oversight

The Grand Rapids Housing Commission, Grand Rapids, Michigan, Needs to Improve Its Administration of Its Section 8 Project-Based Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-11-24.

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

                                                                 Issue Date
                                                                         November 24, 2009
                                                                 Audit Report Number
                                                                         2010-CH-1003




TO:         Tom Lacey, Acting Director of Public Housing Hub, 5FPH


FROM:       Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The Grand Rapids Housing Commission, Grand Rapids, Michigan, Needs to
           Improve Its Administration of Its Section 8 Project-Based Voucher Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Grand Rapids Housing Commission’s (Commission) Section 8
             Project-Based Voucher program (program). The audit was part of the activities in
             our fiscal year 2009 annual audit plan. We selected the Commission’s program
             based upon our internal audit survey of the U.S. Department of Housing and
             Urban Development’s (HUD) oversight of the program and our analysis of risk
             factors relating to the housing agencies in Region V’s jurisdiction. Our objective
             was to determine whether the Commission effectively administered its program in
             accordance with HUD’s and its own requirements.

 What We Found

             The Commission’s administration of its program was inadequate. It lacked
             documentation to support its selection and approval of program projects and
             provided housing assistance for units without appropriate housing assistance
             payments contracts. As a result, it could not support that its eight projects were
             eligible for more than $2.8 million in program assistance, overpaid more than
             $84,000 in program funds, and lacked support that more than $210,000 in
             program administrative fees received were appropriate. We estimate that over the
           next 12 months, the Commission will receive nearly $130,000 in improper
           administrative fees.

           The Commission provided housing assistance for improper households. It failed
           to ensure that six of its program participants met program eligibility requirements.
           As a result, it overpaid nearly $30,000 in program funds and received more than
           $3,000 in administrative fees contrary to HUD’s and its requirements.

           The Commission made improper adjustments to housing assistance payments for
           78 households. Of those adjustments, duplicate adjustments were made for 61
           households, adjustments were incorrectly calculated for 19 households, and two
           of the households’ adjustments lacked supporting documents. As a result, the
           Commission overpaid nearly $10,000 and underpaid more than $10,000 in
           housing assistance.

           The Commission provided improper housing assistance for vacant units. It failed
           to follow its administrative plan in providing vacancy payments for 24
           households, resulting in more than $5,500 in overpayments and more than $1,300
           in underpayments.

           We informed the Commission’s executive director and the Acting Director of
           HUD’s Detroit Office of Public Housing of minor deficiencies through a
           memorandum, dated November 19, 2009.


What We Recommend

           We recommend that the Acting Director of HUD’s Detroit Office of Public
           Housing require the Commission to reimburse its program from nonfederal funds
           for the improper use of more than $102,000 in program funds, provide
           documentation or reimburse its program more than $3 million from nonfederal
           funds for the unsupported payments cited in this audit report, and implement
           adequate procedures and controls to address the findings cited in this audit report
           to prevent more than $140,000 in program funds and administrative fees from
           being used improperly over the next year.

           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 our review results and supporting schedules to the Acting Director
           of HUD’s Detroit Office of Public Housing and the Commission’s executive


                                            2
director during the audit. We provided our discussion draft audit report to the
Commission’s executive director, its board chairman, and HUD’s staff during the
audit. We held an exit conference with the executive director on November 6,
2009.

We asked the executive director to provide comments on our discussion draft audit
report by November18, 2009. The executive director provided written comments,
dated November 16, 2009. The executive director generally disagreed with our
findings but agreed with our recommendations. The complete text of the written
comments, except for redacted program household names that the executive director
included in his comments, and six pages of documentation that were not necessary
to understand the executive director’s comments, along with our evaluation of that
response, can be found in appendix B of this audit report.




                                 3
                            TABLE OF CONTENTS

Background and Objective                                                              5

Results of Audit
      Finding 1: The Commission Needs to Improve the Administration of Its
                 Program                                                              6

      Finding 2: The Commission Provided Housing Assistance to Improper Households   10

      Finding 3: The Commission Made Improper Adjustments to Housing Assistance
                 Payments                                                            13

      Finding 4: The Commission Provided Improper Housing Assistance for Vacant
                 Units                                                               16

Scope and Methodology                                                                18

Internal Controls                                                                    19

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                 21
   B. Auditee Comments and OIG’s Evaluation                                          23
   C. Federal Requirements and Commission’s Administrative Plan                      36




                                            4
                      BACKGROUND AND OBJECTIVE

The Grand Rapids Housing Commission (Commission) was established by the Grand Rapids
City Commission in 1966, in accordance with the State of Michigan’s Housing Facilities Act 18
of 1933, to provide affordable housing for low-income residents and to eliminate substandard
housing conditions. Funded primarily through the U.S. Department of Housing and Urban
Development (HUD), the Commission is administered independently of the City of Grand
Rapids and is governed by a five-member board appointed by the city manager and approved by
the Grand Rapids City Commission.

The Commission’s executive director is appointed by the board of commissioners and is
responsible for coordinating established policy and carrying out the Commission’s day-to-day
operations.

Congress passed an act on December 14, 1993, permitting the conversion of one Commission-
owned property from a HUD Section 23 leased housing project of 125 units to a Section 8
project-based voucher project.

In September 2002, the Commission’s board approved an initial limit of 200 program units that
provided rental assistance for eligible families who live in specific developments or units. On
December 1, 2002, the Commission executed its first Project-Based Voucher program (program)
housing assistance payments contract. The Commission may use up to 20 percent of its Section
8 Housing Choice Voucher program funding for its program. It is permitted to provide program
funds to newly constructed, existing, or rehabilitated units. Families must live in the unit for a
minimum of one year. After the initial year, the family may join the Section 8 Housing Choice
Voucher program, provided there is a voucher available. During August 2004, the
Commission’s board increased the initial limit of 200 to 300 units for the program in seven
projects. From January 2007 through December 2008, the Commission made housing assistance
and utility allowance payments totaling more than $2 million to program projects.

Our objective was to determine whether the Commission effectively administrated its program in
accordance with HUD’s and its own requirements to include determining whether the
Commission (1) appropriately administered its program; (2) accepted only qualified applicants;
(3) made appropriate adjustments to payments; and (4) followed its administrative plan in
providing assistance for vacant units.




                                                5
                                RESULTS OF AUDIT

Finding 1: The Commission Needs to Improve the Administration of
                           Its Program
The Commission administered its program contrary to HUD’s requirements. The problems
occurred because the Commission lacked an understanding of the applicable program
requirements. As a result, it was unable to support more than $3 million in housing assistance
payments and associated administrative fees and overpaid more than $84,000 in housing
assistance payments. We estimate that over the next year, the Commission will receive nearly
$130,000 in administrative fees for the improper administration of its program.


 The Commission Lacked
 Documentation to Support
 Project Eligibility

              We reviewed 100 percent of the project files for the Commission’s eight project-
              based properties. The files were reviewed to determine whether the Commission
              appropriately selected the projects, obtained HUD approval, and administered its
              program in accordance with HUD’s regulations. Our review was limited to the
              information maintained by the Commission in its project files. The Commission
              failed to ensure that

                •   425 units in eight projects had a proper rent reasonableness determination,
                •   263 units in five projects had a subsidy layering review,
                •   239 units in two projects had appropriate annual housing quality standards
                    inspections,
                •   218 units in four projects had initial housing quality standards inspections
                    conducted before the execution of the housing assistance payments contract,
                •   200 units in five projects executed the correct housing assistance payments
                    contract form,
                •   147 units in two projects had housing assistance payments provided for the
                    units included on the housing assistance payments contract,
                •   100 units in two projects had appropriate agreements to enter into a housing
                    assistance payments contract,
                •   72 units in two projects were located in non-qualified census tracts, and
                •   45 units in one of the Commission-owned projects were approved by HUD.

             Approximately seven months after its selection and four months after its execution
             of the housing assistance payments contract in March 2005, the Commission
             requested HUD to approve the selection of 45 units owned by it. However, HUD
             failed to provide a decision regarding the Commission’s request. The Commission

                                               6
         executed a housing assistance payments contract in November 2004 for the 45 units
         to be effective on January 1, 2006. As of October 9, 2009, the Commission
         requested a waiver from HUD for executing a housing assistance payments contract
         for the 45 units owned by the Commission without the required HUD approval.

The Commission Did Not Make
Payments In Accordance With Its
Contract

         The Commission provided program housing assistance payments without executing
         a contract for 50 households in one project owned by the Commission. According
         to HUD’s regulations at 24 CFR 983.202(b)(2), the housing assistance is paid for
         contract units leased and occupied by eligible families during the housing assistance
         payments contract term. However, housing assistance of $77,246 was provided
         from July through December 2005 before the housing assistance payments contract
         was executed.

         In addition, the Commission provided program housing assistance contrary to the
         contract term for 22 households in one project owned by the Commission.
         Although the contract was effective on January 1, 2006, payments of $7,449 were
         made in November and December 2005.

         Further, for both of these newly constructed projects, the Commission did not
         execute agreements to enter into housing assistance payments contracts contrary to
         HUD’s requirements.

The Commission Lacked an
Adequate Understanding of HUD’s
Requirements

           The Commission lacked an adequate understanding of HUD’s program
           requirements for selecting, approving, and administering its projects.
           Specifically, the Commission’s director of program management did not have a
           clear understanding of the regulations for determining rent reasonableness.
           Contrary to the program’s requirements at 24 CFR Part 983, the Commission
           referenced HUD’s regulations for multifamily projects when determining the rent
           reasonableness for its program units. In addition, it did not seek and obtain
           subsidy-layering reviews of its projects because it thought the review was not
           required. Further, it failed to execute an agreement to enter into a housing
           assistance payments contract and execute the correct type of housing assistance
           payments contract for three projects because it could not locate the form, although
           the forms were available from HUD.




                                            7
             The Commission did not conduct a separate initial housing quality standards
             inspection for 214 units in three projects. Instead the Commission relied on the
             certificate of occupancies issued by the city and inspections conducted by the
             Michigan State Housing Development Authority in regards to the low-income
             housing tax credit program as proof that the units were inspected and suitable for
             occupancy. In addition, the Commission failed to conduct the initial housing
             quality standards inspections prior to the execution of the housing assistance
             payments contract for four units in one project as required by HUD.

             The Commission lacked adequate procedures and controls over its housing
             assistance payments to ensure payments were provided in accordance with the
             housing assistance payments contract term.

Conclusion

             Because the Commission lacked an adequate understanding of HUD’s
             requirements for the program, it disbursed $2,835,905 in housing assistance
             payments for program units without the required supporting documentation and
             made improper payments of program funds totaling $84,695 ($77,246 plus
             $7,449).

             In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce
             or offset any administrative fee to a public housing agency, in the amount
             determined by HUD, if the agency fails to perform its administrative
             responsibilities correctly or adequately under the program. The Commission
             received $210,229 in administrative fees from January 1, 2007, through
             December 31, 2008, while improperly administering its program. In addition, we
             estimate that nearly $130,000 in Section 8 administrative fees could be
             improperly received by the Commission over the next 12 months for these
             project-based units. Our methodology for this estimate is explained in the Scope
             and Methodology section of this audit report.

Recommendations

             We recommend that the Acting Director of HUD’s Detroit Office of Public
             Housing require the Commission to

             1A.    Provide supporting documentation or reimburse its program $3,046,134
                    ($2,835,905 in housing assistance payments plus $210,229 in
                    administrative fees) from nonfederal funds for the improper housing
                    assistance payments and associated administrative fees cited in this
                    finding.




                                              8
1B.   Reimburse its program $84,695 from nonfederal funds for the improper
      housing assistance payments relating to the two projects cited in this
      finding.

1C.   Implement adequate procedures and controls to ensure compliance with all
      HUD requirements for the operation of its program to prevent
      administrative fees totaling $128,459 from being improperly received over
      the next 12 months.




                               9
Finding 2: The Commission Provided Housing Assistance to Improper
                           Households
The Commission did not comply with HUD’s requirements and its program administration plan
regarding household eligibility. It provided housing assistance to households that did not qualify
for assistance under its program requirements. This condition occurred because the Commission
failed to ensure households met program eligibility in accordance with HUD’s and its program
administrative plan. As a result, it was unable to support nearly $30,000 in housing assistance
and utility allowance payments.


 Housing Assistance Was Not
 Provided to Elderly or Disabled
 Households


               We reviewed initial family reports for all 324 of the households receiving
               program assistance as of March 19, 2009. The initial family reports were
               reviewed to verify whether the Commission properly determined program
               eligibility. Our review was limited to the information provided by the
               Commission and HUD’s Public and Indian Housing Information Center system.

               According to the Commission’s director of housing management and the program
               application, a household member must be age 55 or older and disabled or age 62
               or older for the household to receive program rental subsidy at the time of
               admission. In addition, the household members must be eligible immigrants or
               citizens of the United States. However, the Commission provided housing
               assistance to six households that did not meet its program eligibility requirements
               as follows:

               •   For four households with members between the ages of 55 and 62, there was
                   no evidence that the disability requirement was met,
               •   One household with members between the ages of 55 and 62 did not meet the
                   disability requirement, and
               •   One household had no evidence to support the citizenship eligibility
                   requirement was met.

               Housing assistance was provided to inappropriate households in three of the
               Commission-owned projects.

               In response to our draft finding outline, the Commission provided documentation
               for five of the six households. For one household where the Commission
               provided new or original documentation to support the household’s disability
               status at the time of admission, it failed to appropriately identify the household as
               disabled on the family report and calculate a disability allowance during the


                                                10
             period January 1, 2007, through December 31, 2008. This resulted in
             underpayments of $100 in housing assistance.

The Commission Failed to Ensure
That Households Met Program
Eligibility Requirements

             The Commission lacked controls over its program eligibility determination.
             Based on the documentation available in HUD’s system as submitted by the
             Commission or the documents provided by the Commission, the disability status
             was not identified on the initial family report.

             In February 2009, the Commission’s main office staff’s review of project-based
             household files at the Commission-owned properties found a high error rate
             compared to the error rate in household files at other properties. Of the 19
             program file reviews completed for households living in units not owned by the
             Commission, three files (15 percent) contained errors. However, of the 18
             program file reviews completed for households living in units owned by the
             Commission, 14 files (77 percent) contained errors.

             In addition, according to one of the Commission’s Section 8 managers, the
             Section 8 managers used to perform household file reviews, but since one
             manager was laid off during the previous year, the housing coordinators had been
             performing the reviews.

Conclusion

             The Commission disbursed $3,573 in housing assistance and utility allowance
             payments without the required documentation to support the program household
             eligibility.

             The housing assistance payments contract provisions or HUD’s regulations did
             not prohibit an amendment of the contract to remove units or change how many
             units were designated as elderly/disabled.

             In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce
             or offset any administrative fee to a public housing agency, in the amount
             determined by HUD, if the applicable housing agency fails to perform its
             administrative responsibilities correctly or adequately under the program. The
             Commission received $371 in program administrative fees during our audit period
             of January 1, 2007, through December 31, 2008, while providing housing
             assistance to improper households.




                                            11
Recommendations


          We recommend that the Acting Director of HUD’s Detroit Office of Public
          Housing require the Commission to

          2A.     Provide support or reimburse its program $3,944 ($3,573 in housing
                  assistance payments and utility allowances plus $371 in associated
                  administrative fees) from nonfederal funds for the unsupported payments
                  and associated administrative fees cited in this finding.

          2B.     Reimburse the appropriate household $100 in program funds for the
                  underpayment of housing assistance and utility allowances cited in this
                  finding.




                                          12
Finding 3: The Commission Made Improper Adjustments to Housing
                       Assistance Payments
The Commission did not follow HUD’s requirements and its program administrative plan when
it made improper housing assistance payment adjustments for 78 (30 percent) of the 261
households during the period January 2007 through December 2008. This condition occurred
because the Commission lacked controls over its housing assistance payments process to prevent
duplicate and incorrect adjustments. As a result, the Commission overpaid nearly $10,000 and
underpaid more than $10,000 in housing assistance and utility allowances.


 Duplicate and Incorrect
 Adjustments Were Made to
 Housing Assistance Payments

              We reviewed 100 percent of the financial adjustments made during the period
              January 1, 2007, through December 31, 2008. The adjustments were reviewed to
              determine whether accurate rent adjustments were provided in accordance with
              HUD’s requirements and the Commission’s program administrative plan. Our
              review was limited to the information provided by the Commission.

              Of the improper adjustments made for the 78 households during the period
              January 1, 2007, through December 31, 2008, the Commission

                  ¾ Made duplicate adjustments to housing assistance payments for 61 (78
                    percent) households, which resulted in $7,856 in housing assistance being
                    overpaid and $4,528 being underpaid.

                  ¾ Made incorrect housing assistance payment adjustments for 19 (24
                    percent) additional households relating to the households’ move-in, move-
                    out, or interim reexaminations, resulting in overpayments of $1,932 and
                    underpayments of $6,366 in housing assistance.

                  ¾ Failed to provide supporting documents for two households in which a
                    positive adjustment of $475 and a negative adjustment of $308 in housing
                    assistance payments were made.

              In response to our draft finding outline, the Commission provided documentation
              for two households in which it agreed that the positive adjustment of $475 was
              improperly made. Also, based on the documents provided by the Commission,
              the negative adjustment of $308 should have been a negative adjustment of $607.
              These improper payments are included in recommendation 3B of this audit report.




                                              13
The Commission Lacked
Adequate Controls over Its
Housing Assistance Payments


             The Commission lacked adequate controls over its housing assistance payments
             process to prevent duplicate and incorrect adjustments. The duplicate adjustments
             were made as a result of staff generating manual adjustments in addition to
             automated entries. The incorrect adjustments occurred because the staff did not
             prorate the housing assistance payments in accordance with the households’
             move-in/move-out or an interim reexamination and improperly calculated the
             adjustments.

             According to the Commission’s finance manager, although the Commission’s
             computer system had the capability to automatically adjust housing assistance and
             utility allowance payments based on move-in, move-out, and changes in subsidy,
             the Commission decided to make all adjustments manually. However, duplicate
             adjustments were made if the housing coordinator processing the family report
             did not instruct the system to not make an adjustment. Specifically, the previous
             housing assistant at one of the Commission-owned projects said she understood
             that she was to record all adjustments on the spreadsheet used to make manual
             adjustments regardless of whether the computer made the adjustment.

             Because of our audit, the Commission implemented controls in January 2009 to
             ensure the accuracy of housing assistance payments when adjustments are made.
             According to its Section 8 manager, the procedures for reviewing housing
             assistance payment adjustments were changed to ensure that manual adjustments
             made to the housing assistance payments register were consistent with the
             applicable income examination. In addition, according to the director of program
             management, the staff received training to ensure that the correct procedures
             would be followed when processing adjustments.

Conclusion


             As a result of the Commission’s failure to maintain adequate controls to prevent
             improper housing assistance payment adjustments, it overpaid $9,788 ($7,856
             plus $1,932) and underpaid $10,894 ($4,528 plus $6,366) in housing assistance
             for adjustments that were duplicated and incorrectly determined during the period
             January 1, 2007, through December 31, 2008.

             In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce
             or offset any administrative fee to a public housing agency, in the amount
             determined by HUD, if the applicable housing agency fails to perform its
             administrative responsibilities correctly or adequately under the program. The
             Commission received $1,624 in program administrative fees for making


                                             14
          duplicate, improper, and incorrect housing assistance payment adjustments for the
          78 households.

Recommendations

          We recommend that the Acting Director of HUD’s Detroit Office of Public
          Housing require the Commission to

          3A.     Reimburse its program $9,788 from nonfederal funds for the overpayment
                  of housing assistance and utility allowances cited in this finding.

          3B.     Reimburse the appropriate households $10,894 for the underpayment of
                  housing assistance and utility allowances.

          3C.     Reimburse its program $1,624 from nonfederal funds for the inappropriate
                  administrative fees related to the 78 households cited in this finding.

          3D.     Implement adequate procedures and controls to ensure compliance with
                  HUD’s and its requirements for housing assistance payments.




                                          15
Finding 4: The Commission Provided Improper Housing Assistance for
                           Vacant Units
The Commission did not follow its program administrative plan when it made improper housing
assistance payments for 24 of the 101 units vacant during the period January 1, 2007, through
December 31, 2008. This condition occurred because the Commission failed to provide vacancy
payments in accordance with its program administrative plan. As a result, it overpaid nearly
$6,000 and underpaid more than $1,300 in housing assistance and utility allowances.


 Improper Housing Assistance
 Was Provided for 24 Vacant
 Units


              We reviewed 100 percent of the payments provided for households that vacated a
              unit and left the program during the period January 1, 2007, through December
              31, 2008. The payments were reviewed to determine whether accurate vacancy
              payments were provided in accordance with HUD’s regulations and the
              Commission’s program administrative plan. Our review was limited to the
              information provided by the Commission and HUD’s Public and Indian Housing
              Information Center system.

              Although a vacancy claim was not filed by the owners, the Commission provided
              housing assistance payments for vacant units for at least one month after 17 of the
              101 households moved out of the units, which resulted in the overpayment of
              housing assistance of $5,646 for the period January 1, 2007, through December
              31, 2008.

              The Commission failed to accurately prorate the housing assistance payments for
              eight additional households when a proper vacancy notice was not provided.
              Contrary to its administrative plan, the Commission prorated the housing
              assistance payments for the month in which eight of the 101 households moved
              out, resulting in $1,313 in underpayment of housing assistance during the period
              January 1, 2007, through December 31, 2008.

 The Commission Did Not
 Follow Its Administrative Plan


              Improper housing assistance payments were provided for vacant units because the
              Commission failed to provide vacancy payments in accordance with its Section 8
              administrative plan. The Commission agreed a vacancy claim was not filed for
              the households cited in this finding and the payment for an additional month
              should not have been provided.


                                              16
             According to the Commission’s director of program management, the
             Commission did not prorate the housing assistance payments for the month in
             which the household moved out of the unit. However, according to the
             Commission’s administrative plan, in a move, assistance stops at the old unit at
             the end of the month in which the tenant ceased to occupy, unless proper notice
             was given to end a lease midmonth. When we inquired about the requirement in
             its administrative plan, the director stated it was the normal procedure to prorate
             rental amounts at move-out (for its public housing program). Staff used the same
             practice with the program housing assistance payments. The director further
             stated that the staff will be instructed to not prorate the rental amounts at move-
             out. In addition, the director said that as a result of our audit, the Commission
             planned to revise its program administrative plan to reflect the revised procedures.

Conclusion


             As a result of the Commission’s failure to provide vacancy payments in
             accordance with its administrative plan, it overpaid $5,646 and underpaid $1,313
             in housing assistance for vacant units during the period January 1, 2007, through
             December 31, 2008.

             In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce
             or offset any administrative fee to a public housing agency, in the amount
             determined by HUD, if the applicable housing agency fails to perform its
             administrative responsibilities correctly or adequately under the program. The
             Commission received $526 in program administrative fees for making 24
             improper housing assistance payments for vacant units.

Recommendations

             We recommend that the Acting Director of HUD’s Detroit Office of Public
             Housing require the Commission to

             4A.    Reimburse its program $5,646 from nonfederal funds for the overpayment
                    of housing assistance and utility allowance cited in this finding.

             4B.    Reimburse the appropriate households $1,313 for the underpayment of
                    housing assistance and utility allowances cited in this finding.

             4C.    Reimburse its program $526 from nonfederal funds for the improper
                    administrative fees related to the 24 housing assistance payments cited in
                    this finding.

             4D.    Revise its program administrative plan to address how payments for
                    vacant units will be provided.


                                              17
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

   •   Applicable laws; the Commission’s program administrative plans effective March 2006 and
       December 2007; HUD’s program requirements at 24 CFR Parts 5, 982, and 983; Federal
       Register Notice, Volume 66, Number 10, dated January 16, 2001; and HUD’s Housing
       Choice Voucher Guidebook 7420.10.

   •   The Agency’s accounting records, annual audited financial statements for 2006 and 2007,
       program household files, computerized databases, policies and procedures, organizational
       chart, and program annual contributions contract.

   •   HUD’s files for the Agency.

We also interviewed the Agency’s employees and HUD staff.

Finding 1

Between January 1, 2007, and December 31, 2008, the Commission received an average
administrative fee of $21.06 per unit for units owned by the Commission and $41.46 per unit
each month for its program units while administering an average of 531 households for the same
period. The eight projects had a total of 425 project-based units; 339 of which were owned by
the Commission. We estimate over the next 12 months the Commission will receive $128,459
($21.06 per unit times 339 Commission-owned units times 12 months and $41.46 per unit times
86 units times 12 months) in administrative fees. This estimate is solely to demonstrate the
annual amount of program funds that could be put to better use if the Commission implements
our recommendation.

The housing assistance payments and administrative fees questioned in finding 1 are exclusive of
the housing assistance payments and administrative fees questioned in findings 2, 3, and 4.

We performed our on-site audit work between February and July 2009 at the Commission’s
central office located at 1420 Fuller Avenue Southeast, Grand Rapids, Michigan. The audit
covered the period January 1, 2007, through December 31, 2008, but was expanded when
necessary to include other periods.

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 and 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.




                                               18
                              INTERNAL CONTROLS

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

   •   Program operations,
   •   Relevance and reliability of information,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined that the following internal controls were relevant to our audit
              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.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              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.




                                               19
Significant Weakness

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

           •    The Commission lacked adequate procedures and controls to ensure
                compliance with federal requirements and/or its program administrative plan
                regarding project selection, approval, and administration; household
                eligibility; financial adjustments; and vacancy payments (see findings 1, 2,
                3, and 4).

Separate Communication of
Minor Deficiencies

           We informed the Commission’s executive director and the Acting Director of
           HUD’s Detroit Office of Public Housing of minor deficiencies through a
           memorandum, dated November 19, 2009.




                                            20
                                   APPENDIXES

Appendix A

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

          Recommendation                                              Funds to be put
              number            Ineligible 1/        Unsupported 2/   to better use 3/
                1A                                       $3,046,134
                1B                    $84,695
                1C                                                          $128,459
                2A                                            3,944
                2B                                                                100
                3A                       9,788
                3B                                                             10,894
                3C                       1,624
                4A                       5,646
                4B                                                              1,313
                4C                        526
               Totals                $102,279            $3,050,078         $140,766


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowed 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 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 the Commission implements our
     recommendation 1C, it will cease to incur program costs for the overpayment of housing
     assistance and, instead, will expend those funds in accordance with HUD’s requirements
     and the Commission’s program administrative plan. Once the Commission successfully

                                                21
improves its controls, this will be a recurring benefit. Our estimate reflects only the
initial year of this benefit.




                                         22
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         23
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         24
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 1




                         25
Ref to OIG Evaluation   Auditee Comments




Comment 4


Comment 5




Comment 6




                         26
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 5


Comment 6




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 1




Comment 1




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9




Comment 10




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 11




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 12




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 13




                         33
                         OIG Evaluation of Auditee Comments

Comment 1   The projects must meet HUD’s requirements for project-based voucher assistance
            prior to receiving any rental subsidy assistance. Finding 1 of this report relates to
            the projects’ eligibility where we reviewed the selection, approval, and
            administration of the projects by the Commission under its program. As
            identified in finding 1, the Commission could not provide documentation to
            support that it correctly administered the program in accordance with HUD’s
            requirements.

Comment 2   Our review did consider the HUD requirements that were in effect for the
            respective dates of the Commission’s program.

Comment 3   The market study utilized in 2005 did not identify the comparable units as
            required by HUD.

Comment 4   The program has requirements for determining rent reasonableness that were not
            followed by the Commission.

Comment 5   While HUD’s regulations do permit the use of a certificate of occupancy as
            evidence that the construction was completed, 24 CFR 983.103(a)(2) requires the
            Commission to inspect all units and determine that the proposed project-based
            units comply with HUD’s housing quality standards before executing a housing
            assistance payments contract.

Comment 6   HUD’s regulations at 24 CFR 983.257(b), effective 1995 until October 12, 2005,
            state that the public housing agency may only approve or assist a project in
            accordance with HUD’s regulations and guidelines designed to ensure that
            participants do not receive excessive compensation by combining HUD program
            assistance with assistance from other HUD, state, or local agencies or with low-
            income housing tax credits. In addition, under HUD’s regulations at 24 CFR
            983.55(b), the public housing agency must seek and obtain subsidy-layering
            contract rent reviews from HUD or a housing credit agency. Therefore, the
            Commission was required to ensure the subsidy-layering reviews were completed.

Comment 7   Although the annual inspections were conducted during the period January 1,
            2007, through December 31, 2008, the initial inspections were not conducted in
            accordance with HUD’s regulations. Also, the rent comparability study for the
            initial rents in 2006 and the increase in rent in 2007 were not conducted by a
            state-certified appraiser and/or the results were not provided to HUD.

Comment 8   Contrary to HUD’s regulations, the housing assistance payments were provided
            without an executed contract for the period July through December 2005.




                                             34
Comment 9     In addition to amending the housing assistance payments contract, the
              Commission must reimburse its program $7,449 from nonfederal funds for the
              improper housing assistance payments.

Comment 10 Because the household was not eligible under the program at the time of
           admission, the household should not have been on the program. Therefore, the
           housing assistance payments provided from the date of admission through the
           household’s end of participation were improper. The Commission should
           reimburse its program $3,944 in housing assistance payments and associated
           administrative fees from nonfederal funds for the improper payments.

Comment 11 We removed this recommendation from our final audit report.

Comment 12 Although the Commission may have made the appropriate adjustments now, the
           Commission failed to carry out its administrative responsibilities adequately when
           it made improper adjustments to housing assistance payments. Therefore, in
           accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce or
           offset any administrative fee to a public housing agency, in the amount
           determined by HUD, if the applicable housing agency fails to perform its
           administrative responsibilities correctly or adequately under the program. The
           Commission received $1,624 in program administrative fees for making
           duplicate, improper, and incorrect housing assistance payments adjustments for
           the 78 households.

Comment 13 Although the Commission may have made the appropriate adjustments now, the
           Commission failed to carry out its administrative responsibilities adequately when
           it provided improper payments for vacant units. Therefore, in accordance with
           HUD’s regulations at 24 CFR 982.152(d), HUD may reduce or offset any
           administrative fee to a public housing agency, in the amount determined by HUD,
           if the applicable housing agency fails to perform its administrative responsibilities
           correctly or adequately under the program. The Commission received $526 in
           program administrative fees for making 24 improper housing assistance payments
           for vacant units.




                                              35
Appendix C

         FEDERAL REQUIREMENTS AND COMMISSION’S
                  ADMINISTRATIVE PLAN

Finding 1
HUD’s regulations at 24 CFR 983.2 (a) state that part 982 is the basic regulation for the tenant-
based voucher program. Paragraphs (b) and (c) of this section describe the provision of part 982
that do not apply to the Project-Based Voucher program. The rest of part 982 applies to the
program.

HUD’s regulations at 983.12(b)(2) state during the housing assistance payments contract term
and for at least three years thereafter, the public housing agency must keep a copy of records to
document the basis for determination of the initial rent to owner and for the agency
determination that the rent to owner is a reasonable rent (initially and during the term of the
housing assistance payments contract).

HUD’s regulations at 24 CFR 983.256(b)(1) and (2) state that public housing agency must
determine whether the rent to owner is a reasonable rent in comparison to rent for other
comparable unassisted units. To make this determination, the commission must consider: the
location, quality, size, unit type, and age of the contract unit; and any amenities, housing
services, maintenance and utilities to be provided by the owner in accordance with the lease.

HUD’s regulations at 24 CFR 983.256(c)(1)(i, ii, iii) state that to determine that the initial rent to
owner is reasonable, the public housing agency must use a qualified state-certified appraiser who
has no direct or indirect interest in the property or otherwise. For each unit type, the appraiser
must submit a complete comparability analysis on Form HUD-92273 (Estimates of Market Rent
by Comparison). The appraisal must use at least three comparable units in the private unassisted
market. The agency must certify to HUD that the initial rent to owner for a unit does not exceed
the reasonable rent.

HUD’s regulations at 24 CFR 983.303(f)(1) and (2) state for public housing agency-owned units,
the amount of the reasonable rent must be determined by an independent agency approved by
HUD in accordance with 983.58 rather than by the agency. Reasonable rent must be determined
in accordance with this section. The independent entity must furnish a copy of its determination
of reasonable rent for agency-owned units and to the HUD field office where the project is
located.

HUD’s regulations at 24 CFR 983.52(c), effective 1995 until October 12, 2005, state that for
rehabilitation, before executing an agreement, the public housing agency must obtain subsidy-
layering contract rent reviews from HUD or a housing credit agency.




                                                 36
HUD’s regulations at 24 CFR 983.53(a), effective 1995 until October 12, 2005, state that HUD
or a housing credit agency must also conduct subsidy-layering contract rent reviews.

HUD’s regulations at 24 CFR 983.55(b), effective 1995 until October 12, 2005, state that for
new construction, before executing an agreement, the public housing agency must seek and
obtain subsidy-layering contract rent reviews from HUD or a housing credit agency.

HUD’s regulations at 24 CFR 983.55(b), effective October 13, 2005, state that the public
housing agency may not enter an agreement or housing assistance payments contract until HUD
or an independent entity approved by HUD has conducted any required subsidy-layering review
and determined that the project-based voucher assistance is in accordance with HUD’s subsidy-
layering requirements.

HUD’s regulations at 24 CFR 983.257(b), effective 1995 until October 12, 2005, state that the
public housing agency may only approve or assist a project in accordance with HUD regulations
and guidelines designed to ensure that participants do not receive excessive compensation by
combining HUD program assistance with assistance from other HUD, state, or local agencies or
with low-income housing tax credits.

HUD’s regulations at 24 CFR 983.103(d)(1) provide that at least annually during the term of the
housing assistance payments contract, the public housing agency must inspect a random sample,
consisting of at least 20 percent of the contract units in each building, to determine whether the
contract units and the premises are maintained in accordance with the housing quality standards.

HUD’s Federal Register notice, effective January 16, 2001, states that a housing assistance
payments contract must be in a form prescribed by HUD.

HUD’s regulations at 24 CFR 983.103(a)(2) require the public housing agency to inspect all
units and determine that the proposed project-based units comply with housing quality standards
before executing a housing assistance payments contract.

HUD’s regulations at 24 CFR 983.152(a) require that owners lease all assisted units under
housing assistance payments contract to eligible families. Leasing of vacant, assisted units to
ineligible tenants is a violation of the housing assistance payments contract and grounds for all
available legal remedies, including suspension or debarment from HUD program and reduction
of the number of units under the housing assistance payments contract.

HUD’s regulations at 983.3(b) state that an agreement to enter into housing assistance payments
contract is a written contract between the public housing agency and the owner in the form
prescribed by HUD. The agreement defines requirements for development of housing to be
assisted under this section. When development is completed by the owner in accordance with
the agreement, the agency enters into a housing assistance payments contract with the owner.

HUD’s regulations at 24 CFR 983.57(a) and (b)(1) require that project-based assistance be
consistent with the goal of deconcentrating poverty and expanding economic opportunity while
avoiding undue concentration of low-income persons. If the poverty rate in the proposed project


                                                37
area is greater than 20 percent, the public housing agency should consider whether in the past
five years there has been an overall decline in the poverty rate.

HUD’s regulations at 24 CFR 983.7(f)(1)(ii) state that the HUD field office selects the public
housing agency-owned unit pursuant to the competitive ranking and rating process specified in
the agency’s HUD-approved unit selection policy.

HUD’s regulations at 24 CFR 983.51 state that a public housing agency-owned unit may be
assisted under the Project-Based Voucher program only if the HUD field office or HUD-
approved independent entity reviews the selection process and determines that the agency-owned
units were appropriately selected based on the selection procedures specified in the agency’s
administrative plan.

HUD’s regulations at 24 CFR 983.202(b)(2) state that the public housing agency makes housing
assistance payments to the owner in accordance with the housing assistance payments contract.
Housing assistance is paid for contract units leased and occupied by eligible families during the
housing assistance payments contract term.

Finding 2
HUD’s regulations at 24 CFR 982.54(c) state that the public housing agency must administer the
program in accordance with the agency’s administrative plan.

HUD’s Housing Choice Voucher Guidebook, chapter 5, exhibit 5-1, under primary verification
(c)(1), states that primary verification of the immigration status of the person is conducted by the
responsible entity through the Immigration and Naturalization Service’s (INS) automated system
(INS Systematic Alien Verification for Entitlements).

The Commission’s administrative plan, chapter 23, section I, states the Section 8 project-based
program is targeted to meet the needs of (1) elderly families and (2) disabled families.

The Commission’s program application states that, for projects owned by the Commission, the
households must contain members that are age 55 or older and disabled or age 62 or older to
receive rental subsidy.

Finding 3
HUD’s regulations at 24 CFR 982.158(a) state that the public housing agency must maintain
complete and accurate accounts and other records for the program in accordance with HUD
requirements in a manner that permits a speedy and effective audit. During the term of each
assisted lease and for at least three years thereafter, the agency must keep (1) a copy of the
executed lease, (2) the housing assistance payments contract, and (3) the application from the
family. The agency must keep the following records for at least three years: records that provide
income, racial, ethnic, gender, and disability status data on program applicants and participants;
unit inspection reports; lead-based paint records as required by part 35, subpart b, of this title;
and other records specified by HUD.

                                                 38
The Commission’s administrative plan, chapter 12, Introduction, states that families will be
provided accurate annual and interim rent adjustments.

Finding 4
The Commission’s administrative plan, chapter 13, Procedures for Moves, states that in a move,
assistance stops at the old unit at the end of the month in which the tenant ceased to occupy,
unless proper notice was given to end a lease midmonth. Assistance will start on the new unit on
the effective date of the lease and contract. Assistance payments may overlap for the month in
which the family moves.

The Commission’s administrative plan, chapter 23, Vacancy Payments, states that for project-
based units only, the Commission will issue vacancy payments up to 60 days if the vacancy is
determined to not be the fault of the owner.




                                               39