oversight

The Philadelphia Housing Authority, Philadelphia, Pennsylvania, Needs to Improve Its Controls over Housing Assistance Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-10-06.

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

                                                                 Issue Date
                                                                      October 6, 2009
                                                                 Audit Report Number
                                                                      2010-PH-1002




TO:        Dennis G. Bellingtier, Director, Office of Public Housing, Pennsylvania State
            Office, 3APH


FROM:      John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
             3AGA

SUBJECT:   The Philadelphia Housing Authority, Philadelphia, Pennsylvania, Needs to
            Improve Its Controls over Housing Assistance Payments


                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Philadelphia Housing Authority’s (Authority) administration of its
           housing assistance payments for leased housing under its Moving to Work
           Demonstration program (Moving to Work) as part of our fiscal year 2009 audit
           plan. This is the first of two audit reports that we plan to issue on the Authority’s
           leased housing program. The audit objective addressed in this report was to
           determine whether the Authority maintained adequate documentation to support
           housing assistance and utility allowance payments and accurately calculated them.

 What We Found


           The Authority generally maintained adequate documentation to support its
           housing assistance and utility allowance payments but did not always accurately
           calculate them. We found housing assistance and utility allowance calculation
           errors in 30 of 41 files reviewed resulting in overpayments and underpayments.
           The Authority was proactive and began to correct some of the overpayments and
           underpayments the audit identified. By implementing improved procedures and
           controls the Authority can ensure it makes accurate housing assistance and utility
           allowance payments and thereby avoids overpaying an estimated $2.3 million
           over the next year.

What We Recommend


           We recommend that U.S. Department of Housing and Urban Development (HUD)
           require the Authority to correct the errors in the tenant files identified by the
           audit, reimburse its leased housing program for the remaining ineligible
           overpayments, reimburse applicable tenants for the remaining underpayments of
           housing assistance and utility allowances, provide documentation or reimburse the
           program from nonfederal funds for unsupported payments, and implement
           improved procedures and controls to prevent it from overpaying an estimated $2.3
           million in program funds over the next year.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We discussed the audit results with the Authority and HUD officials throughout
           the audit and at an exit conference on July 13, 2009. Following the exit
           conference, we provided an updated draft report to the Authority on July 17,
           2009. The Authority provided written comments to our draft report on July 24,
           2009. It generally disagreed with our findings and recommendations. The
           complete text of the Authority’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                       4

Results of Audit
 Finding: The Authority Did Not Always Calculate Housing Assistance Payments   5
   Accurately

Scope and Methodology                                                          12

Internal Controls                                                              14

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use           16
   B. Auditee Comments and OIG’s Evaluation                                    17
   C. Results of Tenant File Reviews                                           42




                                             3
                          BACKGROUND AND OBJECTIVE

The U.S. Housing Act of 1937 initiated the nation’s public housing program. That same year, the
City of Philadelphia established the Philadelphia Housing Authority (Authority) under the laws of
the Commonwealth of Pennsylvania to address housing issues affecting low-income persons. A
five-member board of commissioners governs the Authority. The current executive director is Carl
R. Greene. The Authority’s main administrative office is located at 12 South 23rd Street,
Philadelphia, Pennsylvania.

In 1996, Congress authorized the Moving to Work Demonstration program (Moving to Work) as
a U.S. Department of Housing and Urban Development (HUD) demonstration program. This
program allowed certain housing authorities to design and test ways to promote self-sufficiency
among assisted households, achieve programmatic efficiency, reduce costs, and increase housing
choice for low-income households. Congress exempted participating housing authorities from
much of the Housing Act of 1937 and associated regulations as outlined in the Moving to Work
agreements. Participating housing authorities have considerable flexibility in determining how
to use federal funds. For example, participating authorities may combine operating subsidies
provided under Sections 8, 9, and 14 of the U.S. Housing Act of 19371 to fund HUD-approved
Moving to Work activities. In December 2000, the Authority submitted an application to HUD
to enter the program, and in February 2002, HUD signed a seven-year agreement with the
Authority that was retroactive to April 2001. Although the Authority’s Moving to Work
agreement included a Section 8 component, the agreement marked the end of the Authority’s
traditional Section 8 program until April 2008. From April to October 2008, the Authority
continued to operate under a HUD-developed plan to transition back to traditional HUD program
regulations because the term of its Moving to Work agreement had expired. However, in
October 2008, HUD entered into a new 10-year Moving to Work agreement with the Authority.
The expiration date of the Authority’s new agreement is March 2018.

Under the Section 8 Housing Choice Voucher program, HUD authorized the Authority to
provide leased housing assistance payments to more than 13,600 eligible households. HUD
authorized the Authority the following financial assistance for housing choice vouchers:

                  Fiscal year       Annual budget authority              Disbursed funds
                     2006                $144,144,373                     $142,173,656
                     2007                $147,066,278                     $147,066,278
                     2008                $178,940,566                     $178,890,410

The audit objective addressed in this report was to determine whether the Authority maintained
adequate documentation to support housing assistance and utility allowance payments and
accurately calculated them.



1
 Funds provided under Section 8 are for leased housing assistance funds; Section 9 funds are for housing authority
operations; and Section 14 funds are for public housing modernization.

                                                         4
                               RESULTS OF AUDIT

Finding: The Authority Did Not Always Calculate Housing Assistance
Payments Accurately
The Authority generally maintained adequate documentation to support its housing assistance
and utility allowance payments but did not always accurately calculate them. This occurred
because the Authority needed to implement improved procedures and controls to make sure it
complied with HUD requirements and its own program administrative plan regarding payments.
The Authority made more than $50,000 in overpayments, underpaid tenants more than $1,000,
and was unable to support nearly $6,000 in payments during the audit period. By implementing
improved procedures and controls the Authority can ensure it does not overpay an estimated $2.3
million in housing assistance and utility allowance payments over the next year.



 The Authority Generally
 Maintained Adequate
 Documentation


              For the most part, the Authority’s tenant files were in proper order and contained
              the required documentation to support payments. However, some improvements
              were needed. Of the 41 household files we statistically selected for review, four
              files (10 percent) lacked at least some of the documentation required to support
              payments totaling $5,718.

                     Two files lacked third-party verification of income. HUD regulations at
                     24 CFR [Code of Federal Regulations] 982.516 require the Authority to
                     obtain and document in the tenant file third-party verification of reported
                     family income.

                     One file lacked a copy of the housing assistance payments contract for part
                     of the lease term. HUD regulations at 24 CFR 982.158 require the
                     Authority to keep a copy of the housing assistance payments contract
                     during the term of the assisted lease and for at least three years thereafter.

                     One file lacked verification that a household member was employed at
                     least 20 hours per week to qualify for a working family income deduction.
                     The Authority’s administrative plan allows a $500 deduction for working
                     households with one or more members employed either full time or part
                     time for at least 20 hours per week.

              Appendix C of this report shows the detailed results of our file reviews.

                                               5
     The Authority Made Incorrect
     Housing Assistance and Utility
     Allowance Payments

                    We statistically selected and reviewed 41 household files from a universe of
                    10,569 households that received housing assistance payments during the period
                    October 1, 2006, through September 30, 2008. In 30 cases, the Authority made
                    inaccurate and ineligible housing assistance and utility allowance payments. The
                    Authority’s miscalculations and errors resulted in overpayments of $50,102 and
                    underpayments of $1,496. To its credit, the Authority informed us it took
                    immediate action to recover or make payment for $25,5192 of the questioned
                    costs and refer some files to its inspector general for review and action. The
                    payments were incorrect because

                             In 13 files, the Authority did not abate the housing assistance payments as
                             required although the units failed housing quality standards inspections
                             and remained in failed condition for more than 30 days. HUD regulations
                             at 24 CFR 982.404(a) state that public housing authorities must not make
                             any housing assistance payments for a unit that fails to meet housing
                             quality standards within no more than 30 calendar days unless the
                             authority has specified a timeframe for correcting violations. The
                             Authority’s administrative plan states that it may abate or reduce payment
                             to the owner or terminate the assistance contract if the unit fails inspection
                             unless the owner corrects the deficiencies within the period specified by
                             the Authority. The Authority indicated that it had taken action to recoup
                             $16,431 of the overpayments for 11 of the 13 files.

                             In 11 files, the Authority made erroneous assistance payments. It paid
                             amounts that did not coincide with the effective dates of changes in the
                             assistance amounts, paid the tenant’s share of the rent, paid a tenant’s
                             security deposit, made unnecessary payments because of data entry errors,
                             made unexplained payments and credit adjustments, and did not make a
                             routine monthly utility allowance payment. The Authority indicated that it
                             had taken action to recoup $7,837 of the overpayments and make a $17
                             payment for seven of the 11 files and that it was researching the payments
                             associated with the remaining four files.

                             In 11 files, the Authority increased the rent without justification as
                             required. The Authority’s administrative plan for its leased housing
                             program requires the owner to request proposed changes to the contract
                             rent approximately 120 days before the lease anniversary date. HUD
                             regulations at 24 CFR 982.54(c) require the Authority to administer the


2
    $17,846 verified to date by the Office of the Inspector General.

                                                             6
program in accordance with its administrative plan. In these cases, the
owners did not request changes to the rent.

In three files, the Authority did not include all household income in its
assistance calculations although there was evidence of the income in the
files. To correctly calculate the assistance payment, the Authority needs
to include all income in its calculations.

In two files, the Authority used the wrong utility allowance schedule. In
these cases, the Authority used a utility allowance schedule created for a
unit structure type that was not the same as that of the assisted unit. The
Authority indicated that it had taken action to recoup $338 of the
overpayments for one of the two files.

In two files, the Authority did not enforce its requirement that households
claiming zero income recertify to the zero income every 90 days. In these
two cases the households had income. The Authority’s administrative
plan requires households to verify zero-income status every 90 days unless
the adult household member claiming zero income is a full-time student
(other than head of household or spouse), disabled, or elderly.

In one file, the Authority did not adjust the assistance payment for an
overhoused family to what the Authority would have paid for a proper-
size unit. The Authority’s administrative plan requires tenants to pay a
greater portion of rent and/or utilities if they do not relocate to a proper-
size unit. The Authority indicated that it had taken action to recoup the
$612 overpayment.

In one file, the Authority did not inspect the unit for compliance with
housing quality standards annually as required. The Authority did not
inspect the unit for more than 16 months, and it failed the next inspection
in April 2008. HUD regulations at 24 CFR 982.405(a) require public
housing authorities to perform unit inspections at least annually. HUD
regulations at 24 CFR 982.401 require that all program housing meet
HUD’s housing quality standards at the beginning of the assisted
occupancy and throughout the tenancy. The Authority’s administrative
plan also requires the Authority to inspect each unit at least annually
during the assisted tenancy.

In one file, the Authority paid a rent that exceeded its payment standard.
HUD regulations at 24 CFR 982.503 require the Authority to adopt a
payment standard schedule that establishes voucher payment standard
amounts. The payment standard amounts are used to calculate the
monthly housing assistance payment.



                           7
                  In one file, the Authority used the wrong household size in the total tenant
                  payment calculation. The Authority incorrectly used a household size of
                  five rather than the correct household size of six. The Authority indicated
                  that it took action to correct the $120 underpayment.

                  In one file, the Authority overstated the household income. The Authority
                  used the amount of child support ordered by the court in its calculations
                  rather than the actual amount of child support being received by the
                  tenant, which was lower than the amount ordered by the court. The
                  definition of income in the Authority’s administrative plan includes
                  payments for support of a minor.

                  In one file, the Authority did not include a working family income
                  deduction in its calculations. The Authority’s administrative plan allows a
                  $500 deduction for working households with one or more members
                  employed either full time or part time for at least 20 hours per week. The
                  Authority indicated that it allowed the deduction and made a $164
                  adjustment to correct the underpayment.

           Appendix C of this report shows the detailed results of our file reviews.

HUD’s Enterprise Income
Verification Indicated Other
Overpayments

           Although HUD does not require housing authorities to use the income
           information in the Enterprise Income Verification System, it is a valid basis for
           further review and verification of the household income. For 8 of the 41
           household files we statistically selected for review, HUD’s Enterprise Income
           Verification system indicated that the households had income that they did not
           report. We recalculated the housing assistance payments for these households
           using the income reported in the system and determined that the Authority may
           have overpaid as much as $13,895 during the audit period. To its credit, the
           Authority took immediate action and referred five of these eight files to its
           inspector general for review and action, and indicated that it sent out termination
           notices to the tenants for two of the remaining three files. Appendix C of this
           report shows the detailed results of our file reviews.

           Since our statistical sample of tenant files showed potential problems with
           unreported income, we also analyzed the Authority’s automated data files for all
           household members participating in the Authority’s leased housing program
           during the period October 2006 through September 2008. The Authority worked
           collaboratively with us and determined that 18 of the households that reported
           zero income did in fact have income. The Authority informed us that it sent third-
           party income verifications to employers for seven households, notified two

                                             8
           households to schedule an appointment to discuss the issue, referred one
           household to its inspector general for action, and terminated a household from the
           program. The following shows the action the Authority reported that it has taken
           or planned for the 18 households that it determined did in fact have unreported
           income.

             Action taken or planned by the          Number of        Potential
             Authority                               households     overpayments
             Action not yet determined                    7           $ 64,734
             Third-party verification requested           7           $ 48,933
             Referred to its inspector general            1           $ 10,954
             Interview being scheduled                    2           $ 4,814
             Household terminated                         1           $ 5,688
             Total                                       18           $135,123

           The Authority will need to complete its analysis of the $149,018 ($13,895 +
           $135,123) in potential overpayments identified through the Enterprise Income
           Verification System.

The Authority Needs to
Implement Improved Controls


           The weakness regarding overpayments and underpayments and missing
           documentation occurred because the Authority did not implement sufficient
           controls with regard to calculations of households’ housing assistance and utility
           allowance payments and household file documentation. The Authority
           acknowledged that it did in fact need to improve its procedures and controls.

           The Authority informed us that it took some action to improve its controls during
           the audit by beginning to use HUD’s Enterprise Income Verification System.
           Before that it relied on the zero-income declarations of the household members.
           Although HUD has not yet required public housing authorities to use its system,
           we commend the Authority for using this system to improve its controls and help
           it to significantly reduce its overpayments. The Authority will need to provide
           evidence that it developed an implementation plan, standard operating procedures
           and schedules with milestones and actual completion dates regarding mandatory
           use of the system to show that it is fully implemented. The Authority also
           informed us that during the audit it implemented an improved automated
           scheduling, inspection reporting, and enforcement system. After the exit
           conference, the Authority provided its implementation plan and other related
           documentation for the system. However, the documentation did not include
           standard operating procedures and actual completion dates for the milestones in
           the implementation plan to demonstrate that the system had been put into use.
           The documentation indicated that the system would not be fully implemented


                                             9
             until March 2009. Since the system was not operational during the audit period
             we did not audit it and therefore did not evaluate its effectiveness.

Conclusion


             The Authority generally maintained adequate documentation to support its
             housing assistance and utility allowance payments but did not always accurately
             calculate them. It made overpayments of more than $50,000 and underpayments
             of more than $1,000 in housing assistance and utility allowances and made nearly
             $6,000 in unsupported housing assistance payments. To its credit, the Authority
             began taking action to address deficiencies in the files identified by the audit and
             informed us it had taken action to recover or make payment for $25,519 of the
             questioned costs during the audit, and referred some files to its inspector general
             for review and action. The Authority could also recover $149,018 in potential
             overpayments identified through the Enterprise Income Verification System. If
             the Authority implements improved controls and procedures, it will avoid
             overpaying an estimated $2.3 million over the next year. Our methodology for
             this estimate is explained in the Scope and Methodology section of this report.

Recommendations

             We recommend that the Director, Office of Public Housing, Pennsylvania State
             Office, require the Authority to

             1A.    Correct the errors in the tenant files identified by the audit.

             1B.    Provide support or reimburse its leased housing program $5,718 from
                    nonfederal funds for the unsupported housing assistance payments
                    identified by the audit.

             1C.    Repay its leased housing program $50,102 from nonfederal funds for the
                    ineligible overpayment of housing assistance.

             1D.    Reimburse the appropriate tenants $1,496 from program funds for the
                    housing assistance underpayments.

             1E.    Improve its controls by implementing procedures to help reduce and/or
                    prevent recurring deficiencies in its payment calculation process, thereby
                    helping to put to better use an estimated $2.3 million in ineligible
                    payments over the next year.

             1F.    Complete its analysis of the $149,018 in potential overpayments identified
                    through the Enterprise Income Verification System. For households that
                    received excessive housing assistance and utility allowance payments,

                                              10
pursue collection and/or terminate housing assistance for the applicable
households.




                         11
                        SCOPE AND METHODOLOGY

We performed our on-site audit work between October 2008 and July 2009 at the Authority’s
office located at 642 North Broad Street, Philadelphia, Pennsylvania. The audit covered the
period October 1, 2006, through September 30, 2008, and was expanded when necessary to
include other periods.

To determine whether the Authority administered its program in compliance with applicable
HUD requirements, we reviewed

       Applicable laws; regulations; the Authority’s administrative plan; HUD’s program
       requirements at 24 CFR Parts 5, 35, and 982; HUD’s Public and Indian Housing Notice
       2004-01; HUD’s Housing Inspection Manual 7420.8; and HUD’s Housing Choice
       Voucher Guidebook 7420.10G;

       The Authority’s accounting records; annual audited financial statements for 2006 and
       2007; tenant files; computerized databases including housing assistance payment and
       family data; board meeting minutes; organizational chart; and Moving to Work
       documents including the agreement, plans, and reports; and

       HUD’s monitoring reports for the Authority.

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

During the audit, we relied in part on computer-processed data in the Authority’s database.
Although we did not perform a detailed assessment of the reliability of the data, we did perform
a minimal level of testing and found the data to be adequate for our purposes.

We statistically selected 41 of the tenants who received housing assistance payments during our
audit period using a variable statistical sampling method developed by our computer audit
specialist. The sampling criteria used a variable sampling methodology with a 90 percent
confidence level and 10 percent precision. Our universe included 10,569 households that
received more than $142.6 million in housing assistance payments.

The Authority made ineligible payments in the amount of $50,102 for the period October 1,
2006, through September 30, 2008. The $50,102 represents the sum of overpayments from
incorrect housing assistance and utility allowance calculations and erroneous payments in 28
cases. Unless the Authority improves its housing assistance payment calculation process, we
estimate that it could make nearly $2.3 million in ineligible housing assistance and utility
allowance payments over the next year.

To determine our estimate of $2.3 million in potential ineligible payments over the next year, we
used difference estimation techniques to project the sample results. This process yielded a point
estimate of $12,529,678 in housing assistance and utility allowance overpayments during our
two-year audit period with overpayments of $4,669,761 and $20,389,595 based on the lower and

                                               12
upper limits, respectively. For reporting purposes, we annualized the lower limit ($4,669,761
divided by the audit period of two years) to obtain a one-year estimate of $2,334,881. The lower
limit provides the most conservative estimate of potential ineligible payments over the next year.
The estimate is presented solely to demonstrate the annual amount of program funds that could
be put to better use if the Authority implements our recommendations. While these benefits
would recur indefinitely, we were conservative in our approach and only included the initial year
in our estimate.

We analyzed an automated data file that the Authority provided containing information for all
household members participating in its leased housing program during the period October 2006
through September 2008. We determined that 197 households reported zero income. We
reviewed the household income reported in HUD’s Enterprise Income Verification system and
the system indicated that 137 of the 197 households had income during the period. Using the
tenant data that the Authority provided, we identified the effective date of the most recent
certification/recertification and matched it to the payment data that the Authority provided. The
results showed that we had payment data for 101 of the 137 households. We quantified the
assistance payments that the Authority made for those households from the date of the most
recent certification/recertification forward. The Authority made housing assistance payments
totaling $653,892 for these 101 households. The Authority agreed that there was potential
unreported income in 38 of the files. Of the 38, 18 represented $135,123 of the $653,892 in
assistance identified by the audit.

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 finding and conclusion based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our finding and
conclusion based on our audit objective.




                                                13
                              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 it calculates housing assistance
                      payments correctly and properly maintains documentation in its tenant files.

                      Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               14
Significant Weakness


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

                  The Authority did not implement sufficient controls to ensure compliance
                  with HUD requirements and/or its program administrative plan with
                  regard to making correct housing assistance and utility allowance
                  payments and maintaining documentation to support payments (see
                  finding).




                                            15
                                     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/
                1B                                         $5,718
                1C                $50,102 (1)
                1D                                                           $1,496 (2)
                1E                                                       $2,334,881
                1F                                       $149,018
              Totals              $50,102                $154,736        $2,336,377


     (1) The Authority recovered $17,829 of this amount. It needs to recover the remaining
         $32,273.
     (2) The Authority paid $17 of this amount. It needs to pay the remaining $1,479.

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 our
     recommendations, it will use $1,496 in program funds to serve its purpose of assisting
     eligible households and prevent approximately $2.3 million in program funds from being
     spent on ineligible housing assistance and utility allowance payments annually. Once the
     Authority successfully improves its controls, this will be a recurring benefit. Our estimate
     reflects only the initial year of this benefit.



                                                  16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




                                  17
Comment 1




            18
Comment 2




Comment 3




Comment 4




            19
Comment 1




Comment 5




            20
Comment 1




Comment 6



Comment 7
Comment 8

Comment 9

Comment 8




            21
Comment 6




Comment 8




            22
Comment 5




Comment 10




Comment 1




Comment 10




             23
Comment 1




Comment 5




Comment 11



Comment 1




             24
Comment 9




            25
Comment 12




Comment 13




             26
Comment 13




Comment 14




Comment 15


Comment 16




             27
Comment 17




Comment 17




Comment 17




             28
Comment 18




Comment 19




             29
Comment 20




Comment 21




             30
Comment 22




Comment 23




Comment 23




             31
Comment 23




Comment 24




             32
Comment 25




Comment 26




             33
Comment 1
Comment 1

Comment 1
Comment 5
Comment 1
Comment 6
Comment 25
Comment 22
Comment 23


Comment 1
Comment 6

             Comment 25




                 34
                         OIG Evaluation of Auditee Comments

Comment 1   We do not agree with the Authority’s assertion. The auditors maintained an
            ongoing dialog with the Authority throughout the audit and formally met with the
            Authority’s General Manager of Client Services and numerous members of its
            outside legal counsel more than 20 times between December 12, 2008, and
            June 16, 2009, to discuss the status of the audit and questions and issues raised by
            the auditors. During these discussions, the auditors identified over 150 questions
            and issues related to the tenant files and provided their questions, issues, and
            calculations to Authority representatives. The Authority itself acknowledges that
            there were continued “back and forth” discussions throughout the audit and that it
            “has spent countless hours discussing each case.” During our discussions with
            Authority representatives, there were general and specific questions and issues
            with which the auditors and the Authority representatives disagreed including
            regulatory requirements, calculations, and sufficiency of the explanations and
            supporting documentation that the Authority provided. The auditors repeatedly
            explained the type and nature of acceptable documentation that they requested
            from the Authority to adequately support the Authority’s position with regards to
            the issues and calculations. The auditors reviewed and evaluated the explanations
            and supporting documentation that the Authority provided and researched
            pertinent regulations and available guidance for clarification of the issues. In
            most cases the auditors had to request additional explanation and/or
            documentation from the Authority in order to understand and evaluate the
            Authority’s position. This process often involved a significant amount of time.
            In many cases, these professional exchanges helped to clarify and resolve the
            issues or caused acceptable changes to the issues and related calculations. In
            some cases, however, while the process aided in clarifying the issues,
            disagreements remained unresolved. In some cases, the auditors’ requests for
            additional explanation and/or documentation went unanswered leaving the issue
            neither clarified nor resolved.

            We have adjusted the audit report to reflect the finalized amounts related to the
            specific issues based on additional analysis that we performed after the exit
            conference. We provided the Authority with our calculations.

            As part of the audit process, the Authority will have further opportunity to provide
            additional supporting documentation to HUD staff who will work with the
            Authority to resolve the issues with which the Authority does not agree.

            The Authority’s response included a 27-page exhibit consisting of a June 16,
            2009, document from a contractor providing an overview of the Authority’s
            automated annual housing quality standards inspection system, an implementation
            plan for the system, and training documentation. We considered the exhibit in our
            evaluation, but did not include it in the final audit report.




                                             35
Comment 2   We disagree with the Authority’s contention. On March 18, 2009, the auditors
            provided the Authority with a detailed listing, via email, of questions and issues
            which included unverified income as Issue 1 for tenant 13. The Authority, in its
            response to this issue, disagreed with the auditors and asserted that there was no
            overpayment. Also see Comment 1.

            On April 29, 2009, prior to the last discussion of audit questions and issues with
            the Authority, the auditors provided the Authority with a detailed listing, via
            email, of questions and issues which included unverified income as Issue 1 for
            tenant 25. The Authority, in its response to this issue disagreed with the auditors
            and asserted that there was no overpayment. Also see Comment 1.

Comment 3   We have considered the Authority’s response and revised the wording of the
            finding and the amount of payments that we consider unsupported. We changed
            the amount to reflect HAP for the four and one-half months for which the
            Authority has not provided a contract. Regulations at 24 CFR 982.311 state that
            housing assistance payments are paid to owners in accordance with the terms of
            the HAP contract. Thus, without a contract covering the payment period, the
            payments are unsupported. Also see Comment 1.

Comment 4   We disagree with the Authority’s assertion. The file did not contain, and the
            Authority has not provided, any documentation to support its determination that
            the family was eligible for the working family deduction. The pay that the
            Authority claims was the basis for the deduction was obtained from check stubs
            that did not contain any information, expressed or implied, as to the number of
            hours worked, hourly rate, or other information with which to reasonably
            determine the number of hours worked per week. The Authority’s administrative
            plan requires the Authority to “obtain and document, in the family files,
            verification of … factors that affect the determination of adjusted income, rent
            and eligibility.” Furthermore, regulations at 24 CFR 982.158 require the
            Authority to maintain complete and accurate accounts and other records for the
            program in accordance with HUD requirements in a manner that permits quick
            and effective audit. The Authority did not meet these requirements because it did
            not have adequate documentation to support the working family deduction for
            tenant 35. Also see Comment 1.

Comment 5   As stated in our report, we acknowledge the Authority’s actions to recover or
            make payments based on issues arising from the audit. However, we do not agree
            with the amount that the Authority asserts should be reported as verified. A
            portion of the amount on which the Authority has taken action relates to
            transactions outside of the audit period. We have not included overpayments or
            recoveries associated with transactions occurring outside of the audit period in our
            report. Furthermore, in some cases, the Authority indicated that it had not
            completed the recoupment transaction and could not provide adequate
            documentation for verification purposes. In another case, the Authority initially
            stated that it had recouped overpayments, but later said that it disagreed that

                                             36
            overpayments were made and that it had not taken recovery action. Also see
            Comment 1.

Comment 6   We disagree with the Authority’s assertion that there is no support for the OIG’s
            conclusion that housing choice voucher funds could be put to better use over the
            next year. The calculation of funds that could be put to better use is a function of
            conditions occurring during the audit period and observed during the audit. The
            audit was conducted in accordance with generally accepted government auditing
            standards. The calculation of funds to be put to better use is based on the results
            of our audit of a random sample of tenant files that statistically represents the
            population from which it was drawn. The process is contained in the Scope and
            Methodology section of the audit report. We were conservative in our
            methodology for calculating the estimate. Since we have adjusted the audit report
            to reflect the finalized amounts related to the specific issues based on additional
            analysis that we performed after the exit conference, we also adjusted the
            calculation of funds that could be put to better use.

Comment 7   The Authority’s statement that income verification problems were included in the
            calculation of funds to be put to better use is inaccurate. We did not include any
            amounts resulting solely from our comparison of tenant income documented in
            the tenant file to data in the EIV system. There were, however, two instances in
            which the Authority failed to have the family members recertify their zero income
            status every 90 days, and our comparison of tenant income to the EIV system data
            also disclosed problems. In these instances we used the EIV information to
            conservatively estimate the impact of the Authority’s failure to enforce its
            requirement to have the family members recertify.

Comment 8   We do not agree with the Authority’s assertion that, because of its implementation
            of the HUD EIV system and the Elite system (for housing quality standards
            inspection scheduling, reporting, and enforcement), there is no basis for our
            concern that these would be issues moving forward or for our extrapolation of the
            error rates during the audit period now that the new systems have been put into
            use. The Authority, in its response, states: “The EIV system… was not fully
            implemented until December 2008, which is substantially after the close of the
            audit period on September 30, 2008.” Moreover, we did not include income
            verification problems related to EIV in our calculation of funds to be put to better
            use. Regarding housing quality standards inspection scheduling, reporting, and
            enforcement, the executive director stated at the exit conference that the Authority
            implemented a new system of controls during the audit. However, the
            documentation that the Authority provided regarding the system does not show
            that abatement of housing assistance payments was included in the
            implementation plan for the new system. The abatement of housing assistance
            payments was only identified in the contractor’s June 2009 document (see
            Comment 1) which was after the audit identified problems with the Authority’s
            abatement of housing assistance payments. We did not audit the systems that the
            Authority implemented subsequent to the audit period. Thus, we did not render

                                             37
              an opinion on them. However, we changed the report to reflect that the Authority
              implemented its inspection system and the EIV system after the audit period. We
              commend the Authority for recognizing the need for and taking action to improve
              its internal controls in those two important areas.

Comment 9     We do not agree with the Authority’s assertion that the rent increase in question
              was in accordance with provisions of its Moving to Work Agreement. The
              Authority cites Amendment #1 to its Moving to Work Agreement as the basis for
              its assertion. However, the portion of the agreement that the Authority cites goes
              on to say in the next sentence that, “PHA will use procedural requirements
              consistent with those described in Article I., Section I, of this agreement in
              adopting and implementing the Local Rent Subsidy Program.” Article I., Section
              I, of the agreement sets forth actions that the Authority must take in adopting and
              implementing policies for setting rents for tenant-based assistance. Included is a
              requirement for the Authority’s board to approve the policy and any material
              changes. However, the Authority provided no documentation to demonstrate that
              this occurred; no documentation regarding the implementation of the rent freeze;
              no documentation regarding its decision to end the rent freeze; and no
              documentation regarding its implementation of the rent increase other than a
              single paragraph on an undated, unsigned, memorandum to the file from the
              Authority’s General Manager of Client Services. Further, we did not find any
              reference to a 2 percent rent increase for owners who had units under lease during
              calendar years 2005, 2006, and 2007, in the Authority’s annual Moving to Work
              plans or reports to demonstrate that the Authority complied with the requirements
              of the Moving to Work Agreement.

              Additionally, the Authority increased the rent without a request from the owners,
              as required by its administrative plan. HUD regulations at 24 CFR 982.54(c) and
              24 CFR 982.153 require the Authority to comply with and administer the program
              in accordance with its administrative plan.

Comment 10 We have adjusted the audit report to reflect the finalized amount related to the
           specific issue raised, based on additional analysis that we performed after the exit
           conference. We have provided the Authority with our calculations. Also see
           Comment 1.

Comment 11 We disagree with the Authority’s assertion. During the audit, the Authority stated
           that it made the payments because it had not given the tenant 30-day notice of the
           increase to the tenant portion of the rent. According to HUD’s Housing Choice
           Voucher Guidebook 7420.10G, in cases where error or omission is the fault of the
           authority, the family and owner are not responsible for repayment. It also states
           that HUD expects authorities to repay HUD the amount of overpaid subsidy due
           to its error. Since the Authority failed to comply with its own procedures it
           should reimburse its program $526 from nonfederal funds for the overpayment of
           housing assistance. Also see Comment 1.



                                              38
Comment 12 We disagree with the Authority’s assertion. The child support amount and source
           of income that the applicant included on the application form were not crossed-
           out and therefore should have been included in family income. Further, other
           documentation in the file indicated that the child support income started in 2002
           and continued through 2007. We have adjusted the audit report to reflect the
           finalized amount related to the specific issue raised based on additional analysis
           which we performed after the exit conference. Also see Comment 1.

Comment 13 We disagree with the Authority’s assertion. We have not received documentation
           showing that the tenant was in a Welfare to Work Program.

               The Authority’s reliance on the self-certification did not comply with the
               requirements of its administrative plan which requires two failed attempts to
               retrieve third party verification before using self-certification and that the
               Authority document the two attempts in the file. Additionally, the Authority’s
               administrative plan states that if third party verification does not significantly
               differ from tenant provided documents, it will use the higher of the two income
               figures. Also see Comment 1.

Comment 14 The Authority failed to adequately verify the student status of an adult family
           member. As a result, the Authority did not include an appropriate portion of the
           adult family member’s income in its calculations. We used the EIV information
           to conservatively estimate the income that the Authority failed to include as a
           result of the individual’s status. Also see Comment 1.

Comment 15 We do not agree with the Authority’s assertion. In response to our questions and
           comments regarding this issue, the Authority agreed with our finding and also
           agreed that it resulted in a $10 per month overpayment for utilities. Furthermore,
           after we brought this issue to the Authority’s attention, it conducted an interim
           recertification in March 2009 and cited its use of the wrong utility allowance
           schedule as the reason for conducting the interim recertification. Also see
           Comment 1.

Comment 16 We disagree with the Authority’s assertion. Based on additional analysis that we
           performed after the exit conference, we adjusted the amount of overpaid housing
           assistance in the audit report resulting from the Authority’s use of incorrect utility
           allowances. Also see Comments 1 and 5.

Comment 17 HUD regulations at 24 CFR 982.54(c) and 24 CFR 982.153 require the Authority
           to comply with and administer the program in accordance with its administrative
           plan. The Authority failed to enforce its requirement that family members
           claiming zero income recertify that status every 90 days. We used the EIV
           information to conservatively estimate the impact of the Authority’s failure to
           enforce the requirement. Contrary to the Authority’s assertion, we did not include
           these amounts in the section of the finding where we discussed other
           overpayments that were indicated by EIV. Also see Comment 7.

                                                39
Comment 18 We disagree with the Authority’s assertion. As stated in the audit report, the
           Authority did not inspect the unit for more than 16 months, and it failed the next
           inspection in April 2008. Based on additional analysis that we performed after
           the exit conference, we adjusted the amount in the audit report. Also see
           Comment 1.

Comment 19 We removed the text from the audit report.

Comment 20 We disagree with the Authority’s assertion. The payment standard in effect at the
           last regular recertification was $1,116 and not $1,158 which the Authority used in
           its May 1, 2008, interim recertification. Also see Comment 1.

Comment 21 We disagree with the Authority’s assertion. The Authority included in the family
           income calculation $284 per month based a court document showing $284 as the
           obligation of the payor. However, a verification of public assistance income form
           completed by the Department of Public Welfare for the same time period showed
           the tenant was being paid $37 per month in child support. Also see Comment 1.

Comment 22 We disagree with the Authority’s contention that the discussion regarding the
           eight files should be removed from the final audit report. The results for these
           eight files are based on our results of a random sample of files which is
           statistically representative of the population from which it was drawn. Our
           purpose in reporting this issue was to bring to the Authority’s attention reportable
           conditions observed during the audit. As stated in the audit report, the Authority
           took action on seven of the eight files during the audit.

Comment 23 Our purpose in reporting this issue is to bring to the Authority’s attention
           reportable conditions observed during the audit. While we acknowledge that the
           EIV system was not fully available to the Authority during the audit period, that
           fact does not relieve the Authority of its obligation to take appropriate remedial
           action when it is advised of reportable conditions. Based on additional analysis
           that we performed after the exit conference, we adjusted the amount and provided
           the Authority our calculation. As part of the normal audit process, the Authority
           will have the opportunity to provide the complete results of its analysis to HUD to
           close-out the recommendation. Contrary to the Authority’s assertion, we did not
           double-count the questioned costs for tenant file 5.

Comment 24 The audit was conducted in accordance with generally accepted government
           auditing standards. The auditors exercised professional judgment in the planning
           and conduct of the audit and in the application of appropriate tests and analyses to
           satisfy the objectives of the audit. We conducted a cursory review of families that
           reported zero-income and found a significant number of families with potential
           assistance overpayments due to unreported income. We provided the Authority
           with the results of our limited testing for further evaluation. Our purpose in
           reporting these conditions is to meet our obligation to report conditions observed



                                              40
              during the audit that, in this case, may be the result of fraud or abuse. Our
              findings are fully supported and our recommendation is appropriate.

Comment 25 We disagree with the Authority’s assertion. Policies and procedures are
           significant control activities within the overall system of internal controls.
           However, even though an organization’s policies and procedures may be
           adequate, a lack of compliance with them by the organization’s operating
           activities can result in a material control weakness. We found recurring
           deficiencies with the Authority’s assistance payment calculations that resulted in
           housing assistance overpayments and underpayments. Based on the reportable
           conditions that we observed, we concluded that the Authority needed to
           implement improved controls. The Authority acknowledged that it needed to
           improve its procedures and controls.

Comment 26 The Authority provided its implementation plan and other related documentation
           for its new automated scheduling, inspection reporting, and enforcement system.
           However, the documentation did not include standard operating procedures and
           actual completion dates for the milestones in the implementation plan to
           demonstrate that the system had been put into use. The documentation indicated
           that the system would not be fully implemented until March 2009. Since the
           system was not operational during the audit period we did not audit it and
           therefore did not evaluate its effectiveness. Also see Comment 8.




                                               41
Appendix C

                                                                  RESULTS OF TENANT FILE REVIEWS




                                                                                                                                                                                                      Incorrect household size for
                                                                                                                                                                                                      exceeded payment standard
                                                                                                                                                 Zero income not recertified
                                                                  Unauthorized rent increase
                Housing assistance was not




                                                                                                                   Incorrect utility allowance




                                                                                                                                                                                                      Lack of documentation to
                                                                                                                                                                                                      Working family income
                                                                                                                                                                               Household overhoused
                                                                                                                                                                                                      Annual inspection not




                                                                                                                                                                                                      deduction not allowed


                                                                                                                                                                                                                                     Unsupported housing
                                                                                                                                                                                                      total tenant payment
                                             Erroneous payments




                                                                                                                   Income not included
                                                                                               Unreported income




                                                                                                                                                                                                                                                           Underpaid housing
                                                                                                                                                                                                      Housing assistance



                                                                                                                                                                                                      Household income




                                                                                                                                                                                                      support payments




                                                                                                                                                                                                                                                                               Overpaid housing
  Tenant file




                                                                                                                                                                                                      overstated
                                                                                                                                                                                                      conducted




                                                                                                                                                                                                                                     assistance


                                                                                                                                                                                                                                                           assistance


                                                                                                                                                                                                                                                                               assistance
                abated




                                                                                                                   used


  03         X                                                                                         $5,868
  05                   X               X                                                             $15,504
  06      X                                                                                            $7,644
  07      X                                                                                            $2,227
  08         X                                                    X                         $1,195
  09              X X                                                              $3,220                  $64
  10              X                                                                                        $50
  11              X                                                                                        $54
  12      X  X                                                                                           $434
  13                       XX                           X                     X $1,232                 $1,011
  14      X                                                                                              $393
  15      X            X                                                                               $3,094
  17        XX X X                                                            X $3,226          $17        $56
  18                  XX                                                           $7,981
  19              X                                                                                        $54
  20      X  X                                                                                           $525
  22              X              X                                                                       $393
  24     XX                                                                                              $321
  25      X                XX                                                 X $1,212                   $898
  26      X  X    X                                                                                      $833
  27              X                                                                                      $198
  28      X  X                                X                                                        $1,138
  29      X                                                             X                     $164       $441
  30                   X              XX                                                               $1,809
  31      X                 X                                                                            $438
  32         X    X                                                                                      $554
  35              X                                                           X       $48                  $44
  36                                                          X                               $120
  37         X                                                                                           $615
  38      X XX X X               X                 X                                 $870              $4,419
  40         X        XX                                                           $1,824              $1,023
Totals 13   11 11 8 3             2    2      1    1     1    1    1    1     4 $19,613 $1,496 $50,102
NOTE: An “X” identifies a deficiency in the file. More than one “X” represents multiple occurrences of the
deficiency.


  To avoid double counting, we did not report questioned costs both as overpayments and unsupported costs.


                                                                                                                                                                                                          42