oversight

The Culver City Housing Agency, Culver City, California, Did Not Administer Its Section 8 Housing Choice Voucher Program in Accordance with HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-07-01.

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

                                                                  Issue Date
                                                                               July 1, 2009
                                                                  Audit Report Number
                                                                           2009-LA-1010




TO:         K. J. Brockington, Director, Office of Public Housing, Los Angeles, 9DPH




FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Culver City Housing Agency, Culver City, California, Did Not Administer
         Its Section 8 Housing Choice Voucher Program in Accordance with HUD
         Requirements

                                    HIGHLIGHTS

 What We Audited and Why

      We audited the Culver City Housing Agency’s (Agency) administration of its Section 8
      Housing Choice Voucher program waiting list and housing assistance payment
      calculations. We initiated this review based upon information we received regarding
      waiting list administration and potential tenant eligibility issues. The Agency’s ongoing
      lease-up deficiency and lack of monitoring visits by the U. S. Department of Housing and
      Urban Development (HUD) since 2004 were two other factors contributing to the audit.

      The objective of our audit was to determine whether the Agency followed HUD rules and
      regulations in determining tenant eligibility, housing assistance calculations, and waiting
      list administration.

 What We Found


      Although we did not identify any tenants that were not eligible, we determined that the
      Agency did not calculate housing assistance in accordance with HUD rules and
      regulations. We identified problems in five of the eight files reviewed, which resulted in
      $4,230 in housing assistance overpayments and $1,388 in housing assistance
      underpayments.
     These errors were a result of the Agency’s lack of specific policies and procedures in its
     administrative plan and its failure to conduct and document thorough quality control
     reviews.

     We also determined that the Agency did not maintain and administer the waiting list in
     accordance with HUD rules and regulations. It ranked and selected residents without
     preference ahead of nonresidents with preference as part of two 2008 waiting list pulls
     and did not maintain a consistent, accurate, and complete waiting list contrary to
     requirements of the administrative plan. The waiting list violations were due to the
     Agency management’s bypassing controls set up by the administrative plan to ensure that
     waiting list procedures are consistent and equitable.


What We Recommend

     We recommend that the Director of HUD’s Los Angeles Office of Public Housing
     require the Agency to (1) reimburse the program $4,230 from nonfederal funds for the
     overpayment of housing assistance, (2) reimburse the appropriate tenants $1,388 from
     program funds for the underpayment of housing assistance, (3) follow up on errors that
     extended beyond our audit scope, (4) update the administrative plan with more specificity
     regarding Section 8 policies and procedures, (5) implement procedures and controls to
     ensure that quality control reviews are performed adequately, and (6) submit
     documentation to HUD showing that future selections from the waiting list have been
     conducted according to the administrative plan.

     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 Agency a discussion draft report on May 29, 2009, and held an exit
     conference with the Agency’s officials on June 9, 2009. The Agency provided written
     comments on June 15, 2009, and generally disagreed with our findings.

     The complete text of the auditee’s response without the voluminous exhibits, along with
     our evaluation of that response, can be found in appendix B of this report. The remaining
     exhibits will be made available upon request.




                                              2
                             TABLE OF CONTENTS

Background and Objective                                                         4

Results of Audit
        Finding 1: The Agency Did Not Always Calculate Housing Assistance        5
                   Payments According to HUD Rules and Regulations

        Finding 2: The Agency Did Not Maintain and Administer Its Waiting List   8
                   According to HUD Rules and Regulations


Scope and Methodology                                                            10

Internal Controls                                                                11

Appendixes

   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use           12
   B.   Auditee Comments and OIG’s Evaluation                                    13
   C.   Details – Questioned Housing Assistance Payment Calculations             27
   D.   Criteria                                                                 29




                                              3
                       BACKGROUND AND OBJECTIVE
The Culver City Housing Agency (Agency) operates under the Housing Division of Culver City
and is governed by the five-member city council. The Housing Division is responsible for
maintaining a strong housing stock, promoting neighborhood preservation, and ensuring that the
City has a balance of housing opportunities for the various segments of the community. Current
projects include Wade Street revitalization, Globe Street rehabilitation for resale to first-time
home buyers, and affordable housing to low- and very low-income households.

The Agency provides two rental assistance programs to people who live or work within Culver
City: Section 8 and the Culver City Rental Assistance Program. Both programs provide rental
subsidies directly to property owners on behalf of qualified tenants.

The Section 8 Housing Choice Voucher program is a federally funded program providing rental
assistance to Culver City residents in need. It is also the principal U.S. Department of Housing
and Urban Development (HUD) program for assisting lower income individuals and families in
securing decent, safe, and affordable housing. The Agency administers a Section 8 program for
384 households, with only 167 vouchers outstanding. The Agency’s jurisdiction covers five
square miles, completely surrounded by the Housing Authority of the City of Los Angeles.

Although the Agency received full credit for lease-up on its most recent Section Eight
Management Assessment Program certification, it continues to struggle to increase its lease-up
rate. The Agency received scores of zero for lease-up during the 2003, 2004, 2006, and 2007
fiscal years. The small jurisdiction, high rents, and small vacancy rate have contributed to the
Agency’s inability to increase its Section 8 participation. In September of 2006, the Agency
began purging its waiting list of more than 8,000 applicants (the list currently consists of more
than 800 applicants) and hopes to begin increasing its Section 8 participation with ongoing
assistance from the HUD Office of Public Housing.

The Agency’s Section 8 eligibility process begins once applicants are selected from the waiting
list. An applicant must provide all eligibility documentation, including waiting list preference
verification, and must submit to and pass a criminal background check. Once all documents and
verifications are reviewed and deemed appropriate, a voucher is issued. Applicants pulled may
not receive a voucher for a number of reasons: failed criminal background check, failure to
respond, failure to provide documents in a timely manner, income no longer eligible, voluntary
withdrawal, etc. Due to the lease-up issues discussed above (low vacancy rate, high rents), an
applicant issued a voucher may not be able to find a unit to lease. Therefore, the eligibility and
issuance process does not necessarily yield a high rate of issued vouchers and leased units for the
Agency.

The objective of our audit was to determine whether the Agency followed HUD rules and
regulations in determining tenant eligibility, housing assistance calculations, and waiting list
administration.




                                                 4
                                RESULTS OF AUDIT

Finding 1: The Agency Did Not Always Calculate Housing Assistance
           Payments According to HUD Rules and Regulations
Although we did not identify any tenants that were not eligible, our file reviews and rent
calculations of a sample of Section 8 tenants disclosed that the Agency did not calculate housing
assistance payments in accordance with HUD rules and regulations. We reviewed eight files
during our audit and identified problems in five. These errors were a result of the Agency’s lack
of specific policies and procedures in its administrative plan and its failure to conduct and
document thorough quality control reviews. As a result, the Agency improperly made $4,230 in
housing assistance overpayments and $1,388 in housing assistance underpayments.



 New Admission and Reexamination
 Errors Resulted in the
 Overpayment/Underpayment of
 Housing Assistance

       Our review of the Agency’s initial, annual, and interim examinations for eight tenant files
       identified errors in five files that resulted in overpayment and/or underpayment of
       housing assistance as follows (see appendix C for full details):

               Voucher 1 – The Agency failed to include reported income when calculating the
               housing assistance payment in accordance with 24 CFR [Code of Federal
               Regulations] 5.609(a), see appendix D. As a result, it overpaid housing assistance
               in the amount of $287 for the period May 8, 2008, to January 31, 2009.

               Voucher 2 – The Agency failed to correctly calculate the family’s income during
               the September 1, 2006, reexamination in accordance with chapter 6(C) of its
               administrative plan. It underpaid housing assistance in the amount of $468.

               Voucher 3 – The Agency failed to correctly calculate the housing assistance
               payment in accordance with 24 CFR 982.517(d) during the July 15, 2005,
               admission and the October 1, 2005; July 5, 2006; and February 1, 2007,
               reexaminations by applying an overstated utility allowance. As a result, HUD
               overpaid housing assistance in the amount of $232. The Agency also underpaid
               $20 in housing assistance to the owner during the period February 1 through June
               30, 2007, due to an accounting error.




                                                5
            Additionally, the Agency’s own analysis showed that it overpaid housing
            assistance in the amount of $298 during the period February 1, 2007, to July 1,
            2008, after reassessing the prior full-time student status of a tenant family
            member. The Agency failed to require repayment from the tenant, citing the
            tenant’s claim of financial hardship. The Agency also failed to apply the
            minimum rent after the July 1, 2008, reexamination under the same justification,
            resulting in an additional $258 in housing assistance through the end of our audit
            period. However, the tenant did not meet HUD’s financial hardship requirements
            under 24 CFR 5.630(a) and (b). As a result, the Agency overpaid housing
            assistance of at least $533.

            Voucher 4 – The Agency failed to review documentation behind an inaccurate
            rent burden claim by the tenant as part of its verification of the applicant’s
            preference status during the eligibility process, which inappropriately upgraded
            the tenant’s position on the waiting list. Chapters 4(H) and 4(I) of the
            administrative plan require preference verification and removal from the waiting
            list if information is falsified. As a result of the Agency’s error, the tenant was
            inappropriately placed in the Section 8 program, and the Agency paid $2,531 in
            ineligible housing assistance.

            Voucher 5 – The Agency did not properly annualize household income for the
            annual reexamination, effective on September 1, 2005, and the interim
            reexamination, effective on December 1, 2005, in accordance with chapter 6(C) of
            its administrative plan. As a result, it overpaid housing assistance in the amount
            of $624 for the period September 1, 2005, to August 31, 2006.

            The Agency again failed to properly annualize household income and
            inappropriately included nonrecurring and inadequately supported income for the
            annual reexamination, effective on September 1, 2006, and the interim
            reexamination, effective on May 1, 2007. As a result, the Agency underpaid
            housing assistance in the amount of $900 from September 1, 2006, to August 31,
            2007.

Policies and Procedures
Were Inadequate

     The tenant eligibility and housing assistance calculation issues occurred because the
     Agency did not maintain updated comprehensive policies and procedures, nor did it
     follow its administrative plan to ensure that its initial and annual/interim reexaminations
     were performed in accordance with HUD rules and regulations. Specifically, the
     administrative plan does not specifically state how income should be calculated, nor did
     the Agency have supplemental procedures to complement the plan. A nonspecific
     administrative plan allows for inconsistency in interpreting how income should be
     calculated and weakens the control environment.




                                              6
    Further, the Agency’s quality control review practices failed to detect initial and
    annual/interim reexamination errors. Although each file in our sample was certified as
    having been reviewed for quality control, we identified errors in five of eight tenant files.
    The administrative plan details the percentage of files to review (100 percent) for quality
    control and provides a brief description of what should be reviewed. However, we
    determined that the administrative plan only provides for a cursory review and fails to
    address the issue of accuracy and completeness. The checklists provided by the Agency
    were not sufficient as they did not specify what was reviewed and the related outcome.
    The review checklists only had one line item initialed and dated by the housing specialist
    stating the work had been proofed. Without a thorough quality control process, the
    Agency allowed errors to go undetected. The lack of quality control documentation also
    provided an insufficient audit trail by which to identify what was reviewed.


Conclusion


    The Agency did not provide assurance that housing assistance was properly determined
    for its Section 8 program residents as it overcharged $4,230 and undercharged $1,388.
    Errors regarding vouchers 1, 3, and 4 also continued beyond the scope of our review.
    The insufficient administrative plan, lack of consistency, and inadequate quality control
    reviews created a weak control environment conducive to errors. By implementing
    specific policies and procedures, the Agency will be able to minimize errors and provide
    assurance that housing assistance payments are calculated correctly.


Recommendations

    We recommend that the Director of HUD’s Los Angeles Office of Public Housing
    require the Agency to

        1A.    Reimburse the program $4,230 from nonfederal funds for the overpayment of
               housing assistance.

        1B.    Reimburse the appropriate tenants and owner $1,388 from program funds for
               the underpayment of housing assistance.

        1C.    Follow up on the errors in the report to identify and repay subsequent
               ineligible costs from nonfederal funds for the periods outside our audit scope
               (specifically, vouchers 1, 3, and 4).

        1D.    Update its administrative plan with more specificity regarding Section 8
               policies and procedures and current citations to rules and regulations.

        1E.    Implement written procedures and controls to ensure that the administrative
               plan is followed, quality control reviews are adequately documented, and
               accurate and complete assessments are provided.


                                              7
Finding 2: The Agency Did Not Maintain and Administer Its Waiting
           List According to HUD Rules and Regulations
The Agency did not follow the waiting list policies and procedures required in the administrative
plan. The Agency’s waiting list was not maintained according to the administrative plan, and the
pulls from the list in 2008 inappropriately selected Culver City residents without preferences
before 694 nonresidents with preferences. The waiting list violations were a result of the Agency
management’s disregard of the administrative plan requirements. As a result, 694 nonresidents
with preference were bypassed without equitable consideration.


    The Waiting List Was
    Improperly Administered

         The Agency’s 2008 updated waiting list consisted of 891 applicants. The Agency
         improperly maintained the waiting list by ranking residents without preference ahead of
         nonresidents with preference. It executed three pulls in 2008, and the first two did not
         follow administrative plan requirements as follows:

                  February 18, 2008 – 67 applicants were pulled for possible voucher issuance. The
                  pull consisted of nine applicants with the highest priority preference (displaced,
                  disaster, substandard housing, and victims of domestic violence) and 43
                  applicants listed as Culver City residents with preferences but also inappropriately
                  included 15 applicants listed as Culver City residents without preferences.

                  September 18, 2008 – 52 applicants were pulled for possible voucher issuance.
                  The pull consisted of 50 applicants listed as non-Culver City residents with
                  preferences but inappropriately included two applicants that did not have any
                  identifying preferences.

                  November 5, 2008 – 50 applicants were pulled for possible voucher issuance.
                  The pull followed the administrative plan and consisted of 50 applicants listed as
                  non-Culver City residents with preferences.

         The Agency inappropriately pulled applicants (residents without preference) before 694
         applicants (nonresidents with preference) although the administrative plan specifies that
         applicants with preferences rank higher than those without preferences. Four of the
         fifteen improperly pulled applicants were issued a voucher; however, none was able to
         successfully lease a unit.1 All of the applicants with preferences in the September 18 and
         November 5 pulls should have been selected before the improperly pulled applicants.



1
  See background section for a description of the eligibility process and the Agency’s difficulty in increasing its
lease-up rate.


                                                           8
The Administrative Plan
Was Not Followed


     The Agency inappropriately bypassed controls intended to ensure that it implemented
     waiting list procedures properly, including 24 CFR 982.54(c) and 982.153 requirements
     for compliance with the administrative plan when participating in the Section 8 program.
     Chapter 4(G) of the plan clearly specifies ranking and hierarchy requirements, including
     nonresidents with preferences ranking higher for selection than residents with no
     preferences (see appendix D). The Agency’s administrative plan requires the use of local
     preferences for waiting list selection with a specific hierarchy and date/time ranking
     applicants with equal preference status.

     At the direction of the Agency’s management, the administrative plan procedures on
     waiting list selection were bypassed to overcome ongoing lease-up difficulties.
     Management used its authority to approve the selection of all Culver City residents,
     regardless of preference status, before nonresidents with preference. The Agency’s
     management incorrectly interpreted the administrative plan as not requiring a specific
     method for ranking and selecting applicants, with the option of choosing any selection
     method. The Agency’s management failed to enforce the controls set up by the
     administrative plan by authorizing the bypassing of the plan’s requirements.


Conclusion


     The Agency did not provide equitable consideration and provided no assurance that
     Section 8 vouchers were issued in a fair and equitable manner. Disregard for the
     requirements in the administrative plan allowed the Agency to select applicants in any
     manner that management saw fit. The Agency can maintain fairness and equality in the
     waiting list selection process by ensuring that policies and procedures are followed and
     reflect the most current housing needs.


Recommendations


     We recommend that the Director of HUD’s Los Angeles Office of Public Housing
     require the Agency’s management to

         2A.    Follow and enforce its administrative plan and submit documentation to HUD
                showing that future waiting list pulls have been conducted according to its
                administrative plan for at least a year or until HUD is satisfied the
                administrative plan is being followed.




                                             9
                        SCOPE AND METHODOLOGY

We performed our on-site audit work from November 2008 through February 2009 at the
Agency’s office in Culver City, California. The audit generally covered the period July 1, 2005,
through June 30, 2008.

To accomplish our objective, we

       Reviewed applicable HUD regulations, including 24 CFR Parts 982 and 5 and the
       Housing Choice Voucher Guidebook, 7420.10G.

       Reviewed the Agency’s administrative plan.

       Interviewed personnel from the HUD Los Angeles Office of Public and Indian Housing.

       Interviewed Agency management and staff to determine their job responsibility and
       understanding of tenant eligibility and waiting list administration.

       Reviewed records maintained by HUD pertaining to the Agency.

       Reviewed the Agency’s financial audit reports for fiscal years 2005, 2006, and 2007 as
       well as its staff listing and organizational chart.

       Reviewed data from HUD’s Public Housing Information Center and Enterprise Income
       Verification (EIV) systems regarding tenants in our sample.

       Reviewed a nonstatistical sample of eight tenant files to determine whether the Agency
       followed HUD rules and regulations in determining tenant eligibility and rent
       calculations. We employed a nonstatistical sample due to the small size of the universe
       and the relatively small housing assistance disbursement during our audit period (less
       than $6 million over three years). Our sample was based on applicants on the waiting list
       who were issued a voucher and successfully leased a unit and tenants with possible
       income discrepancies reported by EIV. We used the EIV discrepancy function to obtain
       a list of income discrepancies over 50 percent. EIV returned seven discrepancies, of
       which we selected the top four.

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.




                                               10
                              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 objectives:

              Policies and procedures for tenant eligibility and housing assistance calculations.

              Policies and procedures for waiting list maintenance and selection activities.

       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 Agency lacked controls to ensure that housing assistance payments were
              calculated correctly (finding 1).

              The Agency lacked controls to prevent management from bypassing waiting list
              selection requirements (finding 2).




                                                11
                                       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/
                            1A                        $4,230
                            1B                                            $1,388

                           Total                      $4,230              $1,388


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 Agency implements our recommendations, it will ensure that tenants are
   reimbursed for personal funds they should not have expended as the Agency underpaid the
   amount of assistance they were entitled to receive under the Section 8 program. Once the
   Authority successfully improves its procedures and controls, this will be a recurring benefit.




                                                 12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 2




                         13
Comment 3



Comment 4




Comment 5



Comment 6


Comment 7




            14
Comment 3




Comment 8




Comment 9

Comment 10




             15
Comment 10




Comment 9



Comment 11




Comment 12




             16
Comment 13




Comment 14




Comment 5
Comment 6




             17
Comment 5
Comment 6




            18
19
20
21
                         OIG Evaluation of Auditee Comments

Comment 1   We did not expand our audit to 2002 and 2004 as stated by the Agency; therefore,
            written notification was not necessary. All of our tenant file reviews (eligibility,
            rent calculations, and waiting list) were conducted on actions that occurred from
            fiscal year 2006 through fiscal year 2008. Additionally, the waiting list
            documentation requested before fiscal year 2006 was used merely for background
            and to identify the tenants’ original waiting list position.

            The Agency claims that two of the rent calculation deficiencies (vouchers 4 and
            5) occurred in 2005, outside of our scope, and were identified and corrected
            before our audit. However, these errors actually occurred in fiscal year 2006, well
            within the scope of our audit. Although HUD funds on a calendar year, many
            public housing authorities continue operations on a fiscal year. The Agency’s
            own audited financial statements and public housing authority plans are both
            completed on a fiscal year (July 1 through June 30). In addition, we do not agree
            that the Agency had fully corrected the issues cited, as it had not made necessary
            retroactive corrections (also see comment 9 below).

Comment 2   While the audit notification letter does not state the option to expand the scope as
            necessary, the issue was discussed during the entrance conference. The auditor in
            charge of the assignment also kept the Agency well informed of the audit scope
            and what was being reviewed on an almost daily basis. In addition, our office
            typically reviews tenant rent calculations as part of our review of tenant eligibility
            in order to verify whether Section 8 housing assistance payments are correct. As
            a result, we do not consider our review of this area to be an expansion of our
            scope. As rent calculation issues were identified by the audit team, the Agency
            was briefed on the nature and status of the deficiencies, and at no time during
            these meetings did the Agency indicate concern that we had exceeded our scope.
            Although the Agency implied otherwise in its response, it conceded during
            telephone conversations prior to the exit conference and again during the exit
            conference that it was well informed and aware of what was being reviewed,
            including rent calculations. The issue raised by the Agency is only in regard to
            written notification. Since we did not proceed past the survey phase of the audit,
            there were no additional written notifications to further clarify. The Agency’s
            inference that it was not consulted or was not aware of our audit scope is not
            correct.

Comment 3   We disagree with the Agency’s contention that the single verification form was
            sufficient to show that employment was terminated and not expected to continue.
            The Agency admits that the tenant completed the employment portion of the
            disclosure form stating she was currently an employee, signed March 2008. The
            tenant worked for the same employer as a casual worker in 2006 and 2007. As a
            casual worker, hours are irregular, and employment may be infrequent or on an as
            needed basis. Although the verification states continued employment as
            unknown, it does not state that work is not likely to continue.



                                              22
            The Agency points to the fact that the tenant had not received any income since
            November 2007. However, the tenant only worked 49 and 61 hours in prior
            years, indicating that work was infrequent but continuous. The verification and
            prior earnings support the nature of casual employment. Given the nature of a
            casual worker and the limited, but continuous nature of the tenant’s past earnings
            with this employer, we determined that the income should have been included in
            the Agency’s rent calculations.

Comment 4   The Agency incorrectly states that our audit only considered the waiting list
            method of aggregating. The post purge waiting list was maintained using a
            combination of all three methods. Therefore, our review considered all three
            methods.

            The Agency claims that it can use any one of the methods described in the
            administrative plan: lumping, aggregating, or date/time. While we disagree, we
            conducted further analysis to determine whether the Agency’s waiting list
            selections followed any of the above three methods. We determined that the
            Agency would have still violated its administrative plan, whether using just one
            method or a combination of all three.

Comment 5   We disagree with the Agency’s claims that the quality control checklists and
            associated reviews are adequate. We determined that the administrative plan only
            provides for a cursory review and fails to address the issue of accuracy and
            completeness. The Agency submitted four types of checklists: Section 8 initial
            eligibility, new lease-up, annual review, and rent/portion change.

            The checklists provided by the Agency are not sufficient as they do not specify
            what was reviewed and the related outcome. Absent from any of the checklists
            are results determined by the housing specialist, whether they be positive or
            negative. In addition, only the annual review and new lease-up checklists have a
            specific field for the initials of the reviewer. As evidenced in the Agency’s
            attachments and the examples below, the checklists are completed by the housing
            assistant working the file, not the housing specialist. The housing assistant makes
            all the checks, and the specialist only initials and dates one field. Lastly, four of
            the checklists provided by the Agency do not contain evidence of quality control
            review (no initials and date), and two only contain a checkmark, no initials or
            date.

            New lease-up checklist




                                             23
            This example shows the single “proofed” line on the checklist for the housing
            specialist to initial and date.

            Annual review checklist




            The first example again shows only a single field on the checklist for the housing
            specialist to initial and date. The second shows that the “proofed” field was only
            checked, not initialed and dated.

            Rent/portion change checklist




            The example illustrates that this type of checklist has no quality control field for
            initial and date, and the housing specialist does so in blank space.

Comment 6   During audit fieldwork, we had a discussion with the housing specialist and a
            housing assistant. The discussion stemmed from the fact that the audit team could
            not locate the stated checklists in the tenant files. The Agency’s administrative
            plan requires 100 percent review of Section 8 actions (reexaminations, interims,
            etc.). The housing specialist stated that her initial on the data sheet, not the same
            document as the checklist, was evidence that a quality control review had been
            completed. We conducted our audit based on this information.

            The Agency provided the quality control checklists after the exit conference for
            our review. Although the documents were not available at the time of our field
            work, we accepted them, adjusted the report as necessary, and notified the
            Agency of the changes before the submission of its response. See comment 5
            above for our assessment of the additional supporting documents.


                                              24
Comment 7      The Agency contends that its administrative plan is adequate and uses its length
               as evidence. However, the length of a document has no bearing on whether it is
               adequate. We are more concerned with the quality of the information over its
               quantity. We determined the administrative plan could be more specific in the
               areas of waiting list administration and rent calculations. A more focused and
               specific administrative plan will allow for more consistency in rent calculations,
               will remove ambiguity in waiting list administration, and will help foster a
               stronger control environment.

Comment 8      Our finding was not based on the additional income reported in the EIV system.
               Our finding was based on the form signed by the tenant and the third-party
               verification form submitted directly from the employer (also see comment 3). We
               merely used the information from the EIV system as additional support to our
               position.

Comment 9      We disagree with the Agency that the pay period errors and overstated utility
               allowance were fully corrected. During the exit conference, the Agency
               confirmed that it does not make retroactive corrections. We determined over- and
               underpaid housing assistance amounts that still needed to be corrected, as stated
               in recommendation 1A and 1B, and as illustrated in appendix C.

Comment 10 The Agency’s comments concerning criminal background checks are based on
           issues noted in the draft finding outline that were not included in the draft audit
           report, as we determined the matter only warranted verbal discussion. The
           Agency was informed of this issue during the exit conference. Therefore, no
           changes have been made to the report.

Comment 11 We disagree with the Agency’s decision to grant the tenant financial hardship to
           pay less than the required minimum $50 rent. The Agency failed to adequately
           document its reason for granting a financial hardship as required by 24 CFR
           5.630. It stated during the exit conference that it found it hard trying to increase
           the rent of a tenant that was filing claims of unfair treatment. It is inappropriate to
           bypass Section 8 requirements to avoid further claims or to appease a tenant.

               Additionally, we determined that a financial hardship was not present. The
               tenants were granted a financial hardship on August 1, 2008. The tenants had
               received a large lump-sum payment from the Social Security Administration the
               prior year, had their benefits increased December 17, 2008, and had a son who
               gained employment on June 24, 2008.

Comment 12 We disagree with the Agency’s claims that the rent burden preference was not
           used when selecting the tenant from the waiting list. The waiting list pull
           provided by the Agency, dated February 18, 2008, clearly shows two preferences:
           Culver City resident and rent burden. The tenant should have been placed on the
           waiting list behind nonresidents with preference(s) (see finding two).



                                                25
              Additionally, chapter 4(J) of the administrative plan requires removal from the
              waiting list of any applicant who falsifies documents to qualify for any
              preference. The documents in the tenant file indicate that the tenant falsely
              claimed rent burden when other documents submitted indicate otherwise. The
              Agency failed to adequately review all the available documents.

Comment 13 The Agency is incorrect in its understanding of our review. When we reviewed
           the tenant’s file, we considered all three methods. The administrative plan states
           that lumping considers all applicants who qualify for any preference as equal.
           However, the waiting list was not maintained using lumping as argued by the
           Agency. The waiting list was maintained using a combination of all three
           methods. Additionally, the method of selection is secondary to the issues
           discussed in comment 12 above.

Comment 14 We disagree that the Agency investigated the source of the unsupported income as
           the tenant file indicates otherwise. The tenant file only contained a self-certified
           statement from the tenant indicating income earned in 2006 from nonrecurring
           earnings activities, such as the sale of shoes on an auction website, clearing an
           office, and stuffing envelopes. 24 CFR 5.609(c)(9) states income that is
           temporary, nonrecurring, or sporadic (including gifts) should be excluded from
           annual income. The certification was also not supported by receipts or
           verifications of employment, and the EIV report included in the file only showed
           outdated wages from the fourth quarter of 2003 ($492). Additionally, the tenant
           file did not include calculation worksheets to show how the agency arrived at the
           income amount of $863. Therefore, we determined the income was both
           inadequately supported and inappropriate for determining the tenant’s rent
           calculation. Due to the Authority’s focus on the self-certified statement rather
           than the outdated EIV report in its response, we have adjusted the report slightly
           to emphasize that the income was nonrecurring and added the appropriate HUD
           criteria to appendix D.




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        Appendix C

        DETAILS – QUESTIONED HOUSING ASSISTANCE PAYMENT
                          CALCULATIONS

Voucher 1 – We identified income reported by the tenant but not used by the Agency for the housing assistance payment
calculations. The tenant file included documentation provided by the tenant indicating casual work. The verification form
obtained by the Agency did not indicate that the casual work is not expected to continue. Using the excluded income, we
                                                                                                                             $ 287
determined a housing assistance payment of $918 versus $958 calculated by the Agency. Therefore, the Agency
overstated the monthly housing assistance payment by $40. The Agency overpaid housing assistance in the amount of
$287 for the period May 8, 2008, to January 31, 2009, the end of our audit period.
Voucher 2 – The Agency failed to correctly calculate the family's income during the September 1, 2006, reexamination.
The third-party verifications and pay stubs clearly showed that a family member was paid twice a month (24 pay periods),
not biweekly (26 pay periods) as indicated by the Agency. Therefore, the Agency overstated income. We calculated the
income for the family to be $36,521 annually, versus $38,072 used by the Agency (a difference of $1,551). Using the          $ 468
recalculated income, we determined a housing assistance payment of $607, an increase of $19 from the amount
calculated and used by the Agency. The Agency incorrectly underpaid housing assistance in the amount of $468 ($19 x 12
months).
Voucher 3 – The Agency failed to correctly calculate the family's income during the July 15, 2005, admission and October
1, 2005, reexamination by applying an overstated utility allowance of $85, a difference of $12 from the actual allowed
utility allowance of $73. However, the housing assistance payment remained unaffected during the initial admission as
the gross rent of $935 was greater than the payment standard of $900. During the interim reexamination, a new payment
standard of $1,124 was used so the gross rent was no longer greater than the payment standard, resulting in the utility
allowance error affecting the housing assistance payment amount. The Agency overpaid housing assistance in the
amount of $108.

The Agency failed to apply the correct utility allowance during the July 5, 2006, and February 1, 2007, reexaminations.
The utility allowance worksheet, dated March 30, 2006, only showed a total allowance of $73, not the $85 claimed on the
Family Report, Form HUD-50058. Documents in the tenant file indicated that the Agency was aware of this error. The           $ 808
incorrect utility allowance meant that the Agency overpaid housing assistance in the amount of $124. The Agency also
underpaid $20 in housing assistance between February 1 and June 30, 2007. The underpayment was a result of an
accounting error. The family report indicated a housing assistance payment of $889; however, the Agency only paid $885.

According to the Agency’s own analysis, it overpaid housing assistance in the amount of $298 during the period February
1, 2007, to July 1, 2008, after reassessing the prior full-time student status of a family member. However, the Agency had
not requested repayment of the overpaid housing assistance due to claimed financial hardship. The Agency also failed to
apply the $50 minimum rent after the July 1, 2008, reexamination using the same justification, resulting in housing
assistance overpayments totaling $258 as of the end of our audit period. We concluded that a financial hardship did not
exist and was not documented, as defined by 24 CFR 5.630(b).
Voucher 4 – The Agency did not properly review the preference documents provided by the tenant as part of the tenant
eligibility process and inappropriately upgraded the tenant to a position on the waiting list with a higher level of
preference. Without the rent burden preference, the tenant would not have been pulled from the waiting list as the
tenant would have been categorized as a resident with no preference, which is a lower ranking on the waiting list. The
tenant certified a rent burden even though documents we reviewed indicated the preference did not exist. Had the
                                                                                                                             $2,531
Agency conducted a thorough review of all documents, it would have discovered that the applicant did not qualify for the
rent burden preference. A determination would then have been made of whether removal from the waiting list was
appropriate as required by its administrative plan. The Agency did not follow waiting list rules and regulations when
classifying and selecting the tenant for participation in Section 8. Therefore, the total amount of $2,531 representing
housing assistance paid by the Agency is ineligible (three months) up to the end of our audit period.




                                                                27
Voucher 5 – The Agency did not properly annualize household income for the annual reexamination effective on
September 1, 2005, and the interim reexamination effective on December 1, 2005 (by consequence). The Agency
understated household income by erroneously dividing by 11 instead of 10, which is the number of semimonthly pay
periods up to the end of May (the period for which income documentation was available). Using the recalculated income,
we determined a monthly housing assistance payment of $324 versus $376, overstating the housing assistance payment
by $52. Annualized, the Agency overpaid housing assistance in the amount of $624 for the period from September 1,
2005, to August 31, 2006.

On subsequent examinations, the Agency continued to incorrectly annualize household income and also included
                                                                                                                         $1,524
outdated income earned almost two years before the reexamination. For the annual reexamination, effective on
September 1, 2006, and the interim reexamination, effective on May 1, 2007 (by consequence), the Agency overstated
household income when annualizing income by multiplying by 26 instead of the 24 for semimonthly pay periods,
incorrectly determining that the tenant was paid on a biweekly basis. Additionally, the Agency included inadequately
supported/nonrecurring income from a family member. Excluding this income, we determined a housing assistance
payment of $189 versus $264 for the annual reexamination and $380 versus $305 for the interim reexamination used by
the Agency. We determined that the Agency understated the monthly housing assistance payment by $75. Annualized,
the tenant overpaid $900 in rent for the period September 1, 2006, to August 31, 2007, that should have been covered
through housing assistance.
                                                          Total                                                          $5,618




                                                              28
Appendix D

                                         CRITERIA
24 CFR 5.609(a). Annual income means all amounts, monetary or not, which:
   1. Go to, or on behalf of, the family head or spouse (even if temporarily absent) or to any
      other family member; or
   2. Are anticipated to be received from a source outside the family during the 12-month
      period following admission or annual reexamination effective date; and
   3. Which are not specifically excluded in paragraph (c) of this section.
   4. Annual income also means amounts derived (during the 12-month period) from assets to
      which any member of the family has access.

24 CFR 5.609(c)(9). Annual income.
Annual income does not include temporary, nonrecurring or sporadic income (including gifts).

24 CFR 5.630(a). Minimum rent
   1. The PHA [public housing agency] must charge a family no less than a minimum monthly
      rent established by the responsible entity, except as described in paragraph (b) of this
      section.

24 CFR 5.630(b). Financial hardship exemption from minimum rent.
   1. When is family exempt from minimum rent? The responsible entity must grant an
      exemption from payment of minimum rent if the family is unable to pay the minimum
      rent because of financial hardship, as described in the responsible entity’s written
      policies. Financial hardship includes these situations:
         i.   When the family has lost eligibility for or is awaiting an eligibility determination
              for a Federal, State, or local assistance program, including a family that includes a
              member who is a noncitizen lawfully admitted for permanent residence under the
              Immigration and Nationality Act who would be entitled to public benefits but for
              title IV of the Personal Responsibility and Work Opportunity Act of 1996;
        ii.   When the family would be evicted because it is unable to pay the minimum rent;
       iii. When the income of the family has decreased because of changed circumstances,
              including loss of employment;
       iv.    When a death has occurred in the family;

24 CFR 5.630(b)(2)(ii). All Section 8 programs
   A. If a family requests a financial hardship exemption, the responsible entity must suspend
      the minimum rent requirement beginning the month following the family’s request for a
      hardship exemption until the responsible entity determines whether there is a qualifying
      financial hardship, and whether such hardship is temporary or long term.
   B. The responsible entity must promptly determine whether a qualifying hardship exists and
      whether it is temporary or long term.
   C. If the responsible entity determines that a qualifying financial hardship is temporary, the
      housing authority must not impose the minimum rent during the 90-day period beginning
      the month following the date of the family's request for a hardship exemption. At the end


                                                29
       of the 90-day suspension period, the responsible entity must reinstate the minimum rent
       from the beginning of the suspension. The family must be offered a reasonable
       repayment agreement, on terms and conditions established by the responsible entity, for
       the amount of back rent owed by the family.

24 CFR 982.54(c). Administrative plan
The housing authority must administer the program in accordance with the housing authority
administrative plan.

24 CFR 982.153. Public housing authority responsibilities
The housing authority must comply with the consolidated annual contributions contract, the
application, HUD regulations and other requirements, and the housing authority administrative
plan.

24 CFR 982.204
   a. States that participants must be selected from the housing authority waiting list (except
      for special admissions). The housing authority must select participants from the waiting
      list in accordance with the admission policies in the housing authority administrative
      plan.
   b. Organization of waiting list. The housing authority must maintain information that
      permits the housing authority to select participants from the waiting list in accordance
      with the housing authority admission policies. The waiting list must contain the
      following information for each applicant listed:
           1. Applicant name;
           2. Family unit size (number of bedrooms for which family qualifies under housing
               authority occupancy standards);
           3. Date and time of application;
           4. Qualification for any local preference;
           5. Racial or ethnic designation of the head of household.

24 CFR 982.207(a). Establishment of public housing authority local preferences
   1. The housing authority may establish a system of local preferences for selection of
      families admitted to the program. Housing authority selection preferences must be
      described in the housing authority administrative plan.
   2. The housing authority system of local preferences must be based on local housing needs
      and priorities, as determined by the housing authority. In determining such needs and
      priorities, the housing authority shall use generally accepted data sources. The housing
      authority shall consider public comment on the proposed public housing agency plan (as
      received pursuant to Sec. 903.17 of this chapter) and on the consolidated plan for the
      relevant jurisdiction (as received pursuant to part 91 of this title).

24 CFR 982.207(e). Verification of selection method
The method for selecting applicants from a preference category must leave a clear audit trail that
can be used to verify that each applicant has been selected in accordance with the method
specified in the administrative plan.




                                                30
24 CFR 982.516(e). Family member income
Family income must include income of all family members, including family members not
related by blood or marriage. If any new family member is added, family income must include
any income of the additional family member. The housing authority must conduct a
reexamination to determine such additional income, and must make appropriate adjustments in
the housing assistance payment.

24 CFR 982.517(d). Use of utility allowance schedule
   1. The housing authority must use the appropriate utility allowance for the size of dwelling
      unit actually leased by the family (rather than the family unit size as determined under the
      housing authority subsidy standards).
   2. At reexamination, the housing authority must use the housing authority current utility
      allowance schedule.

Administrative Plan: Chapter 1(L). Monitoring of Program Performance
In order to ensure quality control, supervisory staff audits the following functions:
    1. 100 % percent of re-examinations.
    2. 100% percent of new applications.
    3. 5% percent of the housing quality standards inspections conducted for all units.

Administrative Plan: Chapter 4(A)(2). Application Pool
All applicants in the pool will be maintained in the order of preference. Applications equal in
preference will be maintained by date and time sequence.

Administrative Plan: Chapter 4(G). Order of Selection
The order of selection is based on the Agency’s system for applying local preferences (described
in Section C – Local Preferences). The methods for applying preferences include:
    1. Lumping – all applicants who qualify for any preferences are treated equally (except code
        00; see below);
    2. Aggregating – two preferences outweigh one, three outweigh two, etc.;
    3. Date and time of application.

Local Preference Rankings
Local preferences will be used to select families from the waiting list. The Agency has selected
the following system to apply ranking preferences. All local preferences will be coded as
follows:
    00. Displaced/Disaster/Substandard Housing/Victims of Domestic Violence
    01. Resident w/preference
    02. Non-resident w/preference
    03. Resident w/o preference
    04. Non-resident w/o preference
    05. Single individual (non elderly/disabled or displaced)

Among applicants with equal preference status, the waiting list will be organized by date and
time that each application was submitted to the Agency.




                                                31
Administrative Plan: Chapter 4(H). Final Verification of Preferences
Preference information on applications will be updated as applicants are selected from the
waiting list. At that time, applicants will be required to submit the appropriate documentation to
support their claim of preference. In order to qualify for a preference, the documentation
submitted by the applicant must support the claim for the preference as defined by HUD and/or
the Agency.

Administrative Plan: Chapter 4(I). Preference Denial
If the Agency denies a preference, the Agency will notify the applicant in writing of the reasons
why the preference was denied. If the applicant falsifies documents in order to qualify for any
preference they will be removed from the waiting list.

Administrative Plan: Chapter 6(A). Income and Allowances
Income
The types of money, which are to be used as income for purposes of calculating the housing
assistance payment, are defined by HUD in the federal regulations. In accordance with this
definition, gross income from all sources for each member of the household is counted.

Annual Income is defined as the gross amount of income anticipated to be received by the family
during the 12 months after admission or annual re-examination. Gross income is the amount of
income prior to any HUD allowable expenses or deductions, and does not include income, which
has been excluded by HUD. Annual income is used to determine whether or not applicants are
within the applicable income limits.

Minimum Rent and Minimum Family Contribution
Minimum family contribution in the Housing Choice Voucher Program is fifty dollars ($50).

Administrative Plan: Chapter 6(C). Averaging Income
When Annual Income cannot be anticipated for a full twelve (12) months, the Agency may:
  1. Average known sources of income that vary to compute an annual income, or
  2. Annualize current income and conduct an interim re-examination if income changes.

If there are bonuses or overtime that the employer cannot anticipate for the next twelve (12)
months, bonuses and overtime received the previous year will be used. Income from the
previous year may be analyzed to determine the amount to anticipate when third party or check-
stub verification is not available. If by averaging, an estimate can be made for those families
whose income fluctuates from month to month. This estimate will be used so that the housing
payment will not change from month to month. The method used depends on the regularity,
source and type of income.

Administrative Plan: Chapter 6(Q). Utility Allowance
The same utility allowance schedule is used for all rental vouchers. The utility allowance is
intended to help defray the cost of utilities not included in the rent and is subtracted from total
tenant payment to establish the family’s rent to the landlord. The allowances are based on actual
rates and average consumption studies, not on a family’s actual consumption. The Agency will
review the utility allowance schedule on an annual basis and may be revised. The approved



                                                32
utility allowance schedule is given to families at admission and moves. The utility allowance is
based on the actual unit size selected. Where the utility allowance exceeds the family’s total
tenant payment, the Agency will provide a utility reimbursement payment for the family each
month. The check will be made out directly to the tenant.

Administrative Plan: Chapter 7(E). Verification of Income
Only the first $480 of the earned income of full time students, other than head or spouse, will be
counted towards family income. Financial aid, scholarships and grants received by full time
students is not counted towards family income. Verification of full time student status includes:
    1. Written verification from the registrar’s office or other school official.
    2. School records indicating enrollment for sufficient number of credits to be considered a
       full-time student by the educational institution.




                                                33