Issue Date November 14, 2008 Audit Report Number 2009-PH-1001 TO: William D. Tamburrino, Director, Baltimore Public Housing Program Hub, 3BPH FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Regional Office, 3AGA SUBJECT: The Richmond Redevelopment and Housing Authority, Richmond, Virginia, Did Not Ensure That Its Section 8 Housing Choice Voucher Program Units Met Housing Quality Standards HIGHLIGHTS What We Audited and Why We audited the Richmond Redevelopment and Housing Authority’s (Authority) administration of its housing quality standards inspection program for its Section 8 Housing Choice Voucher program as part of our fiscal year 2008 audit plan. This is our second of three reports to be issued on the Authority’s Section 8 Housing Choice Voucher program. The audit objective addressed in this report was to determine whether the Authority adequately administered its Section 8 housing quality standards inspection program to ensure that its program units met housing quality standards in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. What We Found The Authority did not adequately administer its inspection program to ensure that its program units met housing quality standards as required. We inspected 62 housing units and found that 42 units did not meet HUD’s housing quality standards. Moreover, 26 of the 62 units had material health and safety violations that the Authority’s inspectors neglected to report during their last inspection. As a result, the Authority spent $68,506 in program funds on units that were not decent, safe, and sanitary. We estimate that over the next year if the Authority does not implement adequate procedures and controls to ensure that its program units meet housing quality standards, it will pay more than $1.1 million in housing assistance on units with material housing quality standards violations. What We Recommend We recommend that the Director of HUD’s Baltimore Public Housing Program require the Authority to ensure that housing units inspected during the audit are repaired to meet HUD’s housing quality standards, reimburse its program from nonfederal funds for the improper use of $68,506 in program funds for units that materially failed to meet HUD’s housing quality standards, and implement adequate procedures and controls to ensure that in the future, program units meet housing quality standards to prevent an estimated $1.1 million from being spent annually on units that materially fail to meet HUD’s housing quality standards. For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. Auditee’s Response We provided the draft report to the Authority on October 16, 2008, and discussed it with them at an exit conference on October 21, 2008. The Authority provided written comments to our draft report on October 31, 2008. The Authority generally agreed with the findings and recommendations. However, the Authority contested the repayment of ineligible housing assistance payments. 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: Controls over Housing Quality Standards Were Inadequate 5 Scope and Methodology 15 Internal Controls 17 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 19 B. Auditee Comments and OIG’s Evaluation 20 3 BACKGROUND AND OBJECTIVES The Richmond Redevelopment and Housing Authority (Authority) was established in 1940 to provide and preserve quality affordable housing and promote self-sufficiency, homeownership, and independence for all housing residents. A seven-member board of commissioners governs the Authority. The Authority’s current executive director is Anthony Scott. Its main administrative office is located at 901 Chamberlayne Parkway in Richmond, Virginia. Under the Section 8 Housing Choice Voucher program, the Authority makes rental assistance payments to landlords on behalf of eligible low-income families. The U.S. Department of Housing and Urban Development (HUD) compensates the Authority for the cost of administering the program through administrative fees. HUD authorized the Authority to provide leased housing assistance payments for 3,147 eligible households. It authorized the Authority the following financial assistance for housing choice vouchers: Amount Authority fiscal year Annual budget authority disbursed 2006 $20,369,329 $20,369,329 2007 $18,991,134 $18,991,134 Total $39,360,463 $39,360,463 HUD regulations at 24 CFR [Code of Federal Regulations] 982.305(a) state that the public housing authority may not give approval for the family of the assisted tenancy or execute a housing assistance contract until the authority has determined that the unit has been inspected by the authority and meets HUD’s housing quality standards. HUD regulations at 24 CFR 982.405(a) require public housing authorities to perform unit inspections before the initial move-in and at least annually. The authority must inspect the unit leased to the family before the term of the lease, at least annually during assisted occupancy, and at other times as needed to determine whether the unit meets housing quality standards. The audit objective addressed in this report was to determine whether the Authority adequately administered its Section 8 housing quality standards inspection program to ensure that its program units met housing quality standards in accordance with HUD requirements. 4 RESULTS OF AUDIT Finding: Controls over Housing Quality Standards Were Inadequate The Authority did not adequately enforce HUD’s housing quality standards. Of 62 program units selected for inspection, 42 failed to meet minimum housing quality standards, and 26 of the 42 units materially failed to meet housing quality standards. The Authority’s inspectors did not report 80 violations, which existed at the units when they did their inspections. The deficiencies occurred because the Authority lacked adequate procedures and controls to ensure that its program units met HUD’s housing quality standards. As a result, the Authority spent $68,506 in program funds on units that materially failed to meet HUD’s housing quality standards and consequently were not decent, safe, and sanitary. If the Authority does not implement adequate procedures and controls to ensure that its program units meet HUD’s housing quality standards, we estimate that over the next year, it will pay more than $1.1 million in housing assistance payments for units with material violations of housing quality standards. Section 8 Tenant-Based Housing Units Did Not Meet HUD’s Housing Quality Standards We statistically selected 62 units from unit inspections passed by the Authority’s inspectors during the period November 1, 2007, to January 31, 2008. The 62 units were selected to determine whether the Authority ensured that the units in its program met housing quality standards. We inspected the selected units between March 10 and March 21, 2008. Of the 62 units inspected 42 (68 percent) had 174 housing quality standards violations. Additionally, 26 of the 42 units (62 percent) were considered to be in material noncompliance since they had health and safety violations that predated the Authority’s last inspection which were not identified by the Authority’s inspectors and/or repaired. Of the 42 units with housing quality standards violations, three had violations that were noted on the Authority’s previous inspection report, and the Authority later passed the units. However, during our inspection, it was determined that the violations had not been corrected. The 26 units had 84 violations (including four identified by the Authority but not corrected) that existed before the Authority’s last inspection report. The Authority’s inspectors did not identify or did not report 80 violations that existed at the time of their most recent inspections. HUD regulations at 24 CFR 982.401 require that all program housing meet HUD’s housing quality standards at the beginning of the assisted occupancy and throughout the tenancy. The following 5 table categorizes the 174 housing quality standards violations in the 42 units that failed the housing quality standards inspections. Category of violations Number Number of of violations units Electrical 30 16 Window 21 12 Security 16 11 Stair, rails, and porches 14 14 Floor 12 8 Exterior surfaces 10 9 Wall 9 7 Toilet 6 5 Smoke detector 6 6 Lead-based paint 6 3 Ceiling 5 4 Water heater 4 4 Fixed wash basin 4 4 Interior air quality 3 3 Garbage and debris 3 3 Fire exits 3 3 Stove or range with oven 3 3 Roof/gutters 2 2 Site and neighborhood 2 2 violations Ventilation 2 2 Sink 2 2 Safety of heating equipment 2 2 Space for preparation, 2 2 storage, and serving of food Other interior hazards 2 2 Refrigerator 2 2 Evidence of infestation 2 2 Tub or shower unit 1 1 Total 174 We presented the results of the housing quality standards inspections to the Authority’s Housing Choice Voucher program manager and internal audit manager and to the Director of HUD’s Richmond, Virginia, Office of Public Housing. 6 Housing Quality Standards Violations Were Identified The following pictures illustrate some of the violations we noted while conducting housing quality standards inspections at the Authority’s leased housing units. Inspection #1: Air conditioner disconnect box on the rear wall of the building is not secured and wires are exposed. This violation was not identified during the Authority’s November 6, 2007, inspection. Inspection #34: The furnace power cable is improperly connected under the switch cover plate. This violation was not identified during the Authority’s December 5, 2007, inspection. 7 Inspection #46: The roof failed next to the chimney in back of the house. The roof settled approximately 5" near the chimney. This violation was not identified during the Authority’s December 13, 2007, inspection. Inspection #60: There is an unsecured electrical box on the back of the house exposing electrical contacts. This violation was not identified during the Authority’s November 1, 2007, inspection. 8 Inspection #8: Planters and other small objects are stored on the balcony without a curb to keep them from falling three stories onto a sidewalk. This violation was not identified during the Authority’s November 1, 2007, inspection. Inspection #8: The handrails stop short of the top of the stairs, and a steel bar was used to create an extension of the handrail. This violation was not identified during the Authority’s November 1, 2007, inspection. 9 Inspection #33: The plywood panel inside the right/rear bedroom closet separating the closet from a gas-burning heating furnace is not secured. Combustible items are stored against the plywood panel. This violation was not identified during the Authority’s December 20, 2007, inspection. Inspection #47: The cover plate is missing from the junction box on a wall in the common laundry room . 10 Inspection #47: The pressure relief valve on the central water heater in the common basement has a hose attached to a discharge pipe that does not meet the length requirements. The room is unsecured and accessible to all tenants. This violation was not identified during the Authority’s January 3, 2008, inspection. The Authority Lacked Adequate Procedures and Controls Although HUD requirements and the Authority’s administrative plan required the Authority to ensure that its program units met housing quality standards, it failed to do so because it lacked adequate procedures and controls to ensure compliance with HUD’s standards. The Authority (1) did not ensure that its housing inspectors had sufficient knowledge of housing quality standards and (2) did not implement an effective quality control inspection process. 11 The Authority Did Not Ensure That Its Housing Inspectors Had Sufficient Knowledge of Housing Quality Standards The Authority did not ensure that its housing inspectors were adequately trained or equipped with the knowledge they needed to perform inspections in compliance with HUD’s housing quality standards requirements. As a result, the inspectors misinterpreted the requirements and missed or overlooked a number of violations. The Authority stated that all four of its housing inspectors had recently taken a Housing Choice Voucher program quality standards course but that only two of the four were required to take the related certification exam at the end of the training. We requested the training certificates for the inspectors; however, the Authority could only provide certificates for two of the four inspectors. Three of the four inspectors attributed the housing quality standards failures to a lack of training. Two of the inspectors stated that electrical outlets were not checked with a circuit tester after the initial inspection. These inspectors also indicated that they normally did not inspect outlets or windows in nonsleeping rooms. One of them stated that electrical receptacles were only tested if tenants complained. The other inspector stated that he was not aware that the outlets and windows in nonsleeping rooms should be inspected until he had observed the HUD Office of Inspector General (OIG) inspector checking those items. He also stated that he had not checked ventilation systems or handrails on porches during inspections. Another inspector stated that the inspection process was inconsistent among the Authority’s inspectors because each inspector interpreted housing quality standards requirements in his/her own way. The Authority needs to ensure that all its inspectors are equipped with the knowledge they need to perform inspections in a consistent manner and in compliance with HUD requirements. The Authority Did Not Implement an Effective Quality Control Inspection Process The Authority did not implement an effective quality control process as a tool to ensure that inspections were performed in compliance with HUD’s housing quality standards. It did not have written or documented procedures for performing quality control inspections of its program units. The Authority relied on its housing inspectors’ judgment for its quality control inspection process instead of providing them with procedures for an effective quality control process. HUD regulations at 24 CFR 985.3 require housing authorities to designate a supervisor or other qualified person to conduct quality control inspections on a sample of units under contract during the authority’s fiscal year. Between December 2007 and August 2008, the Authority did not have a supervisory housing inspector. During that time, quality control inspections alternated among the Authority’s four housing inspectors. The Authority could not demonstrate that all of the inspectors performing the quality control inspections had received 12 housing quality standards training. As stated above, the Authority could only provide training certificates for two of the four inspectors, and only those two inspectors were required to take the related certification examination after completing the training. According to HUD regulations at 24 CFR 985.3, an authority’s sample for quality control inspections is to be drawn from housing quality standards inspections performed during the three months preceding reinspection and is to be drawn to represent a cross-section of neighborhoods and the work of a cross-section of inspectors. Also, based on HUD’s definition of a quality control sample, the sample should be unbiased. Authority staff stated that units selected for quality control inspections came from units that had failed an annual or initial inspection and that a random selection of the followup inspections for those units was combined with quality control inspections. In other words, the Authority used followup inspections of previously failed units to satisfy the requirement for quality control inspections. Authority staff stated that the followup inspections were used to satisfy the quality control inspection requirement because the Authority was short staffed. The Authority’s methodology for selecting its quality control sample was inconsistent with HUD’s definition of a quality control sample because it resulted in a biased selection of only failed units for quality control reviews. Further, the Authority’s methodology prevented it from detecting instances in which units were erroneously passed by its inspectors because it only sampled failed units. HUD’s Housing Choice Voucher Guidebook 7420.10G states that the results of quality control inspections should be provided as feedback on inspectors’ work which can be used to determine if individual performance or general housing quality standards training issues need to be addressed. The Authority provided reports on the followup inspections that were also labeled as quality control inspections. However, the reports lacked a formal critique of the Authority’s inspection process or of inspectors’ performance, and the Authority could not demonstrate that the results of the quality control inspections were used as a tool to assess and improve its housing inspectors’ performance. Authority staff stated that the results of the quality control inspections were verbally discussed with the inspectors and that the feedback discussions were not documented. The Authority’s administrative plan states that the purpose of quality control inspections is to ascertain that each inspector conducts accurate and complete inspections, and to ensure that there is consistency among inspectors in the application of the housing quality standards. However, two of the Authority’s housing inspectors indicated that there was a lack of consistency among inspectors in the application of standards. The Authority needs to develop and implement documented or written procedures for an effective quality control process that complies with HUD requirements. The quality control procedures should reflect a sampling methodology that is 13 unbiased so that the Authority can use the results of its quality control inspections as a tool to effectively assess and improve its inspectors’ performance. Conclusion The Authority’s tenants were subjected to health- and safety-related violations, and the Authority did not properly use its program funds when it failed to ensure that its program units complied with HUD’s housing quality standards. In accordance with HUD regulations at 24 CFR 982.152(d), HUD is permitted to reduce or offset any program administrative fees paid to a public housing authority if it fails to perform its administrative responsibilities correctly or adequately, such as not enforcing HUD’s housing quality standards. The Authority disbursed $63,604 in housing assistance payments to landlords for the 26 units that materially failed to meet HUD’s housing quality standards and received $4,902 in program administrative fees. If the Authority implements adequate procedures and controls regarding its program unit inspections to ensure compliance with HUD’s housing quality standards, we estimate that more than $1.1 million in future housing assistance payments will be spent for units that are decent, safe, and sanitary. Our methodology for this estimate is explained in the Scope and Methodology section of this report. Recommendations We recommend that the Director of HUD’s Baltimore Public Housing Program require the Authority to 1A. Certify that the owners of the 42 program units cited in this finding have repaired the units containing housing quality standards violations. 1B. Reimburse HUD’s program $68,506 from nonfederal funds ($63,604 for housing assistance payments and $4,902 in associated administrative fees) for the 26 units that materially failed to meet HUD’s housing quality standards. 1C. Implement adequate procedures and controls to ensure that all units meet HUD’s housing quality standards to prevent $1,138,025 in program funds from being spent on units that do not meet the standards. 14 SCOPE AND METHODOLOGY To accomplish our objective, we reviewed Applicable laws; regulations; the Authority’s administrative plan, effective July 1, 2005; HUD’s program requirements at 24 CFR Parts 982 and 985; and HUD’s Housing Choice Voucher Guidebook 7420.10G. The Authority’s accounting records, annual audited financial statements for 2005 and 2006, tenant files, computerized databases, policies and procedures, board meeting minutes from September 2005 to May 2007, organizational chart, and program annual contributions contract. HUD’s monitoring reports for the Authority. We also interviewed the Authority’s employees, HUD staff, and program households. To achieve our audit objective, we relied in part on computer-processed data in the Authority’s database. Although we did not perform a detailed assessment of the reliability of the data, we did perform a minimal level of testing and found the data to be adequate for our purposes. We statistically selected 62 of the Authority’s program units to inspect from 545 unit inspections passed by the Authority’s inspectors during the period November 1, 2007, to January 31, 2008. We selected the sample using the U.S. Army Audit Agency Statistical Sampling System, Version 6.3, software. The 62 units were selected to determine whether the Authority’s program units met housing quality standards. The sampling criteria used a 90 percent confidence level, 50 percent estimated error rate, and precision of plus or minus 10 percent. Our sampling results determined that 26 of 62 units (42 percent) materially failed to meet HUD’s housing quality standards. Materially failed units were those with at least one health and safety violation that predated the Authority’s previous inspections. All units were ranked, and we used auditors’ judgment to determine the material cutoff line. Based upon the sample size of 62 from a total population of 545, an estimate of 42 percent (26 units) of the sample population materially failed housing quality standards inspections. The sampling error is plus or minus 9.70 percent. There is a 90 percent confidence that the frequency of occurrence of program units materially failing housing quality standards inspections lays between 32.23 and 51.64 percent of the population. This equates to an occurrence of between 175 and 281 units in the population. We used the most conservative numbers, which is the lower limit or 175 units. We analyzed the applicable Authority databases and estimated that the annual housing assistance payment per recipient in our sample universe was $6,503. Using the lower limit of the estimate of the number of units and the estimated annual housing assistance payment, we estimate that the 15 Authority will spend $1,138,025(175 units times $6,503 estimated average annual housing assistance) annually for units that are in material noncompliance with HUD’s housing quality standards. We performed our on-site audit work from February through July 2008 at the Authority’s Section 8 office located at 918 Chamberlayne Parkway, Richmond, Virginia. The audit covered the period June 2005 through June 2007 but was expanded when necessary to include other periods. We performed our 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(s). We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective(s). 16 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: Effectiveness and efficiency of operations, Reliability of financial reporting, and Compliance with applicable laws and regulations. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our objective: Program operations – Policies and procedures that management has implemented to reasonably ensure that a program meets its objectives. Validity and reliability of data – Policies and procedures that management has implemented to reasonably ensure that valid and reliable data are obtained, maintained, and fairly disclosed in reports. Compliance with laws and regulations – Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations. 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 the following item is a significant weakness: 17 The Authority lacked sufficient procedures and controls to ensure that program unit inspections complied with HUD regulations and that program units met minimum housing quality standards. 18 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible 1/ Funds to be put number to better use 2/ 1B $68,506 1C $1,138,025 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 OIG recommendation is implemented. This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings which are specifically identified. In this instance, if the Authority implements our recommendation, it will cease to incur program costs for units that are not decent, safe, and sanitary and, instead, will expend those funds for units that meet HUD’s standards, thereby putting approximately $1,138,025 in program funds to better use. Once the Authority successfully implements our recommendation, this will be a recurring benefit. Our estimate reflects only the initial year of this benefit. 19 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 20 Comment 1 21 OIG Evaluation of Auditee Comments Comment 1 We are encouraged by the Authority’s statements that it is taking corrective action and will continue to take corrective action to address the recommendation. Comment 2 We provided the Authority the results of our housing quality standard inspections in May 2008; therefore, the Authority has had adequate time to conduct an analysis to determine the findings of this report. Our audit findings and related recommendations are based on audit work performed in accordance with generally accepted auditing standards. Since the Authority did not properly use its program funds when it failed to ensure that its program units complied with HUD’s housing quality standards the applicable housing assistance payments made for these units were ineligible. Additionally, in accordance with HUD regulations at 24 CFR 982.152(d), HUD is permitted to reduce or offset any program administrative fees paid to a public housing authority if it fails to perform its administrative responsibilities correctly or adequately, such as not enforcing HUD’s housing quality standards. 22
The Richmond Redevelopment and Housing Authority, Richmond, Virginia, Did Not Ensure That Its Section 8 Housing Choice Voucher Program Units Met Housing Quality Standards
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-11-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)