oversight

The East Point Housing Authority Made Excessive Housing Assistance Payments for a Zero-Income Tenant and Its Units Did Not Meet Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-22.

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

                                                                 Issue Date
                                                                     November 22, 2010
                                                                 Audit Report Number
                                                                     2011-AT-1002




TO:        Ada Holloway, Director, Atlanta Office of Public Housing, 4APH


           //signed//
FROM:      James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA

SUBJECT: The East Point Housing Authority Made Excessive Housing Assistance
           Payments for a Zero-Income Tenant and Its Units Did Not Meet Housing
           Quality Standards

                                    HIGHLIGHTS

 What We Audited and Why


             We audited the East Point Housing Authority (Authority) Housing Choice
             Voucher program. We selected the Authority due to the lack of onsite monitoring
             performed by the Office of Public Housing, Georgia State Office, over the past 10
             years and the fact that the number of program tenants had more than doubled over
             the past few years.

             Our audit objectives were to determine (1) whether the Authority established
             procedures to ensure that tenants were eligible for rental subsidies and that the
             amount of their subsidy calculation was properly supported and (2) whether its
             units met the U.S. Department of Housing and Urban Development’s (HUD)
             housing quality standards.

 What We Found

             The Authority generally computed accurate housing assistance payments.
             However, it made excessive housing assistance payments of $38,447 on behalf of
             a zero-income tenant who underreported her income and did not provide proof of
           financial assistance. This condition occurred because the Authority’s Housing
           Choice Voucher program staff did not follow its policies for zero-income tenants.

           The Authority’s physical inspection process was not effective. The inspections
           did not accurately identify the deficiencies. Also, the quality control inspections
           were not performed on a timely basis, and the results were not communicated to
           the inspector. This occurred because the Authority’s workload increased.


What We Recommend

           We recommend that the Director of Public Housing require the Authority to
           reimburse the Housing Choice Voucher program the $38,447 that was paid in
           ineligible housing assistance and implement its policies and procedures to ensure
           that its program operates in compliance with HUD’s requirements. We further
           recommend that the Director of Public Housing require the Authority to (1)
           reinspect the units and ensure that all deficiencies identified have been corrected,
           (2) evaluate the inspector’s workload and make the necessary adjustments to
           ensure that housing quality standards deficiencies are properly identified and
           corrected, (3) implement its policy and ensure that all quality control reviews are
           performed within the 3-month timeframe, and (4) establish and implement
           procedures to ensure that its quality control review deficiencies are communicated
           to the inspector.

           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 our review results with Authority officials during the audit. We
           provided a copy of the draft report to the Authority on October 12, 2010, for its
           comments and discussed the report with Authority officials at an exit conference
           on October 27, 2010. The Authority provided written comments on November 8,
           2010.

           The auditee generally agreed with our report. The complete text of the auditee’s
           response, along with our evaluation of that response, can be found in appendix B
           of this report.




                                             2
                           TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding 1: The Authority Did Not Follow Its Procedures When Dealing With a   5
                 Zero-Income Tenant
      Finding 2: The Authority’s Inspection Process Was Not Effective              7

Scope and Methodology                                                              10

Internal Controls                                                                  11

Appendixes
   A. Schedule of Questioned Costs                                                 13
   B. Auditee Comments and OIG’s Evaluation                                        14




                                           3
                     BACKGROUND AND OBJECTIVES

The East Point Housing Authority (Authority) was established in 1949 to provide decent, safe,
and sanitary housing. It is a not-for-profit agency providing affordable housing and family self-
sufficiency services. The Authority is governed by a six-person board of commissioners
appointed by the mayor of East Point. 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 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 April 30, 2010, the Authority had 794 housing assistance
vouchers under contract in East Point, GA, and surrounding communities. The annual housing
assistance payments and administrative fees approved for fiscal year 2010 totaled $2.6 million.

HUD’s Georgia State Office of Public Housing in Atlanta, GA, is responsible for overseeing the
Authority.

Our audit objectives were to determine (1) whether the Authority established procedures to
ensure that tenants were eligible for rental subsidies and that the amount of their subsidy
calculation was properly supported and (2) whether its units met HUD’s housing quality
standards.




                                                4
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Follow Its Procedures When Dealing
With a Zero-Income Tenant

The Authority generally computed accurate housing assistance payments. However, it made
excessive housing assistance payments of $38,447 on behalf of a zero-income tenant who
underreported her income and did not provide proof of financial assistance. This condition
occurred because the Authority’s Housing Choice Voucher program staff did not follow its
policies for zero-income tenants. As a result, HUD lacked assurance that the Authority was
properly verifying income to ensure its program funds were spent on eligible tenants.


 Proof of Financial Support Was
 Not Provided

              We reviewed 14 randomly selected tenant files and noted that one tenant did not
              provide documentation required by the Authority. In this case, the tenant, who
              lived with her adult daughter, had claimed to be a zero-income family for the past
              2 years. On the tenant’s recertification application, she stated that no one in the
              household was receiving any income; however, she stated that her mother
              provided her $100 to $150 per month to assist with the utilities. The tenant did
              not provide proof of this financial support, and the Authority did not take
              appropriate action to obtain the necessary documentation as required by its action
              plan.

              The Authority’s action plan states that zero-income families may only remain in a
              zero-income status for a maximum of 60 days. After 60 days, but before 90 days,
              the family must provide proof of financial support (for basic subsistence, such as
              food, utilities, transportation, etc.), such as family, government, or private agency
              contributions, which will be used to calculate the family’s rent. Failure to provide
              proof of financial support will result in termination from the program.

 Excessive Housing Assistance
 Payments of $38,447 Were
 Made
              We informed the Authority that the lack of support violated their action plan and
              requested them to review the tenant files and reverify the income to determine the
              employment status and income of the tenant and her daughter. The Authority
              discovered that they both had been working since December 1, 2003 and did not
              report any income. Based on the underreported household income, the Authority
              recalculated the tenant’s portion of the rent from February 1, 2004, to May 1,
                                                5
          2010. The Authority determined that it made excessive housing assistance
          payments of $38,447. On June 9, 2010, the Authority gave the tenant notice of its
          proposal to terminate her program assistance. On June 28, 2010, it notified the
          tenant that she owed the Authority $38,447 in retroactive rent and requested that
          she pay it immediately.

Recommendations

          We recommend that the Director of the Atlanta Office of Public Housing

          1A.     Require the Authority to reimburse the Housing Choice Voucher program
                  $38,447 for ineligible housing assistance payments.

          1B.     Require the Authority to implement its policies and procedures to ensure
                  that it properly verifies tenant income for zero-income families.




                                           6
Finding 2: The Authority’s Inspection Process Was Not Effective

The Authority’s inspection process was not effective. The inspections did not accurately identify
the housing quality standards deficiencies, quality control inspections were not performed on a
timely basis, and the results of the quality control inspections were not communicated to the
inspector. This occurred because the Authority’s workload increased. As a result, there were
units in the Housing Choice Voucher program that did not meet HUD’s housing quality
standards

 10 of 14 Units Inspected Failed
 To Meet HUD’s Housing
 Quality Standards

              Regulations at 24 CFR (Code of Federal Regulations) 982.401(a) (3) provide that
              all program housing must meet housing quality standards performance
              requirements both at the commencement of assisted occupancy and throughout
              the assisted tenancy.

              The Authority had 794 units under lease and one inspector to perform all initial,
              annual, and follow-up inspections. Due to his significant workload, a number of
              housing quality standards violations were not properly identified or corrected.
              We randomly selected 14 of the most recently inspected units to inspect. Ten
              units did not meet HUD’s housing quality standards. For the 10 units, we
              identified 44 deficiencies. Of the 44 deficiencies identified, 10 were identified by
              the inspector during his initial inspections but passed on his follow-up
              inspections, although the deficiencies had not been corrected. The inspector also
              failed to identify 12 deficiencies that existed at the time of his initial inspections.
              We identified an additional 22 deficiencies during our inspections that we could
              not determine whether the deficiencies existed at the time of the inspector’s initial
              visit.

              The deficiencies identified included ground fault interrupters that were either
              missing or not working properly, smoke detectors that were not working,
              windows that would not lock or stay up when opened, missing or broken window
              and vent screens, roach infestation, an exterior hand rail that was not installed,
              interior rails that were loose, stoves that were not working, and a dryer that was
              vented to the inside of the kitchen.

              One of the units we inspected had serious deficiencies. These deficiencies
              included a broken support beam on the front porch that weakened the roof,
              causing it to sag; old roofing tiles scattered over the yard from previous repairs;
              leaks in the kitchen and walls that were mildewed; and mold and mildew in other
              parts of the house. The executive director personally inspected the unit and had
              taken action to terminate the contract with the owner and relocate the tenant.
                                                  7
Quality Control Inspections
Were Ineffective

            Regulations at 24 CFR 982.405(b) provide that the Housing Choice Voucher
            program supervisor will perform quality control inspections on the number of
            files required by the Section Eight Management Assessment Program (SEMAP).
            According to SEMAP, the Authority was required to perform 18 inspections per
            year. The purpose of the inspections is to determine that each inspector conducts
            accurate and complete inspections and to ensure that there is consistency among
            the inspectors in the application of housing quality standards. The sampling will
            include recently completed inspections (within the prior 3 months), a cross section
            of neighborhoods, and a cross section of inspectors.

            The Authority had performed 11 quality control inspections by April 30, 2010.
            We reviewed the inspections to determine whether they were performed within
            the required 3-month period, the number of units that passed the inspections and
            whether the results of the inspections were formally provided to the inspector.

            Six of the eleven inspections were performed on a timely basis. The remaining
            five inspections were performed between 5 and 8 months after the initial
            inspections. Due to an increased workload, the quality control inspections were
            not performed timely. Only 2 of the 11 units passed the quality control
            inspections, and none of the results of the quality control inspections were
            provided to the inspector. The Authority’s policy did not require communicating
            the inspection results to the inspector. Therefore, by not performing timely
            inspections and not formally informing the inspector of the results of the
            inspections, the Authority’s system was ineffective.

            Overall, in relation to the workload, the Authority’s operations manager stated
            that the Authority always had three specialists and one inspector; however, one of
            the specialists was promoted and was not replaced. She also said that the
            Authority recognized that the department was understaffed. She stated that a
            temporary inspector was contracted to assist with the inspection workload, and the
            Authority planned to add a full-time inspector to its staff on October 1, 2010. The
            Authority has not decided on hiring an additional specialist.


Recommendations


            We recommend that the Director of the Atlanta Office of Public Housing

            2A.    Require the Authority to reinspect the units and ensure that all deficiencies
                   identified have been corrected.

                                             8
2B.   Require the Authority to evaluate its workload and make the necessary
      adjustments to ensure that housing quality standards deficiencies are
      properly identified and corrected.

2C.   Require the Authority to implement its policy and ensure that all quality
      control reviews are performed within the 3-month timeframe.

2D.   Require the Authority to establish and implement procedures to
      communicate its quality control review deficiencies to the inspector.




                               9
                         SCOPE AND METHODOLOGY

Our audit objectives were to determine (1) whether the Authority established procedures to
ensure that tenants were eligible for rental subsidies and the amount of their subsidy calculation
was properly supported and (2) whether its units met HUD’s housing quality standards. To
accomplish our objectives, we

       Researched HUD handbooks, the Code of Federal Regulations, and other requirements and
       directives that govern the Housing Choice Voucher program;

       Interviewed HUD and Authority staff;

       Reviewed HUD’s program files for the Authority; and

       Reviewed the Authority’s procedures and controls used to administer the Housing Choice
       Voucher program.

We conducted our audit from May through September 2010 at both the Atlanta, GA, HUD office
and the Authority located at 3056 Norman Berry Drive, East Point, GA. Our audit period was May
1, 2009, through April 30, 2010. We expanded our audit period as needed to accomplish our
objectives.

We obtained the tenant recertification reports from September 2009 through May 2010, which
contained a total of 794 tenants. We narrowed our scope to recertifications completed between
February and April 2010. This reduced our universe to 162 tenants. From this universe, we
randomly selected 14 tenants, using the random function formula in Microsoft Excel.

We did not review and assess general and application controls over the Authority’s information
systems. We conducted other tests and procedures to ensure the integrity of computer-processed
data that were relevant to the audit objectives. The tests included but were not limited to
comparisons of computer-processed data to invoices and other supporting documentation. We
did not place reliance on the Authority’s information systems and used other documentation for
the activities reviewed.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                10
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

       Effectiveness and efficiency of operations,
       Reliability of financial reporting, and
       Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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
               objectives:

                      Effectiveness and efficiency of operations – Policies and procedures that the
                      audited entity has implemented to provide reasonable assurance that a
                      program meets its objectives, while considering cost effectiveness and
                      efficiency.

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that its resources are
                      used in accordance with laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.




                                                 11
Significant Deficiency


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

                   The Authority’s controls and procedures to verify tenant income and ensure
                   that rental units meet HUD’s housing quality standards were not effective in
                   preventing and detecting ineligible costs in its Housing Choice Voucher
                   program and ensuring that the Authority’s units provide safe, decent, and
                   sanitary housing (see findings 1 and 2).




                                             12
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                            Recommendation
                                   number          Ineligible 1/

                                    1A                $38,447

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.




                                            13
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1


Comment 2




                         14
Comment 3




Comment 4




            15
16
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that the Section 8 tenant first claimed zero-income in May
            2008 when her unemployment ended and not for the past 4 years. We verified the
            documentation provided by the Authority and made the necessary corrections.

Comment 2   The Authority stated that one error file out of 14 does not constitute a significant
            program deficiency and a pervasive problem with the file documentation and rent
            calculation would have been identified through its annual audits. However, the
            issue has continued for the past two years and was not identified resulting in an
            overpayment of $38,447.

Comment 3   The Authority stated that the 23 deficiencies that could not be identified as
            existing at the time of the latest Authority inspection should not be considered in
            the audit. Although, we could not determine if the deficiencies existed at the time
            of the latest Authority inspection, they still represent violations of HUD's housing
            quality standards and should be corrected. Therefore, we included them in the
            report to assure that the violations were corrected immediately by the Authority
            instead of waiting until the next annual inspection.

Comment 4   The Authority generally agreed with the finding and recommendations and has
            started implementing procedures to correct the issues.




                                             17