received from organizations or from persons not residing in the dwelling. Annual
income does not include earnings in excess of $480 for each full-time student 18 years of age or
older (excluding the head of household and spouse).

HUD’s regulations at 24 CFR 5.611(a) state that in determining adjusted income, the responsible
entity must deduct the following amounts from annual income: (1) $480 for each dependent; (2)
$400 for any elderly family or disabled family; (3) the sum of the following, to the extent the
sum exceeds 3 percent of annual income: (i) unreimbursed medical expenses of any elderly
family or disabled family and (ii) unreimbursed reasonable attendant care and auxiliary apparatus
expenses; and (4) any reasonable child care expenses necessary to enable a member of the family
to be employed or to further his or her education.

HUD’s regulations at 24 CFR 5.901(a) include requirements that apply to criminal conviction
background checks by public housing authorities that administer Section 8 and public housing
programs when they obtain criminal conviction records, under the authority of section 6(q) of the
1937 Act (United States Code) 1437d(q)), from a law enforcement agency to prevent admission
of criminals to public housing and Section 8 housing and to assist in lease enforcement and
eviction.

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

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.

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. The authority must prepare a
unit inspection report. 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
payment 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 982.162(a)(3) state that the public housing authority must use
program contracts and other forms required by HUD headquarters, including (1) the consolidated
annual contributions contract between HUD and the public housing authority, (2) the housing



                                                29
assistance payment contract between the public housing authority and the owner and (3) the
tenancy addendum required by HUD (which is included both in the housing assistance payment
contract and in the lease between the owner and the tenant).

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 information as required in
section 35.92(b) of this title.

HUD’s regulations at 24 CFR 982.308(d) state that the lease must specify all of the following:
(1) the names of the owner and the tenant, (2) the unit rented (address, apartment number, and
any other information needed to identify the contract unit), (3) the term of the lease (initial term
and any provisions for renewal), (4) the amount of the monthly rent to owner, and (5) a
specification of what utilities and appliances are to be supplied by the owner and what utilities
and appliances are to be supplied by the family. Paragraph (g) state that the owner must notify
the public housing authority of any changes in the amount of the rent to owner at least 60 days
before any such changes go into effect, and any such changes shall be subject to rent
reasonableness requirements.

HUD’s regulations at 24 CFR 982.309(b) state that the housing assistance payment contract
terminates if any of the following occurs: (1) the lease is terminated by the owner or the tenant,
(2) the public housing authority terminates the housing assistance payment contract, or (3) the
public housing authority terminates assistance for the family.

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 amount shall be used to
calculate the monthly housing assistance payment for the family beginning on 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 982.505(c) state that the payment standard for the family is the
lower of (i) the payment standard amount for the family unit size or (ii) the payment standard
amount for the size of the dwelling unit rented by the family. If the payment standard amount is
increased during the term of the housing assistance payment contract, the increased payment
standard amount shall be used to calculate the monthly housing assistance payment for the
family beginning on the effective date of the family’s first regular reexamination on or after the
effective date of the increase in the payment standard amount. Regardless of any increase or
decrease in the payment standard amount, if the family unit size increases or decreases during the
housing assistance payment contract term, the new family unit size must be used to determine the
payment standard amount for the family beginning at the family’s first regular reexamination
following the change in family unit size.

HUD’s regulations at 24 CFR 982.516(a) require the authority to conduct a reexamination of
family income and composition at least annually. The authority must obtain and document in the
client file third-party verification of the following factors or must document in the client file why



                                                 30
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 (iv) other factors that affect
the determination of adjusted income. At any time, the authority may conduct an interim
reexamination of family income and composition. Interim examinations must be conducted in
accordance with policies in the authority’s administrative plan.

HUD’s regulations at 24 CFR 982.517(b)(2) state that a public housing authority’s utility
allowance schedule and the utility allowance for an individual family must include the utilities
and services that are necessary in the locality to provide housing that complies with the housing
quality standards. In the utility allowance schedule, the public housing authority must classify
utilities and other housing services according to the following general categories: space heating,
air conditioning, cooking, water heating, water, sewer, trash collection (disposal of waste and
refuse), other electric, refrigerator (cost of tenant-supplied refrigerator), range (cost of tenant-
supplied range), and other specified housing services.

HUD’s Public and Indian Housing Notice 2004-1, section X, paragraph A, state that upon
consent by the family member, the public housing authority should pursue third-party
verification of full-time student status. Documentation may include current enrollment status
letter, which includes school name and address, dates of enrollment and total number of classes
or credits attempted in a given quarter/semester, current school transcript, most recent grade
report, etc. The public housing authority should mail verification requests directly to the school
and receive the completed verification directly from the school. The school or vocational
training center defines full-time status. Typically, full-time status consists of 12 or more
attempted credit hours per semester/quarter. Paragraph D states that determining a family’s
eligibility for the childcare expense deduction is a two-step process. First, you must verify that
the incurred childcare expense enables a family member to actively seek employment, to be
gainfully employed, or to further his/her education. It may be a challenge to verify that a family
member is actively seeking work if he/she is not doing so as a requirement for Welfare to Work,
continued collection of unemployment compensation, or other state program. Typically,
adequate verification of a family member actively seeking work may consist of written or oral
third-party verification from a local or state government agency that governs work-related
activities. In the event that third-party verification is not available, the public housing authority
may rely on tenant-provided documents along with a notarized statement that indicates the
tenant’s efforts to seek employment.

Page 30 of Form HUD-50058, Instruction Booklet, indicates that temporary assistance for needy
families funded from federal or state dollars should be included as income. The term
“assistance” includes cash, payments, vouchers, and other forms of benefits designed to meet a
family’s ongoing basic needs (i.e., for food, clothing, shelter, utilities, household goods, personal
care items, and general incidental expenses) (24 CFR 5.609(b)(6)). Payments to individual
recipients by a temporary assistance for needy families agency or other agency on its behalf
should also be included as income.

Form HUD-9886, Authorization for the Release of Information/Privacy Act Notice, states that
each member of an applicant’s or participant’s household 18 years of age or older is required to
sign the form. The consent form expires 15 months after signed.




                                                 31
HUD’s Housing Choice Voucher Guidebook, chapter 5, state that generally the public housing
authority should use current circumstances to anticipate annual income, unless verification forms
indicate an imminent change. A voucher participant does not receive a reduced family share
when the family’s welfare grant is reduced as the result of fraud, failure to participate in an
economic self-sufficiency program, or failure to comply with a work requirement. Before
determining annual income when there has been a reduction in the welfare grant, the public
housing authority must receive written verification from the welfare agency that the benefit
reduction was caused by noncompliance or fraud before denying a family’s request for a
reexamination of income and rent reduction. The prohibition against reducing rent does not
apply when welfare benefits are lost because the lifetime limit on receipt of benefits has expired
or in a situation in which the family has complied with welfare program requirements but cannot
obtain employment. The amount by which the welfare benefit has been reduced because of fraud
or a sanction for noncompliance with requirements to participate in an economic self-sufficiency
program is identified as the “imputed welfare income.” The family’s annual income includes the
amount of the imputed welfare income plus the total amount of other annual income.

Section 5.4 states that public housing authorities are required to include in the calculation of
annual income any interest or dividends earned on assets held by the family. When net family
assets are $5,000 or less, use the actual income from assets. When family assets are more than
$5,000, use the greater of (1) actual income from assets or (2) a percentage of the value of such
assets based upon the current passbook savings rate as established by HUD. This is called
imputed income from assets. Assets include amounts in savings and checking accounts; stocks,
bonds, savings certificates, money market funds and other investment accounts; equity in real
property or other capital investments; the cash value of trusts that may be withdrawn by the
family; individual retirement accounts, Keogh, and similar retirement savings accounts even
though withdrawal would result in a penalty; some contributions to company retirement pension
funds; assets which, although owned by more than one person, allow unrestricted access by the
applicant; lump-sum receipts such as inheritances, capital gains, lottery winnings, insurance
settlements, and other claims; personal property held as an investment such as gems, jewelry,
coin collections, antique cars, etc.; cash value of life insurance policies. Because of the
requirement to include the greater of the actual interest/dividend income earned or a percentage
based upon a HUD published passbook rate when assets are greater than $5,000, the value of
assets may affect the family’s annual income. The public housing authority must determine the
market value of the asset and then calculate the cash value by subtracting the estimated expense
required were the family to convert the asset to cash. Expense to convert to cash includes costs
such as penalties for premature withdrawal, broker and legal fees, and settlement costs incurred
in real estate transactions.

Section 5.5 states that medical expenses are expenses anticipated to be incurred during the 12
months following certification or reexamination, which are not covered by an outside source
such as insurance. The medical allowance is not intended to give a family an allowance equal to
last year’s expenses but to anticipate regular ongoing and anticipated expenses during the
coming year. Not all elderly or disabled applicants or participants are aware that their expenses
for medical care are included in the calculation of adjusted income for elderly or disabled
households. For that reason, it is important for public housing authority staff to probe for
information on allowable medical expenses. These may include services of doctors and health
care professionals, services of health care facilities, medical insurance premiums,
prescription/nonprescription medicines prescribed by a physician, transportation to treatment,



                                               32
dental expenses, eyeglasses, hearing aids, batteries, live-in or periodic medical assistance, and
monthly payment on accumulated medical bills (regular monthly payments on a bill that was
previously incurred). The allowance may include only the amount expected to be paid in the
coming 12 months.

HUD’s Housing Choice Voucher Guidebook, chapter 18, states that the request for tenancy
approval submitted by the owner and the prospective tenant tells the public housing authority the
utilities the tenant will pay for directly and the utilities that are included in the rent. When a
family has located a unit and submitted a request for tenancy approval (Form HUD-52517) the
public housing authority can calculate the actual utility allowance for the family. Section 11 of
the request for tenancy approval will indicate the utilities the tenant must pay and the utilities the
owner will cover. Because the allowances for utilities and services are subject to change over
time, the utility allowance should be recalculated every year at the family’s annual
reexamination. The public housing authority should ensure that the most recent update of the
utility allowance schedule has been used to calculate the family’s utility allowance and that there
has been no change in the utilities and allowances supplied by the tenant.

HUD’s Public and Indian Housing Rental Integrity Summit Manual, chapter 6, states that a good
quality control system should be comprehensive but not burdensome, cover key performance
areas; fairly and accurately measure performance, and be perceived as being fair and useful by
staff and managers. Most importantly, a good quality control system must be used to continually
reduce errors and improve program operations and give feedback to staff. In the beginning, a
quality control program will most certainly identify problems; however, a good quality control
program also will provide indicators of the path to corrective action. Chapter 7 discusses the
steps that make up the two strategies in the error reduction process: the problem analysis
strategy and the response strategy. During the problem analysis strategy, the authority identifies
(1) the area of concern, including the issue and all relevant requirements; (2) what actually
happened, including how many people made what kind of errors how often and any identifiable
patterns to the errors; and (3) the reasons the errors occurred, including both the apparent causes
and the root causes. During the response strategy, the authority (1) finds appropriate solutions
and (2) develops an implementation plan.

The Authority’s administrative plan, dated January 2000, states,

Chapter 2. The public housing authority will check criminal history for all adults in the
household to determine whether any member of the family has violated any of the prohibited
behaviors as referenced in the section on One-Strike policy in the “Denial or Termination of
Assistance” chapter [Chapter 15].

Chapter 6, section H. Regular alimony and child support payments are counted as income for
calculation of total tenant payment. If the amount of child support or alimony received is less
than the amount awarded by the court, the Authority must use the amount awarded by the court
unless the family can verify that it is not receiving the full amount. The public housing authority
will accept verification that the family is receiving an amount less than the award if (1) it
receives verification from the agency responsible for enforcement or collection or (2) the family
furnishes documentation of child support or alimony collection action filed through a child
support enforcement/collection agency or has filed an enforcement or collection action through
an attorney. It is the family’s responsibility to supply a certified copy of the divorce decree.



                                                 33
Chapter 6, section M. When it is unclear in the HUD rules as to whether or not to allow an item
as a medical expense, Internal Revenue Service Publication 502 will be used as a guide.
Nonprescription medicines must be doctor recommended in order to be considered a medical
expense. Nonprescription medicines will be counted toward medical expenses for families who
qualify if the family furnishes legible receipts. Acupressure, acupuncture and related herbal
medicines and chiropractic services will be considered allowable medical expenses.

Chapter 7, section A. The Authority will verify information through the five methods of
verification acceptable to HUD in the following order: (1) Enterprise Information Verification
whenever available, (2) third-party written verification, (3) third-party oral verification, (4)
review of documents, and (5) self-certification.

Chapter 7, section B. Adult family members will be required to sign the HUD-9886, Release of
Information/Privacy Act.

Chapter 7, section C. When computer matching results in a discrepancy with information in the
public housing authority records, the public housing authority will follow up with the family and
verification sources to resolve this discrepancy. If the family has unreported or underreported
income, the public housing authority will follow the procedures in the Program Integrity
addendum of the administrative plan.

Chapter 7, section H. Families who claim medical expenses will be required to submit a
certification as to whether or not any expense payments have been or will be reimbursed by an
outside source. All expense claims will be verified by one or more of the methods listed below:
receipts, canceled checks, or pay stubs that verify medical costs and insurance expenses likely to
be incurred in the next 12 months; copies of payment agreements or most recent invoice that
verify payments made on outstanding medical bills that will continue over all or part of the next
12 months; receipts or other record of medical expenses incurred during the past 12 months that
can be used to anticipate future medical expenses. Public housing authorities may use this
approach for “general medical expenses” such as nonprescription drugs and regular visits to
doctors or dentists but not for one-time, nonrecurring expenses from the previous year.

Chapter 9, section C. The public housing authority will review the lease, particularly noting the
approvability of optional charges and compliance with regulations and state and local law. The
tenant also must have legal capacity to enter a lease under state and local law. Responsibility for
utilities, appliances, and optional services must correspond to those provided on the request for
approval of tenancy. The family and owner must submit a standard form lease used in the
locality by the owner and that is generally used for other unassisted tenants in the premises. The
terms and conditions of the lease must be consistent with state and local law. The lease must
specify the names of the owner and tenant, the address of the unit rented, the amount of monthly
rent to owner, what utilities and appliances are to be supplied by the owner, and what utilities
and appliances are to be supplied by the family.

Chapter 12, section C.
Increases in income. The public housing authority will conduct interim reexaminations only
when one of the following events occurs: (1) Family moves to another dwelling outside of the
annual reexamination month. (2) Family has an increase in income and is receiving Earned
Income Disallowance benefits. (3) Family has an increase in income and had been reporting



                                                34
zero income previously. (4) Unemployment benefits have ended and participant has started
another job. (5) Family composition changes in any way. (6) A person with income joins the
household. (7) A participant on layoff, temporary disability, or summer vacation (school
employees) returns to the same employer or job. (8) A family self-sufficiency program
participant requests in writing an interim reexamination. Families will be required to report all
increases in income/assets within 10 days of the increase.

Decreases in income. Participants may report a decrease in income and other changes that would
reduce the amount of tenant rent, such as an increase in allowances or deductions. The public
housing authority must calculate the change if a decrease in income is reported. If the public
housing authority makes a calculation error at admission to the program or at an annual
reexamination, an interim reexamination will be conducted, if necessary, to correct the error, but
the family will not be charged retroactively. Families will be given decreases, when applicable;
retroactive to when the decrease for the change would have been effective if calculated correctly.

Chapter 12, section G. If the family does not report the change as described under Timely
Reporting, the family will have caused an unreasonable delay in the interim reexamination
processing, and the following guidelines will apply: Increase in tenant rent will be effective
retroactive to the date it would have been effective had it been reported on a timely basis. The
family will be liable for any overpaid housing assistance and may be required to sign a
repayment agreement or make a lump-sum payment.

Standard for timely reporting of changes. The public housing authority requires that families
report interim changes to the public housing authority within 10 calendar days of when the
change occurs. Any information, document, or signature needed from the family that is needed
to verify the change must be provided within 30 calendar days of the change. If the change is not
reported within the required time period or if the family fails to provide documentation or
signatures, it will be considered untimely reporting.

Procedures when the change is reported in a timely manner. The public housing 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. Decreases in the tenant rent are effective the first of
the month following that in which the change is reported. However, no rent reductions will be
processed until all the facts have been verified, even if a retroactive adjustment results. The
change may be implemented based on documentation provided by the family, pending third-
party written verification.

Procedures when the change is not reported by the family in a timely manner. If the family does
not report the change as described under Timely Reporting, the family will have caused an
unreasonable delay in the interim reexamination processing and the following guidelines will
apply: Increase in tenant rent will be effective retroactive to the date it would have been
effective had it been reported on a timely basis. The family will be liable for any overpaid
housing assistance and may be required to sign a repayment agreement or make a lump sum
payment. Decrease in tenant rent will be effective on the first of the month following the month
that the change was reported.




                                                 35
Page 23 of the Authority’s Section 8/Family Self-Sufficiency Policy and Procedures Manual
states that asset income equals the six-month average multiplied by the percentage of interest
earned on the checking account or savings account.




                                               36