oversight

The Michigan State Housing Development Authority, Lansing, MI, Needs To Improve Its Controls Over Section 8 Project-Based Housing Assistance Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-05-14.

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

                                                                   Issue Date
                                                                            May 14, 2010
                                                                   Audit Report Number
                                                                            2010-CH-1007




TO:        Lucia M. Clausen, Acting Director of Public Housing Hub, 5FPH


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

SUBJECT: The Michigan State Housing Development Authority, Lansing, MI, Needs To
           Improve Its Controls Over Section 8 Project-Based Housing Assistance
           Payments

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Michigan State Housing Development Authority’s (Authority)
             Section 8 Project-Based Voucher program (program). The audit was part of the
             activities in our fiscal year 2010 annual audit plan. We selected the Authority’s
             program based upon our analysis of the housing authorities’ programs in Region
             V’s jurisdiction and as part of our internal audit of the U.S. Department of
             Housing and Urban Development’s (HUD) oversight of the program. Our
             objective was to determine whether the Authority operated its program in
             accordance with HUD’s and its requirements. This is the second of two audit
             reports on the Authority’s program.

 What We Found


             The Authority’s program administration regarding documentation of households’
             eligibility and housing assistance and utility allowance payment calculations was
             inadequate. The Authority did not ensure that its household files contained the
             required documentation to support households’ admission to and continued
             assistance on the program. Of the 89 files statistically selected for review, all 89
         were missing documentation required by HUD and the Authority’s program
         administrative plan to support nearly $629,000 in housing assistance and utility
         allowance payments and associated administrative fees.

         In addition, the Authority did not effectively manage its housing assistance
         calculation and payment process in accordance with HUD requirements and its
         program administrative plan, resulting in nearly $23,000 in overpayments for 25
         households and more than $3,000 in underpayments for 29 households for the
         period September 1, 2007, through August 31, 2009. Further, it received nearly
         $33,000 ($16,417 in administrative fees related to the overpayments and $16,572
         in administrative fees related to the underpayments) in program administrative
         fees for the households with incorrect housing assistance payments. Based on our
         statistical sample, we estimate that over the next year, the Authority will overpay
         nearly $25,000 and underpay more than $5,000 in housing assistance and utility
         allowance payments due to calculation errors.

         The Authority also inappropriately made more than $47,000 in overpayments of
         housing assistance and utility allowances for units when it failed to ensure that
         units receiving program housing assistance payments were under an executed
         housing assistance payments contract. Based on our statistical sample, we
         estimate that over the next year, the Authority will overpay nearly $56,000 in
         housing assistance and utility allowances for units not under housing assistance
         payments contracts.

         The Authority did not effectively use HUD’s Enterprise Income Verification
         system (system) Income Discrepancy Report (report) to recover or reimburse
         program housing assistance and utility allowance payments for households with
         unreported, underreported, or overestimated income, resulting in more than
         $32,000 in overpayments and more than $1,700 in underpayments of housing
         assistance and utility allowances. Further, the Authority did not remove six
         deceased individuals from its program and did not recover more than $6,000 in
         housing assistance and utility allowance payments from the properties’ owners.

What We Recommend


         We recommend that the Acting Director of HUD’s Detroit Office of Public
         Housing require the Authority to (1) reimburse its program from non-Federal
         funds for the improper use of nearly $118,000 in program funds, (2) provide
         documentation or reimburse its program more than $757,000 from non-Federal
         funds for the unsupported payments cited in this audit report, and (3) implement
         adequate procedures and controls to address the findings cited in this audit report
         to prevent nearly $89,000 in program funds from being spent on excessive
         housing assistance and utility allowance payments over the next year.




                                          2
           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 Authority’s executive director
           during the audit. We provided our discussion draft audit report to the Authority’s
           executive director, its board chairman, and HUD’s staff during the audit. We held
           an exit conference with the executive director on May 7, 2010.

           We asked the executive director to provide comments on our discussion draft
           audit report by May 7, 2010. The executive director provided written comments,
           dated May 5, 2010. The executive director substantially agreed with our findings
           and recommendations. The complete text of the auditee’s response, along with
           our evaluation of that response, can be found in appendix B of this report. A
           complete copy of the Authority’s comments was provided to the acting Director
           of HUD’s Detroit Office of Public Housing.




                                            3
                            TABLE OF CONTENTS

Background and Objective                                                             5

Results of Audit
      Finding 1: The Authority Needs to Improve the Administration of Its Housing
                 Assistance and Utility Allowance Payments                           6

      Finding 2: The Authority Paid Housing Assistance and Utility Allowances for
                 Units Not Under Program Contracts                                  12

      Finding 3: The Authority Needs to Improve Its Process for Reviewing Income
                 Discrepancies Reported in HUD’s System                             15

      Finding 4: The Authority’s Policies and Procedures for Deceased Program
                 Participants Were Inappropriate                                    18

Scope and Methodology                                                               21

Internal Controls                                                                   24

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use                26
   B. Auditee Comments and OIG’s Evaluation                                         27
   C. Federal Requirements and the Authority’s Program Administrative Plan          33




                                            4
                      BACKGROUND AND OBJECTIVE

The Michigan State Housing Development Authority (Authority) is a nonprofit governmental
entity created by the Michigan State Housing Development Act of 1966 to provide decent, safe,
and sanitary housing for low-income people. The Authority operates with oversight by the
Michigan Department of Commerce. The Authority’s jurisdiction includes the entire State of
Michigan. An eight-member board of commissioners governs the Authority. The board
members consist of the director of Michigan’s Department of Labor and Economic Growth, the
director of Michigan’s Department of Human Services, the Michigan State treasurer, and four
persons appointed by the governor, which include one tenant representative. As of March 31,
2010, one board member position was vacant. The Authority’s executive director is appointed
by the board of commissioners and is responsible for coordinating established policy and
carrying out the Authority’s day-to-day operations.

The Authority administers a Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). It provides assistance to low- and
moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing rents
with owners of existing private housing. As of February 28, 2010, the Authority had 22,600
units under contract with annual housing assistance payments totaling more than $131 million in
program funds. Of the 22,600 units, 554 were assisted under its Section 8 Project-Based
Voucher program (program).

The Authority’s director of housing voucher programs said that there are 83 counties in the State
of Michigan and that the Authority operates the Section 8 Housing Choice Voucher program in
every county. The Authority’s program is operated solely by independent contractors called
housing agents, and its staff oversees the agents. Housing agents are responsible for the program
household applications, waiting lists, household income documentation, leases, and housing
assistance and utility allowance payments calculations. The housing agents also are responsible
for entering the program household information on Form HUD-50058 family reports and
uploading the report into the Authority’s computer system.

This is the second of two audit reports on the Authority’s program. Our objective was to
determine whether the Authority operated its program in accordance with HUD’s and its
requirements to include determining whether the Authority (1) accurately computed housing
assistance and utility allowance payments for program households and maintained the
appropriate eligibility documentation, (2) paid program housing assistance only for units under
housing assistance payments contracts, (3) appropriately recovered housing assistance and utility
allowance payments for households with income discrepancies, and (4) appropriately recovered
housing assistance and utility allowance payments paid for deceased individuals.




                                                5
                                 RESULTS OF AUDIT

Finding 1: The Authority Needs to Improve the Administration of Its
          Housing Assistance and Utility Allowance Payments
The Authority did not comply with HUD’s requirements and its program administrative plan
when issuing housing assistance and utility allowance payments. It failed to maintain
documentation to support payments to owners and households and consistently compute
payments accurately. These deficiencies occurred because the Authority and its housing agents
lacked adequate program knowledge and procedures and controls to ensure that they maintained
documentation to support that program households were eligible, that their calculations were
accurate, and that HUD’s requirements and the Authority’s program administrative plan were
appropriately followed. As a result, the Authority was unable to support nearly $629,000 in
housing assistance and utility allowance payments and overpaid more than $23,000 and
underpaid more than $3,000 in housing assistance and utility allowances. Based on our
statistical sample, we estimate that over the next year, the Authority will overpay nearly $25,000
and underpay more than $5,300 in housing assistance and utility allowances.


 Household Files Lacked
 Eligibility Documentation


               We statistically selected 89 household files with a total of $650,930 in housing
               assistance and utility allowance payments from a universe of 617 households
               receiving program housing assistance payments totaling more than $4.2 million
               during the period September 1, 2007, through August 31, 2009, using data mining
               software. Our sampling criteria used a 90 percent confidence level and precision of
               plus or minus 10 percent. The 89 files were reviewed to determine whether the
               Authority had documentation for and correctly calculated households’ housing
               assistance and utility allowance payments for the period September 1, 2007, through
               August 31, 2009. Our review was expanded as necessary and was limited to the
               information maintained by the Authority in its household files and in HUD’s
               Enterprise Income Verification System (system).

               The Authority lacked documentation to support housing assistance and utility
               allowance payments totaling $628,710 for the period September 1, 2007, through
               August 31, 2009. Of the 89 household files statistically selected for review, 89
               (100 percent) were missing the following support documentation:

                   •   89 were missing the program tenancy addendum,
                   •   87 were missing Form HUD-52578b, Statement of Family Responsibility,
                   •   51 were missing the rent reasonableness documentation,
                   •   50 were missing the Authority-required waiting list documentation,


                                                6
               •   40 were missing the request for tenancy approval,
               •   37 were missing the original application,
               •   28 were missing the lead-based paint certification,
               •   15 were missing the Authority-required briefing packet,
               •   9 were missing Form HUD-9886, Authorization for Release of
                   Information,
               •   6 were missing the lease with the owner,
               •   2 were missing evidence that a criminal background check was conducted,
               •   2 were missing the Authority-required copy of the birth certificate, and
               •   1 was missing the Social Security number documentation.

            The Authority did not use the appropriate program tenancy addendum for its 89
            program households. However, it did maintain the Section 8 Housing Choice
            Voucher program tenant-based tenancy addendum in each household file. The
            Authority did not require 87 of its program households to sign Form HUD-
            52578b, Statement of Family Responsibility.

            The Authority also did not use the appropriate section (section 11) of HUD’s
            50058 family report for 61 households in one or more certifications. Section 11
            of the 50058 family report ensures that households will not pay more than 30
            percent of their adjusted income for rent as required by HUD’s program
            regulations. The Authority corrected 19 of the 61 50058 family reports when we
            brought the matter to its attention during the audit. As of March 31, the Authority
            had not corrected the remaining 42 (61 minus 19) 50058 family reports.

            The Authority obtained new or original documentation for 36 of the 89 household
            files after we notified it of the missing documents during the audit. This action
            resulted in a reduction in recommendation 1A of $275,351 ($243,126 in housing
            assistance and utility allowance payments and $32,225 in associated
            administrative fees). As a result, the questioned cost in recommendation 1A only
            reflects the missing documentation for the remaining 53 files (85 minus 36).

The Authority Made Incorrect
Housing Assistance and Utility
Allowance Payments


            According to HUD’s regulations at 24 CFR (Code of Federal Regulations)
            5.240(c), public housing authorities must verify the accuracy of the income
            information received from program households and change the amount of the
            total tenant payment, tenant rent, or program housing assistance payment or
            terminate assistance, as appropriate, based on such information.

            The Authority’s calculation errors resulted in overpayments of $23,181 and
            underpayments of $3,092 in housing assistance and utility allowances. The
                                              7
           Authority incorrectly calculated housing assistance and utility allowance payments
           for 46 (52 percent) households in one or more certifications. The files contained
           errors in the calculation of household annual income, disability allowance, and/or
           utility allowances.

           The 46 files contained the following errors:

              •   22 had annual income calculation errors by the Authority for 1 or more
                  certifications,
              •   19 had incorrect disability allowances for 1 or more certifications,
              •   9 had errors related to the use of the incorrect section of HUD’s 50058
                  family report for 1 or more certifications,
              •   8 had incorrect utility allowance calculations for 1 or more certifications, and
              •   5 had adjustment errors.

           The Authority received $16,417 in program administrative fees related to the 25
           households that were overpaid housing assistance and utility allowances for the
           period September 1, 2007, through August 31, 2009. It also received $16,572 in
           program administrative fees related to the 29 households that were underpaid
           housing assistance and utility allowances for the period September 1, 2007,
           through August 31, 2009.

           After we notified the Authority of the incorrect calculations, it provided
           documentation for one household, which reduced the overpayments by $96 from
           $23,181 for 25 households to $23,085 ($23,181 minus $96) for 24 households. This
           reduction is reflected in recommendation 1B. The Authority also provided
           documentation for one household, which increased the underpayment by $90 from
           $3,092 for 29 households to $3,182 ($3,092 plus $90) for the same 29 households.
           This increase is reflected in recommendation 1C. The Authority also took steps to
           correct $1,674 in underpayments for 17 households and $51 in overpayments for 2
           households but had not provided documentation to show that the appropriate
           households and/or owners had been reimbursed as of May 13, 2010.

           As of May 12, 2010, the Authority provided household reimbursement
           documentation for five households. This action resulted in a reduction in
           recommendation 1C of $740. As a result, the questioned cost in recommendation
           1C only reflects the calculation error for the remaining 24 files (29 minus 5).

The Authority’s Procedures
and Controls Had Weaknesses

           The documents were missing from the household files because the Authority and
           its housing agents lacked adequate program knowledge and procedures and
           controls to ensure that the required documents were completed and maintained in



                                             8
the household files to determine household eligibility in accordance with HUD’s
and its own requirements.

The Authority’s regional manager said that if a household was residing in a unit at
the time a housing assistance payments contract was signed, the household was
considered an in-place household. If the household was eligible for the program,
the Authority did not require the household to fill out an initial application or be
placed on the waiting list before receiving program assistance. During our audit,
it updated its policies and procedures to require that all new admission households
fill out an initial application and be placed on the waiting list before receiving
program assistance.

The Authority used Form HUD-52646, Voucher, in place of the Form HUD-
52578b, Statement of Family Responsibility. Until a recent alert from Nan
McKay, the Authority was not aware that the program tenancy addendum and
statement of family responsibility forms existed. The alert provided a list of
updated forms as of September 30, 2009. The Authority was revising its
checklists to include the appropriate forms for the program households as of
March 31, 2010.

The Authority did not require its housing agents to print a copy of the rent
reasonableness determination and maintain the document in the household files.
The Authority’s Elite System can print the initial and annual rent reasonableness
determinations, so the housing agents were not required to print a paper copy of
the document. The Authority’s regional manager said that the Authority would be
able to provide a paper copy of the rent reasonableness upon request. The
Authority provided 48 of the 51 missing rent reasonableness documents. She said
that the Authority had been reviewing its program policies, procedures, and forms
since our phase one audit to ensure that they were appropriate.

The incorrect calculations of housing assistance and utility allowance payments
occurred because the Authority lacked program knowledge and adequate
procedures and controls to ensure that it appropriately followed HUD’s
requirements and its program administrative plan.

The Authority contacted HUD’s Detroit Office of Public Housing before our
audits and requested assistance in its administration of the program. The Detroit
office planned to provide training to the Authority and its staff, but it cancelled
the training due to budget constraints.

As previously mentioned, the Authority hires independent contractors, housing
agents, to maintain its household files. It selects household files to monitor
randomly based upon the number of households allocated to each housing agent.
It had updated its monitoring documents as of December 11, 2009, and January
16, 2010. Before December 2009, when a new project was accepted into the
                                  9
             program, the Authority would have a startup meeting with the project owners and
             housing agents. It would go over each party’s roles and responsibilities.
             However, the housing agents did not receive specific program training. In
             December 2009, the Authority provided program training to its housing agents.

Conclusion

             The Authority did not properly use program funds when it failed to comply with
             HUD’s requirements and its program administrative plan. As a result, HUD and
             the Authority lacked assurance that program funds were used efficiently and
             effectively. In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD
             may reduce or offset any administrative fee to the public housing authority, in the
             amount determined by HUD, if the public housing authority fails to perform its
             administrative responsibilities correctly or adequately under the program.

             The Authority disbursed $628,710 in program housing assistance payments for
             households without proper documentation. In addition, it received $82,265 in
             administrative fees directly related to the months the documentation was missing
             from the household files during the audit period.

             The Authority overpaid $23,181 in housing assistance and utility allowances and
             underpaid $3,092 in housing assistance and utility allowances. It also received
             $32,989 in program administrative fees ($16,417 related to the households
             receiving overpayments and $16,572 related to the households receiving
             underpayments) for the incorrectly calculated housing assistance and utility
             allowance payments.

             HUD lacked assurance that the Authority used its program funds efficiently and
             effectively. If the Authority does not implement adequate procedures and
             controls so its program operations comply with HUD’s requirements and its
             program administrative plan, we estimate that it could overpay $24,767 and
             underpay $5,322 in housing assistance and utility allowances over the next year.
             Our methodology for this estimate is explained in the Scope and Methodology
             section of this audit report. The Authority could put these funds to better use if
             proper procedures and controls are put into place to ensure the accuracy of
             housing assistance and utility allowance payments.

Recommendations

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

             1A. Provide supporting documentation or reimburse its program $710,975
                 ($628,710 in housing assistance and utility allowance payments plus



                                              10
     $82,265 in administrative fees) from non-Federal funds for the unsupported
     payments and associated administrative fess cited in this finding, of which
     $435,624 ($385,584 in housing assistance and utility allowance payments
     and $50,040 in associated administrative fees) remains to be supported or
     reimbursed.

1B. Reimburse its program $39,598 ($23,181 in housing assistance and utility
    allowance payments plus $16,417 in associated administrative fees) from
    non-Federal funds for the overpayment of housing assistance and utility
    allowances cited in this finding, of which $39,255 (23,085 in housing
    assistance and utility allowance payments plus $16,170 in associated
    administrative fees) for the remaining overpayments cited in this finding.

1C. Reimburse the appropriate households $3,182 ($3,092 plus $90 identified by
    the Authority during the audit) for the underpayment of housing assistance
    and utility allowances cited in this finding, of which $2,442 remains to be
    reimbursed.

1D. Reimburse its program $16,572 in associated administrative fees from non-
    Federal funds for the underpayment of housing assistance and utility
    allowances cited in this finding, of which $14,411 remains for the 24
    underpayments.

1E. Implement adequate procedures and controls so that its program operations
    comply with HUD’s requirements and its program administrative plan to
    ensure that an estimated $30,089 ($24,767 plus $5,322) in program funds is
    appropriately used for future payments.




                               11
Finding 2: The Authority Paid Housing Assistance and Utility
          Allowances for Units Not Under Program Contracts
The Authority did not comply with HUD’s requirements and its program administrative plan
when issuing housing assistance and utility allowance payments. It inappropriately made
housing assistance and utility allowance payments when it failed to ensure that units receiving
program housing assistance payments were under an executed housing assistance payments
contract. This deficiency occurred because the Authority lacked adequate procedures and
controls to ensure that it appropriately followed HUD’s requirements and its own policies and
procedures. As a result, it inappropriately paid more than $47,000 in housing assistance and
utility allowances for units not under program contracts. Based on our statistical sample, we
estimate that over the next year, the Authority will overpay nearly $56,000 in housing assistance
and utility allowances for units not under housing assistance payments contracts.


 The Authority Failed To Ensure
 That Assisted Units Were
 Under Program Contracts

               We used the statistical sample as described in finding 1 to determine whether
               housing assistance payments contracts were executed for program units receiving
               housing assistance and utility allowance payments for the period September 1, 2007,
               through August 31, 2009. Our review was expanded as necessary and was limited to
               the information maintained by the Authority in its household files and housing
               assistance payments contracts and contract amendments.

               Of the 89 files reviewed, the Authority incorrectly paid housing assistance and/or
               utility allowance payments for 7 units that were not under a housing assistance
               payments contract in 1 or more of the certifications reviewed. It made inappropriate
               housing assistance payments totaling $47,731 and received $6,963 in program
               administrative fees for the seven units not under executed housing assistance
               payments contracts from September 1, 2007, through August 31, 2009.

 The Authority’s Procedures
 and Controls Had Weaknesses

               The Authority made housing assistance and utility allowance payments for units
               not under housing assistance payments contracts because it lacked adequate
               procedures and controls to ensure that it appropriately followed HUD’s and its
               own requirements. It did not ensure that seven units receiving $47,371 in
               program housing assistance payments were under an executed housing assistance
               payments contract. The housing assistance was paid by the Authority contrary to
               HUD’s requirements. The Authority could have amended its contracts to include



                                                12
             the seven units; however, it did not take the necessary actions to comply with
             HUD’s requirements.

             The Authority made housing assistance payments for units not under a housing
             assistance payments contract because of a communication problem. When the
             housing assistance payments contract was signed for a program project, a housing
             agent was assigned to the project. The Authority then provided the housing agent
             with a copy of the housing assistance payments contract and the exhibit, which
             listed the units that were under contract. It also required the housing agents to
             include a copy of the housing assistance payments contract in each program
             household file. The Authority believed that the project management provided a
             different listing of contract units to the housing agents. It also believed that the
             housing agents used the unit listing provided by the project management instead
             of contacting the Authority to verify whether an amendment to the housing
             assistance payments contract had occurred.

             The Authority created an amended housing assistance payments contract for one
             of the seven units that were not originally under a housing assistance payments
             contract. This action resulted in a reduction in recommendation 2A of $6,291
             ($42,411 in housing assistance and utility allowance payments and $5,632 in
             associated administrative fees). As a result, the questioned cost in
             recommendation 2A only reflects the inappropriate housing assistance payments
             for the remaining six units (7 minus1).


Conclusion

             As a result of the previously mentioned deficiency, HUD and the Authority
             lacked assurance that program funds were used efficiently and effectively. The
             Authority did not properly use program funds when it failed to comply with
             HUD’s requirements. In accordance with HUD’s regulations at 24 CFR
             982.152(d), HUD may reduce or offset any administrative fee to the public
             housing authority, in the amount determined by HUD, if the public housing
             authority fails to perform its administrative responsibilities correctly or
             adequately under the program.

             The Authority paid inappropriate housing assistance payments totaling $47,371
             and received $6,963 in program administrative fees for program units that were
             not under a housing assistance payments contract.

             HUD lacked assurance that the Authority used its program funds efficiently and
             effectively. If the Authority does not implement adequate procedures and
             controls to ensure that housing assistance is paid to units that are on the housing
             assistance payments contracts, we estimate that it could overpay $55,510 in
             housing assistance and utility allowances over the next year. Our methodology
                                              13
          for this estimate is explained in the Scope and Methodology section of this audit
          report. The Authority could put these funds to better use if proper procedures and
          controls are put into place to ensure the accuracy of housing assistance and utility
          allowance payments.

Recommendations


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

          2A. Reimburse its program $54,334 ($47,371 in housing assistance and utility
              allowance payments plus $6,963 in associated administrative fees) from
              non-Federal funds for the housing assistance payments made to owners for
              the units that were not under a housing assistance payments contract, of
              which $48,043 ($42,411 in housing assistance and utility allowance
              payments plus $5,632 in associated administrative fees) remains to be
              reimbursed.

          2B. Implement adequate procedures and controls to ensure that housing
              assistance is paid to units that are on the housing assistance payments
              contracts to ensure that an estimated $55,510 in program funds is
              appropriately used for future payments.

          2C. Ensure that units receiving program assistance are included on an executed
              housing assistance payments contract.




                                           14
Finding 3: The Authority Needs to Improve Its Process for Reviewing
           Income Discrepancies Reported in HUD’s System
The Authority did not effectively use HUD’s system Income Discrepancy Report (report) to
recover or reimburse program housing assistance and utility allowance payments for households
with unreported, underreported, or overestimated income. This deficiency occurred because the
Authority lacked adequate procedures and controls to ensure that it appropriately followed
HUD’s and its requirements. As a result, the Authority overpaid more than $32,000 and
underpaid more than $1,700 in housing assistance and utility allowances.


 The Authority Failed To
 Resolve Income Discrepancies

              As required by its program policies and procedures manual, the Authority must
              verify any income discrepancies with a gross income difference of $200 or more
              per month ($2,400 per year). However, it did not effectively use HUD’s system
              report to recover or reimburse program housing assistance and utility allowance
              payments for households with unreported, underreported, or overestimated
              income. It also did not ensure that its housing agents used the system report
              during the recertification process.

              From the Authority’s 2,694 Section 8 households that had an income discrepancy
              as of September 20, 2009, 49 were program participants. We reviewed the
              income discrepancy information for the 49 household files. Our review was
              limited to the information in HUD’s system and the information entered in HUD’s
              Public and Indian Housing Information Center database by the Authority.

              Of the 49 files reviewed, 25 (51 percent) had unreported, underreported, or
              overestimated income totaling $176,749 according to HUD’s system. Sixteen
              households were new admissions to the program and the income discrepancy was
              before the households’ participation in the program, six households had valid
              income discrepancies totaling $7,041 but did not meet the individual $2,400
              income discrepancy threshold set by HUD, and two households did not have a
              valid income discrepancy for the period September 1, 2007, through June 30,
              2009.

              The Authority overpaid $32,047 in housing assistance and utility allowances to
              the 24 households that had unreported or underreported income and underpaid
              $1,746 in housing assistance and utility allowances to the two households for
              which the Authority overestimated their income. One household had
              underreported income for one or more certifications and overestimated income for
              one certification.

                                             15
             The Authority received $11,552 in program administrative fees related to the 24
             households with overpayments and received $881 in program administrative fees
             related to the 2 households with underpayments for the period September 1, 2007,
             through June 30, 2009.

The Authority’s Procedures
and Controls Had Weaknesses


             The overpayments and underpayments of housing assistance and utility
             allowances occurred because the Authority lacked adequate monitoring
             procedures and controls to ensure that it appropriately followed HUD’s
             requirements and its program policies and procedures manual. The Authority
             lacked controls to perform appropriate income verifications and ensure that
             periodic reviews were performed. In addition, it did not ensure that its housing
             agents took appropriate steps to recover or reimburse overpaid and underpaid
             housing assistance when unreported, underreported, or overestimated income was
             determined during the recertification process.

             The Authority’s compliance enforcement coordinator stated that she ran the
             system report at least twice annually. Each time the system income discrepancy
             report was generated, there were nearly 3,000 households with income
             discrepancies. She looked at the largest income discrepancies first and stated that
             there were many issues with the reports including false positives. The compliance
             enforcement coordinator also said that the Authority’s housing agents were to use
             the system during each recertification. She stated that the income discrepancies
             should have been resolved by the housing agents during the recertification
             process.

             HUD’s system report is a useful tool to assist the Authority in identifying income
             discrepancies. It should ensure that its housing agents use the information during
             the recertification process to identify unreported, underreported, or overestimated
             income for households.

Conclusion

             As a result, HUD and the Authority lacked assurance that program funds were
             used efficiently and effectively. The Authority did not properly use program
             funds when it failed to comply with HUD’s requirements and its program policies
             and procedures manual. In accordance with HUD’s regulations at 24 CFR
             982.152(d), HUD may reduce or offset any administrative fee to the public
             housing authority, in the amount determined by HUD, if the public housing
             authority fails to perform its administrative responsibilities correctly or
             adequately under the program.




                                              16
          The Authority overpaid $32,047 in housing assistance and utility allowances
          related to the households with unreported or underreported income and underpaid
          $1,746 in housing assistance and utility allowances to the households with
          overestimated income. It also received $12,433 in program administrative fees
          ($11,552 related to the households receiving overpayments plus $881 related to
          the households receiving underpayments) for the incorrectly calculated housing
          assistance and utility allowance payments.

          As of January 20, 2010, the Authority had entered into a repayment agreement
          with one household for a total of $2,676. The total overpaid housing assistance
          and utility allowances of $32,047 do not include the $2,676 in housing assistance
          that was overpaid and under the repayment agreement.

Recommendations

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

          3A. Take appropriate action to determine whether the income discrepancies are
              valid and if so, pursue collection from the applicable households or
              reimburse its program $43,599 ($32,047 in housing assistance payments
              plus $11,552 in administrative fees) from non-Federal funds for the
              overpayment of housing assistance cited in this finding.

          3B. Take the appropriate actions to determine whether the income discrepancies
              are valid and if so, reimburse the appropriate households $1,746 for the
              underpayment of housing assistance and utility allowances cited in this
              finding.

          3C. Reimburse its program $881 in associated program administrative fees from
              non-Federal funds for the underpayment of housing assistance and utility
              allowances cited in this finding after the appropriate actions are taken to
              determine whether the income discrepancies are valid.

          3D. Implement adequate monitoring procedures and controls to ensure that
              appropriate actions are taken when income discrepancies exceeding HUD’s
              and its threshold are discovered during the recertification process or during
              its review of the system report to ensure that it complies with HUD’s
              requirements and its program administrative plan.




                                          17
Finding 4: The Authority’s Policies and Procedures for Deceased
               Program Participants Were Inappropriate
The Authority did not comply with HUD’s requirements regarding the removal of deceased
individuals from its program and the collection of inappropriate housing assistance and utility
allowance payments for deceased individuals. These deficiencies occurred because the
Authority lacked adequate procedures and controls to ensure that it appropriately followed
HUD’s requirements. As a result, it overpaid more than $6,000 in housing assistance and utility
allowances.


 The Authority Did Not Recover
 Housing Assistance and Utility
 Allowance Payments for
 Deceased Individuals

              A review of the Social Security numbers of the 617 active program households
              receiving program housing assistance payments totaling more than $4.2 million
              during the period September 1, 2007, through August 31, 2009, revealed that 10
              households were associated with deceased individuals. Six of these households
              received housing assistance payments for 1 or more months after the household
              became deceased, which resulted in the overpayment of $6,449 in housing
              assistance and utility allowance payments. For the one household with a
              remaining family member, the Authority failed to remove the deceased individual
              and the individual’s associated income for more than 6 months. The Authority
              received $805 in program administrative fees related to the six households that
              were overpaid housing assistance and utility allowances for the period September
              1, 2007, through August 31, 2009.

              The Authority has the discretion in its program housing assistance payments
              contracts with the owners to allow vacancy loss payments for program households
              for up to 2 full months after the household leaves the program unit, including the
              death of the head of household. The Authority chose not to include the vacancy
              loss provision in its program housing assistance payments contracts executed
              before January 1, 2008. After January 1, 2008, the Authority determined that it
              would allow the vacancy loss payment provision on a case-by-case basis.

              As of April 1, 2010, the Authority had created contract termination notices for the
              deceased individuals. The Authority had also taken steps to correct the inappropriate
              housing assistance and utility allowance payments but had not provided
              documentation to show that the appropriate reimbursements had been completed.
              For the one household with a remaining family member, the Authority completed an
              interim recertification removing the deceased individual from the household. The
              Authority also recalculated the housing assistance and utility allowance payments



                                               18
             for the remaining member but did not provide the income documentation to support
             its calculations.

The Authority’s Procedures
and Controls Were Contrary to
HUD’s Requirements


             The overpayment of housing assistance and utility allowance occurred because
             the Authority lacked adequate procedures and controls to ensure that it
             appropriately followed HUD’s requirements.

             The Authority’s compliance department runs the deceased household report from
             HUD’s system at least once per month. The compliance department then
             determines whether the household is actually deceased and takes the appropriate
             actions. However, the Authority’s policies and procedures required it to make the
             deceased individual’s end of participation date the date the individual’s
             belongings were removed from the unit. This policy is contrary to HUD’s
             requirements.

             The Authority agreed that its policies and procedures were the reason that housing
             assistance payments were paid for deceased households for months after the
             program participant was deceased. The Authority believed that it could pay
             housing assistance for the unit until the household’s items were removed from the
             unit.

Conclusion

             As a result of the Authority’s failure to comply with HUD’s requirements, it
             improperly used program funds. Specifically, the Authority failed to collect
             $6,449 in housing assistance and utility allowance payments. It also improperly
             received $805 in associated program administrative fees for the households cited
             in this finding.

             In accordance with HUD’s regulations at 24 CFR 982.152(d), HUD may reduce
             or offset any administrative fee to the public housing authority, in the amount
             determined by HUD, if the public housing authority fails to perform its
             administrative responsibilities correctly or adequately under the program.

Recommendations

             We recommend that the Acting Director of HUD’s Detroit Office of Public
             Housing require the Authority to
                                             19
4A. Collect the $6,449 in overpaid housing assistance and utility allowances
    from the owners or reimburse its program the applicable amount from non-
    Federal funds.

4B. Reimburse its program $805 from non-Federal funds for the inappropriate
    program administrative fees received for the households cited in this
    finding.

4C. Implement adequate procedures and controls to ensure that program funds
    paid related to deceased tenants are collected and interim certifications are
    performed when household members are reported as deceased.

4D. Implement procedures and controls to ensure that it complies with all
    Federal requirements for the payment of housing assistance and utility
    allowances.




                                20
                         SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

   •   Applicable laws; regulations; Federal Register notices; HUD’s program requirements at 24
       CFR Parts 5, 35, 58, 908, 982, and 983; Public and Indian Housing Notices 2001-04, 2004-
       01, 2005-29, and 2007-27; HUD Guidebook 7420.10G, HUD’s Voucher Management
       System, HUD’s Public and Indian Housing Information Center database; and HUD’s
       system.

   •   The Authority’s accounting records, annual audited financial statements for fiscal years
       2007 and 2008, program administrative plans, program household files, computerized
       databases, policies and procedures, board meeting minutes pertinent to the program, and
       organizational chart.

   •   HUD’s files for the Authority.

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

Finding 1

Using data mining software, we statistically selected 89 household files from the 617 households
receiving housing assistance payments between September 1, 2007, and August 31, 2009. The 89
files were reviewed to determine whether the Authority had documented and correctly calculated
households’ housing assistance and utility allowance payments for the period September 1, 2007,
through August 31, 2009. Our sampling criteria used a 90 percent confidence level and precision
of plus or minus 10 percent.

Our sampling results determined that the housing assistance and/or utility allowance payments were
miscalculated for 47 households in 1 or more of the certifications reviewed. Of these 47 household
files with calculation errors, 25 resulted in overpaid housing assistance and utility allowances, and
29 resulted in underpaid housing assistance and utility allowances for 1 or more certifications.

Based on our sample review results, using difference estimation methodology, we are 95 percent
confident that the amount of overpaid housing assistance and utility allowances due to calculation
errors over the next year will be at least $24,767. This amount was determined by limiting the
estimated difference lower limit of overpaid housing assistance to 1 year. We divided the estimated
difference lower limit of $49,534 by 24 months and then multiplied by 12 months. In addition, we
are 95 percent confident that the amount of underpaid housing assistance and utility allowances due
to calculation errors over the next year will be at least $5,322. This amount was determined by
limiting the estimated difference upper limit of underpaid housing assistance to 1 year. We divided
the estimated difference lower limit of $10,645 by 24 months and then multiplied by 12 months.
The total funds to be put to better use are $30,089 ($24,767 for overpayments plus $5,322 for
underpayments).
                                                    21
Finding 2

Using data mining software, we statistically selected 89 household files from the 617 households
receiving housing assistance payments between September 1, 2007, and August 31, 2009. The 89
files were reviewed to determine whether housing assistance payments contracts were executed
for program units receiving housing assistance and utility allowance payments for the period
September 1, 2007, through August 31, 2009. Our sampling criteria used a 90 percent
confidence level and precision of plus or minus 10 percent.

Our sampling results determined that the housing assistance and/or utility allowance payments
were incorrectly paid for seven households in one or more of the certifications reviewed. Of the
89 households that received program housing assistance and utility allowance payments, 7 units
were not identified in the Authority’s housing assistance payments contracts and resulted in
overpaid housing assistance and utility allowance payments.

Based on our sample review results, using difference estimation methodology, we are 95 percent
confident that the amount of overpaid housing assistance and utility allowances due to calculation
errors over the next year will be at least $55,510. This amount was determined by limiting the
estimated difference lower limit of overpaid housing assistance to 1 year. We divided the estimated
difference lower limit of $111,020 by 24 months and then multiplied by 12 months.

Finding 3

We obtained HUD’s system report. The report contained 2,694 Section 8 households that had an
income discrepancy as of September 20, 2009. Of the 2,694 households, 49 were program
participants. We reviewed the income discrepancy information for the 49 household files.

Our results determined that of the 49 files reviewed, 25 (51 percent) had unreported,
underreported, or overestimated income totaling $176,749 according to HUD’s system; 16
households were new admissions to the program and the income discrepancy was before the
households’ participation in the program; 6 households had valid income discrepancies totaling
$7,041 but did not meet the $2,400 income discrepancy threshold set by HUD; and 2 households
did not have a valid income discrepancy for the period September 1, 2007, through June 30,
2009.

The Authority overpaid $32,047 in housing assistance and utility allowances to the 24
households that had unreported or underreported income. The Authority underpaid $1,746 in
housing assistance and utility allowance payments to the two households for which the Authority
overestimated the households’ income.

Finding 4

Our review of the Social Security numbers for the 617 active program households receiving
housing assistance payments during the period September 1, 2007, through August 31, 2009,
revealed that 10 households were associated with deceased individuals. Of the 10 deceased
households, 6 households received housing assistance payments for 1 or more months after the



                                                22
household became deceased, which resulted in the overpayment of $6,449 in housing assistance
and utility allowances.

We relied on computer-processed data contained in HUD’s Enterprise Income Verification
System and the Authority’s Elite accounting system used for its Section 8 Housing Choice
Voucher program. We performed sufficient tests of the data, and based on the assessment and
testing, we concluded that the data were sufficiently reliable to be used in meeting our
objectives.

We performed our onsite audit work during October 2009 at the Authority’s office located at 735
East Michigan Avenue, Lansing, MI, and HUD’s Detroit field office. The audit covered the
period September 1, 2007, through August 31, 2009, 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, 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.




                                              23
                              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:

              •   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.




                                               24
Significant Weakness

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

           •      The Authority lacked adequate procedures and controls to ensure compliance
                  with HUD’s requirements and/or its program administrative plan regarding
                  (1) household eligibility, (2) the calculation of household income and
                  housing assistance and utility allowance payments, (3) ensuring that assisted
                  units are under housing assistance payments contracts, (4) the use of HUD’s
                  system for the recovery or repayment of overpaid and underpaid housing
                  assistance and utility allowances, and (5) the recovery of overpaid housing
                  assistance and utility allowances for deceased individuals (see findings 1, 2,
                  3, and 4).




                                            25
                                   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                                      $710,975
               1B                      $39,598
               1C                                                             $3,182
               1D                       16,572
               1E                                                             30,089
               2A                       54,334
               2B                                                             55,510
               3A                                         43,599
               3B                                                              1,746
               3C                          881
               4A                        6,449
               4B                          805
              Totals                  $118,639         $754,574              $90,527


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

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

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements the
     recommendations, it will ensure that program funds are spent according to Federal
     requirements. Once the Authority successfully improves its controls, this will be a
     recurring benefit. Our estimates reflect only the initial year of this benefit.


                                             26
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1

Comment 2




                         27
Ref to OIG Evaluation   Auditee Comments




Comment 3



Comment 4




Comment 5




Comment 6




                         28
Ref to OIG Evaluation   Auditee Comments




Comment 7




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9




                         30
                           OIG Evaluation of Auditee Comments

Comment 1 We acknowledge that the Authority did not require the rent reasonableness
          documents to be printed and maintained in its household files. We requested the
          Authority to provide the documents to support its statements that the Authority’s
          Elite system maintains the information. As of May 13, 2010, the Authority
          provided all but 1 of the 51 missing rent reasonableness determinations.

Comment 2 HUD’s regulations at 24 CFR 983.101(c)(2) state that the Lead-based Paint
          Poisoning Prevention Act, the Residential Lead-based Paint Hazard Reduction Act
          of, and implementing regulations at 24 CFR Part 35, subparts A, B, H, and R,
          apply to the project-based voucher program. HUD’s regulations at 24 CFR
          35.92(b) are listed under subpart A. The Authority provided three specific
          program projects that it believed did not require a lead-based paint certification.
          We reviewed the household files for the 24 households residing in the three
          program projects. Of the 24 household files reviewed, the Authority was initially
          unable to provide 15 lead-based paint certifications. After we received the
          Authority’s comments to the discussion draft audit report, the Authority provided
          an additional eight lead-based paint certifications for the households in the
          program projects. As a result, the Authority did not provide the required
          remaining seven lead-based paint certifications for the households residing in the
          program projects.

Comment 3 The documentation in the Authority’s files was not reasonable alternative
          documentation as required by HUD regulations. HUD’s regulations at 24 CFR
          983.56(b)(2)(ii)(B) state that at the time of initial lease execution between the
          family and the owner, the family and the authority must sign a statement of family
          responsibility. The statement of family responsibility must contain all family
          obligations including the family’s participation in a service program under this
          section. HUD’s regulations at 24 CFR 983.256(b)(3) states that in all cases, the
          lease must include a HUD-required tenancy addendum. The tenancy addendum
          must include, word-for-word, all provisions required by HUD.

Comment 4 The Authority’s proposed actions should improve its program operations, if fully
          implemented.

Comment 5 We acknowledge the receipt of the waiting list affidavits. However, the
          Authority’s regional manager said that if a household was residing in a unit at the
          time that a housing assistance payments contract was executed, the household was
          considered an in-place household. If the household was eligible for the program,
          the Authority did not require the household to fill out an initial application, or be
          placed on the waiting list, before receiving program assistance. Therefore, the
          Authority should provide documentation to show whether the households were in
          place at the time they were assisted. If the households were in place, the validity

                                              31
             of the affidavits are questionable since they state that the prospective households
             were selected from the Authority’s waiting list.

Comment 6 The Authority only provided documentation to support that the housing assistance
          payments contract for Herkimer Apartments was amended. As such, we revised
          recommendation 2A to reflect the documentation that was provided.

Comment 7 The Authority is responsible to take appropriate action to determine whether the
          income discrepancies are valid. We agree that the Authority has policies and
          procedures in place for reviewing the income discrepancies reported in HUD’s
          system. The Authority’s housing agents are not reviewing the income discrepancy
          reports. We believe that if the Authority implements adequate monitoring policies,
          requiring the housing agents to review the income discrepancy reports, it would
          alleviate some of the burden on its staff member devoted to reviewing the income
          discrepancies. We revised recommendation 3D to reflect the changes discussed in
          this paragraph.

Comment 8     The Authority failed to provide adequate documentation to support that this
              finding has been corrected.

Comment 9     As discussed with the Authority during the audit, in accordance with HUD’s
              regulations at 24 CFR 982.152(d), HUD may reduce or offset any administrative
              fee to the public housing authority, in the amount determined by HUD, if the
              public housing authority fails to perform its administrative responsibilities
              correctly or adequately under the program.




                                               32
Appendix C

      FEDERAL REQUIREMENTS AND THE AUTHORITY’S
            PROGRAM 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. However, sections (b) and (c) of this section describe the provisions
that do not apply to the Project-Based Voucher program. Therefore, the rest of Part 982 applies
to the program.

HUD’s regulations at 24 CFR 908.101 state that the purpose of this part is to require public
housing authorities that operate public housing; Indian housing; or Section 8 Rental Certificate,
Housing Choice Voucher, and Moderate Rehabilitation programs to electronically submit certain
data to HUD for those programs. These electronically submitted data are required for HUD
Forms HUD-50058, Family Report, and HUD-50058–FSS, Family Self-Sufficiency Addendum.

Public and Indian Housing Notice 2005-29 states that the authority must enter data for program
vouchers into section 11 of Form HUD-50058, Family Report. The authority must also continue
entering information on families receiving program certificate assistance into section 11 of Form
HUD-50058.

HUD’s regulations at 24 CFR 5.901(a) include requirements that apply to criminal conviction
background checks by public housing agencies that administer the Section 8 and public housing
programs when they obtain criminal conviction records, under the authority of section 6(q) of the
United States Housing Act of 1937 (42 U.S.C. (United States Code) 1437d(q), from a law
enforcement agency to prevent admission of criminals to public housing and Section 8 housing
and to assist in lease enforcement and eviction.

HUD’s regulations at 24 CFR 5.902(b) define covered housing as public housing, project-based
assistance under Section 8 (including new construction and substantial rehabilitation projects),
and tenant-based assistance under Section 8.

HUD’s regulations at 24 CFR 5.216(a) state that each assistance applicant must submit to the
processing entity when the assistance applicant’s eligibility under the program involved is being
determined (ii) the documentation referred to in paragraph (f)(1) of this section to verify the
Social Security numbers. Part 5.216(f)(1) states that the documentation necessary to verify the
Social Security number of an individual who is required to disclose his or her Social Security
number under paragraphs (a) through (d) of this section is a valid Social Security number card
issued by the Social Security Administration or such other evidence of the Social Security
number as HUD and, where applicable, the public housing authority may prescribe in
administrative instructions.
                                               33
HUD’s regulations at 24 CFR 982.158(e) state that during the term of each assisted lease and for
at least 3 years thereafter, the authority must keep (1) a copy of the executed lease, (2) the
housing assistance payments contract, and (3) the application from the family.

HUD’s regulations at 24 CFR 982.158(f) state that the authority must keep the following records
for at least 3 years: (1) records that provide income, racial, ethnic, gender, and disability status
data on program applicants and participants; (2) an application from each ineligible family and
notice that the applicant is not eligible; (3) HUD-required reports; (4) unit inspection reports; (5)
lead-based paint records as required by part 35, subpart B, of this title; (6) accounts and other
records supporting the public housing authority budget and financial statements for the program;
(7) records to document the basis for the public housing authority determination that rent to
owner is a reasonable rent (initially and during the term of a housing assistance payments
contract); and (8) other records specified by HUD.

HUD’s regulations at 24 CFR 35.92(b) state that each contract to lease target housing shall
include, as an attachment or within the contract, the following elements in the language of the
contract: (1) A lead warning statement with the following language: housing built before 1978
may contain lead-based paint. Lead from paint, paint chips, and dust can pose health hazards if
not managed properly. Lead exposure is especially harmful to young children and pregnant
women. Before renting pre-1978 housing, lessors must disclose the presence of lead-based paint
and/or lead-based paint hazards in the dwelling. Lessees must also receive a federally approved
pamphlet on lead poisoning prevention. (2) A statement by the lessor disclosing the presence of
known lead-based paint and/or lead-based paint hazards in the target housing being leased or
indicating no knowledge of the presence of lead-based paint and/or lead-based paint hazards.
The lessor shall also disclose any additional information available concerning the known lead-
based paint and/or lead-based paint hazards, such as the basis for the determination that lead-
based paint and/or lead-based paint hazards exist in the housing, the location of the lead-based
paint and/or lead-based paint hazards, and the condition of the painted surfaces. (3) A list of any
records or reports available to the lessor pertaining to lead-based paint and/or lead-based paint
hazards in the housing that have been provided to the lessee. If no such records or reports are
available, the lessor shall so indicate. (4) A statement by the lessee affirming receipt of the
information set out in paragraphs (b)(2) and (b)(3) of this section and the lead hazard information
pamphlet required under 15 U.S.C. 2696. (5) When any agent is involved in the transaction to
lease target housing on behalf of the lessor, a statement that (i) the agent has informed the lessor
of the lessor’s obligations under 42 U.S.C. 4852d and (ii) the agent is aware of his/her duty to
ensure compliance with the requirements of this subpart. (6) The signatures of the lessors,
agents, and lessees certifying to the accuracy of their statements to the best of their knowledge,
along with the dates of signature. (c) Retention of certification and acknowledgment
information. (1) The seller and any agent shall retain a copy of the completed attachment
required under paragraph (a) of this section for no less than 3 years from the completion date of
the sale. The lessor and any agent shall retain a copy of the completed attachment or lease
contract containing the information required under paragraph (b) of this section for no less than 3
years from the commencement of the leasing period.

HUD’s regulations at 24 CFR 983.256(b)(1) state that the tenant and the owner must enter a
written lease for the unit. The lease must be executed by the owner and the tenant. (2) If the



                                                 34
owner uses a standard lease form for rental to unassisted tenants in the locality or the premises,
the lease must be in such standard form. (3) In all cases, the lease must include a HUD-required
tenancy addendum. The tenancy addendum must include, word-for-word, all provisions required
by HUD.

HUD’s regulations at 24 CFR 983.256(b)(3) state that in all cases, the lease must include a
HUD-required tenancy addendum. The tenancy addendum must include, word-for-word, all
provisions required by HUD.

HUD’s regulations at 24 CFR 983.256(c)(1) state that the lease must specify the names of the
owner and the tenant.

HUD’s regulations at 24 CFR 5.212(b) state that all assistance applicants shall be provided with
a Privacy Act notice at the time of application. All participants shall be provided with a Privacy
Act notice at each annual income recertification.

HUD’s regulations at 24 CFR 983.56(b)(2)(ii)(B) state that at the time of initial lease execution
between the family and the owner, the family and the authority must sign a statement of family
responsibility. The statement of family responsibility must contain all family obligations
including the family’s participation in a service program under this section. Failure by the
family without good cause to fulfill its service obligation will require the Authority to terminate
assistance.

HUD’s regulations at 24 CFR 983.251(b)(2) state that in order to minimize displacement of in-
place families, if a unit to be placed under contract that is either an existing unit or one requiring
rehabilitation is occupied by an eligible family on the proposal selection date, the in-place family
must be placed on the authority’s waiting list (if the family is not already on the list) and, once its
continued eligibility is determined, given an absolute selection preference and referred to the
project owner for an appropriate-size program unit in the project.

HUD’s regulations at 24 CFR 983.251(c)(1) state that applicants who will occupy program units
must be selected by the authority from the authority’s waiting list. The authority must select
applicants from the waiting list in accordance with the policies in the authority’s administrative
plan.

Chapter 7, section I, of the Authority’s program administrative plan states that the Authority will
require applicants to furnish verification of legal identity for all family members. The
documents listed below will be considered acceptable verification of legal identity for adults.
Acceptable proof of identity must include a) the individual’s name and b) the individual’s date of
birth. If a document submitted by a family is illegible or otherwise questionable, more than one
of these documents may be required. Certificate of birth, naturalization papers, hospital records,
a letter from a local government identifying why a birth certificate is not available, or third-party
verification of birth (e.g., a letter from the Social Security Administration).



                                                  35
Chapter 8, Section F, of the Authority’s program administrative plan states that during the
briefing session, each household will be issued a voucher which represents a contractual
agreement between the authority and the family specifying the rights and responsibilities of each
party. It does not constitute admission to the program, which occurs when the lease and contract
become effective. The voucher is valid for a period of at least 60 calendar days from the date of
issuance. The family must submit a Rental Unit Information Form (Michigan State Housing
Development Authority (MSHDA) 51b) within the 60-day period unless an extension has been
granted by the authority.

The Authority’s Housing Voucher Programs Policies and Procedures Manual, chapter III,
Section G2, states that all briefing sessions for new applicants must take place in person and
issuance of the authority form number 145 to each voucher recipient is mandatory. The voucher
must be physically issued to the applicant as part of the briefing session. The authority must
complete, sign, and date the briefing packet cover sheet. The applicant must also sign,
acknowledging receipt of the packet. The Authority should retain the original for the applicant
file.

HUD’s regulations at 24 CFR 982.54(c) state that the authority must administer the program in
accordance with its administrative plan.

HUD’s regulations at 24 CFR 982.153 state that the authority must comply with the consolidated
annual contributions contract, the application, HUD regulations and other requirements, and its
program administrative plan.

HUD’s regulations at 24 CFR 982.516(f) state that the authority must establish procedures that
are appropriate and necessary to ensure that income data provided by applicant or participant
families are complete and accurate.

HUD’s regulations at 24 CFR 982.517(d) state that the authority must use the appropriate utility
allowance for the size of dwelling unit leased by the family.

HUD’s regulations at 24 CFR 5.240(c) state that the authority must verify the accuracy of the
income information received from program households and change the amount of the total tenant
payment, tenant rent, or program housing assistance payment or terminate assistance, as
appropriate, based on such information.

HUD’s regulations at 24 CFR 5.609(a)(2) state that annual income means all amounts, monetary
or not, which are anticipated to be received from a source outside the family during the 12-month
period following admission or annual reexamination effective date.

HUD’s regulations at 24 CFR 5.611(a)(2) state that in determining adjusted income, the
responsible entity must deduct from annual income $400 for any elderly family or disabled
family.

Public and Indian Housing Notice 2005-29 states that public housing authorities must enter data
for program vouchers into section 11 of Form HUD-50058, Family Report. The authority must



                                               36
also continue entering information on families receiving project-based certificate assistance into
section 11 of Form HUD-50058.

Chapter IV, section E2, of the Authority’s Housing Voucher Programs Policies and Procedures
Manual states that a $400 per household allowance is granted when the head, cohead, or spouse
is elderly or disabled. The head, cohead, or spouse must be age 62 or over, currently receive
Federal Supplemental Security Income or Social Security Disability Income payments, or have a
valid verification of disability and/or special medical needs, completed by a licensed health care
provider, to receive the allowance. Only one allowance is granted per family, even if both the
head and spouse are disabled. Receipt of monthly Federal Supplemental Security Income or
Social Security Disability Income is sufficient verification of disability for the recipient in
determining eligibility for the disability allowance, provided the recipient is under age 62. In
addition, acceptable verification of disability includes a HUD system report showing that the
disability box is checked as disabled.

Finding 2
HUD’s regulations at 24 CFR 983.209 state that by execution of the housing assistance payments
contract, the owner certifies that at such execution and at all times during the term of the housing
assistance payments contract (a) all contract units are in good and tenantable condition. (b) The
owner is providing all of the services, maintenance, equipment, and utilities as agreed to under
the housing assistance payments contract and the leases with assisted families. (c) Each contract
unit for which the owner is receiving housing assistance payments is leased to an eligible family
referred by the authority, and the lease is in accordance with the housing assistance payments
contract and HUD requirements. (d) To the best of the owner’s knowledge, the members of the
family reside in each contract unit for which the owner is receiving housing assistance payments,
and the unit is the family’s only residence. (f) The amount of the housing assistance payment is
the correct amount due under the housing assistance payments contract. (g) The rent to owner
for each contract unit does not exceed rents charged by the owner for other comparable
unassisted units. (h) Except for the housing assistance payment and the tenant rent as provided
under the housing assistance payments contract, the owner has not received and will not receive
any payment or other consideration for rental of the contract unit.

HUD’s regulations at 24 CFR 983.351(a)(1) state that during the term of the housing assistance
payments contract, the authority shall make housing assistance payments to the owner in
accordance with the terms of the housing assistance payments contract. The payments shall be
made for the months during which a contract unit is leased to and actually occupied by an
eligible family.
HUD’s regulations at 24 CFR 983.351(e) state that in order to receive housing assistance
payments in accordance with the housing assistance payments contract, the owner must comply
with all the provisions of the housing assistance payments contract. Unless the owner complies
with all the provisions of the housing assistance payments contract, the owner does not have a
right to receive housing assistance payments.
HUD’s regulations at 24 CFR 983.206(a) state that at the discretion of the authority and subject
to all program requirements, the housing assistance payments contract may be amended to
                                                37
substitute a different unit with the same number of bedrooms in the same building for a
previously covered contract unit.
HUD’s regulations at 24 CFR 983.206(b) state that at the discretion of the authority, a housing
assistance payments contract may be amended during the 3-year period immediately following
the execution date of the housing assistance payments contract to add additional program
contract units in the same building. An amendment to the housing assistance payments contract
is subject to all program requirements, except that a new program request for proposal is not
required. The anniversary and expiration dates of the housing assistance payments contract for
the additional units must be the same as the anniversary and expiration dates of the housing
assistance payments contract term for the program units originally placed under housing
assistance payments contract.

The Authority’s Housing Voucher Programs Policies and Procedures Manual, chapter XXII,
section D, states that at the time the housing assistance payments contract is executed, the owner
will identify the specific units that will be assisted under the contract. A copy of the housing
assistance payments contract will be required in a tenant file. Each tenant will have a lease with
the owner for the specified unit.

Finding 3
HUD’s regulations at 24 CFR 5.240(c) state that the authority must verify the accuracy of the
income information received from program households and change the amount of the total tenant
payment, tenant rent, or program housing assistance payment or terminate assistance, as
appropriate, based on such information.

HUD’s regulations at 24 CFR 5.236(b)(1) state that any determination or redetermination of
family income verified in accordance with this paragraph must be carried out in accordance with
the requirements and procedures applicable to the individual covered program. Independent
verification of information obtained from a State wage information collection agency or a
Federal agency may be (i) by HUD; (ii) in the case of the public housing program, by a public
housing authority; or (iii) in the case of any Section 8 program, by a public housing authority
acting as contract administrator under an annual contributions contract.

HUD’s regulations at 24 CFR 5.236(b)(2) state that upon receiving income information from a
State wage information collection agency or a Federal agency, HUD or, when applicable, the
public housing authority shall compare the information with the information about a family’s
income that was (i) provided by the assistance applicant or participant to the public housing
authority.

HUD’s regulations at 24 CFR 5.236(b)(3) state that when the income information reveals an
employer or other income source that was not disclosed by the assistance applicant or participant
or when the income information differs substantially from the information received from the
assistance applicant or participant or from his or her employer, (i) HUD or, as applicable or
directed by HUD, the public housing authority shall request the undisclosed employer or other
income source to furnish any information necessary to establish an assistance applicant’s or
participant’s eligibility for or level of assistance in a covered program. This information shall be


                                                38
furnished in writing, as directed to (B) the responsible entity (as defined in 24 CFR 5.100) in the
case of the public housing program or any Section 8 program, or (ii) HUD or the public housing
authority may verify the income information directly with an assistance applicant or participant.
Such verification procedures shall not include any disclosure of income information prohibited
under paragraph (b)(6) of this section.

HUD’s regulations at 24 CFR 5.236(b)(4) state that HUD and the public housing authority shall
not be required to pursue these verification procedures when the sums of money at issue are too
small to raise an inference of fraud or justify the expense of independent verification and the
procedures related to termination, denial, suspension, or reduction of assistance.

HUD’s regulations at 24 CFR 982.54(c) state that the authority must administer the program in
accordance with its administrative plan.

HUD’s regulations at 24 CFR 982.153 state that the authority must comply with the consolidated
annual contributions contract, the application, HUD regulations and other requirements, and its
program administrative plan.

HUD’s regulations at 24 CFR 982.516(f) state that the authority must establish procedures that
are appropriate and necessary to ensure that income data provided by applicant or participant
families are complete and accurate.

HUD’s regulations at 24 CFR 5.609(a)(2) state that annual income means all amounts, monetary
or not, which are anticipated to be received from a source outside the family during the 12-month
period following admission or annual reexamination effective date.

Public and Indian Housing Notice 2005-29 states that public housing authorities must enter data
for program vouchers into section 11 of Form HUD-50058, Family Report. The authority must
also continue entering information on families receiving project-based certificate assistance into
section 11 of Form HUD-50058.

Office of Management and Budget Circular A-133 states that under budgetary guidance and
Public Law No. 107-300, Federal agencies are required to review Federal awards and as
applicable provide an estimate of improper payments. This includes any payment that should not
have been made or that was made in an incorrect amount under statutory, contractual,
administrative, or other legally applicable requirements and includes any payment to an
ineligible recipient; any payments for an ineligible service, duplicate payments, or payments for
services not received; and any payment that does not account for credit for applicable discounts.

The Authority’s Housing Choice Voucher Policies and Procedures Manual, chapter IV, section
3, number 1, states that the Exceeds Threshold Report within HUD’s system generates a list of
families with income discrepancies exceeding a percentage selected by the user. This report will
be generated and used primarily by the Authority’s system discrepancy coordinator.



                                                39
Section 3, number 3, of the Authority’s Housing Choice Voucher Policies and Procedures
Manual, chapter IV, states that HUD has established the criteria for what constitutes a
“substantial difference” in cases in which system income data differ from household-provided
and/or other verified income information. HUD defines a “substantial difference” as one that has
a gross income difference of $200 or more per month ($2,400 per year). In addition to projecting
household income, the Authority must review the historical data on the system form for
unreported and underreported income. The Authority must pursue the verification of all
unreported income that is discovered through the system. If participant withheld information at
his or her last annual reexamination or failed to report additional income, the participant will be
required to enter into a repayment agreement.

The Authority’s Housing Choice Voucher Policies and Procedures Manual, chapter VI, section
A, states that verifications for all income, assets, and deductions must be obtained using the
third-party verification system hierarchy. HUD’s system is not available to use for initial
verifications for applicants because there is no database established against which to compare
data. After an initial contract has been completed, housing agents must pull an Enterprise
Income Verification Tenant Income Data Report at the end of the first 6-month period to check
for unreported income.

Finding 4
HUD’s regulations at 24 CFR 982.311(a) state that housing assistance payments are paid to the
owner in accordance with the terms of the housing assistance payments contract. Housing
assistance payments may only be paid to the owner during the lease term and while the family is
residing in the unit.

HUD’s regulations at 24 CFR 983.351(a)(1) state that during the term of the housing assistance
payments contract, the authority shall make housing assistance payments to the owner in
accordance with the terms of the housing assistance payments contract. The payments shall be
made for the months during which a contract unit is leased to and actually occupied by an
eligible family.

HUD’s regulations at 24 CFR 983.351(a)(2) state that except for discretionary vacancy payments
in accordance with 24 CFR 983.352, the authority may not make any housing assistance payment
to the owner for any month after the month when the family moves out of the unit (even if
household goods or property are left in the unit).

HUD’s regulations at 24 CFR 983.351(b) state that each month the authority shall make a
housing assistance payment to the owner for each contract unit that complies with the housing
quality standards and is leased to and occupied by an eligible family in accordance with the
housing assistance payments contract.

HUD’s regulations at 24 CFR 983.352(a) state if an assisted family moves out of the unit, the
owner may keep the housing assistance payment payable for the calendar month when the family
moves out.




                                                40
HUD’s regulations at 24 CFR 983.352(b)(1) state that at the discretion of the authority, the
housing assistance payments contract may provide for vacancy payments to the owner extending
from the beginning of the first calendar month after the move-out month for a period not
exceeding 2 full months following the move-out month.

The Authority’s Housing Voucher Programs Policies and Procedures Manual, chapter XIV,
section B5, states that upon notification of the death of the tenant, the Authority should contact
the owner to determine the end of participation date. If removal of a deceased tenant’s
belongings from the rental unit occurs within the month of death, the Authority should make the
end of participation effective date at the end of the current month. If a deceased tenant’s
belongings cannot be removed within the month of death, the Authority should make the end of
participation effective date the end of the following month.




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