oversight

Public Housing Authorities Generally paid Voucher Subsidy Payments to Subsiized Multifamily Properties Correctly

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-08-09.

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

                                                                                   Issue Date
                                                                                   August 9, 2010
                                                                                   
                                                                                   Audit Report Number
                                                                                   2010-BO-0003




TO:               Milan Ozdinec, Deputy Assistant Secretary, Office of Public Housing and
                    Voucher Programs, PE


FROM:
                  John A. Dvorak, Regional Inspector General for Audit, Boston Region, 1AGA

SUBJECT: Public Housing Authorities Generally Paid Voucher Subsidy Payments to
         Subsidized Multifamily Properties Correctly


                                               HIGHLIGHTS

    What We Audited and Why

                    We conducted a national audit of whether public housing authorities overpaid
                    voucher subsidies to multifamily property owners in specific types of subsidized
                    properties.1 If a public housing authority pays a property owner a subsidized rent
                    at one of these types of properties, the voucher rent should be set at the level of
                    the rent payments to the subsidized multifamily properties, which generally is
                    lower than the public housing authorities’ payment standard for vouchers. This
                    national audit follows our audit of a subsidized multifamily property in Maine, in
                    which we found that housing authorities caused the overpayments by
                    inappropriately using the fair market rents instead of the lower rents subsidized
                    under Section 236 of the Housing Act of 1959.




1
    Specifically, we audited subsidized properties with Section 202, 221(d)(3), 236, and 515 loans.
            



What We Found

           Public housing authorities generally did not overpay subsidies to subsidized
           multifamily properties. We compared addresses of 1.93 million housing choice
           vouchers with addresses of 17,684 multifamily properties with Federal loans. We
           identified 193 addresses for which a voucher payment was made to the owner of
           a subsidized multifamily property. We also found that 148 of these vouchers
           were reported correctly. The remaining 45 vouchers were incorrectly reported,
           and these errors will be addressed in separate memorandums to U.S. Department
           of Housing and Urban Development (HUD) field offices. For these 45 vouchers,
           we did not find that the vouchers had common property owners, common public
           housing authorities, or common management agents.


What We Recommend


           We recommend that HUD update the Housing Choice Voucher Guidebook
           7420.10G to include a section on the relationship between properties with Federal
           loans and the public housing authorities’ rental payments to those properties’
           owners.

           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 Office of Public Housing and Voucher Programs a draft report
           on July 8, 2010, and held an exit conference with officials on July 21, 2010. The
           Office of Public Housing and Voucher Programs provided written comments on
           July 30, 2010. It generally agreed/disagreed with our finding. The complete text
           of the auditee’s response, along with our evaluation of that response, can be found
           in appendix B of this report.




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                           TABLE OF CONTENTS

Background and Objective                                                      5

Results of Audit
      Public Housing Authorities Generally Paid Voucher Subsidy Payments to   6
      Subsidized Multifamily Properties Correctly

Scope and Methodology                                                         9

Internal Controls                                                             11

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                   12




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                          BACKGROUND AND OBJECTIVE

Under the Housing Choice Voucher Program, Congress empowered the Secretary of the U.S.
Department of Housing and Urban Development (HUD) to provide assistance to public housing
agencies for tenant-based housing assistance using a payment standard established by the public
housing authority in accordance with the local market conditions and applicable regulations. The
public housing authorities use this payment standard to determine the monthly assistance that
may be paid for an eligible family. Unless HUD approves a different standard, the payment
standard for each size of dwelling unit in a market area shall not exceed 110 percent of the fair
market rent for the same size of dwelling unit in the same market area and shall be not less than
90 percent of that fair market rent.

Under several separate acts, Congress empowered HUD and the U.S. Department of Agriculture
to insure loans to private owners to construct and/or renovate multifamily properties. Some of
these insured loans include provisions to ensure that the rentals at these properties are subsidized.
Under the Housing Act of 1959 (Housing Act), Congress also empowered HUD to directly loan
and/or provide capital advances to finance rental or cooperative housing facilities for occupancy
by elderly or handicapped persons. These loans include provisions to ensure that the rentals at
these properties are subsidized. The affected loans are in the Section 202, 221(d)(3), 236, and
515 programs. HUD and other Federal agencies have other types of loans, but these other loans
do not include this type of rental subsidy. For the affected loans, HUD established a regulation
at 24 CFR (Code of Federal Regulations) 982.521. The provisions of this regulation are only
activated when there is simultaneously a Federal mortgage of the specific types listed above and
a payment under the Housing Choice Voucher program. This regulation requires public housing
authorities to use the subsidized rent from the Federal loan program instead of the payment
standard under the Housing Choice Voucher program.

During our audit of a HUD-insured property in Maine2 insured under Section 236, we found that
two local public housing authorities had overpaid Housing Choice Voucher program subsidies to
the property owner. The public housing authorities caused the overpayments by inappropriately
using the fair market rents instead of the lower rents subsidized under Section 236 of the
Housing Act. While the multifamily owners received the windfall benefit of the increased rents,
the design of the program places the responsibility for ensuring the correct payment amount on
the public housing authorities.

Our audit objective was to determine whether public housing authorities correctly identified rent
limits at HUD-subsidized properties.3




2
  This report, “Housing Authorities at Bath and Brunswick, Maine, Overpaid Basic Rent and Housing Assistance
Payments for Section 8 Tenants in a Subsidized Multifamily Project (Orchard Court),” is available from the Office
of Inspector General (OIG) Web site at http://csfintraweb.hudoig.gov/Audit/Audit%20Reports/ME/ig0911801.pdf.
3
  Specifically, we audited subsidized properties with Section 202, 221(d)(3), 236, and 515 loans.


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                                        RESULTS OF AUDIT

Public Housing Authorities Generally Paid Voucher Subsidy Payments
to Subsidized Multifamily Properties Correctly
We compared addresses for 1.93 million housing choice vouchers with addresses of 17,684
multifamily properties with specific types of Federal loans. We found 193 addresses for which a
voucher payment was made to a subsidized property owner with a specific type of Federal loan.
We also found that 148 of these vouchers were reported correctly. The remaining 45 vouchers
were not reported correctly; we will address these items in separate memorandums.



    We Identified 193 Addresses in
    Both the PIC and IREMS
    Systems

                   HUD requires public housing authorities to electronically submit data on voucher
                   holders to its Office of Public and Indian Housing Information Center (PIC)
                   system. HUD developed this system to improve the submission of information
                   and facilitate more timely and accurate exchanges of data between public housing
                   authorities and HUD offices. Data in PIC are managed by the Office of Public
                   Housing and organized by head of household.

                   HUD electronically maintains data on multifamily properties with Federal loans
                   in its Integrated Real Estate Management System (IREMS). HUD developed this
                   system to provide automated support to collect and maintain accurate data, and
                   the system enables HUD staff and contract administrators to perform servicing
                   functions and implement enforcement actions as needed. IREMS data are
                   managed by the Office of Housing and organized by a property identification
                   number that is unique to each multifamily property.

                   We compared addresses for 1.93 million housing choice vouchers with addresses
                   for 17,684 multifamily properties with specific types of Federal loans. We found
                   193 addresses for which a voucher payment was made to a property owner with a
                   specific type of Federal loan. When a voucher holder rents at a property with
                   certain specific types of Federal loans, the public housing authority should use the
                   subsidized rent as determined under the applicable Federal loan program instead
                   of the payment standard established under the Housing Choice Voucher program.4
                   The specific loans are authorized under the Section 202, 221(d)(3), 236, or 515
                   Federal loan program.



4
    This requirement is in 24 CFR 982.521, “Rent to subsidized owner.”

                                                          5
The Correct Payment Standard
Was Often Used


           We found that the public housing authorities administering 148 of these vouchers
           used the correct rental limit. For the remaining 45 vouchers, the public housing
           authorities entered an incorrect rental limit into the PIC system. For three
           vouchers, the public housing authority recorded a rental amount that matched its
           payment standard. The payment standard for these three vouchers exceeded the
           rental limit allowed by the associated Federal loans at the properties. For three
           vouchers, the public housing authority recorded a rental amount that exceeded its
           payment standard and the rental limit allowed by the associated Federal loans at
           the properties. For the other 39 vouchers, the public housing authority recorded a
           rental amount that was less than its payment standard but more than the rental
           limit allowed by the associated Federal loans at the properties.

           Using PIC and IREMS, we examined whether the 45 vouchers had common
           property owners, common public housing authorities, or common management
           agents. We did not find repeating patterns in the ownership, the administering
           public housing authorities, or the management agents for these vouchers.

           For the 45 vouchers, the rental amount charged by the owner in PIC did not match
           the rental amount charged by the owner in IREMS. The differences between the
           monthly vouchered rents and the payment standards for these properties totaled
           $9,240. Over a typical 1-year lease, this amount would translate to an estimated
           loss to HUD and the public housing authorities of $110,880. We will separately
           address these vouchers in management memorandums to the affected HUD field
           offices.


The Guidebook Does Not
Address Vouchers at Subsidized
Properties


           Housing Choice Voucher Guidebook 7420.10 advises public housing authorities
           and other organizations about the administration of the tenant-based subsidy
           programs. This guidebook provides that a single unit cannot receive both project-
           based and tenant-based subsidies at the same time. HUD has provided subsidies
           to multifamily properties in which the number of assisted units is less than the
           total number of physical units at the property. Housing choice voucher holders
           are allowed to rent units that do not already receive project-based subsidies.
           While this guidance prohibits duplicating subsidies for a single unit, it does not
           address how to properly identify and administer a housing choice voucher at a



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             subsidized multifamily property. The guidance also does not address the need to
             amend the rental payments to the owner to account for the subsidies.


Conclusion


             OIG compared data in HUD’s PIC and IREMS systems and identified 193
             addresses with associated subsidy payments in both systems. When a voucher
             holder rents at a property with a Federal loan authorized by the Section 202,
             221(d)(3), 236, or 515 loan program, the public housing authority should use the
             rental amount established under the Federal loan program instead of the payment
             standard established under the Housing Choice Voucher program. We found that,
             for 148 of these vouchers, the public housing authorities used the correct rental
             amount. We are submitting the data on the remaining 45 vouchers in separate
             memorandums to the affected HUD field offices. HUD needs to update its
             guidance to address the proper identification and administration of housing choice
             vouchers at subsidized multifamily properties.


Recommendations

             We recommend that HUD

             1A.    Issue a Public and Indian Housing Notice on the relationship between
                    properties with Federal loans and the public housing authorities’ rental
                    payments to those properties’ owners.

             1B.    In the subsequent comprehensive revision to the Housing Update Housing
                    Choice Voucher Guidebook 7420.10G, also update the Guidebook to
                    include a section on the relationship between properties with Federal loans
                    and the public housing authorities’ rental payments to those properties’
                    owners.




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                         SCOPE AND METHODOLOGY

We performed an audit of whether public housing authorities correctly identified rent limits at
HUD-subsidized properties. Our fieldwork was completed at the Boston, MA, HUD office using
data from the Housing Choice Voucher program entered into PIC as of March 2010 and
multifamily insured property data entered into IREMS as of March 2010. We conducted our
fieldwork between March and May 2010. To accomplished our objective, we

             Used PIC to create a database to identify the addresses of all Section 8 voucher
              holders.

             Used IREMS to create a database to identify all projects in the following
              categories:
              o      An insured or noninsured Section 236 project,
              o      A Section 202 project,
              o      A Section 221(d)(3) below-market-interest-rate project, or
              o      A Section 515 project.

             Compared the PIC database to the IREMS database to identify instances in
              which public housing authorities paid multifamily owners with specific types of
              Federal loans in the categories listed above.

             Analyzed these instances to determine whether the Federal loan met our criteria.
              During this analysis, we found 13 Section 202 loans that predated the Section 8
              program. IREMS identified these loans as Section 202 direct loans pre-1974.
              The Section 8 program was created in 1974 including the regulations at 24 CFR
              982.521. HUD cannot retroactively add requirements to a loan unless there is
              additional compensation. These 13 loans did not have additional compensation,
              and the regulations at 24 CFR 982.521 do not apply.

             To examine the reliability of the PIC data, we tested whether there were
              duplicate head of household Social Security numbers in the database. The PIC
              database is organized by head of household Social Security number. Duplicate
              head of household Social Security numbers would indicate that public housing
              authorities reported two housing choice vouchers for one tenant family. We
              found no duplicate head of household Social Security numbers. The Housing
              Choice Voucher program relies on third-party public housing authorities to make
              payments to landlords on HUD’s behalf after authenticating the tenant’s
              eligibility, tenant’s portion of the rent, and program unit eligibility. HUD relies
              on the housing authorities to enter the data on the payments, tenants, and units
              into PIC. This reliance is an inherent risk of the program.




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             To examine the reliability of the IREMS data, we examined
              o     Whether the assisted unit count or the property unit count was negative. A
                    negative unit count indicates a problem with the number of units entered
                    into IREMS.
              o     Whether the number of units assisted in IREMS at the property exceeded
                    the number of physical units listed in IREMS. If the number of units
                    assisted exceeds the number of physical units, HUD may be paying for
                    units that do not exist. In our testing of the 193 instances in which the
                    voucher addresses matched the multifamily property addresses, we found
                    no cases in which the number of units assisted in IREMS at the property
                    exceeded the number of physical units listed in IREMS.
              o     Whether the loans were active. Within the 193 instances in which the
                    voucher addresses matched the multifamily property addresses, we found
                    33 loans for which the owners started the loan process with HUD but did
                    not complete the loan process. We also found 17 Federal loans that were
                    repaid by the owners according to the loan schedule, terminated by HUD
                    for enforcement reasons, or prepaid ahead of schedule by the owner.
                    These loans are also no longer active. Therefore, a property may be
                    active in IREMS without having an active Federal loan. A problem
                    exists when a vouchered rent is paid to a multifamily owner with an
                    active Federal loan. If the loan is not active or is no longer active, the
                    regulation at 24 CFR 982.521 does not apply. Our results do not include
                    vouchers at properties without an active loan.

             Analyzed these instances to determine whether the vouchered rent used the
              correct rental amount. A problem exists when the vouchered rent exceeds the
              rental limit under the specific Federal loan program. For those projects for
              which the vouchered rents exceeded the rental limit, we also
              o        Examined patterns of ownership.
              o        Examined patterns of management agents.
              o        Examine patterns of public housing authorities.

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




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                              INTERNAL CONTROLS

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

                     The prevention of duplicate entries
                     The public housing authorities’ use of the correct rental limit

              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 found no significant weaknesses.




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Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         11
                        OIG Evaluation of Auditee Comments

Comment 1   The OIG changed the addressee to Milan Ozdinec, Deputy Assistant Secretary,
            Office of Public Housing and Voucher Programs from Donald J. Lavoy, Acting
            Deputy Assistant Secretary, Office of Public Housing and Voucher Programs in
            the final report.

Comment 2   The OIG agrees with PIH’s plan to issue a Public and Indian Housing notice to
            provide immediate additional guidance to public housing authorities on the
            regulatory requirements that apply when vouchers are used at subsidized
            multifamily properties. However, since the Housing Update Housing Choice
            Voucher Guidebook 7420.10G will be undergoing a comprehensive revision at a
            later unknown future date, we have divided the recommendation into 1A to
            recognize PIH’s plan to provide immediate guidance through a PIH Notice, and
            then into recommendation 1B to ensure that the guidebook will also be updated to
            include this guidance on the regulatory requirements in the forthcoming
            comprehensive revision to the Guidebook.




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