Issue Date
September 25, 2009
Audit Report Number
2009-CH-1015
TO: Lucia M. Clausen, Director of Public Housing Hub, 5KPH
FROM: Heath Wolfe, Regional Inspector General for Audit, 5AGA
SUBJECT: The Public Housing Agency of the City of Saint Paul, Minnesota, Needs to
Improve Its Administration of Its Section 8 Project-Based Voucher Program
HIGHLIGHTS
What We Audited and Why
We audited the Public Housing Agency of the City of Saint Paul’s (Agency)
Section 8 Project-Based Voucher program (program). The audit was part of the
activities in our fiscal year 2009 annual audit plan. We selected the Agency’s
program based upon our internal audit survey of the U.S. Department of Housing
and Urban Development’s (HUD) oversight of the program and our analysis of
risk factors relating to the housing agencies in Region V’s jurisdiction. Our
objective was to determine whether the Agency effectively administered its
program in accordance with HUD’s and its own requirements.
What We Found
The Agency needs to improve the administration of its program. It was unable to
provide documentation showing that it conducted initial inspections before
executing housing assistance payments contracts to support more than $1.3
million in housing assistance and utility allowance payments. The Agency also
did not ensure that more than $12,000 in duplicate housing assistance payments
were not made to owners of program projects. Additionally, it did not obtain
subsidy layering reviews of program projects as required by HUD’s regulations.
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The Agency substantially complied with HUD’s and its requirements regarding
housing assistance payments calculations. However, the Agency incorrectly
calculated households’ payments, resulting in more than $7, 200 in overpayments
and more than $9,500 in underpayments for the period January 1, 2007, through
December 31, 2008.
We informed the Agency’s executive director and the Director of HUD’s
Minneapolis Office of Public Housing of minor deficiencies through a
memorandum, dated September 24, 2009.
What We Recommend
We recommend that the Director of HUD’s Minneapolis Office of Public Housing
require the Agency to reimburse its program from nonfederal funds for the
improper use of more than $26,000 in program funds, provide documentation or
reimburse its program more than $1.3 million, and implement adequate
procedures and controls to address the findings cited in this audit report.
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 Minneapolis Office of Public Housing and the Agency’s executive
director during the audit. We provided our discussion draft audit report to the
Agency’s executive director, its board chairman, and HUD’s staff during the
audit. We held an exit conference with the executive director on September 9,
2009.
We asked the executive director to provide comments on our discussion draft
audit report by September 17, 2009. The executive director provided written
comments, dated September 17, 2009. The executive director disagreed with
finding 1 and generally agreed with finding 2. 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 18 pages of documentation that was not
necessary for understanding the Agency’s comments and the last four numbers of
a tenant’s Social Security number that the executive director included in his
comments. A complete copy of the Agency’s comments plus the documentation
was provided to the Director of HUD’s Minneapolis Office of Public Housing.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: The Agency Needs to Improve the Administration of Its Program 6
Finding 2: The Agency Substantially Complied with HUD’s and Its 9
Requirements for Program Housing Assistance Payments
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 the Agency’s Program Administrative Plan 33
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BACKGROUND AND OBJECTIVE
The Public Housing Agency of the City of Saint Paul (Agency) was created by the Minnesota
State Legislature, separate from the City of Saint Paul (City), and has been an independent
governmental unit since 1977. The Agency was created to own and manage public housing
properties and to administer the tenant-based Section 8 program in the City. Its historical roots
are in the Housing and Redevelopment Authority of the City of Saint Paul, a unit of the City
established by the Minnesota State Legislature in 1947. The Housing and Redevelopment
Authority’s initial goal was to remove slums and construct low-income housing in the City. In
the early 1970s, the Housing and Redevelopment Authority began administering a federal rent
subsidy program for eligible low-income households living in privately owned housing. The
program evolved into the Section 8 Existing Housing Assistance Program. That program now
serves more than 4,000 families. The Agency is funded by federal housing subsidies, rents paid
by residents, special purpose grants, and investment revenues. It receives no financial support
from City or county taxes and makes a payment in lieu of taxes to defray the cost of City and
county services.
A board of commissioners governs the Agency. The seven commissioners are appointed by the
City’s mayor and approved by the city council. Two commissioners represent public housing
residents. The board makes operational and budgetary decisions regarding the use of federal
funds allocated for housing. The Agency’s executive director is appointed by the board of
commissioners and is responsible for coordinating established policy and carrying out the
Agency’s day-to-day operations.
The Agency administers a Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). 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 30, 2009, the Agency had 3,699 units under
contract with annual housing assistance payments totaling more than $25 million in program
funds.
In July 1999, the Agency’s board approved an initial limit of 100 program units that provide
rental assistance for eligible families who live in specific developments or units. On February 1,
2002, the Agency executed its first Project-Based Voucher program (program) housing
assistance payments contract. The Agency may use up to 20 percent of its Section 8 Housing
Choice Voucher program funding for its program. It is permitted to provide program funds to
newly constructed, existing, or rehabilitated units. Families must live in the unit for a minimum
of one year. After the initial year, the family may join the Section 8 Housing Choice Voucher
program, provided there is a voucher available. During November 2000, the Agency’s board
increased the initial limit of 100 units to 544 units for the program. As of November 26, 2008,
the Agency’s board had approved 403 program units in 21 projects. From February 1, 2002,
through December 31, 2008, the Agency made housing assistance and utility allowance
payments totaling nearly $17 million to program projects.
Our objective was to determine whether the Agency effectively administrated its program in
accordance with HUD’s and its own requirements to include determining whether the Agency (1)
4
adequately administered its program, and (2) accurately computed housing assistance and utility
allowance payments for program households.
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RESULTS OF AUDIT
Finding 1: The Agency Needs to Improve the Administration of
Its Program
The Agency needs to improve the administration of its program. The problems occurred because
the Agency failed to exercise proper supervision and oversight of the program and also lacked
adequate procedures and controls to ensure that HUD’s requirements and its program
administrative plan were appropriately followed. As a result, it was unable to support more than
$1.3 million in housing assistance and utility allowance payments, and that $12,300 in program
funds was not used for duplicate housing assistance payments.
The Agency Lacked
Documentation to Support Its
Projects’ Eligibility
We reviewed 100 percent of the Agency’s program projects under housing
assistance payments contract and/or receiving housing assistance payments as of
December 31, 2008. The 18 program projects contained 372 units. The program
project files were reviewed to determine whether the Agency maintained
documentation to support that its projects were eligible. Our review was limited to
the information maintained by the Agency in its program project files and HUD’s
Minneapolis Office of Public Housing’s project files for the Agency. The Agency
lacked documentation to support that
• 230 units in 10 projects had a subsidy layering review,
• 156 units in 13 projects had an initial housing quality standards inspection
conducted from February 2002 through December 2004, and
• Duplicate housing assistance payments were not paid to owners.
In response to our draft finding outline, the Agency provided documentation to
support more than $6 million in housing assistance and utility allowance
payments. The documentation included an initial inspection conducted in July
2001.
The Agency’s Procedures and
Controls Had Weaknesses
The weakness regarding missing initial inspection documentation occurred
because the Agency lacked adequate procedures and controls to ensure that the
required documents were completed and maintained in the program project files
to determine project eligibility in accordance with HUD’s and its own
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requirements. Contrary to its stated method of keeping unit records in participant
files, the Agency maintained its initial inspections for Sankofa Apartments in the
project file. The housing assistance payments contract for this project was
executed in November 2008.
We observed 10 units in seven of the Agency’s program projects during our audit
and determined that the units were in substantial compliance with HUD’s housing
quality standards. Of the 10 units observed, the Agency was unable to provide
documentation to support that initial inspections were conducted for four units in
the Agency’s program projects.
The Agency’s Section 8 programs manager said that the program units were
treated similarly to its Section 8 Housing Choice Voucher units in that they were
inspected at least annually and before a new household moved into a unit.
The error regarding subsidy layering reviews occurred because HUD’s
headquarters Office of Public Housing and Voucher Programs incorrectly advised
HUD’s Minneapolis Office of Public Housing and the Agency that subsidy
layering reviews were not required for new construction and rehabilitation
projects unless tax credits were involved. We provided this information to
HUD’s Associate Deputy Assistant Secretary for Public Housing and Voucher
Programs, who agreed that subsidy layering reviews were required for new
construction and rehabilitation projects whether tax credits were involved or not.
The duplicate housing assistance payments occurred because the Agency made a
mistake.
Conclusion
As a result of its weaknesses, HUD and the Agency lacked assurance that
program funds were used efficiently and effectively. The Agency did not
properly use program funds when it did not comply with HUD’s requirements.
The Agency disbursed $1,250,868 in program housing assistance and utility
allowance payments for program units without proper documentation showing
that an initial inspection was conducted before the housing assistance payments
contracts were executed, and made $12,395 in duplicate housing assistance
payments.
In accordance with HUD’s regulations at 24 CFR (Code of Federal Regulations)
982.152(d), HUD may reduce or offset any administrative fee to the public
housing agency, in the amount determined by HUD, if the public housing agency
fails to perform public housing agency administrative responsibilities correctly or
adequately under the program. The Agency received $114,491 in administrative
fees related to the housing assistance payments that were made without evidence
of an initial inspection having been conducted.
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Recommendations
We recommend that the Director of HUD’s Minneapolis Office of Public Housing
require the Agency to
1A. Provide supporting documentation or reimburse its program $1,365,359
from nonfederal funds ($1,250,868 in housing assistance and utility
allowance payments plus $114,491 in administrative fees) for the housing
assistance payments related to the units lacking evidence of an initial
housing quality standards inspection.
1B. Reimburse its program $12,395 from nonfederal funds for the duplicate
housing assistance payments cited in this finding.
1C. Implement adequate procedures and controls to ensure compliance with all
federal requirements for the operation of its program.
1D. Obtain the appropriate subsidy layering reviews for the program projects
cited in this finding.
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Finding 2: The Agency Substantially Complied with HUD’s and Its
Requirements for Program Housing Assistance Payments
The Agency substantially complied with HUD’s and its requirements for program housing
assistance payments. However, it inaccurately computed payments when it overpaid more than
$7,200 and underpaid more than $9,500 in housing assistance and utility allowances. These
deficiencies occurred because the Agency needs to improve its existing procedures and controls
to ensure that its calculations were accurate and that HUD’s requirements and its program
administrative plan were appropriately followed.
The Agency Made Incorrect
Housing Assistance and Utility
Allowance Payments
We statistically selected 116 household files, with a total of $1,148,084 in
housing assistance and utility allowance payments, from a universe of 613
households receiving program housing assistance payments during the period
January 1, 2007, through December 31, 2008, using data mining software. Our
sampling criteria used a 90 percent confidence level and precision of plus or
minus 10 percent. Our methodology for the sample selection is explained in the
Scope and Methodology section of this audit report. The 116 files were reviewed
to determine whether the Agency correctly calculated households’ housing
assistance and utility allowance payments. Our review was expanded as
necessary and was limited to the information maintained by the Agency in its
household files, HUD’s Enterprise Income Verification system, and the
LexisNexis Research system.
According to HUD’s regulations at 24 CFR 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 Agency’s calculation errors resulted in overpayments of $7,259 and
underpayments of $9,563 in housing assistance and utility allowances. The
Agency incorrectly calculated housing assistance and utility allowances for 33 (28
percent) households in one or more certifications. The 33 files contained errors in
the calculation of the households’ annual income, income deductions, and
adjustments and the use of incorrect utility allowances.
The 33 files contained the following errors:
• 22 had annual income calculation errors by the Agency for one or more
certifications,
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• Six had incorrect adjustment calculations for one or more certifications,
• Five had incorrect disability allowances for one or more certifications, and
• Four had incorrect utility allowance calculations for one or more
certifications.
The Agency received $6,971 in program administrative fees related to the 18
households that were overpaid housing assistance and utility allowances for the
period January 1, 2007, through December 31, 2008.
The Agency’s Procedures and
Controls Had Weaknesses
The weaknesses regarding incorrect calculations and inappropriate payments
occurred because the Agency needs to improve its procedures and controls to
ensure that it appropriately followed HUD’s regulations and its program
administrative plan.
The Agency’s Section 8 programs manager said that the program technicians
checked each other’s work and that all housing assistance payment calculations
were reviewed by a coworker. Quality control reviews were selected randomly
for Section Eight Management Assessment Program compliance. Each file also
contained a checklist to ensure that all required items were in the file. The
supervisors might also conduct quality control reviews randomly. There was no
set amount of files that were checked by supervisors.
The Agency’s manager also said that at least one household failed to reverify its
disability. Therefore, the Agency did not give this household the disability
allowance of $400. This amount would have been deducted from the household’s
annual income. The Agency’s program administrative plan did not state whether
households were required to reverify their disabilities and when the reverifications
would be required.
Conclusion
As a result of its procedural and control weaknesses, HUD and the Agency lack
assurance that program funds were used efficiently and effectively. The Agency
overpaid $7,259 and underpaid $9,563 in housing assistance and utility
allowances. The Agency did not properly use program funds when it failed to
comply with HUD’s regulations and its program administrative plan. In
accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce or
offset any administrative fee to the public housing agency, in the amount
determined by HUD, if the public housing agency fails to perform public housing
agency administrative responsibilities correctly or adequately under the program.
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Recommendations
We recommend that the Director of HUD’s Minneapolis Office of Public Housing
require the Agency to
2A. Reimburse its program $14,230 ($7,259 in housing assistance and utility
allowance payments plus $6,971 in associated administrative fees) for the
overpayment of housing assistance and utility allowances cited in this
finding.
2B. Reimburse the appropriate households $9,563 for the underpayment of
housing assistance and utility allowances cited in this finding.
2C. Improve its existing procedures and controls to ensure that it complies
with HUD’s regulations and the Agency’s program administrative plan
regarding its housing assistance and utility allowance payments.
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SCOPE AND METHODOLOGY
To accomplish our objective, we reviewed
• Applicable laws; regulations; Federal Register notices; HUD’s program requirements at 24
CFR Parts 5, 35, 58, 982, and 983; Public and Indian Housing Notices 2001-04, 2004-01,
and 2005-29; HUD’s Voucher Management System, HUD’s Public and Indian Housing
Information Center, and the LexisNexis Research system.
• The Agency’s accounting records; annual audited financial statements for fiscal years 2007
and 2008; program administrative plans, effective December 2008; program household files;
project files; computerized databases; policies and procedures; program annual contributions
contracts; board meeting minutes pertinent to the program; and organizational chart.
• HUD’s files for the Agency.
We also interviewed the Agency’s employees, HUD staff, and program households.
Finding 1
We reviewed 100 percent of the Agency’s program projects under housing assistance payments
contracts and/or receiving housing assistance payments as of December 31, 2008. The 18
program projects contained 372 units.
Our results determined that the Agency did not maintain initial inspection documentation for 156
units in 13 projects. The Agency provided the earliest inspections it maintained for the units;
therefore we limited our calculation of unsupported housing assistance and utility allowance
payments and administrative fees to the period between the housing assistance payments contract
execution date and the date of the earliest inspection provided.
Finding 2
We statistically selected 116 of the Agency’s program household files from the 613 households
that received housing assistance payments from January 1, 2007, through December 31, 2008,
using data mining software. The 116 household files were selected to determine whether the
Agency 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 sample with a 90 percent confidence level and
precision level of plus or minus 10 percent.
Our sample results determined that 18 of the 116 (15.5 percent) households’ housing assistance
and utility allowances were overpaid, that 21 of the 116 (18 percent) household’s housing
assistance and utility allowances were underpaid.
We performed our on-site audit work between January and March 2009 at the Agency’s office
located at 555 North Wabasha Street, Suite 400, Saint Paul, Minnesota, and at HUD’s
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Minneapolis field office. The audit covered the period January 1, 2007, through December 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.
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INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are achieved:
• Program operations,
• Relevance and reliability of information,
• Compliance with applicable laws and regulations, and
• Safeguarding of assets and resources.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
• Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
• 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.
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Significant Weakness
Based on our review, we believe that the following item is a significant weakness:
• The Agency lacked adequate procedures and controls to ensure compliance
with HUD’s requirements and its program administrative plan regarding the
administration of its program (see finding 1).
Separate Communication of
Minor Deficiencies
We informed the Agency’s executive director and the Director of HUD’s
Minneapolis Office of Public Housing of minor deficiencies through a
memorandum, dated September 24, 2009.
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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 $1,365,359
1B $12,395
2A 14,230
2B $9,563
Totals $26,625 $1,365,359 $9,563
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.
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Appendix B
AUDITEE COMMENTS AND OIG’s EVALUATION
Ref to OIG Evaluation Auditee Comments
September 17, 2009
Mr. Heath Wolfe
Regional Inspector General for Audit
U.S. Department of Housing & Urban Development
77 West Jackson Boulevard, Suite 2646
Chicago, Illinois 60604-3507
Re: St. Paul PHA Response to HUD-OIG Discussion Draft Audit Report
Dear Mr. Wolfe:
We have reviewed the draft audit report of the Office of Inspector General (OIG) of
the U.S. Department of Housing & Urban Development (HUD), based on your audit
of the Saint Paul Public Housing Agency’s Section 8 Project-Based Voucher (PBV)
program. We are pleased with the OIG’s finding that the PHA “substantially
complied” with HUD’s regulations and the PHA’s own policies governing Housing
Assistance Payments. The other draft finding, that the PHA “needs to improve” its
administration of the PBV program, is based on the OIG’s conclusion that the PHA
should have done two things differently (conducting subsidy layering reviews, filing
initial unit inspection reports) when it began the PBV program and approved the
original assistance contracts with the project owners. (The first contracts were signed
Comment 1 in 2002.) The OIG concedes that the PHA relied on guidance from HUD that subsidy
Comment 2 layering reviews were not required for some projects. The OIG also concedes that
there was and is no specific HUD regulation, notice or guidance that obligated the
PHA to retain original unit inspection reports past the general three-year record
Comment 3 retention requirement. If the PHA enters into any new PBV agreements, we will
comply with the OIG’s interpretation of the requirements by conducting subsidy
layering reviews on all new projects and by filing reports of the initial HQS
inspections in a “project file” that will be available for audit purposes at any time
during the life of the PBV HAP contract. As a result of this audit and similar audits
of other housing agencies’ PBV programs, HUD’s Office of Public and Indian
Housing should issue more guidance to field offices and housing agencies on these
issues.
The OIG auditor determined that the PHA made some errors in determining
participant incomes, rents or utility allowances. We agree that the PHA made subsidy
overpayments totaling $5385 and underpayments totaling $4649, in the 116 files
audited. That represents an accuracy rate of 99.13% for the total of $1,148,084 the
PHA paid in subsidies for those units, which is outstanding performance in any
industry. The PHA stands ready to reimburse HUD and program participants (using
non-HUD funds) for the subsidy overpayments and underpayments.
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Ref to OIG Evaluation Auditee Comments
We appreciated the opportunity to present the PHA’s position on all of these issues at
some length during the exit conference on September 9, 2009. We were pleased that
the OIG revised the draft findings based on the additional materials and legal citations
we presented then.
We have great respect for the mission of the HUD Office of the Inspector General,
and we are pleased that after the OIG’s staff spent almost eight months scrutinizing
every detail of PBV project selection and program administration over an eight year
span, the OIG makes NO findings of mismanagement, fraud or abuse. The PHA has
paid almost $17 million in connection with the PBV program, and we believe this
audit confirms that the money was spent correctly. In all, the PHA provided
electronic records of 27,808 checks totaling $16,765,331 paid in connection with PBV
units from their original contract dates through December 31, 2008. The OIG’s staff
scrutinized these records carefully and cross-checked them against tenant file records.
We are gratified that they found no evidence of financial mismanagement or
malfeasance.
Comment 2 And as we will detail below, we believe the OIG exceeded its authority by attempting
to hold the PHA accountable to a filing/record retention standard that does not exist in
statute or regulation. The PHA disagrees with the OIG’s conclusion that the Agency
did not prove that it inspected every PBV unit before signing the original subsidy
contracts with the project owners. Despite our repeated requests for specific written
evidence, OIG failed to cite any statute, regulation, notice, or other written guidance
that specifically required the PHA to keep unit inspection records in paper in a
“project file” from 2002 to the present.
Comment 4 The PHA has established beyond any reasonable doubt that it performed all PBV unit
inspections at the appropriate time and in the appropriate manner prior executing the
contracts and before approving PBV assistance for any individual unit, and the dates
of the inspections are contained in HUD’s official PIC records. Furthermore, the
PHA maintained records of these unit inspections in accordance with all of the
requirements of HUD regulations.
The operative federal regulation (24 CFR Sec. 982.158) specifically requires the PHA
to maintain inspection records for a period of three years. The PHA fully complies
with that regulation. The federal regulations also required regulations for the tenant-
based program in Part 982 be applied to the PBV program except as otherwise
expressly modified or excluded by Part 983. In other words, absent specific written
regulation about how inspection records are to be maintained, the PHA should keep
them the same way it does for its tenant-based program. The PHA fully complies
with that regulation.
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Ref to OIG Evaluation Auditee Comments
The PBV-specific regulation on records retention that was in effect when the
PHA began its PBV program listed [only] two types of PBV records that had
to be kept longer than the usual three-year retention period:
During the HAP contract term, and for at least three years thereafter,
the HA must keep a copy of:
(1) The HAP contract; and
(2) Records to document the basis for determination of the initial
rent to owner, and for the HA determination that rent to
owner is a reasonable rent (initially and during the term of the
HAP contract).
24 CFR Sec. 983.12(b) (eff. 6/1/1998 – 11/14/2005)
This regulation is where HUD could have or would have directed PHA’s to
retain initial inspection records “during the HAP contract term, and for at least
three years thereafter” if that had been HUD’s intent. HUD chose not to make
that a requirement, instead leaving the three year record retention requirement
as the operative standard.
Another federal regulation (24 CFR Sec. 908.101) requires PHA’s to complete
and electronically submit a data form (HUD-50058) whenever a new tenant
moves into a rental unit that will be subsidized by Section 8. The form
includes the “Date unit last passed HQS inspection.” (Sec. 5h) The
requirement to electronically file the form has been in place since 1995; and
the regulation now says that: “Electronic retention of form HUD-50058 fulfills
the retention requirement under this section.” HUD’s own electronic data
storage system (PIC - Public and Indian Housing Information Center) contains
every single HUD-50058 report, including the inspection dates, for every PBV
unit subsidized by the Saint Paul PHA throughout the OIG audit period. Those
records clearly confirm the original inspection dates (on or before the contract
date) for many of the PBV units for which the original paper inspection reports
have been destroyed.
Comment 5 The OIG asserts that the PHA should have maintained the original unit inspection
reports (forever?) in each “project file”. This PHA, and others we have contacted,
files the inspection reports in participant files (tenant files) and retains them for the
required period of time. The PHA’s method of keeping unit records, including
inspection records, in the participant files not only complies with federal regulation, it
made and continues to make eminent sense.
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Ref to OIG Evaluation Auditee Comments
Comment 2 The OIG has conceded that there is no specific regulation or other written guidance
from HUD that required the PHA to maintain original inspection booklets in PBV
project files from 2002 to the present. The PHA accepts that it is “okay” for OIG to
cite the Agency for mistakes or violations of existing law and regulation it might have
inadvertently made. However, the OIG should not invent standards it wished had
been in place 10 years ago and then cite the PHA for failing to live up to this invented
standard.
The OIG should have conducted a review of the PHA’s administration of the PBV
program for the time frame during which the PHA was actually required to maintain
records. We are confident that an OIG audit of the program covering the time frame
for which documents are required to be kept would have yielded little more than
routine file discrepancies endemic to operating a program with as much complexity as
the Section 8 PBV program. (In fact, this OIG audit did include some PBV projects
for which the contracts were executed within the last three years, and the PHA did
produce all of the original inspection reports for all of those units.)
Comment 6 Finding 1: The PHA disagrees with the OIG’s finding that “The [PHA] needs to
improve its administration of its [PBV] program,” because we relied on HUD
guidance on subsidy layering reviews and records retention. However, IF the PHA
enters into any new PBV agreements, we will comply with the OIG’s interpretation of
the requirements by conducting subsidy layering reviews on all new projects and by
filing reports of the initial HQS inspections in a “project file” that will be available for
audit purposes at any time during the life of the PBV HAP contract.
Our PHA staff worked in close cooperation with the Minneapolis HUD Field Office
staff as the PBV program developed, and we appropriately relied on the advice they
provided directly, and the guidance they received from HUD Washington and relayed
to us. In fact, had we done otherwise and ignored or violated HUD guidance we
would have been properly criticized for that action.
The specific findings under this heading and the PHA’s responses, as discussed in
detail below, are as follows:
1. Subsidy layering reviews. The PHA appropriately relied on guidance from
HUD Washington via HUD Minneapolis Field Office.
2. Original unit inspection reports. The PHA inspected all units before
executing PBV contracts, and before approving a subsidy for any individual
unit. The PHA disagrees with the OIG’s finding that the PHA should have
retained original inspection documents longer than the three year period
required by HUD regulations. We also disagree with the OIG’s
recommendation that HUD require the PHA to repay HAP subsidies and
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Ref to OIG Evaluation Auditee Comments
administrative fees for time periods before the earliest inspection reports in
our participant files.
1. Subsidy Layering. In this finding the OIG acknowledges that the PHA relied on
advice given by HUD Washington officials, that a “subsidy layering” review was
not required unless a PBV project was also receiving Low Income Housing Tax
Credits (LIHTC). Following that guidance from HUD Washington, the HUD
Minneapolis staff did not require the PHA to provide information for HUD to
conduct a subsidy laying review. (Subsidy laying reviews were conducted for the
PBV projects that had tax credits.) Given the guidance from HUD Washington,
we fail to see now what the PHA and HUD Minneapolis staff should have done
differently: Ask some one else at HUD Washington? Conduct a subsidy layering
review anyway, “just in case?” No. Operating in the real world in real time,
PHA’s have no reason to second-guess guidance from HUD or to seek a “second
opinion”.
Comment 7 We agree that the OIG is entitled, even obligated, to exercise its independent
judgment on issues such as this. However, we strongly disagree that this
should be an audit finding directed at the PHA. The proper result, we believe,
would be for the OIG to state in the audit report that the PHA (and HUD
Minneapolis staff) acted in accordance with guidance from HUD Washington,
so there was no fault on the part of the PHA and local HUD. The fault lies in
Washington; HUD headquarters should provide clearer guidance to its own
staff and to the field.
Comment 8 In fact, the financing packages for the PBV projects in question were
reviewed extensively by the professional staff at the Minnesota Housing
Finance Agency (MHFA, now “Minnesota Housing”) and other local agency
staff and consultants. Any possible excess subsidization would have been
discovered and prevented at that stage. The projects were proposed, reviewed
and selected for subsidies through an open, public MHFA process called the
Consolidated Request for Proposals (the “SuperRFP”). The project
developers were knowledgeable and experienced practitioners who pulled
together sufficient resources from a variety of public and private sources, to
create viable, affordable supportive housing and mixed income housing
developments. MHFA’s professional staff who reviewed each funding
package that went through the SuperRFP process were aware that the PHA
might award PBV assistance to the project in a subsequent selection process.
(The possibility that a project might be approved subsequently by the PHA
for PBV was not a factor in the MHFA selection process, however.) In
reality, the PBV project developers here, most of who are non-profit
organizations, have not been susceptible to “oversubsidization.
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Comment 2 2. Initial Project Inspections. The draft OIG audit report finding states that, “The
[PHA] failed to ensure that … 156 units in 13 projects had an initial housing
quality standards (HQS) inspection conducted.” Aside from the inaccuracy of
this statement, this finding is based on novel OIG interpretations of filing
procedures and document retention requirements. The OIG faults the PHA for
not keeping original unit inspection reports in the PBV “project files” from 2002
(when the first contracts were signed) to December 2008.
2.1. PHA provided the OIG with original printed inspection reports for about half
of the units (184 out of 372) initially, and many more after further manual
review of participant files.
2.2. The PHA could not produce copies of the original inspection reports for the
remaining units (42% of the total) for several (legally valid) reasons:
2.2.1. Some original inspection reports were destroyed in the normal course of
business, when participant files were purged for tenants who moved out
over 3 years ago.
2.2.2. Some original or early inspection reports were destroyed during file
purges of non-essential documents from files of then-current tenants, if
the documents were more than five years old.
2.2.3. Some PBV units did not lease up for months after the original pre-
contract inspection, so staff inspected them again before a tenant moved
in. In those cases staff retained the later inspection report in the tenant
file and usually did not keep the original inspection report. The later
inspection was required to avoid “late inspection” penalties under
SEMAP.
One example is the PBV project now called Seventh Landing, located at
1360 West Seventh Street in St. Paul. R.S. Eden developed and
manages the project to provide supportive housing for homeless youth
coming out of the Minnesota foster care system. The contract was
executed on July 3, 2003.
The project was approved for 12 PBV units. We have records of
original inspections on July 3, 2003 (the contract date) or earlier for
seven of the units. The available records clearly support the conclusion
that all twelve units were inspected on or before July 3, 2003; and
furthermore, it is clear that no subsidy was paid for any unit before it
passed an HQS inspection.
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Ref to OIG Evaluation Auditee Comments
Some units did not lease up until several months after the contract date
so the PHA inspected those units again and retained those inspection
reports. For example, for Unit #201, the first tenant (J.P., SSN XXXX-
XX-4921) moved into the unit on December 15, 2003, after the unit
passed an HQS inspection on November 4, 2003. The PHA’s HAP
register, provided to OIG, shows that no subsidy was paid for that unit
before that tenant moved in.
2.2.4. 24 CFR Sec. 982.159(e) requires the PHA to retain copies of unit
inspection reports for three years (only). At any time during that
“window” the OIG or other HUD staff, or the PHA’s own independent
public auditor, could have verified that the original unit inspections
were conducted. (The only exceptions would have been as stated in
2.2.3. above. Some, but not all, original inspection reports were
retained when a second inspection was conducted before the first tenant
moved in.)
2.3. HUD-50058 Reports. For each PBV unit for which the PHA paid a HAP
subsidy, there is a record (Form HUD-50058) on file with HUD in its PIC
tenant data system, showing the date that the unit passed the HQS inspection,
before the subsidy began. It is noteworthy that 24 CFR Sec. 908.101 has
required the HUD-50058 form to be electronically submitted since 1995 and
that effective September 30, 2009, “Electronic retention of form HUD-50058
fulfills the retention requirement under this section.” These records are
“business records” created and maintained in the normal course of business
(and subject to audit), so we believe they provide sufficient evidence that the
PHA conducted timely initial inspections.
Comment 9 The HAP register and HUD-50058 reports in combination create an
irrefutable written record that verifies that no subsidies were paid for any
PBV unit before the unit passed an HQS inspection. Combined with the
original inspection reports the PHA retained, we believe the documents
demonstrate that the PHA did inspect all units before executing the initial
HAP contract for each PBV project.
2.4. Owner Affidavits. The PHA has now obtained sworn affidavits from all of
the owners of the 14 projects for which the OIG has questioned the original
inspections. (Attachment C) Most of those owners worked with the PBV
projects from the start, and they have affirmed that the PHA required every
unit to pass the HQS inspection before the PHA would execute the contract
for PBV assistance.
23
Ref to OIG Evaluation Auditee Comments
2.5. The OIG’s staff inspected a sample of ten PBV units in ten separate projects
in 2009 and confirmed that those units complied with HQS. Although some
conditions in a unit may change while it is occupied (due to wear and tear,
other damage, etc.), most of the design and structural elements required by
HUD’s housing quality standards would not change over time. In those
respects and as a practical matter, a unit that meets HQS now would have met
HQS when it was first approved for the program.
2.6. St. Paul PHA staff who have worked with Section 8 since the first PBV
projects began attest that the PHA always required every unit to pass an HQS
inspection before the PHA would execute the original Housing Assistance
Payments (HAP) contract for the project. That requirement is explicitly
stated in a December 19, 2001 staff report to the PHA Board, recommending
approval of a PBV project with the YWCA. (See Attachment D) The HUD
regulations have been clear on this requirement and PHA staff followed it to
the letter.
2.7.Other large housing authorities in the Twin Cities area recently confirmed to
PHA staff that they file original inspection reports in tenant files for PBV
projects, not in project files. If the OIG disagrees with this practice, it could
recommend that HUD’s Office of Public and Indian Housing issue guidance
to instruct all PHA’s to file original inspection reports in project files and to
retain them in perpetuity going forward. That sort of recommendation would
be rational and a legitimate outcome of the OIG review of the St. Paul PHA’s
PBV program administration. A retroactive unsubstantiated negative finding
by OIG is not a rational or legitimate outcome.
2.8.The PHA actually conducts more PBV unit inspections than are required by
HUD, since we inspect every unit in the program at least annually. As an
OIG staff member noted in an August 5, 2009 e-mail, the PHA is only
required to select a random sample of 20 % of the contract units in each
building for the annual inspections. PHA staff were aware of that option, but
we have always inspected every unit annually to ensure that the entire
property continues to be maintained well.
Finding 2: Income, Rent and Utility Allowance Determinations. The OIG
found that the PHA “substantially complied” with HUD’s regulations and the
PHA’s own policies governing Housing Assistance Payments.
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Ref to OIG Evaluation Auditee Comments
The PHA does agree with the draft audit report that some of our staff’s individual
calculations for participant incomes, rents and utility allowances were incorrect.
However, we do not agree with the OIG’s count of how many files contained
calculation errors, or the total amounts overpaid or underpaid. By any measure, the
number of significant errors cited (some of which are still in dispute) is very small.
Again, we respect the OIG’s diligence in carefully reviewing a large number volume
of tenant files and records and financial records (including the 27,808 checks totaling
$16,765,331) related to the 372 PBV units from their original contract dates through
December 31, 2008. The auditor randomly selected 116 individual tenant files and
checked every calculation for income, rents, utility allowances and subsidies. Of
those 116 files, the PHA agrees with the OIG auditor that the PHA overpaid the HAP
subsidy for one or more months for nine participants, for a total overpayment of
$5385. The PHA also agrees with the OIG auditor that the PHA underpaid the HAP
subsidy for one or more months for twelve participants, for a total underpayment of
$4649. That represents an accuracy rate of 99.13% for the total of $1,148,084 the
PHA paid in subsidies for those units, which is outstanding performance in any
industry. The PHA stands ready to reimburse HUD and program participants (using
non-HUD funds) for the subsidy overpayments and underpayments.
We appreciated that the OIG staff shared information during the course of the audit,
including their periodically providing lists of the files in which they questioned our
calculations. The PHA sent a written response to the OIG auditor on every one of
those file discrepancies. Our responses generally fell into three categories: (1) The
PHA agrees with OIG calculation; or (2) the PHA disagrees with OIG calculations
(followed by an explanation); or (3) “PHA cannot determine OIG calculation”. In
some cases the OIG’s staff accepted the PHA’s explanation and cleared the finding;
and in other cases the OIG provided additional explanation for its calculations. But in
some cases the PHA still disagrees with the OIG calculations or application of the
rules.
For example, we believe the OIG’s staff incorrectly calculated income and rents when
the participant received Unemployment Insurance (UI) benefits (cited in four of the
116 files).
Tenant file #89 illustrates this: The file contains a written statement from the
Minnesota Department of Employment and Economic Development (DEED)
that the participant/worker’s weekly unemployment benefit will be $254 per
week. It also states that the maximum amount of benefits available during the
worker’s benefit year is $5,503. The PHA calculated this income as $254 x
52 weeks or $13,208 annualized and set the rent (participant’s payment) and
HAP amount accordingly. When and if the UI benefit ends, the tenant would
request an interim adjustment.
25
Ref to OIG Evaluation Auditee Comments
In contrast, the OIG used the $5,503 as the annualized income amount,
resulting in a lower adjusted income, a lower participant payment for the rent,
and a higher housing assistance payment. The OIG reported this case as a
subsidy underpayment by the PHA.
Comment 10 The PHA disagrees with the OIG’s method. Accepting the $5,503 as the
annual income reduces the $254/week actual income received to $105.82 per
week ($5503/52 weeks). The $5,503 will be received only for a period of 21-
22 weeks, and the rent/subsidy should be calculated on that basis.
Our staff’s interpretation is supported by written materials from Nan McKay
& Associates, one of the premier training providers and a frequent HUD
contractor. (Housing Choice Voucher Master Book, 12/1/2004 edition,
Section 3.1, page 3.1-12, copy attached as Attachment B).
If anything, these disagreements between the OIG and the PHA on income, rent and
utility allowance determinations underscore the frustrating complexity of the current
rules and procedures governing income and rent calculations in the Section 8 voucher
program. It is not surprising to us that our experienced, trained and well-supervised
Section 8 staff would still make some interpretations (and a few outright errors) that
will be detected and challenged by an experienced, knowledgeable professional OIG
auditor who spent months reviewing every calculation and monthly payment for 116
PBV participants over a two year period.
Our staff must administer the program in “real time”, daily interviewing clients,
receiving and verifying information from them and from third parties and online
sources (HUD’s EIV system), making decisions as accurately and as promptly as
possible, and then moving on to the next case. As the OIG notes in the draft audit
report, PHA staff cross-check each other’s rent calculations, and Section 8 supervisors
spot-check a number of randomly selected files during the year. In addition,
supervisors annually select a random sample of files for the required SEMAP self-
audits and check the documentation, income determinations and rent calculations.
Every year those SEMAP self-audits turn up a small number of file errors, but few
enough that the PHA continues to earn the SEMAP High Performer rating (now eight
years).
As stated above, reviewers from the HUD Minneapolis Field Office also review the
PHA’s file documentation, income determination and rent calculation for a random
selection of HCV files, which include the PBV files, during “Rental Integrity
Monitoring” (RIM) reviews. Those reviews last occurred in 2003 and 2008 (the latter
review was part of a larger “Tier 1” review). The HUD reviewers generally find some
files where they disagree with the PHA’s calculations. In many of those cases the
HUD reviewers agree with the PHA’s determination after discussing the staff’s
26
Ref to OIG Evaluation Auditee Comments
method, and any remaining files identified as errors are corrected by PHA staff. In
the 2003 RIM review the HUD staff concluded that the number of actual file errors
was low enough that they would not conduct a follow up review the next year.
The PHA certainly aspires to “zero-error” performance levels, but we also are
responsible for making the most efficient use of the scarce public resources entrusted
to our agency. We probably could reduce the number of Section 8 file errors to near
zero by employing more supervisors or internal auditors, or hiring auditors from
outside the agency, who could review every file calculation, say, within 30 days of
staff’s initial action on the file. Clearly that would be a waste of scarce resources that
are intended to support affordable housing for households with very-low or extremely
low incomes.
The PHA stands ready to reimburse any of the PBV participants identified in the OIG
audit who may have overpaid their share of the rent and utilities because the PHA
paid too low a subsidy. The PHA will also use non-HUD funds to reimburse HUD
for any excess HAP subsidies or utility allowances it paid on behalf of participants
identified in the OIG audit. As explained above, the PHA agrees with the auditor on
subsidy overpayments totaling $5385 and underpayments totaling $4649. The OIG’s
auditor accepted the PHA’s explanations and cleared the initial findings of incorrect
calculations in several other files. We suggest that staff from the PHA and HUD’s
Field Office jointly review the remaining file calculations cited by the auditor,
analyze why the PHA’s and OIG’s results differed, and determine which of those files
constitute subsidy overpayments or underpayments. The PHA will then issue
reimbursement checks.
Section 8 Administrative Plan. We note that the OIG draft (p. 10) faults the PHA for
not stating in our Section 8/HCV Administrative Plan “whether quality control
reviews would be conducted and how they would be selected.” The OIG’s
Recommendation 2C. is that the PHA “Improve its existing procedures and
controls….”
Comment 11 We disagree that the PHA’s administrative plan should include many of the
procedures recommended by the OIG. The declaration of policy and public housing
agency organization that begins the U.S. Housing Act of 1937 as amended states the
following:
It is the policy of the United States
(1) to promote the general welfare of the Nation by employing the funds
and credit of the Nation, as provided in this chapter— . . .
(C) consistent with the objectives of this subchapter, to vest in public housing
agencies that perform well, the maximum amount of responsibility and flexibility in
program administration, with appropriate accountability to public housing residents,
localities, and the general public…. (42 USC Sec. 1437; emphasis added)
27
Ref to OIG Evaluation Auditee Comments
We have intentionally limited our Administrative Plan to policy issues and other
specific provisions dictated by HUD. (Many regulations direct, “The housing agency
shall state in its administrative plan….”) The PHA Board approves policy changes,
which occur less frequently than procedure changes. Seeking Board approval for
administrative procedures is undesirable for several reasons, including the following:
(1) It can delay implementing procedural changes promptly; (2) it consumes the
Commissioners’ time, which should be spent on “big picture” issues; and (3) most
importantly, it distorts the Board’s role, inviting micromanagement of administrative
details that should be staff’s purview. Furthermore, keeping procedural matters out of
the Administrative Plan keeps the plan to a reasonable length and makes it more
readable.
CONCLUSION:
We believe the PHA has administered the PBV program in an exemplary manner, as
measured by eight consecutive years of High Performer SEMAP ratings. (The PHA’s
rating was “Standard Performer in SEMAP’s first year, due to a very tight rental
market that depressed the voucher utilization rate.)
SAINT PAUL PUBLIC HOUSING AGENCY SEMAP
SCORES
110%
100%
90%
SEMAP SCORES
80%
70%
60%
50% 97% 100% 97% 93% 93%
93% 93% 93%
40% 81%
30%
20%
10% 0
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PHA FISCAL YEAR
0
Another headline confirming the PHA’s high performance and attention to details is
the Agency’s record of zero audit findings on annual financial and compliance audits
by independent professional auditors for twelve consecutive years. For an entity with
an annual budget of approximately $64 million, the absence of any audit findings over
a sustained period is a remarkable accomplishment.
The PHA has been awarded a Certificate of Achievement for Excellence in Financial
Reporting by the Government Finance Officers Association of the United States and
Canada (GFOA), for four consecutive years, honoring the PHA’s “Comprehensive
28
Ref to OIG Evaluation Auditee Comments
Annual Financial Report” (CAFR). The Certificate of Achievement is the highest
form of recognition in the area of governmental accounting and financial reporting,
and its attainment represents a significant accomplishment by the management and
staff of a governmental unit or agency.
The PHA has also received favorable ratings in other HUD audits for Rental Integrity
Monitoring (RIM; 2003, 2004, 2008), the Voucher Management System (VMS) and
others. The PBV program, with its 18 projects and 372 units, is a small subset of the
more than 4000 units in our overall Housing Choice Voucher program, which has an
annual budget of about $34 million. In addition to tenant-based Housing Choice
Vouchers, the PHA administers Disability Vouchers (Mainstream), Section 8
Moderate Rehabilitation Single Room Occupancy Vouchers, and now Veterans
Administration-Supportive Housing (VASH) vouchers and Family Unification
Program (FUP) vouchers. The PHA’s staff has implemented and managed each of the
voucher programs diligently, with appropriate oversight by the PHA’s Board of
Commissioners and senior staff. The Section 8 staff members are experienced, well
trained and well supervised. Many of the line staff and most of the supervisors have
decades of experience with Section 8, and they have developed a deep understanding
of this important but complex program.
Comment 2 The OIG characterizes as “unsupported costs” the $1.2 million paid as HAP subsidies
to PBV units for which the PHA can no longer produce an original pre-contract
inspection report. In fact, the full amount is accounted for and supported by thorough
documentation. The PHA used those funds to pay properly-calculated rent subsidies,
to eligible PBV project owners, on behalf of eligible Section 8 participants, who were
living in eligible units that passed HQS inspections before the subsidies started.
There is no justification for the OIG's recommendation that HUD ask for the money
back, or the related administrative fees.
Under no circumstances should the PHA be required to repay any administrative fees
it earned for operating the PBV program. As explained above, the PHA relied on
guidance from HUD on the subsidy layering issue. The PHA fully complied with the
records retention requirements in HUD regulations. The PHA did not pay any
duplicate HAP subsidies. And finally, although the PHA’s staff erred on some
calculations of income and rents, there is no evidence of systemic deficiencies in the
PHA’s processes, training or supervision. Just as the PHA would not “dock” a
worker’s pay for making an honest mistake on the job, HUD should not ask the PHA
to repay Section 8 administrative fees because the Agency made a relatively small
number of errors in paying subsidies.
For all of the reasons set forth above, the PHA respectfully but strongly disagrees
with the primary findings in the draft audit report issued by the Office of the Inspector
General. We request that the OIG retract and revise significant portions of the
29
Ref to OIG Evaluation Auditee Comments
findings. We believe the PHA did appropriately administer the PBV program and the
OIG should affirm that fact.
• The PHA retained all unit inspection reports as required by HUD regulations,
and produced sufficient evidence to show that all PBV units in all projects
were inspected before the original subsidy contracts were signed. Each unit
was inspected again, as needed, before any subsidies were paid.
• The PHA and Minneapolis HUD staff relied on guidance from HUD
Washington staff in deciding which PBV projects required subsidy layering
reviews.
Comment 12 • The PHA did not make any duplicate subsidy payments.
Comment 13 • The relatively few and minor disagreements over participants’ income, rent
and utility allowance calculations, some of which are still in dispute, are not
the result of inadequate procedures, training or supervision. The OIG should
recommend that Minneapolis HUD office staff review those file calculations
with the PHA and, if subsidy underpayments occurred in the past for
participants who are still in the program, corrections should be made. The
PHA will repay to HUD (from non-HUD funds) any subsidy overpayments.
The OIG should withdraw its recommendation to HUD that the PHA should
repay any administrative fees.
Comment 14 • Most importantly, the OIG should withdraw its recommendation that HUD
should require the PHA to repay any housing assistance payment amounts
related to initial unit inspections. The OIG should direct its recommendations
about retaining initial unit inspection reports and conducting subsidy layering
reviews to HUD’s administrators in Washington so they can issue appropriate
guidance to housing authorities administering PBV going forward.
Sincerely,
Jon M. Gutzmann
Executive Director
JMG/FAH/MFD
Enclosures:
• [Attachment A deleted; finding cleared]
• Attachment B, Nan McKay & Associates HCV “Master Book” p. 3.1-12
• Attachment C, PBV Owner Affidavits (Inspections)
• Attachment D, 12/19/2001 PHA Board report (“The [PBV] units must pass
the Section 8 Housing Quality Standards (HQS) before PBA contracts can
be executed.”)
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OIG Evaluation of Auditee Comments
Comment 1 We did agree that the Agency could not be expected to conduct the subsidy
layering reviews since HUD’s headquarters Office of Public Housing and
Voucher Programs incorrectly advised HUD’s Minneapolis Office of Public
Housing and the Agency that subsidy layering reviews were not required for new
construction and rehabilitation projects unless tax credits were involved.
Comment 2 The first two citations from the United States Code in the criteria section of this
report contain the applicable requirements to retain the initial inspection
documents. Since the housing assistance payments contracts are for a 10-year
period, the only way to determine whether the dwelling units meet the housing
quality standards at the time the contracts were initiated is to maintain the initial
inspection documents.
Comment 3 The Agency is required to follow the program requirements.
Comment 4 The Agency was unable to provide documentation showing that it conducted
initial inspections before executing housing assistance payments contracts.
Comment 5 The Agency maintained its initial inspections for Sankofa Apartments in the
project file, contrary to its stated method of keeping unit records in participant
files. The housing assistance payments contract for this project was executed in
November 2008.
Comment 6 The improvement of its administration of the program is not limited to ensuring
that subsidy layering reviews are conducted when required. The finding also
refers to the missing documentation for the initial inspections and the duplicative
housing assistance payments.
Comment 7 The discussion draft audit report and this final report stated that the Agency acted
as advised by HUD headquarters.
Comment 8 HUD headquarters acknowledged that an error was made when it did not conduct
subsidy layering reviews for 10 projects. This error does not waive the
requirement for the subsidy layering reviews to be conducted.
Comment 9 We consider the actual inspection report to be evidence of the inspection results
and date as opposed to a date of the form 50058 that an inspection was performed.
Comment 10 We used the Agency’s program administrative plan when performing our reviews
and recalculations.
Comment 11 We agree and removed the statement from the finding.
Comment 12 The Agency did not provide sufficient documentation to support that the cited
duplicative housing assistance payments were not made.
31
Comment 13 HUD’s Minneapolis Office of Public Housing and the Agency will have the
opportunity to review the cited file calculations during the audit resolution
process.
Comment 14 The Agency did not provide any supporting documentation to warrant additional
changes to the findings and recommendations.
32
Appendix C
FEDERAL REQUIREMENTS AND THE AGENCY’S PROGRAM
ADMINISTRATIVE PLAN
Finding 1
United States Code, title 42, chapter 8, subchapter I, part 1437f(o)(8)(A) states that except as
provided in paragraph (11), for each dwelling unit for which a housing assistance payments
contract is established under this subsection, the public housing agency shall inspect the unit
before any assistance payment is made to determine whether the dwelling unit meets the housing
quality standards under subparagraph (B).
United States Code, title 42, chapter 8, subchapter I, part 1437f(o)(8)(D) states that each public
housing agency providing assistance under this subsection shall make an annual inspection of
each assisted dwelling unit during the term of the housing assistance payments contract for the
unit to determine whether the unit is maintained in accordance with the requirements under
subparagraph (A). The agency shall retain the records of the inspection for a reasonable time
and shall make the records available upon request to the Secretary, the Inspector General for the
Department of Housing and Urban Development, and any auditor conducting an audit under
section 1437c(h) of this title.
United States Code, title 42, chapter 8, subchapter I, part 1437f(o)(13)(F) states that a housing
assistance payments contract pursuant to this paragraph between a public housing agency and the
owner of a structure may have a term of up to 10 years, subject to the availability of sufficient
appropriated funds for the purpose of renewing expiring contracts for assistance payments, as
provided in appropriations acts and in the agency’s annual contributions contract with the
Secretary, and to annual compliance with the inspection requirements under paragraph (8),
except that the agency shall not be required to make annual inspections of each assisted unit in
the development.
HUD issued a notice for fiscal year 2001, Revision to the Public Housing Agency Project-Based
Assistance Program, Initial Guidance, in the Federal Register, dated January 16, 2001, stating
that as in the tenant-based voucher program, a public housing agency must inspect 100 percent of
the project-based voucher units before entering into the housing assistance payments contract
and may only enter into a housing assistance payments contract for units that fully comply with
the housing quality standards.
HUD’s regulations at 24 CFR 983.52(c) state that before an agreement for rehabilitated units can
be executed, the public housing agency must obtain subsidy layering contract rent reviews from
HUD or a housing credit agency and obtain environmental clearance in accordance with 24 CFR
983.11.
HUD’s regulations at 24 CFR 983.55(b) state that before executing an agreement for new
construction units, the public housing agency must seek and obtain subsidy layering contract rent
33
reviews from HUD or a housing credit agency and seek and obtain environmental clearance in
accordance with 24 CFR 983.11.
HUD’s regulations at 24 CFR 983.257(b) state that the public housing agency may only approve
or assist a project in accordance with HUD regulations and guidelines designed to ensure that
participants do not receive excessive compensation by combining HUD program assistance with
assistance from other federal, state or local agencies or with low-income housing tax credits.
HUD’s regulations at 24 CFR 983.55(a) state that the public housing agency may provide
program assistance only in accordance with HUD subsidy layering regulations (24 CFR 4.13)
and other requirements. The subsidy layering review is intended to prevent excessive public
assistance for the housing by combining (layering) housing assistance payments subsidy under
the program with other governmental housing assistance from federal, state, or local agencies,
including assistance such as tax concessions or tax credits. (b) The public housing agency may
not enter into an agreement or housing assistance payments contract until HUD or an
independent entity approved by HUD has conducted any required subsidy layering review and
determined that the program assistance is in accordance with HUD subsidy layering
requirements.
HUD’s regulations at 24 CFR 983.153(a) state that the public housing agency may not enter the
agreement with the owner until the subsidy layering review is completed (see 24 CFR 983.55).
HUD’s regulations at 24 CFR 983.103(a)(1) state that the public housing agency must examine
the proposed site before the proposal selection date.
HUD’s regulations at 24 CFR 983.103(a)(2) state that if the units to be assisted already exist, the
public housing agency must inspect all of the units before the proposal selection date and must
determine whether the units substantially comply with the housing quality standards. To qualify
as existing housing, units must substantially comply with the housing quality standards on the
proposal selection date. However, the public housing agency may not execute the housing
assistance payments contract until the units fully comply with the housing quality standards.
HUD’s regulations at 24 CFR 983.103(b) state that the public housing agency must inspect each
contract unit before execution of the housing assistance payments contract. The public housing
agency may not enter into a housing assistance payments contract covering a unit until the unit
fully complies with the housing quality standards.
Appendix K, I.C.4., of the Agency’s program administrative plan states that before the Agency
will provide voucher rent assistance, all developments must have Agency board and HUD
approval, meet HUD’s housing quality standards, and have an executed housing assistance
payments contract.
Finding 2
HUD’s regulations at 24 CFR 983.2(a) state that Part 982 is the basic regulation for the tenant-
based voucher program. However, paragraphs (b) and (c) of this section describe the provisions
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that do not apply to the Project-Based Voucher program. Therefore, the rest of Part 982 applies
to the program.
HUD’s regulations at 24 CFR 982.54(c) state that the public housing agency must administer the
program in accordance with the public housing agency’s administrative plan.
HUD’s regulations at 24 CFR 982.153 state that the public housing agency 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 982.516(f) state that the public housing agency must establish
procedures that are appropriate and necessary to ensure that income data provided by applicant
or participant families is complete and accurate.
HUD’s regulations at 24 CFR 982.517(d) state that the public housing agency must use the
appropriate utility allowance for the size of dwelling unit leased by the family.
HUD’s regulations at 24 CFR 5.240(c) state that public housing agencies 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 5.609(a)(2) state that annual income means all amounts, monetary
or not, which are anticipated to be received from a source outside the family during the 12-month
period following admission or annual reexamination effective date.
HUD’s regulations at 24 CFR 5.611(a)(2) state that in determining adjusted income, the
responsible entity must deduct from annual income $400 for any elderly family or disabled
family.
Part one, section IV.A.1., of the Agency’s program administrative plan states that annual income
will be anticipated for the 12-month period following the effective date of initial determination
of eligibility or the effective date of the reexamination of income. If it is not feasible to
anticipate a level of income for a 12-month period, the income anticipated for a shorter period
may be annualized, subject to a redetermination at the end of the shorter period.
Part three, section II.D.3., of the Agency’s program administrative plan states that a person with
a disability is a person with disabilities as defined in the Section 223 of the Social Security Act
or who has developmental disabilities as defined in Section 102(7) of the Developmental
Disabilities Assistance and Bill of Rights Act. The following is a summary of these
requirements:
“a. Section 223 defines a disability as an inability to be employed due to:
(1) Any physical or mental impairment that is expected to last continuously for the next 12
months or is expected to be fatal.
(2) If a person over age 55 is blind, their blindness must prevent them from substantial
employment comparable to what they did previously when they had eyesight.
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b. Section 102(7) defines developmental disability as:
(1) A severe chronic condition that is due to a mental or physical impairment, or combination
of both, which:
• Was evident before the person was age 22;
• Is likely to continue indefinitely; and
• Results in substantial functional limitations.”
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The Public Housing Agency of the City of Saint Paul, Minnesota, Needs to Improve Its Administration of Its Section 8 Project-Based Voucher Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)