oversight

The East St. Louis, Illinois, Housing Authority's Section 8 Voucher Program Units Did Not Always Meet HUD's Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-03-02.

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

                                                                 Issue Date
                                                                          March 2, 2009
                                                                 Audit Report Number
                                                                              2009-KC-1005




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


FROM:       Ronald J. Hosking, Regional Inspector General for Audit, 7AGA


SUBJECT: The East St. Louis, Illinois, Housing Authority’s Section 8 Voucher Program
           Units Did Not Always Meet HUD’s Housing Quality Standards


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the East St. Louis Housing Authority’s (Authority) Section 8
             Housing Choice Voucher program (program). We selected the Authority for an
             audit based on our risk analysis of public housing authorities in the state of
             Illinois. Our risk analysis was based primarily on the number of units and the
             amount of funding received by the public housing authorities. Our audit objective
             was to determine whether the Authority’s Section 8 program units met the U.S.
             Department of Housing and Urban Development’s (HUD) housing quality
             standards.

 What We Found

             Seventy-nine percent of the Authority’s Section 8 program units materially failed
             to meet HUD’s housing quality standards. As a result, the Authority paid more
             than $64,000 in housing assistance for 46 units that materially failed to meet
             housing quality standards. If the Authority does not implement our
             recommendation, it will pay an estimated $1.7 million over the next year for units
             that do not meet the standards.
What We Recommend


           We recommend that the Director of HUD’s Chicago Office of Public Housing
           require the Authority to reimburse its program from nonfederal funds for the
           improper use of more than $64,000 and implement adequate procedures to
           address the finding cited in this report. These procedures should ensure that
           approximately $1.7 million in program funds is spent on housing units that meet
           HUD requirements.

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


Auditee’s Response


           We provided the draft report to the Authority on February 6, 2009, and held an
           exit conference on February 11, 2009. The Authority provided its written
           response dated February 24, 2009 and agreed with our audit findings.

           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: The Authority’s Section 8 Voucher Program Units Did Not Always   5
      Meet HUD’s Housing Quality Standards

Scope and Methodology                                                           11

Internal Controls                                                               13


Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use            14
   B. Auditee Comments and OIG’s Evaluation                                     15




                                            3
                       BACKGROUND AND OBJECTIVE

The East St. Louis Housing Authority (Authority) provides housing to low-income families, the
elderly, and people with disabilities in St. Clair County, Illinois.

The Authority has been under an administrative receivership with the U.S. Department of
Housing and Urban Development (HUD) since 1985. Administrative receivership is a process
whereby HUD declares a public housing authority in substantial default of its annual
contributions contract and takes control of the authority. For the Authority, a HUD
representative who works in the Chicago office acts as the board. The board selects an executive
director who is then hired by the Authority to run its day-to-day operations.

The Section 8 Housing Choice Voucher program (program) provides rental assistance to low-
income families seeking decent, safe, and sanitary housing who rent from a private landlord.
The Authority served approximately 677 households participating in the program throughout St.
Clair County and spent approximately $4.5 million on these families during fiscal year 2008.

HUD establishes minimum housing quality standards for units receiving federal assistance at 24
CFR [Code of Federal Regulations] 982.401.

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

Our audit objective was to determine whether the Authority’s Section 8 voucher units met
HUD’s housing quality standards.




                                                 4
                                RESULTS OF AUDIT

Finding: The Authority’s Section 8 Voucher Program Units Did Not
Always Meet HUD’s Housing Quality Standards
Seventy-nine percent of the Authority’s program units materially failed to meet HUD’s housing
quality standards. The violations occurred because Authority inspectors lacked knowledge of
the requirements. As a result, the Authority paid more than $64,000 in housing assistance for 46
units that materially failed to meet housing quality standards. If the Authority does not
implement our recommendation, it will pay an estimated $1.7 million over the next year for units
that do not meet the standards.



 The Authority’s Section 8 Units
 Did Not Meet HUD’s Standards

              Of the 58 units inspected, 57 (98 percent) had 669 housing quality standards
              violations. Forty-six of these units materially failed the inspection with 321 health
              and safety violations that existed at the time of the last inspection. The following
              table classifies all violations observed during the audit and lists the number of
              preexisting health and safety violations by category.

                 Category of violation               Total # of     # of preexisting health & safety
                                                     violations     violations for 46 materially
                                                                    failing units
                Electrical                               261                        217
                Doors                                     92                         18
                Windows                                   41                         17
                Structure & materials                     30                         11
                Floor condition                           20                         9
                Stairs/porch                              14                         9
                Infestation                               15                         7
                Appliances                                53                         6
                Water heater                              10                         6
                Hand rails                                7                          6
                Sump pump                                 6                          4
                Foundation                                3                          3
                Smoke detector                            12                         2
                Miscellaneous                            105                         6
                 Total                                   669                        321

              The most common violation involved open ground electrical outlets. These
              violations accounted for approximately one-third of the preexisting health and safety



                                                 5
violations. Open ground outlets are those in which a three-prong outlet is substituted
for a two-prong outlet without the necessary rewiring that adds a ground wire to the
new outlet. Such outlets create a safety hazard that violates the building and national
wiring codes and needs to be made safe immediately.

The following pictures provide examples of the other major violations.




Electrical violation in unit 1302: The junction box contains exposed hot wires.




Door violation in unit 1905: A fire hazard is created by the burglar bars on the rear door. The tenant
did not have the key to the padlock.




                                         6
Window violation in unit 1383: A trapping hazard in event of fire was created by the burglar bars
on the rear bedroom window and the air conditioning unit on the other window.




Structure and material violation in unit 1279: The cyclone fence lying in the backyard is a
tripping and cutting hazard.




                                         7
Floor condition violatiion in unit 10388: The vinyl kiitchen flooring is torn, and the subfloor is
rotten and
       a spongy.




 Stairs//porch violationn in unit 5: Thee left side of thee basement staiirs needs railingg to prevent
 tenantts from falling down
                        d     the seconnd flight of stairrs.




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             Infestation violation in unit 1523: There is a dead mouse under the kitchen sink.



Staff Did Not Implement All
Requirements

            Most of the Authority’s inspectors had not recently received housing quality
            standards training. Three of the inspectors received their last training in May 2002,
            and the remaining inspector received her training in 2006. Inspectors require
            continuous education to ensure that their knowledge of inspection methods and
            procedures is up-to-date.

            In addition, the Authority’s inspectors did not consistently check electrical outlets
            for wiring problems such as open grounds. They erroneously believed that only
            open ground outlets in new or gut-rehabilitated units needed to be cited and
            corrected but that old units with open ground electrical outlets were exempt.

            Further, the inspectors were unaware of requirements in the Authority’s
            administrative plan. For example, the plan required separate cutoffs for water
            supplies in the kitchen and bathroom and interior doors to be free of holes. Since the
            inspectors were unaware of these standards, they did not enforce them.

            Finally, when we observed the Authority’s inspection process, the inspectors did not
            always conduct accurate and complete inspections. Specifically, the Authority’s
            inspectors did not always inspect items such as windows and electrical outlets to
            determine whether they worked properly to avoid exposing the household to
            potential risks.




                                                     9
Conclusion

             As a result of the violations cited above, the Authority’s tenants were subjected to
             health- and safety-related violations and the Authority paid more than $64,000 in
             housing assistance for 46 units that materially failed to meet housing quality
             standards. If the Authority ensures that its inspectors are equipped with the
             knowledge that they need to perform inspections in a consistent manner and in
             compliance with HUD requirements, we estimate that more than $1.7 million in
             future housing assistance payments will instead be spent for units that are decent,
             safe, and sanitary. Our methodology for this estimate is explained in the Scope
             and Methodology section of this report.

Recommendations

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

             1A.   Verifies that the owners of the 57 program units cited in this finding have
                   corrected the housing quality standards violations.

             1B.   Repays the voucher program fund from nonfederal sources $64,528 in
                   improper housing assistance.

             1C.   Develops and implements procedures to ensure that inspectors receive
                   adequate housing quality standards training to properly perform unit
                   inspections, thereby ensuring that $1,708,938 in program funds is expended
                   only for units that are decent, safe, and sanitary.




                                              10
                         SCOPE AND METHODOLOGY

To accomplish our audit objective, we

•   Interviewed HUD and Authority staff,
•   Reviewed independent public accountant reports,
•   Reviewed the Authority’s policies and procedures, and
•   Reviewed HUD federal regulations and the Housing Choice Voucher Guidebook.

To perform our review, we used an Authority download of all program unit inspections from
August 2007 through July 2008 and a download from HUD’s Public and Indian Housing
Information Center system. We also relied upon an Authority download that contained data on
housing assistance subsidy payments. We analyzed the data and concluded that the data were
sufficiently reliable for our purposes of sample selection and projecting the impact of units’
failure to meet housing quality standards.

We developed an unrestricted attribute sampling plan using a 90 percent confidence level with
10 percent desired precision and 50 percent estimated error rate. We then used the Army Audit
Agency’s statistical sampling software to calculate the sample size and a random number
generator to identify the sample items. The sampling plan resulted in a sample size of 58
program units from the 386 units that passed inspections by the Authority from February through
July 2008.

Our sampling results determined that 46 of 58 units (79 percent) materially failed to meet HUD’s
housing quality standards. We determined that 46 units were in material noncompliance because
they had 321 health and safety violations that existed before the Authority’s last inspection
report. All units were ranked, and we used auditors’ judgment to determine the material cutoff
line. Materially failed units were those with more than one preexisting health and safety
violation or those with one preexisting violation that was a 24-hour emergency notice item.

Based upon the sample size of 58 from a total population of 386 units, an estimate of 79.31
percent (46 units) of the sample population materially failed housing quality standards
inspections. The sampling error is plus or minus 8.07 percent. There is a 90 percent confidence
that the frequency of occurrence of units materially failing housing quality standards inspections
lays between 71.25 and 87.38 percent of the population. This equates to an occurrence of
between 275 and 337 units of the 386 units in the population. We used the most conservative
number, which is the lower limit or 275 units.

Using the Authority’s July 2008 housing assistance payments register, we determined that the
average monthly housing assistance payment was $517.86. Using the lower limit of the estimate
of the number of units and the average monthly housing assistance payment, we estimated that
the Authority will annually spend at least $1,708,938 [275 units x $517.86 x 12 months] for units
that materially failed to meet housing quality standards. This estimate is presented solely to
demonstrate the annual amount of Section 8 funds that could be put to better use on decent, safe,
and sanitary housing if the Authority implements our recommendations. While these benefits


                                                11
would recur indefinitely, we were conservative in our approach and only included the initial year
in our estimate.

We performed our audit between September 2008 and January 2009 at the Authority’s office at
700 North 20th Street in East St. Louis, Illinois, and in various program units. Our audit period
generally covered February 1 through July 31, 2008.

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.




                                                12
                              INTERNAL CONTROLS

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

              •   Controls over housing choice voucher unit inspections

              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.

 Significant Weaknesses


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

              •   The Authority lacked sufficient procedures to ensure that unit inspections
                  complied with HUD minimum housing quality standards.


 Separate Communication of
 Minor Deficiencies

              Minor internal control and compliance issues were reported to the auditee by a
              separate letter, dated March 2, 2009.




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                                     APPENDIXES

Appendix A

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

                 Recommendation          Ineligible 1/       Funds to be put
                        number                                to better use 2/
                                1B              $64,528
                                1C                                $1,708,938


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

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements our
     recommendation, it will cease to incur Section 8 costs for units that are in material
     noncompliance with housing quality standards and, instead, will expend those funds for
     units that meet HUD’s standards. When the Authority successfully improves its controls,
     this will be a recurring benefit. Our estimate reflects only the initial year of this benefit.
     The amount does not reflect any offsetting costs to implement the recommendations.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                                  15
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




                        Auditee Comments




                               16
Ref to OIG Evaluation   Auditee Comments




                              17
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority's written response along with its verbal response at the exit
            conference indicates agreement with the finding and recommendations. Planned
            actions on the part of the Authority should resolve identified issues.




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