oversight

North Hempstead Housing Authority, Great Neck, New York, Had Weaknesses in Its Housing Choice Voucher and Family Self-Sufficiency Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-05-15.

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

                                                                Issue Date
                                                                         May 15, 2009
                                                                Audit Report Number
                                                                             2009-NY-1011




TO:        Mirza Negron Morales, Director, Office of Public Housing, 2APH



FROM:      Edgar Moore, Regional Inspector General for Audit, New York Region, 2AGA


SUBJECT: North Hempstead Housing Authority, Great Neck, New York, Had Weaknesses
         in Its Housing Choice Voucher and Family Self-Sufficiency Programs


                                  HIGHLIGHTS

 What We Audited and Why

            We audited the North Hempstead Housing Authority’s (Authority) administration
            of its Housing Choice Voucher and Family Self-Sufficiency programs as part of
            the Office of Inspector General’s (OIG) strategic plan goals to improve the U.S.
            Department of Housing and Urban Development’s (HUD) fiscal accountability
            regarding its rental assistance programs. We selected the Authority because it
            was designated as troubled by HUD and did not have a Section 8 management
            review since March 2000.

            The audit objectives were to determine whether the Authority administered its
            Housing Choice Voucher and Family Self Sufficiency programs in compliance
            with HUD regulations. Specific objectives were to assess whether the Authority
            properly (1) determined tenant eligibility and rental subsidy calculations,
            (2) administered its project-based vouchers, (3) accounted for portable vouchers,
            (4) implemented a housing quality standards inspection process, and (5)
            calculated and funded Family Self-Sufficiency program participants’ escrow
            amounts.
What We Found


           The Authority generally administered its Housing Choice Voucher program in
           accordance with HUD regulations. Specifically, the Authority properly
           determined Section 8 tenant eligibility and accurately calculated rental subsidies.
           However, the Authority did not properly administer its project-based voucher
           program, in that it improperly selected both units and tenants for project-based
           voucher assistance. In addition, the Authority incorrectly accounted for portable
           administrative fees, did not adequately administer its housing quality standards
           quality control inspection process, and improperly calculated and funded Family
           Self-Sufficiency program participants’ escrow accounts.

What We Recommend

           We recommend that the Director, Office of Public Housing, New York, instruct
           Authority officials to develop an allocation plan to ensure that project-based
           vouchers are issued in accordance with regulations and that tenants for project-
           based voucher assistance are properly selected; pay portable administrative fees
           due to receiving authorities and provide documentation to support fees paid;
           strengthen controls over its housing quality standards quality control inspection
           process; and fund current Family Self Sufficiency program participants’ escrow
           accounts that are underfunded, reimburse escrow funds owed to graduated
           participants, and recoup funds from overfunded accounts.

           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 discussed the contents of this report with Authority officials during the audit
           and provided them with a copy of the draft report on April 10, 2009. We held an
           exit conference on April 17, 2009, and received the Authority’s written comments
           on May 1, 2009. The Authority generally agreed with our findings and has
           initiated corrective action in response to our recommendations. The complete text
           of the auditee’s response, along with our evaluation of that response, can be found
           in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit
      Finding 1: The Authority Did Not Properly Administer Its Project-Based        5
                 Vouchers

      Finding 2: The Authority Had Weaknesses in Its Financial and Management       8
                 Controls

      Finding 3: The Authority Had Weaknesses in the Administration of Its Family   13
                 Self-Sufficiency Program

Scope and Methodology                                                               18

Internal Controls                                                                   20

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                22
   B. Auditee Comments and OIG’s Evaluation                                         23
   C. Schedule of Participant Escrow Account Balances as of November 28, 2008       30




                                            3
                         BACKGROUND AND OBJECTIVES

The North Hempstead Housing Authority (Authority) was established in 1946 as a not-for-profit
public corporation to provide safe, decent, and affordable housing for low-income families. The
Authority is governed by a seven-member board of commissioners. The executive director, who
supervises the daily management operations of the Authority, was appointed in 2002. The
Authority’s main office is located at Pond Hill Road, Great Neck, New York.

The Authority administers Housing Choice Voucher and Family Self-Sufficiency programs
funded by the U.S. Department of Housing and Urban Development (HUD). During the audit
period, April 1, 2006, through March 31, 2008, the Authority received $5.5 million in Housing
Choice Voucher program and Family Self Sufficiency Coordinator funding, $5.43 million and
$75,250 respectively.

The purpose of the Housing Choice Voucher program is to provide assistance to low- and
moderate-income families seeking decent, safe, and sanitary housing by subsidizing rents with
owners of existing private housing. The purpose of the Family Self-Sufficiency program is to
assist families in obtaining employment that will allow them to become economically
independent. As of March 31, 2008, the Authority administered 175 housing choice vouchers
and had 17 participants enrolled in the Family Self-Sufficiency program.

In July 1998, the State of New York enacted legislation authorizing the Authority to sell or lease
all or part of its 286 New York State Department of Housing and Community Renewal public
housing units contained in four developments: (1) Pond View Homes, a 52-unit family
development; (2) Laurel Homes, a 66-unit family development; (3) Harbor Homes, a 66-unit
family development; and (4) Spinney Hill, a 102-unit family development. The purpose of the
legislation was to secure private capital to rehabilitate the developments and ensure a continued
source of housing for low-income families. Each development is owned and operated by one of
five1 distinct limited partnerships sponsored by the Authority and in which its not-for-profit
housing development fund corporation has a one percent ownership interest. In 2001 and 2002,
the Authority selected a total of 24 units for project-based voucher assistance from among two of
the privatized developments.

We initiated the audit to determine whether the Authority administered its Housing Choice
Voucher and Family Self Sufficiency programs in compliance with HUD regulations. Specific
audit objectives were to assess whether the Authority properly (1) determined tenant eligibility
and rental subsidy calculations, (2) administered its project-based vouchers, (3) accounted for
portable vouchers, (4) implemented a housing quality standards inspection process, and (5)
calculated and funded Family Self-Sufficiency program participants’ escrow amounts.




1
 The limited partnerships and not-for-profit housing development fund corporations are named for the
developments, for example Spinney Hill Limited Partnership’s sole general partner is Spinney Hill Development
Fund Corporation. Furthermore, Spinney Hill has two limited partnerships and two sole general partners (I and II).

                                                         4
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Properly Administer Its Project-
           Based Vouchers
The Authority had administration weaknesses in its project-based voucher program that caused
improper selection of both units and tenants for project-based voucher assistance, and rent
reasonableness determinations to not be completed. As a result, the Authority inappropriately
disbursed $695,797 on units and tenants not properly selected or determined to have reasonable
rents. This occurred because Authority officials were unfamiliar with HUD regulations.


 Proposals for Project-Based
 Vouchers Not Solicited

              Authority officials inappropriately provided project-based voucher assistance to
              24 Authority-owned units. Regulations at 24 CFR (Code of Federal Regulations)
              983.51(e) provide that an authority-owned unit may be assisted under the project-
              based voucher program if the HUD field office or a HUD-approved independent
              entity reviews the selection process and determines that the authority-owned units
              were selected based on the selection procedures specified in the authority’s
              administrative plan. Further, regulations at 24 CFR 983.51 provide that an
              authority’s administrative plan must describe procedures for submission and
              selection of owner project-based voucher proposals.

              Authority officials did not comply with regulations regarding the selection of
              these project-based voucher units. First, the Authority’s Section 8 administrative
              plan does not specify a process for soliciting and selecting project-based voucher
              proposals. Second, Authority officials selected the 24 project-based voucher units
              from two of its previously administered New York State low-income
              developments without soliciting project-based voucher proposals, documenting an
              allocation plan, or obtaining HUD approval as required. This noncompliance
              occurred because Authority officials believed that, since two of its former New
              York State low-income developments were privatized and fully renovated, they
              were not required to solicit project-based voucher proposals. As a result,
              Authority officials inappropriately disbursed $695,797 in housing assistance
              payments during the period reviewed, and will continue to inappropriately
              disburse the current annual subsidy of $281,196.




                                               5
    Improper Selection of Project-
    Based Voucher Tenants

                  Authority officials selected six applicants for project-based voucher assistance
                  from a waiting list that the Authority administered for its New York State low-
                  income housing.2 Regulations at 24 CFR 983.251(c)(1) require that applicants for
                  project-based voucher-assisted units be selected from an authority’s Section 8
                  waiting list. During the period April 2006 through December 2008, Authority
                  officials disbursed $135,915 in housing assistance payments for these units. We
                  do not regard these costs as ineligible since the tenants met eligibility
                  requirements for housing assistance; however, potentially eligible applicants on
                  the Authority’s Section 8 waiting list were not offered project-based voucher
                  assistance and continued to wait for tenant-based assistance. This condition
                  occurred because Authority officials provided the wrong waiting list to the
                  management agent.

    Independent Rent
    Reasonableness Determinations
    Not Obtained

                  While Authority officials arranged for inspections by an independent entity, they
                  did not ensure that the entity conducted rent reasonableness determinations for its
                  Authority-owned units. Regulations at 24 CFR 983.59(b) require that both rent
                  reasonableness determinations and housing quality standards inspections for
                  authority-owned units be performed by an independent entity approved by HUD.
                  However, the entity merely documented unit rental postings from newspapers. As
                  a result, HUD lacked assurance that the rents charged monthly for project-based
                  voucher-assisted units were reasonable.


    Conclusion

                  The Authority generally administered its Housing Choice Voucher program in
                  compliance with HUD regulations; however, there were weaknesses in the
                  administration of its project-based voucher program. As a result, the Authority
                  disbursed $695,797 in housing assistance payments for project-based voucher
                  units that were not properly selected, waiting list applicants were improperly
                  chosen, and project-based voucher-assisted rents may not have been reasonable.
                  These weaknesses occurred because Authority officials were unfamiliar with
                  various HUD regulations.


2
  While the Authority selected 24 applicants for project-based voucher assistance, 18 resided in the development
before its privatization and renovation. Such “in place families” are given preference to avoid displacement and,
thus, were provided assistance in accordance with regulations.

                                                         6
Recommendations

          We recommend that the Director, Office of Public Housing, New York, instruct
          Authority officials to

          1A.     Ensure compliance with regulations by establishing and incorporating into
                  its Section 8 Housing Choice Voucher program administrative plan,
                  procedures for the solicitation and evaluation of proposals for project-
                  based voucher-assisted units before any future selections of such units.

          1B.     Obtain HUD approval for the designation of the 24 project-based
                  vouchers, or convert them to tenant-based vouchers, thereby ensuring that
                  the annual subsidy payment of approximately $281,196 will be used on
                  units that are properly approved for project-based vouchers.

          1C.     Develop procedures and implement controls to ensure that future vouchers
                  are distributed to applicants on the Authority’s Section 8 waiting list.

          1D.     Have an independent entity conduct rent reasonableness determinations
                  for Authority-owned units receiving project-based voucher assistance to
                  ensure that unit rents are reasonable as required by 24 CFR 983.59(b).




                                           7
Finding 2: The Authority Had Weaknesses in Its Financial and
           Management Controls
There were weaknesses in the Authority’s financial and management controls. These
weaknesses resulted in (1) $2,467 in unpaid portable administrative fees to receiving authorities
and $9,724 in portable administrative fees without supporting documentation, (2) $3,530 in
unsupported contract costs and procurement actions, (3) the allocation of costs based upon an
outdated allocation plan, (4) the disbursement of $50,237 in housing assistance payments to an
ineligible owner, and (5) the improper selection and inadequate tracking of housing quality
standards quality control inspections. These weaknesses occurred because of the Authority’s
unfamiliarity with program requirements and errors in the implementation of its policies.



 Unpaid Portable Administrative
 Fees and Fees Paid for Former
 Port-Outs

               The Authority had not paid $2,467 in portable administrative fees due to three
               receiving authorities for four port-out tenants. These fees had been unpaid from 4
               to 24 months. Regulations at 24 CFR 982.355(e)(1)-(3) require that 80 percent of
               an initial authority’s ongoing administrative fee be promptly paid when it receives
               a bill from a receiving authority for port-out tenants. Authority officials believed
               that the payments had been made because it issued separate checks for housing
               assistance payments and portable administrative fees and checks for the housing
               assistance payments had been remitted. In addition, the Authority lacked bills
               from a receiving authority to support $9,724 in portable administrative fees paid
               from April 1, 2006, through March 31, 2008. These deficiencies occurred
               because the Authority lacked controls over the reconciliation of portable
               administrative fees payable.

  Unsupported Contract Costs and
  Procurement Actions

               After the Authority was unsuccessful in hiring a replacement when its bookkeeper
               resigned in May 2007, it contracted with that bookkeeper without soliciting bids,
               documenting board approval, or executing a formal contract. Section 2.1(D) of
               the Authority’s procurement policy requires three quotes and board approval to
               execute any contract in excess of $5,000. However, during the period July 2007
               through November 2008, the former employee was compensated $20,308, based
               upon a rate of $46.43 per hour, for these services, which represents a 21 percent
               increase over the $38.36 hourly rate for salary and fringes that the bookkeeper
               earned as an employee. Consequently, without evidence of solicitation of bids to
               justify that the services were procured at a reasonable rate, we regard $3,530 (the
               difference between the amount the bookkeeper earned as an employee and

                                                8
                 received as a contractor) as an unsupported expense. Additionally, in July 2008
                 after the Authority received one response to a request for proposals for
                 bookkeeping services, it outsourced some services to the company that managed
                 the Authority’s privatized units. However, an Authority official stated that the
                 company had not been paid and an evaluation was ongoing to determine the
                 amount of work and to set the contract price.

                 In addition, the Authority lacked documentation for the procurement of the family
                 self-sufficiency coordinator and improperly renewed the contract. Section 1.4(B)
                 of the Authority’s procurement policy requires contracts to be supported by
                 sufficient documentation regarding the history of any procurement, and
                 regulations at 24 CFR 85.36(i)(11)3 require the retention of procurement records
                 for three years after final payment is made. A coordinator contract in the amount
                 of $43,800 annually, initially awarded in June 2002, and effective August 1, 2002,
                 was renewed four times and will expire on December 31, 2009. Due to the lack
                 of records, the Authority could not provide assurance that the procurement of the
                 contract family self-sufficiency coordinator was conducted in full compliance
                 with applicable requirements and that the most economical price was obtained.

                 Further, upon its expiration in December 2009, the contract will have been in
                 effect for six years and five months4. While the initial contract did not include an
                 option for renewal or extension, the Board of Commissioners continued to
                 authorize contract extensions without HUD approval. Contracts that exceed a
                 total of five years are viewed as restrictive of competition and in violation of 24
                 CFR 85.36(c). Handbook No. 7460.8 REV 2, Chapter 10.8 C2, provides that
                 contracts shall not exceed a period of five years, including options for renewal or
                 extension. While HUD may approve contracts in excess of five years if it
                 determines there is no practical alternative, the Authority had not sought HUD
                 approval.


    Cost Allocation Plan
    Outdated

                 The Authority did not properly document the allocation of costs among its
                 programs. It allocated its employee salaries and general administrative costs
                 among its New York State housing, low-rent, and Section 8 programs, as well as
                 its nonprofit entities. However, the Authority’s cost allocation plan was last
                 revised in March 2006. The plan is outdated as it contains the names of former
                 Authority employees who resigned from their positions in September 2006 and
                 May 2007. Further, as of December 22, 2008, the Authority’s remaining New

3
  The Authority’s procurement policy indicates compliance with the procurement standards provided by 24 CFR
  85.36.
4
  Authority officials did not renew the contract upon its expiration on December 31, 2005 because the Authority did
not receive HUD funding for a family self-sufficiency coordinator in fiscal year 2006. The following year funding
resumed and the contract was renewed on January 1, 2007.

                                                         9
            York State development had been privatized, and the Authority was no longer
            responsible for its day-to-day management. Consequently, the Authority’s cost
            allocation plan, which is based on the number of units in each program, needs to
            be redeveloped to reflect current employees and program units.

Ineligible Housing Assistance
Payments

            During the period November 1, 2002, through July 1, 2007, the Authority
            erroneously disbursed $50,237 in housing assistance payments for a unit owned
            by the father of assisted family members who were not disabled. Regulations at
            24 CFR 982.306(d) prohibit approving a unit when the owner is the parent, child,
            grandparent, grandchild, sister, or brother of any member of the assisted family,
            unless approving such a tenancy would provide reasonable accommodations for a
            disabled family member. Authority officials said that they were unaware of the
            prohibited owner-family relationship. Authority procedures provide that during
            an applicant’s initial certification process, inquiry is made about whether owner-
            family relationships exist when both the tenant head of household and the owner
            have the same last name, which was not applicable in this case. Further, the
            owner certified on the housing assistance payments contract and the request for
            tenancy approval that a prohibited owner-family relationship did not exist. While
            the Authority exercised due diligence during the certification process and had
            established adequate controls in its tenant certification process, the owner was
            erroneously paid.


Improper Selection and
Tracking of Quality Control
Inspections

            The Authority did not always properly select or adequately track the results of
            housing quality standards quality control inspections. Regulations at 24 CFR
            985.3(e)(3) require that the quality control inspection sample be made from
            inspections performed during the past three months. However, the eight
            inspections drawn in 2008 for quality control inspections had been completed
            between seven and twelve months earlier. In addition, the Authority did not
            always provide written notification to landlords and tenants for all failed items
            resulting from housing quality standards quality control inspections conducted in
            2007 and 2008. Also, it did not maintain a system for tracking and recording the
            results of the quality control inspections. For instance, Authority officials did not
            formally document with a reinspection report that 9 of 20 units that failed the
            quality control inspections in 2007 and 2008 were reinspected to verify correction
            of the deficiencies. In addition, officials did not maintain copies of all prior
            recertification inspection reports. Chapter 10.9, Indicator 6, of HUD’s Housing
            Choice Voucher Program Guidebook 7420.10G requires the Authority to have a

                                             10
             system for tracking and recording the results of the housing quality standards
             quality control inspections that, at a minimum, documents the date of original
             failed inspection and the date and result of reinspection. Authority officials were
             not aware of this tracking requirement; hence, HUD lacked assurance that
             reinspections always occurred and units met housing quality standards.


Conclusion

             Weaknesses in financial and management controls existed because the Authority
             was unfamiliar with program requirements and experienced errors in the
             implementation of its policies. As a result, (1) $2,467 in portable administrative
             fees were not paid to receiving authorities, (2) $9,724 in unsupported portable
             administrative fees were paid to a receiving authority, (3) $3,530 in unsupported
             contract costs were incurred, (4) the allocation of costs was based upon an
             outdated allocation plan, (5) the Authority disbursed $50,237 in housing
             assistance payments to an ineligible owner, and (6) housing quality standards
             quality control inspections were improperly selected and inadequately tracked.

Recommendations

             We recommend that the Director, Office of Public Housing, New York, instruct
             Authority officials to

             2A. Pay $2,467 in portable administrative fees due to receiving authorities on
                 behalf of its port-out tenants.

             2B. Provide documentation for $9,724 in unsupported portable administrative
                 fees paid, and if support cannot be provided, the Authority should recoup
                 the fees paid from the receiving authority.

             2C. Strengthen controls over the reconciliation and payment of portable
                 administrative fees.

             2D. Provide support for or reimburse $3,530 paid in consulting fees for
                 bookkeeping services.

             2E. Strengthen controls over the procurement process to ensure compliance with
                 HUD’s procurement regulations, including the requirement that contracts be
                 for a finite period, including options, which does not exceed a five-year
                 period unless HUD approval is obtained.

             2F. Revise its cost allocation plan to reflect current employees and program
                 units to ensure that allocated costs are properly supported.



                                              11
2G. Seek repayment of $50,237 in ineligible housing assistance payments.

2H. Strengthen controls over the housing quality standards quality control
    inspection process to ensure that inspection samples are properly selected,
    landlords and tenants are notified of deficiencies, and failed units are
    reinspected.

2I.   Establish and maintain a system for tracking, recording, and monitoring the
      results of housing quality standards quality control inspections.




                                12
Finding 3: The Authority Had Weaknesses in the Administration of Its
           Family Self-Sufficiency Program
The Authority had weaknesses in the administration of its Family Self-Sufficiency program.
Specifically, Authority officials did not properly calculate or fund escrow credits, distribute an
escrow account, or comply with administrative requirements for its program. These weaknesses
occurred because Authority officials were unaware of applicable program requirements.
Consequently, 10 active participant accounts were underfunded by $32,325, three accounts were
overfunded by $3,666, three graduated participant accounts were underpaid by $3,279, and one
was overpaid by $4,807. In addition, one participant had not been paid $6,904 and $19,193 in
forfeited escrow funds was not deposited into the Authority’s general account. Further, the
Authority’s program did not comply with program approval, minimum size, and program
coordinating committee requirements.



  Escrow Amounts Incorrectly
  Calculated and Funded

               Authority officials’ failure to consistently deposit and correctly calculate escrow
               deposits caused the underfunding of 10 active participant accounts by $32,325
               and the overfunding of three accounts by $3,666 (see appendix C). In addition,
               three graduates were underpaid by $3,279, and one was overpaid by $4,807. The
               HUD Housing Choice Voucher Program Guidebook 7420.10G, section 23.5,
               provides that escrow credits result when increases in the family’s earned income
               cause the family’s total tenant payment to increase. The difference between the
               family’s increased current total tenant payment and the total tenant payment on
               the effective date of the contract of participation represents an escrow credit to be
               deposited. Regulations at 24 CFR 984.305(a) provide that Family Self-
               Sufficiency program participant escrow funds should be deposited into a single
               depository account invested in one or more HUD-approved investments, and the
               Authority’s policy provides for monthly deposits of earned escrow. Nevertheless,
               Authority officials failed to consistently make the required monthly deposits into
               escrow accounts.

               Officials stated that deposits were not made during the period February 2006
               through March 2007 because they suspended the program when the Authority did
               not receive HUD funding for a family self-sufficiency coordinator in fiscal year
               2006. Consequently, Authority officials did not renew their coordinator contract,
               through which all essential supportive services were provided, upon its expiration
               on December 31, 2005. Further, rather than forfeit participant funds and void all
               participant contracts, Authority officials informed the participants that the
               program would be suspended. However, while funding for a coordinator resumed
               effective October 1, 2006, Authority officials did not make escrow deposits until
               April 2007. Deposits were also not made during the period June through October
               2008, although a lump sum catch-up deposit was made in November 2008.

                                                13
                    Authority officials attributed this lapse in deposits to the transition to outsourced
                    bookkeeping services. In addition, an escrow account was not opened until
                    January 2009 for a participant for whom escrow funds should have been deposited
                    starting in November 2008. This lapse in funding was due to delays in processing
                    the paperwork.

                    Authority officials also incorrectly calculated escrow credits for 16 of 23
                    participants because they incorrectly applied participants’ earned income, total
                    tenant payment, and HUD income limits when calculating the escrow credits.
                    Further, when the program resumed after its suspension, officials incorrectly
                    calculated escrow credits for 11 of the 12 active participants by using the current
                    earned income rather than the earned income on the effective date of the contract
                    of participation or by using the incorrect total tenant payment on the effective date
                    of the contract of participation. Further, the remaining active participant’s escrow
                    credits were not calculated during the next two reexaminations of income,
                    resulting in an underfunded escrow account balance.

                    In addition, for three participants, Authority officials used the participants’ earned
                    income from the wrong period when they initially executed contracts of
                    participation, and they incorrectly calculated two participants’ escrow credit
                    because they applied the wrong income limits. In the first case, they applied
                    income limits for a family of eight, rather than ten. In the second case, they
                    applied the previous year’s income limits, which caused the participant’s adjusted
                    income to exceed the very low-income limit, thereby reducing the escrow credits
                    calculated. There were also a number of instances in which incorrect income
                    limits were applied with no effect. These errors occurred because Authority
                    officials failed to manually update their system in a timely manner to reflect the
                    changes in HUD’s annual income limits.


        Escrow Amounts Not
        Distributed

                    Authority officials did not distribute earned escrow funds to one participant.
                    Chapter 23.5 of Housing Choice Voucher Program Guidebook 7420.10G also
                    provides that a family is eligible to receive its escrow account when 30 percent of
                    the family’s monthly adjusted income equals or exceeds the fair market rent for
                    the family, regardless of whether all planned goals in the contract of participation
                    have been achieved. One participant met this requirement, effective May 1, 2008,
                    and was terminated from the Housing Choice Voucher program on November 1,
                    2008, in accordance with program regulations.5 However, while the participant
                    was eligible to receive escrow account funds on May 1, 2008, the Authority had
                    not disbursed the $6,904 to which the participant was entitled.


5
    Regulations provide that the housing assistance payment contract automatically terminates after 180 days since the
    last housing assistance payment to the owner.

                                                           14
                    In addition, $19,193 in forfeited funds should have reverted to the Authority.
                    Chapter 23.5 of Housing Choice Voucher Program Guidebook 7420.10G provides
                    that escrow funds are forfeited if a contract of participation is terminated.
                    Forfeited funds revert to the Authority and are treated as program receipts
                    available to pay approved program expenses. As of November 28, 2008, funds
                    amounting to $19,1936 that should have been forfeited by three participants upon
                    termination of their contract in September and October 2005, and May 2008,
                    respectively, remained on deposit in the escrow accounts.

     Noncompliance with Program
     Administrative Requirements

                    Authority officials did not provide participants with annual reports on their
                    escrow accounts as required. Section 23.5 of Housing Choice Voucher
                    Guidebook 7420.10G requires that each participant receive a report on the
                    participant’s escrow account at least annually, including the beginning balance,
                    any amount credited or deduction made during the period, the interest earned on
                    the account, and the ending balance. While participants were provided reports,
                    the reports were not always provided annually and did not include all required
                    information. The contract coordinator acknowledged the deficiency and said that
                    action would be taken to ensure that reports complied with the requirements.

                    In addition, the Authority’s program did not comply with HUD requirements for
                    approval, program size, and program coordinating committee composition.
                    Regulations at 24 CFR 984.201(a) provide that an authority must have a HUD-
                    approved action plan that complies with the requirements before it implements its
                    Family-Self Sufficiency program. On April 5, 2001, Authority officials submitted
                    a program action plan to HUD, which HUD did not approve because it did not
                    include incentives to encourage participation, outreach efforts to recruit minority
                    and nonminority families, and an assurance that a family’s decision not to
                    participate in the Family Self-Sufficiency program would not affect its
                    participation in the Section 8 program. While the plan was resubmitted on July
                    21, 2003, there was no documentation showing that it had been approved.

                    The Authority’s program did not comply with mandatory minimum program
                    participant requirements. The Authority’s family self-sufficiency action plan
                    requires that the Authority operate a program with 50 participants; however, the
                    Authority had never met that mandatory minimum number. Regulations at 24
                    CFR 984.105(d) require HUD approval to operate a Family Self-Sufficiency
                    program with less than the required minimum number of participants. During the
                    audit period, April 2006 through March 2008, the number of participants ranged
                    from a low of 12 to a high of 17 and was at 17 at the end of the audit period.
                    Despite its outreach efforts to increase participation, Authority staff cited a lack of

6
    As of November 28, 2008, $16,150 was the sum of the three escrow account balances ($7,001 + $749 + $8,400).
    However, the balance was understated by a net of $3,043, since two escrow account balances were underfunded by
    $3,792 and one was overfunded by $749 (see appendix C).

                                                         15
             family interest for low participation in the program. However, Authority officials
             had not requested approval from HUD to administer a smaller program. This
             condition occurred because Authority officials were unaware that they needed to
             request HUD approval.

             Furthermore, the Authority’s program coordinating committee did not comply
             with HUD requirements. Regulations at 24 CFR 984.202(a), (b)(1)(ii), and (2)
             require that a program coordinating committee be established to assist an
             authority in obtaining public and private resource commitments for the operation
             of its Family Self-Sufficiency program. The committee should include
             representatives from the authority; a Section 8 participant; and representatives
             from local government, local job training programs, employment agencies, public
             child welfare agencies, public/private education or training institutions, child care
             providers, nonprofit service providers, and private businesses. Although the
             Authority’s contract family self-sufficiency coordinator established a program
             coordinating committee, the committee was located outside the Authority’s
             jurisdiction, and neither representatives from the Authority nor a Section 8
             participant were members of the committee. This condition occurred because
             Authority officials were unaware of the committee membership requirements.


Conclusion

             As a result of weaknesses in controls and unfamiliarity with administrative
             requirements in the operation of its Family Self-Sufficiency program, Authority
             officials improperly funded escrow accounts, incorrectly calculated escrow
             credits, and did not comply with administrative requirements. Consequently, the
             Authority lacked assurance that its program met requirements and operated
             effectively.

Recommendations

             We recommend that the Director, Office of Public Housing, New York, instruct
             Authority officials to

             3A. Fund current participants’ escrow accounts $32,325, due to failure to deposit
                 required funds, and recoup $3,666 from participants’ escrow accounts that
                 were overfunded due to errors in escrow credit calculations.

             3B. Recoup $4,807 overpaid to a graduated participant from the Authority’s
                 administrative fee equity account, reimburse $3,279 in escrow deposits
                 owed to graduated partipants, and pay $6,904 to the graduated participant
                 that was not paid.




                                              16
3C. Transfer $19,193 in forfeited escrow funds to its general account for the
    payment of approved program expenses as allowed by regulations.

3D. Strenghten controls over the administration of escrow accounts to ensure that
    escrow credits are properly calculated and deposited into participants’ accounts
    in a timely maner.

3E. Implement controls to ensure that participants receive annual reports on
    escrow account activity.

3F. Submit the revised family self-sufficiency action plan to HUD for approval
    to ensure that all required information is included and provide greater
    assurance that the Authority's program will be properly administered.

3G. Strengthen controls over program administration to ensure that the required
    program size is maintained and if not, request approval to operate a smaller
    program.

3H. Establish a program coordinating committee as required or become a member
    of an existing committee that is in compliance with regulations.




                                 17
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we

          Reviewed applicable laws; HUD regulations at 24 CFR Parts 982, 983, and 984;
          HUD’s Public and Indian Housing Notices 2006-03, 2006-05, 2007-14, and 2008-15;
          and HUD’s Housing Choice Voucher Guidebook 7420.10G.

          Reviewed the Authority’s Section 8 administrative plan, family self-sufficiency local
          action plan, family self-sufficiency coordinator contract, and board meeting minutes
          to obtain an understanding of the policies, procedures, and internal controls affecting
          the Authority’s programs.

          Analyzed HUD field office monitoring reports and independent public accountant
          audit reports for fiscal years 2006 and 2007 to identify internal control weaknesses
          and financial trends.

          Interviewed officials at the HUD field office and the Authority, as well as its family
          self-sufficiency coordinator and independent fee accountant.

          Analyzed the Authority’s bank reconciliations, bank statements, cancelled checks,
          check registers, and general ledgers pertaining to its Housing Choice Voucher
          program and the bank statements and cancelled checks pertaining to the Family Self-
          Sufficiency program. We also analyzed the Authority’s cost allocation plan to ensure
          that it was properly supported.

          Selected a sample of 10 tenant files to assess whether the Authority properly
          determined tenant eligibility and rental subsidy calculations and ensured that voucher-
          assisted units complied with HUD housing quality standards. We examined 20
          housing quality standards quality control inspection reports from 2007 and 2008 to
          determine compliance with HUD regulations and to assess the inspector’s
          performance.

          Conducted inspections for a sample of 10 Section 8 housing choice voucher units to
          determine the Authority’s compliance with housing quality standards.

          Reviewed three contracts to evaluate the Authority’s compliance with applicable
          procurement requirements.

          Reviewed monthly reports on Section 8 units leased during the period April 1, 2006,
          through March 31, 2008, to determine whether administrative fees were correctly
          earned and excess fees were credited to a net unrestricted asset account, also referred
          to as an administrative fee equity account.



                                               18
           Selected the months of April 2006 and March 2008 to determine whether the
           Authority made portable administrative fee payments to the receiving authorities in a
           timely manner.

           Reviewed files for the 23 Family Self-Sufficiency program participants during the
           period March 2003 through November 2008 to verify that contracts of participation
           were properly executed; escrow funds were properly calculated; and terminations,
           graduations, and escrow payments complied with the regulations.

           Recalculated a number of escrow credits and escrow account balances, which
           included an estimation of interest earned.

We performed on-site work from June 2008 through April 2009 at the Authority’s main office,
located at Pond Hill Road, Great Neck, New York. The audit period was April 1, 2006, through
March 31, 2008, and was expanded as determined necessary.

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




                                               19
                              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:

                  Program operations - Policies and procedures that management has
                  implemented to reasonably ensure that a program meets its objectives.

                  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.

                  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.

              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.



                                               20
Significant Weaknesses


           Based on our review, we believe that the following item is a significant weakness:

               The Authority lacked adequate procedures and controls to ensure compliance
               with HUD regulations regarding the selection of Authority-owned units and
               tenants for project-based voucher assistance, and the administration and financial
               management of its Housing Choice Voucher and Family Self-Sufficiency
               programs (see findings 1 through 3).




                                            21
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE
 Recommendation          Ineligible 1/    Unsupported 2/     Funds to be put
        number                                               to better use 3/
             1B                                                    $281,196
             2A                                                       2,467
             2B                                    $9,724
             2D                                    $3,530
             2G               $50,237
             3A                 3,666                                32,325
             3B                 4,807                                10,183
             3C              _______               ______            19,193
           Total              $58,710             $13,254          $345,364

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

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

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In these instances, if HUD ensures that project-based
     units and tenants are properly selected and the Authority establishes and implements
     procedures to properly fund participant escrow accounts and transfers forfeited funds to
     its account for program use, the annual subsidy of $281,196 for properly approved units,
     the $2,467 due receiving authorities for port-out tenants, the $32,325 due current
     participant escrow accounts, the $10,183 due graduated participants, and the $19,193 to
     be credited to the Authority will represent funds to be put to better use.




                                             22
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                      Auditee Comments




                             Evaluation of Auditee Comments

             Evaluate each comment (as concisely as possible) referenced in the first part of
             this appendix where the comments are presented.



                                             23
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation              Auditee Comments




                        Evaluation of Auditee Comments




                                     24
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation                     Auditee Comments




Comment 1




                            Evaluation of Auditee Comments

            Evaluate each comment (as concisely as possible) referenced in the first part of
            this appendix where the comments are presented.




                                            25
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




                         26
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation        Auditee Comments




Comment 4




                        Evaluation of Aud




                               27
Appendix B

       AUDITEE COMMENTS AND OIG’S EVALUATION

             Ref to OIG Evaluation                        Auditee Comments




Comment 5




                            Evaluation of Auditee Comments

            Evaluate each comment (as concisely as possible) referenced in the first part of



                                            28
                         OIG Evaluation of Auditee Comments
Comment 1   Authority officials determined rent reasonableness using a market rental analysis
            prepared by an independent fee appraiser for the Authority’s first privatized
            project; however, a similar analysis was not prepared for the second privatized
            project. In addition, an independent entity approved by HUD neither established
            the initial contract rents nor redetermined the rents at the annual anniversary of
            the housing assistance payment contracts as required by 24 CFR (Code of Federal
            Regulations) 983.59(b)(1).
Comment 2   While Authority officials stated that the Family Self-Sufficiency Coordinator
            procurement was conducted through the Program Coordinating Council, the
            Authority could not provide records to document the procurement process as
            required by 24 CFR (Code of Federal Regulations) 85.36(i)(11).

Comment 3   While the Authority obtained Board approval to extend the family self-sufficiency
            coordinator contract each year the family self-sufficiency grant was funded, HUD
            approval was not requested as required by HUD Handbook 7460.8 REV 2,
            Chapter 10.8 C2 even though the contract exceeded five years.

Comment 4   The Authority’s proposed procedures are responsive to the recommendation but
            given the planned quarterly sample, the Authority will need to ensure that its
            sample size complies with the minimum sample size requirements specified by 24
            CFR (Code of Federal Regulations) 985.2(b).

Comment 5   Although Authority officials maintain that its Family Self-Sufficiency
            Coordinator provided year end escrow update letters, these letters were not always
            documented in the participants’ file. In addition, documented letters did not
            always include all required information, such as the beginning balance, any
            amount credited or deducted during the period, and interest earned on the account.




                                            29
Appendix C

     SCHEDULE OF PARTICIPANT ESCROW ACCOUNT
         BALANCES AS OF NOVEMBER 28, 2008


                           Balance             Balance
                        calculated by       calculated by      Amount          Amount
    Participant           Authority          HUD OIG         underfunded      overfunded
      Active:
          1                       $ 5,501          $14,029        ($ 8,528)
          2                           135            1,340          (1,205)
          3                         1,774           11,708          (9,934)
          4                         3,995            8,360          (4,365)
          5                        19,064           18,526                             538
          6                           315            1,166           (851)
          7                           117            3,544         (3,427)
          8                         1,287            4,991         (3,704)
          9                         1,678                0                            1678
         10                         1,474               24                           1,450
         11                         1,577            1,774           (197)
         12                           465              558            (93)
         13                             0               21            (21)
         14                             0                0
         15                             0                0
    Total active                  $37,382          $66,041       ($32,325)          $3,666
     Inactive:
         1@                       $ 6,440          $1,633                           $4,807
          2*                        7,001           7,330           ($329)
          3*                          749               0                              749
         4*                         8,400          11,863          (3,463)
         5@                         1,486           4,285          (2,799)
         6@                         2,739           2,771             (32)
         7@                         5,430           5,878            (448)
          8                         6,679           6,904            (225)
   Total inactive                 $38,924         $40,664         ($7,296)          $5,556
    Grand total                   $76,306        $106,705        ($39,621)          $9,222

            * Escrow account forfeited.
            @ Graduate




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