oversight

Cuyahoga Metropolitan Housing Authority, Cleveland, OH, Did Not Operate Its Section 8 Housing Choice Voucher Program According to HUD's Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-07-28.

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

                                                                   Issue Date
                                                                           July 28, 2011
                                                                   
                                                                   Audit Report Number
                                                                           2011-CH-1011




TO:         Shawn Sweet, Director of Cleveland’s Public Housing Hub, 5DPH



FROM:       Kelly Anderson, Regional Inspector General for Audit, Region V, 5AGA

SUBJECT: Cuyahoga Metropolitan Housing Authority, Cleveland, OH, Did Not Operate its
           Section 8 Housing Choice Voucher Program According to HUD’s
           Requirements

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Cuyahoga Metropolitan Housing Authority’s (Authority) Section
             8 Housing Choice Voucher program. The audit was part of the activities in our
             fiscal year 2011 annual audit plan. We selected the Authority based upon our
             analysis of risk factors relating to the housing agencies in Region V’s jurisdiction.
             Our objective was to determine whether the Authority administered its program in
             accordance with applicable U.S. Department of Housing and Urban Development
             (HUD) requirements and the Authority’s program administrative plan to include
             determining whether (1) the Authority’s unit inspections were sufficient to detect
             housing quality standards violations and provide decent, safe, and sanitary
             housing to its residents; (2) it appropriately managed its Family Self-Sufficiency
             program according to HUD’s requirements and its action plan; and (3) it
             performed timely housing quality standards unit inspections. This is the first of
             two planned audit reports on the Authority’s program.

 What We Found

             The Authority failed to operate HUD programs according to HUD’s and its
             requirements. The Authority’s program administration regarding housing unit
             conditions was inadequate. Of the 82 program units statistically selected for
           inspection, 76 did not meet minimum housing quality standards, and 50 had
           material violations that existed before the Authority’s previous inspections.
           Based on our statistical sample, we estimate that over the next year, HUD will pay
           nearly $9.6 million in housing assistance for units with material housing quality
           standards violations.

           The Authority did not always comply with HUD’s requirements, its action plan,
           and its program procedures in administering its Family Self-Sufficiency program.
           It failed to maintain required documentation for 64 of its 71 program participants
           with an escrow balance and all 22 of its graduates with escrow disbursements. In
           addition, it failed to maintain accurate escrow balances for 69 of its 71
           participants with escrow balances or issue accurate escrow disbursements to all 22
           of its graduates.

           The Authority did perform timely housing quality standards unit inspections. We
           reviewed 58,805 inspections for 14,344 tenants and determined from the low error
           rate (.04 percent or 21 inspections) that the Authority’s timeliness of inspections
           was sufficient.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to (1) reimburse its program from non-Federal funds for the
           improper use of more than $100,000 in program funds, (2) provide
           documentation or reimburse its program nearly $550,000 from non-Federal funds
           for the unsupported housing assistance payments, and (3) implement adequate
           procedures and controls to address the findings cited in this audit report to prevent
           nearly $9.6 million in program funds from being spent on excessive housing
           assistance payments 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 issued because of the audit.

Auditee’s Response

           We provided our review results and supporting schedules to the Director of
           HUD’s Cleveland Office of Public Housing and the Authority’s interim chief
           executive officer during the audit. We provided our discussion draft audit report
           to the Authority’s interim chief executive officer, its board chairman, and HUD’s
           staff during the audit. We held an exit conference with the interim chief
           executive officer on June 15, 2011.

           We asked the interim chief executive officer to provide comments on our
           discussion draft audit report by July 1, 2011. The interim executive officer
           provided written comments, dated June 29, 2011. The complete text of the

                                             2
written comments, along with our evaluation of those comments, can be found in
appendix B of this report.




                               3
                            TABLE OF CONTENTS

Background and Objective                                                        5

Results of Audit

      Finding 1: Controls Over Housing Unit Inspections Were Inadequate         6

      Finding 2: The Authority Inappropriately Administered Its Family Self-
                 Sufficiency Program                                           17

Scope and Methodology                                                          23

Internal Controls                                                              26

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use           28
   B. Auditee Comments and OIG’s Evaluation                                    29
   C. Federal Requirements and The Authority’s Administrative Plan             58




                                             4
                       BACKGROUND AND OBJECTIVE

The Cuyahoga County, OH Metropolitan Housing Authority (Authority), established in 1933
pursuant to section 3735.27 and 3735.50 of the Ohio Revised Code, was the Nation’s first public
housing authority to provide safe and sanitary housing to low-income families. The passage of
the United States Housing Act in 1937 enabled the Authority to provide federally subsidized
housing. Following the passage of the Federal Housing Act of 1974, the Authority began
administering the Section 8 rental housing assistance program. The Authority’s jurisdiction
includes all of Cuyahoga County, except for Chagrin Falls Township. The Authority is a
political subdivision of the State of Ohio and is governed by a five-member board of
commissioners appointed for 3-year terms by local elected officials. The board governs the
business, policies, and transactions of the Authority. The chief executive officer is appointed by
the board and has the overall responsibility of carrying out the board’s policies and managing the
Authority’s day-to-day operations. The Authority’s office is located at 8120 Kinsman Road,
Cleveland, OH. As of April 30, 2011, the Authority had 13,827 Section 8 voucher units under
contract with annual housing assistance payments totaling more than $92.6 million in program
funds.

Our objective was to determine whether the Authority administered its Section 8 Housing Choice
Voucher program in accordance with HUD’s requirements and its program administrative plan to
include determining whether (1) the Authority’s unit inspections were sufficient to detect housing
quality standards violations and provide decent, safe, and sanitary housing to its residents; (2) it
appropriately managed its Family Self-Sufficiency program according to HUD’s requirements
and its action plan; and (3) it performed timely housing quality standards unit inspections. This
is the first of two planned audit reports on the Authority’s program.




                                                 5
                                 RESULTS OF AUDIT

Finding 1: Controls over Housing Unit Inspections Were Inadequate

The Authority did not adequately enforce HUD’s housing quality standards and its requirements.
Of the 66 non-quality control program units statistically selected for inspection, 62 failed to meet
minimum housing quality standards and 45 had material violations that existed during and before
the Authority's previous inspections. For quality control units, we inspected 16 units of which 14
failed to meet minimum standards and five had material violations. The violations existed
because the Authority failed to exercise proper supervision and oversight of its program unit
inspections. It also lacked adequate procedures and controls to ensure that its program units met
HUD’s housing quality standards and its requirements. As a result, nearly $62,000 in program
funds was spent on units that were not decent, safe, and sanitary. Based on our statistical
sample, we estimate that over the next year, HUD will pay nearly $9.6 million in housing
assistance for units with material housing quality standards violations.


 HUD’s Housing Quality
 Standards Were Not Met for
 Non-Quality Control Unit
 Inspections


               From the 2,604 program units that passed housing quality inspections performed
               between November 1 and December 31, 2010, we statistically selected 66
               program units for inspection by using data mining software. The 66 units were
               inspected to determine whether the Authority ensured that its program units met
               HUD’s housing quality standards. Our appraiser inspected the 66 units between
               February 7 and March 16, 2011.

               Of the 66 units inspected, 62 (94 percent) had a total of 639 housing quality
               standards violations. In addition, 45 units were considered to be in material
               noncompliance since they met one or more of the following criteria: (1) one or
               more emergency health and safety violations that predated the Authority's
               inspection, (2) multiple violations that predated the Authority's inspection, or (3)
               violations identified by the Authority and not corrected. The following table
               categorizes the 639 housing quality violations in the 62 units.




                                                 6
                                                               Number of
                                  Category of violations       violations
                          Electrical                              145
                          Window                                  140
                          Other potential hazardous features       61
                          Stairs, rails, and porches               45
                          Access to Unit                           39
                          Floor                                    31
                          Stove range with oven                    27
                          Heating                                  20
                          Smoke detector                           16
                          Security                                 15
                          Potential lead-based paint               13
                          Toilet                                   13
                          Dryer ventilation                        11
                          Plumbing                                 11
                          Roof and gutters                         10
                          Ventilation                              10
                          Wall                                     9
                          Exterior surfaces                        9
                          Sink                                     7
                          Foundation                               7
                                           Total                  639

             We provided our inspection results to the Director of HUD’s Cleveland Office of
             Public Housing and the Authority’s Interim chief executive director on May 19,
             2011.

Electrical Violations for Non-
Quality Control Unit
Inspections

             One hundred forty-five electrical violations were present in 49 of the Authority’s
             units inspected. The following items are examples of electrical violations listed in
             the table: exposed fuse box connections, exposed electrical contacts, and missing
             outlet cover plates. The following pictures are examples of the electrical-related
             violations.




                                                 7
  Household S018927:
  Wiring on the
  basement ceiling is
  improperly connected
  without a junction box.




  Household 1013712:
  The live wires
  dangling from the
  basement ceiling have
  exposed contacts.




Window Violations for Non-
Quality Control Unit
Inspections
               One hundred forty window violations were present in 42 of the Authority’s units
               inspected. The following items are examples of window violations listed in the
               table: windows that do not open or stay up properly, cracked or broken panes,
               and windows that do not lock or close properly. The following pictures are
               examples of the window-related violations.




                                               8
  Household S057815:
  A window sash in the
  bedroom is broken
  and has a loose glass
  pane.




  Household 1021560:
  The window doesn’t
  lock because the sash
  is too large for the
  window frame and
  doesn’t line-up for the
  locks.




Stairs, Rails, and Porches
Violations for Non-Quality
Control Unit Inspections
                Forty-five stair, rail, and porch violations were present in 27 of the Authority’s
                units inspected. The following items are examples of the stair, rail, and porch
                violations listed in the table: handrails too short, missing handrails, and porch
                defects such as being severely warped enough to create a tripping hazard. The
                following pictures are examples of stair, rail, and porch violations.




                                                  9
 Household 1021560:
 The stairway to the
 rear deck needs a
 handrail.




 Household 16922:
 The underside of the
 handrail of the
 basement has a sharp
 edge on the splice
 plate.




HUD’s Housing Quality
Standards Were Not Met for
Quality Control Inspections

             From the 22 program units that passed a quality control inspection performed by
             the Authority between November 1 and December 31, 2010, we statistically
             selected 17 units for inspection by using data mining software. One unit was an
             exemption because it was a modernization rehabilitation program unit and not on
             the Section 8 Housing Choice Voucher tenant-based program. The 16 units were
             inspected to determine whether the Authority conducted adequate quality control
             unit inspections to detect housing quality standards violations. Our appraiser
             inspected the 16 units between March 15 and March 23, 2011.

             Of the 16 units inspected, 14 (88 percent) had a total of 96 housing quality
             standards violations. In addition, five units were considered to be in material
             noncompliance since they had one or more emergency health and safety

                                              10
             violations that predated the Authority's inspection and multiple violations that
             predated the Authority's inspection. The following table categorizes the 96
             housing quality standards violations in the 14 units.

                                                               Number of
                                  Category of violations       violations
                          Electrical                               21
                          Window                                   16
                          Stairs, Rails, and Porches               9
                          Other potential hazardous features       9
                          Floor                                    5
                          Smoke detector                           5
                          Security                                 5
                          Stove range with oven                    4
                          Potential lead-based paint               4
                          Dryer ventilation                        3
                          Roof gutters                             3
                          Heating                                  2
                          Sink                                      2
                          Exterior surfaces                        2
                          Ventilation                              1
                          Wall                                     1
                          Foundation                               1
                          Ceiling                                  1
                          Tub/shower                               1
                          Water heater                             1
                                           Total                   96

             We provided our inspection results to the Director of HUD’s Cleveland Office of
             Public Housing and the Authority’s interim chief executive officer on May 19,
             2011.

Electrical Violations for Quality
Control Unit Inspections
             Twenty-one electrical violations were present in nine of the Authority’s
             program units inspected. The following items are examples of electrical
             violations listed in the table: exposed fuse box connections, exposed electrical
             contacts, and outlets with open ground connections. The following pictures are
             examples of the electrical-related violations.




                                                11
Household S813335:
There are various
unacceptable cut, frayed,
and improperly
terminated wires in the
basement ceiling.




Household S064675:
A live abandoned wire
on the basement ceiling
has exposed contacts at
the ends.




Window Violations for Quality
Control Unit Inspections

                 Sixteen window violations were present in seven of the Authority’s program units
                 inspected. The following items are examples of window violations listed in the
                 table: windows that do not open or stay up properly, cracked or broken panes,
                 and windows that do not lock or close properly. The following pictures are
                 examples of the window-related violations.




                                                12
Household S064474: A
basement window glass
block is shattered.




Household 1012936:
There is a cracked glass
pane on a rear bedroom
window.




Stair, Rail, and Porch
Violations for Quality Control
Unit Inspections
                Nine stair, rail, and porch violations were present in five of the Authority’s
                program units inspected. The following items are examples of the stair, rail, and
                porch violations listed in the table: handrails too short, missing handrails,
                crumbling stairs, and porches with flooring defects. The following pictures are
                examples of stair, rail, and porch violations.




                                                13
Household S813335:
The handrail from the
second floor stops about
mid-way to the top of the
stairway instead of
extending the entire
length.




Household 1014364:
The stairway to the
basement needs to have a
handrail that extends the
entire length of the
stairway.




The Authority’s Management
Did Not Protect HUD’s Interest

               The Authority lacked procedures and controls to ensure that its Section 8 units
               met HUD’s housing quality standards. It also failed to exercise proper
               supervision and oversight of its inspections. The Authority’s supervisors and
               inspectors neglected to report violations that existed at the units when they
               performed their inspections. Due to the lack of proper supervision the Authority’s
               inspectors were confused on how to conduct a proper housing quality inspection
               and were not consistent with applying HUD requirements and the Authority’s
               administrative plan.

               The Authority developed its own inspection form instead of using the required
               HUD inspection form, which did not comply with HUD's housing quality
               standards or its administrative plan. Some examples that were used on the

                                               14
             Authority’s form that were not housing quality standards or listed in its
             administrative plan were: did the unit have a mailbox; parked vehicle without a
             current registration tag; baseboards missing; sink with no caulking; tub missing
             caulking; garage door not weather tight; no electric in garage; third floor missing
             a fire ladder; county violations present; and city violations present. Some areas
             not addressed in the Authority’s inspection form which are required under the
             housing quality standards are: space for storage, preparation and serving of food;
             security of unit; manufactured home tie downs; adequacy of heating equipment;
             sewer connections; elevators; and interior air quality.

             The inspectors stated that they did not know all of the city codes. They also
             stated that they did not physically check windows and other areas of the
             inspection process but conducted a visual inspection. The inspectors received
             appropriate training and they received on-the-job training as new inspectors. We
             questioned inspectors in an attempt to determine how they conducted their
             respective inspections. We asked each inspector what length of grass would fail
             an inspection. The answers ranged from never failing a unit for the length of
             grass to just over their shoe to 5 feet high. Some inspectors moved furniture to
             inspect areas in the unit and others would not touch furniture in the unit. None of
             the inspectors identified frayed, cracked, and exposed wires in the unit. The
             inspectors only checked the electrical wiring in the control panel, lights, plug
             outlets and switch plates. The Authority required screens and storm windows in
             all windows and storm doors on all doors into the dwelling unit but many
             windows and doors were missing these items. Units selected from quality control
             inspections were in better condition than the majority of the units selected from
             the regular inspections.

             During our review of the inspection process, the Authority instituted changes and
             stated that it would update its administrative plan. After we discussed the
             requirement that the Authority use the HUD inspection forms for inspections, it
             changed the inspection process to require the inspectors to use the HUD
             inspection form. The inspectors stated that HUD’s inspection form assisted them
             in performing better inspections. Also, the Authority required its inspectors to
             accompany our team during our inspection process and use our process as a
             training environment. With the changes the Authority incorporated, its inspection
             process should improve, but further improvement is needed to ensure that units
             meet HUD’s and its requirements.

Conclusion

             The housing quality standards violations existed because the Authority failed to
             exercise proper supervision and oversight of its program unit inspections. It also
             lacked adequate procedures and controls to ensure that its program units met
             HUD’s housing quality standards. The Authority’s households were subjected to
             health- and safety-related violations, and the Authority did not properly use its
             program funds when it failed to ensure that units complied with HUD’s housing
             quality standards. In accordance with 24 CFR (Code of Federal Regulations)

                                              15
          982.152(d), HUD is permitted to reduce or offset any program administrative fees
          paid to a public housing authority if it fails to enforce HUD’s housing quality
          standards. The Authority disbursed $61,805 in housing assistance payments for
          the 50 units that materially failed to meet HUD’s housing quality standards and
          received $10,102 in program administrative fees.

          If the Authority implements adequate procedures and controls regarding its unit
          inspections to ensure compliance with HUD’s housing quality standards and its
          housing standards, we estimate that the Authority can avoid spending more than
          $9.5 million in future housing assistance payments on units that are not decent,
          safe, and sanitary over the next year. Our methodology for this estimate is
          explained in the Scope and Methodology section of this audit report.

Recommendations

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

          1A.     Certify that the applicable housing quality standards violations have been
                  corrected for the 76 units (62 non-quality control plus 14 quality control
                  unit inspections) cited in this finding.

          1B.     Reimburse its program from non-Federal funds, $71,907 comprised of
                  $61,805 ($52,203 plus $9,602) for housing assistance payments and
                  $10,102 ($7,960 plus $2,142) in associated administrative fees for the 50
                  units (45 plus 5 units) that materially failed to meet HUD’s housing quality
                  standards.

          1C.     Implement procedures and controls to ensure that quality control
                  inspections are completed using HUD’s housing quality standards and its
                  requirements.

          1D.     Implement adequate procedures and controls to ensure that all program
                  units meet HUD’s housing quality standards to prevent $9,560,208
                  ($9,529,128 plus $31,080) in program funds from being spent over the next
                  year on units that are in material noncompliance with the standards.

          1E.     Ensure that all inspectors and supervisory control inspectors are familiar
                  with housing quality standards, and can apply them appropriately.




                                            16
Finding 2: The Authority Inappropriately Administered Its Family
                       Self-Sufficiency Program
The Authority did not always comply with HUD’s requirements, its action plan, and its Family
Self-Sufficiency program procedures in administering its family self-sufficiency program. It
failed to maintain required documentation for 64 of its 71 program participants with an escrow
balance and all 22 of its graduates with escrow disbursements. In addition, it failed to maintain
accurate escrow balances for 69 of its 71 participants with escrow balances or issue accurate
escrow disbursements to its 22 graduates. These conditions occurred because the Authority
lacked adequate procedures and controls to ensure that HUD’s regulations, its action plan, and its
program procedures regarding the Family Self-Sufficiency program were followed. As a result,
it failed to support more than $458,000 in escrow payments, overpaid nearly $23,000 and
underpaid more than $13,000 in escrow payments and interest to its participants’ escrow
accounts, and overpaid more than $5,000 in escrow disbursements to its graduates.


 The Authority Lacked
 Documentation to Support
 More Than $458,000 in Escrow
 Payments

               We performed a 100 percent review of the 71 Family Self-Sufficiency program
               participants’ files with an escrow account balance as of December 31, 2010. We
               also performed a 100 percent review of the 22 Family Self-Sufficiency program
               graduates’ files with an escrow disbursement between January 1, 2009 and
               December 31, 2010. The 93 files were reviewed to determine whether the
               Authority maintained the required documentation in the participants’ files,
               correctly maintained the participants’ escrow account balances and made the
               correct escrow disbursement, and provided applicable services to assist the
               families in becoming self-sufficient. The review was performed for the audit
               period of January 1, 2009 through December 31, 2010, and expanded as
               necessary. Our review was limited to the information maintained by the
               Authority in its participants’ files and in HUD’s Public and Indian Housing
               Information Center (PIC) system.

               The Authority lacked documentation to support escrow account balances totaling
               $292,768 and escrow disbursements totaling $165,828 for its Family Self-
               Sufficiency program participants and graduates. The documentation is required
               by HUD’s regulations, the Authority’s action plan, and its program procedures.
               Of the 93 files reviewed with escrow balances or escrow disbursements, 86 (92
               percent) had missing or incomplete documents as follows:

                     The Authority failed to include the required goal to seek and maintain
                      suitable employment on the individual training and services plans of 61 of
                      the 71 participants (86 percent) and 21 of the 22 graduates (95 percent).


                                               17
                 However, it did take corrective actions and obtained revised plans for 52
                 of the 61 participants with escrow balances.
               The Authority failed to maintain documentation showing that an extension
                 was requested for five participants and 11 graduates.
               The Authority failed to establish just cause for extensions for 11
                 participants and 15 graduates.
               The Authority failed to maintain written approval for extensions for four
                 participants and one graduates.
               The Authority failed to maintain certification that no family member
                 received welfare assistance for three graduates, and it failed to maintain
                 documentation regarding this status for 13 graduates.
               The form HUD-52650, Family Self-Sufficiency Program Contract of
                 Participation (contract) was not maintained for three participants, but the
                 Authority took corrective actions and recovered these documents.
                The Authority failed to maintain documentation showing that the required
                 goal to seek and maintain suitable employment was met by one graduate.
                The individual training and services plan was not maintained for one
                 participant, but the Authority took corrective actions and recovered this
                 document.
                One participant was not given an annual report of her escrow account
                 balance for the 2009 calendar year.

The Authority Made Inaccurate
Escrow Calculations


           The Authority's miscalculations and failure to comply with program requirements
           resulted in overfunded escrow accounts totaling $22,961 and underfunded escrow
           accounts totaling $13,307. Of the 71 files reviewed, 69 (97 percent) contained
           errors in the escrow account balance. These files included 62 participant files
           with overpayments and seven participant files with underpayments. The 69
           participant files contained the following errors:

                 Sixty-nine files had interest proration errors;
                 Three participants inappropriately remained on the program although 30
                  percent of their monthly adjusted income equaled or exceeded the fair
                  market rent;
                 Two participants had the incorrect amount of earned income at program
                  commencement used in the escrow credit calculation; and
                 Two participants had the incorrect amount of current earned income in the
                  escrow credit calculation.

           The Authority made incorrect escrow disbursements to 22 of its Family Self-
           Sufficiency program graduates. This amount was minor and totaled $5,526 in
           overpayments. The 22 participant files contained the following errors:

                 Twenty-two files contained interest proration errors;

                                           18
                   Two participants inappropriately remained on the program although 30
                    percent of their monthly adjusted income equaled or exceeded the fair
                    market rent; and
                   One graduate received an escrow credit after her graduation date.

Other Deficiencies in the
Authority’s Family Self-
Sufficiency Program

            The Authority used the incorrect effective date on the contracts of participation
            for 40 of the 93 Family Self-Sufficiency program participants and graduates
            reviewed. For example, the contract was signed by one participant and the
            Authority on October 20, 2008. However, the effective date of the contract was
            October 1, 2008. Therefore, the Authority made the family’s participation in the
            Family Self-Sufficiency program effective before the contract was executed.
            HUD’s regulations at 24 CFR 984.103 and the instructions for completing the
            contract of participation state that the effective date of the contract means the first
            day of the month following the month in which the family and the Authority
            signed or entered into the contract.

            The Authority failed to include interim goals to assist in measuring the family’s
            progress in fulfilling its obligations under the contract of participation for 58 of
            the 93 participants and graduates reviewed during the audit period. These goals
            are required by 24 CFR 984.303(b)(2).

            For 19 of the 71 participants reviewed, the examination used to establish the
            baseline figures indicated on the contract of participation were more than 120
            days old. The contract states that if it has been more than 120 days, the Authority
            must conduct a reexamination or interim redermination for the income and rent
            numbers on the form.

            In addition, the Authority did not provide its participants with all of the supportive
            services that were identified in its action plan. For instance, it failed to maintain
            documentation showing that it met quarterly with any of the 71 participants
            reviewed. The family self-sufficiency coordinator indicated that in lieu of
            meeting quarterly with the participants, the Authority obtained their telephone
            numbers and email addresses to provide support and encouragement. The
            participants’ status in meeting their goals was also determined during their annual
            recertification appointments for the Housing Choice Voucher program. The
            Authority also failed to maintain assessments for 68 of the 71 participants. As a
            result, we could not determine whether the individual training and services plans
            identified the needs of the participants.

            The Authority received $90,058 from HUD to operate its fiscal years 2009 and
            2010 Family Self-Sufficiency program. It failed to appropriately administer its
            program or implement local strategies to coordinate the use of its program with


                                              19
           public and private resources to enable eligible households to achieve economic
           self-sufficiency.

The Authority’s Procedures
and Controls Had Weaknesses

           The Authority failed to maintain the required documentation and overfunded and
           underfunded the escrow accounts of Family Self-Sufficiency program participants
           because it lacked adequate procedures and controls to ensure that HUD’s
           regulations, its program administrative plan, its action plan, and Family Self-
           Sufficiency program procedures were followed.

           The cause of the majority of the errors regarding documentation was the staff’s
           unfamiliarity with the requirement to include the goal to seek and maintain
           suitable employment as a final goal on the participants’ individual training and
           services plan. The Authority did maintain documentation in the participants’ files
           that indicated awareness of this goal, such as their Family Self-Sufficiency
           program participant statement of employment form. However, this goal was not
           generally included on the individual training and services plan as required by the
           contract of participation.

           Further, the Authority failed to perform quality control reviews to ensure that
           required documentation was maintained for Family Self-Sufficiency program
           participants during the entire audit period. The Authority’s client services
           department and its internal auditor performed quality control reviews of
           documentation for the participants’ annual recertifications in the Housing Choice
           Voucher program. However, these reviews did not ensure that the required
           documentation for the Family Self-Sufficiency program was maintained. The
           Authority began performing these reviews in approximately January 2010,
           although written documentation of these reviews was not kept.

           The cause of the majority of the errors in the escrow credits and escrow account
           balances was the incorrect proration of interest earned on the Family Self-
           Sufficiency program escrow account. The program’s budget department used a
           two percent annual interest rate although this interest rate did not match the
           interest rates reflected on the Family Self-Sufficiency program escrow bank
           statements. The budget manager indicated that that the two percent interest rate
           had been used for a while although he was not certain how this percentage was
           determined. The Authority took actions to correct these errors. It was using the
           interest rate for each month, as indicated on the bank statements, to recalculate the
           participants’ interest income. The revisions were to be incorporated in the
           Authority’s 2011 year-end escrow statements that are mailed to the participants.
           Additionally, starting with the April 2011 interest posting, the Authority had
           revised its procedures to use the interest rate indicated on each month’s bank
           statement.



                                            20
             The Authority generally had adequate quality control procedures for maintaining
             accurate escrow account balances and making accurate escrow disbursements.
             Before sending out the participants’ annual escrow statements, the budget
             department reviewed the participants’ escrow account balances. Further, it
             recalculated the participant’s entire escrow account before the participant
             graduated to ensure an accurate disbursement. Because of these quality reviews,
             it identified and corrected several escrow credit errors before our review.

             The Authority’s program coordinating committee was only comprised of its own
             staff and one program participant. While not required to do this by HUD’s
             regulations, the committee could have included outside agencies to assist in
             helping participants achieve self-sufficiency. Further, the Authority could not
             provide documentation indicating that the committee met throughout the entire
             audit period to assist the Family Self-Sufficiency program participants in
             achieving self-sufficiency. We only received and reviewed the meeting minutes
             from November 2010.

             The housing choice voucher director indicated that the Authority made
             adjustments in its Family Self-Sufficiency program over the past two years after
             noting deficiencies on its own. For the participants who were admitted to the
             program during the 2010 calendar year, the Authority generally maintained
             assessments of their status, and it generally maintained notes regarding the
             participants’ status or the supportive services that were provided since
             approximately September 2010. Further, the client services manager indicated in
             March 2011 that the Authority was seeking to contract with local agencies to
             provide additional supportive services to its participants to assist them in
             achieving their goals. In April 2011, the Authority developed a written quality
             control form to ensure that required documentation was being maintained for its
             Family Self-Sufficiency program participants.

Conclusion


             The Authority improperly used funds from its Family Self-Sufficiency program
             when it failed to comply with HUD’s and its requirements. The Authority’s
             failure to maintain sufficient documentation made it difficult to determine
             whether the program was meeting its goal of enabling households to become
             economically self-sufficient and increased the likelihood of inappropriate
             households receiving payments. It also reduced the Authority’s ability to monitor
             and measure the effectiveness of the family self-sufficiency program.

             As a result of the weaknesses in its procedures and controls, the Authority (1)
             funded or disbursed $458,596 in escrow payments for 64 program participants
             and 22 program graduates without supporting documentation, (2) misused
             $90,058 in Family Self-Sufficiency program grant funds, (3) overpaid $22,961
             and underpaid $13,307 in program participants' escrow accounts, and (4) overpaid
             $5,526 in escrow disbursements to program graduates.


                                             21
Recommendations

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

          2A.     Provide supporting documentation or reimburse its program $292,768 for
                  the unsupported escrow balances cited in this finding, of which $123,922
                  remains to be supported or should be reimbursed from non-Federal funds.

          2B.     Provide supporting documentation or reimburse its program $165,828 in
                  escrow disbursements from non-Federal funds for the unsupported
                  disbursements cited in this finding.

          2C.     Provide documentation to support its allocation of time spent correctly
                  administering its Family Self-Sufficiency program and reimburse its
                  program undesignated fund balance for administration account from non-
                  Federal funds the appropriate portion of the $90,058 in Family Self-
                  Sufficiency program funds received for fiscal years 2009 and 2010 that
                  were incorrectly administered.

          2D.     Adjust the appropriate Family Self-Sufficiency program participants’
                  escrow accounts for the overfunding of the cited in this finding and
                  reimburse its program $22,961.

          2E.     Reimburse the appropriate Family Self-Sufficiency program participants’
                  escrow accounts $13,307 from program funds for the underpayments cited
                  in this finding, of which $146 remains to be reimbursed from program
                  funds.

          2F.     Reimburse its program $5,526 from non-Federal funds for the overfunding
                  of the Family Self-Sufficiency program graduates’ escrow disbursements
                  cited in this finding.

          2G.     Ensure that its staff responsible for administering its Family Self-
                  Sufficiency program is knowledgeable of both the Housing Choice
                  Voucher program and the Family Self-Sufficiency program, including
                  HUD’s and its Family Self-Sufficiency program policies and procedures.

          2H.     Ensure that its staff responsible for performing quality control reviews
                  includes reviews that ensure that the required documentation is maintained
                  for the Family Self-Sufficiency program.




                                          22
                          SCOPE AND METHODOLOGY

To accomplish our objective, we reviewed

      Applicable laws, HUD’s program requirements at 24 CFR Parts 982 and 984, and HUD’s
       Housing Choice Voucher Guidebook 7420.10.

      The Authority’s program administrative plan, from 2009 and 2010; HUD approved Family
       Self-Sufficiency program action plan; accounting records; annual audited financial
       statements for 2008 and 2009; program household files; computerized databases; policies
       and procedures; board meeting minutes for 2007, 2008, and 2009; organizational chart; and
       program annual contributions contract.


      HUD’s files for the Authority.

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

Finding 1

Using data mining software, we statistically selected 66 of the Authority’s program units to inspect
from the 2,604 units that passed annual inspections or reinspections between November 1 and
December 31, 2010. The 66 units were selected to determine whether the Authority’s program units
met HUD’s housing quality standards. Our sampling criteria used a 90 percent confidence level, 50
percent estimated error rate, and precision of plus or minus 10 percent.

Our sampling results determined that 45 of the 66 units (68 percent) materially failed to meet
HUD’s housing quality standards. Materially failed units were those units that met one or more of
the following criteria: (1) one or more emergency health and safety violations that predated the
Authority's inspection, (2) multiple violations that predated the Authority's inspection, or (3)
violations identified by the Authority and not corrected. All units were ranked, and we used
auditors’ judgment to determine the material cutoff point.

The Authority’s October 2010 housing assistance disbursements listing showed that the average
monthly housing assistance payment was $518 for the 16,638 units in the population. Projecting
our sampling results of the 45 units that materially failed to meet HUD’s housing quality standards
to the population indicates that 1,776 units, or 68.18 percent, of the population contained the
attributes tested (would materially fail to meet HUD’s housing quality standards). The sampling
error is plus or minus nine percent. In other words, we are 90 percent confident that the frequency
of occurrence of the attributes tested lies between 58.87 and 77.49 percent of the population. This
equates to an occurrence of between 1,533 and 2,017 units of the 2,604 units in the population.

           The lower limit is 58.87 percent times 2,604 units equals 1,533 units that materially
            failed to meet HUD’s housing quality standards.
           The point estimate is 68.18 percent times 2,604 units equals 1,776 units that materially
            failed to meet HUD’s housing quality standards.

                                                 23
          The upper limit is 77.49 percent times 2,604 units equals 2,017 units that materially
           failed to meet HUD’s housing quality standards.

Using the lower limit of the estimate of the number of units and the average housing assistance
payment, we estimate that the Authority will annually spend $9,529,128 (1,533 units times $518
average payment times 12 months) for units that materially fail to meet HUD’s housing quality
standards. This estimate is presented solely to demonstrate the annual amount of program funds
that will be correctly paid over the next year on decent, safe, and sanitary housing if the Authority
implements our recommendation. While these benefits would recur indefinitely, we were
conservative in our approach and only included the initial year in our estimate.

Using data mining software, we statistically selected 17 of the Authority’s program units to inspect
from the 22 units that passed quality control inspections between November 1 and December 31,
2010. The 17 units were selected to determine whether the Authority’s program units met HUD’s
housing quality standards. Our sampling criteria used a 90 percent confidence level, 50 percent
estimated error rate, and precision of plus or minus 10 percent. We determined that one of the
sample units was not on the Section 8 Housing Choice Voucher program therefore our sample
results were reduced by one to 16 units sampled.

Our sampling results determined that 5 of the 16 units (31 percent) materially failed to meet HUD’s
housing quality standards. Materially failed units were those units that met one or more of the
following criteria: (1) one or more emergency health and safety violations that predated the
Authority's inspection, (2) multiple violations that predated the Authority's inspection, or (3)
violations identified by the Authority and not corrected. All units were ranked, and we used
auditors’ judgment to determine the material cutoff point.

The Authority’s October 2010 housing assistance disbursements listing showed that the average
monthly housing assistance payment was $518 for the 16,638 units in the population. Projecting
our sampling results of the 5 units that materially failed to meet HUD’s housing quality
standards to the population indicates that 5 units or 20.75 percent of the population contains the
attributes tested (would materially fail to meet HUD’s housing quality standards). The sampling
error is plus or minus 9.95 percent. In other words, we are 90 percent confident that the
frequency of occurrence of the attributes tested lies at 31.25 percent of the population. This
equates to an occurrence of between five and nine units of the 22 units in the population.

      The lower limit is 21.30 percent times 22 units equals five units that materially failed to
       meet HUD’s housing quality standards.
      The point estimate is 31.25 percent times 22 units equals seven units that materially
       failed to meet HUD’s housing quality standards.
      The upper limit is 41.20 percent times 22 units equals nine units that materially failed to
       meet HUD’s housing quality standards.

Using the limit of the estimate of the number of units and the average housing assistance payment,
we estimate that the Authority will annually spend $31,080 (five units times $518 average payment
times 12 months) for units that materially fail to meet HUD’s housing quality standards. This
estimate is presented solely to demonstrate the annual amount of program funds that will be
correctly paid over the next year on decent, safe, and sanitary housing if the Authority implements


                                                  24
our recommendation. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate.

Finding 2

We performed a 100 percent review of the 71 Family Self-Sufficiency program participants with
an escrow account balance as of December 31, 2010. We also performed a 100 percent review
of the 22 Family Self-Sufficiency program graduates with an escrow disbursement between
January 1, 2009 and December 31, 2010. The 93 files were reviewed to determine whether the
Authority (1) maintained the required documentation in the participants’ files, (2) correctly
maintained the participants’ escrow account balances or (3) made the correct escrow
disbursement, and provided applicable services to assist the families in becoming self-sufficient.
The review was performed for the audit period of January 1, 2009 through December 31, 2010,
expanded as necessary. Our review was limited to the information maintained by the Authority
in its participants’ files and in HUD’s Public and Indian Housing Information Center (PIC)
system.

We performed our on-site audit work between October 2010 and April 2011 at the Authority’s
office located at 3400 Hamilton Avenue, Cleveland, OH. The audit covered the period January
1, 2009, through September 30, 2010, but was expanded when necessary to include other
periods.

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




                                                25
                              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 objective:

                     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.

                     Reliability of financial reporting – Policies and procedures that management
                      has implemented to provide reasonable assurance regarding the reliability of
                      financial reporting and the preparation of financial statements in accordance
                      with generally accepted accounting principles.

                     Compliance with applicable 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 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.




                                                 26
Significant Deficiencies

             Based on our review, we believe that the following items are a significant
             deficiencies:

                   The Authority lacked adequate procedures and controls to ensure compliance
                    with HUD’s requirements and its program administrative plan regarding
                    housing quality standards inspections (see finding 1).

                   The Authority lacked adequate procedures and controls over the
                    administration of its Family Self-Sufficiency program (see finding 2).




                                              27
                                   APPENDIXES

Appendix A

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

           Recommendation        Ineligible 1/    Unsupported 2/   Funds to be put
               number                                               to better use 3/
                  1B                 $71,907
                  1D                                                   $9,560,208
                  2A                                   $292,768
                  2B                                    165,828
                  2C                                     90,058
                  2D                  22,961
                  2E                                                        13,307
                  2F                    5,526
                  2G
                 Totals             $100,394           $548,654        $9,573,515

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
     recommendation, it will cease to incur program costs for units that are not decent, safe,
     and sanitary and, instead, will expend those funds in accordance with HUD’s
     requirements. Once the Authority successfully improves its controls, this will be a
     recurring benefit. Our estimate reflects only the initial year of this benefit.

                                             28
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




                         29
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         30
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




Comment 3




                         31
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         32
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




                         33
Ref to OIG Evaluation   Auditee Comments




Comment 9



Comment 4




Comment 1




Comment 1




                         34
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         35
Ref to OIG Evaluation   Auditee Comments




                         36
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         37
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




                         38
Ref to OIG Evaluation   Auditee Comments




Comment 14




                         39
Ref to OIG Evaluation   Auditee Comments




Comment 15




Comment 16




                         40
Ref to OIG Evaluation   Auditee Comments




Comment 17




Comment 18




Comment 19




                         41
Ref to OIG Evaluation   Auditee Comments




Comment 20




Comment 21




Comment 22




Comment 23




                         42
Ref to OIG Evaluation   Auditee Comments




Comment 24




Comment 25




Comment 26




                         43
Ref to OIG Evaluation   Auditee Comments




Comment 27




Comment 28




                         44
Ref to OIG Evaluation   Auditee Comments




Comment 29




                         45
Ref to OIG Evaluation   Auditee Comments




                         46
Ref to OIG Evaluation   Auditee Comments




Comment 30




Comment 27




Comment 31




                         47
Ref to OIG Evaluation   Auditee Comments




                         48
Ref to OIG Evaluation   Auditee Comments




Comment 32




Comment 33




                         49
Ref to OIG Evaluation   Auditee Comments




Comment 34




                         50
Ref to OIG Evaluation   Auditee Comments




Comment 35




Comment 36




                         51
                      OIG Evaluation of Auditee Comments
Comment 1   We commend the Authority for exceeding the required amount of quality control
            inspections. However, its Team Leader failed to identify 96 housing quality
            standards violations in 14 units that were inspected by our appraiser. The purpose
            and value of quality control inspections should not be measured only by the
            number of quality control inspections conducted. SEMAP is a self certification
            by the Authority to HUD and this certification undergoes an assessment by HUD
            which does not require a review of the quality control inspection process.

Comment 2   The inspectors stated during interviews we conducted that they were confused on
            what was expected of them during inspections. Numerous changes in inspection
            processes left the inspectors confused on what is expected of them. We never
            considered that the inspectors did not receive training. With the proper
            communication, training, and written procedures and controls, the inspectors
            should be clear on what is expected.

Comment 3   The Authority began using HUD’s inspection form when we informed it of
            HUD’s requirement to use the form in October 2010. We agree that this occurred
            before our appraiser performed the inspections.

Comment 4   We commend the Authority for instituting the changes for identifying missing and
            inoperable smoke detectors and inoperable gas stoves and ranges as emergency
            health and safety violations.

Comment 5   The checklist for inspection developed by the Authority required its inspectors to
            identify violations to city codes. The Authority’s inspectors were also required to
            identify and fail units if a car in the driveway did not have current registration.
            We did not use missing screen windows, storm windows, and screen doors as a
            reason for materially failing a unit during our inspections.

Comment 6   We commend the Authority for taking steps to improve its inspection process.

Comment 7   The amounts stated in recommendation 1B will not be adjusted. Our results were
            determined by more than our interviews with tenants and our appraiser’s results.
            We utilized a conservative approach in determining whether a unit failed an
            inspection and was identified for monetary reimbursement. For monetary
            reimbursement, the unit must have met one or more of the following: (1) one or
            more emergency health and safety violations that predated the Authority's
            inspection, (2) multiple violations that predated the Authority's inspection, or (3)
            violations identified by the Authority and not corrected. All units were then
            ranked, and we used auditors’ judgment to determine the material cutoff point.

Comment 8   We commend the Authority for updating its administrative plan. We agree that
            screens on windows, storm windows, and storm doors do not pose harm to a
            tenant if they are not there. Additionally, we did not use missing window screens,

                                             52
               storm windows, and screen doors as a reason for materially failing a unit during
               our inspections unless it posed a health risk for the tenant. A broken or unsecured
               storm window can cause harm. Therefore no changes in the recommendation are
               needed.

Comment 9      24 CFR Part 982.401(iv)(h)(2)(i) states that the acceptable criteria for air quality
               is that the dwelling unit must be free from dangerous levels of air pollution from
               dust and other harmful pollutants. Page 10-10 of HUD’s Housing Choice
               Voucher program Guidebook states that the dwelling unit must be free from
               dangerous air pollution levels from carbon monoxide, sewer gas, fuel gas, dust,
               and other harmful pollutants. There must be adequate air circulation in the
               dwelling unit. Missing or dirty air filters contribute to unacceptable levels of
               dust.

Comment 2      As previously stated in Comment 2, the inspectors stated during interviews we
               conducted that they were confused on what was expected of them during
               inspections. Numerous changes in inspection processes left the inspectors
               confused on what is expected of them. The Authority’s changes should improve
               its inspection process provided that they are fully implemented.

Comment 10 We reviewed the documentation submitted by the Authority and adjusted the
           report accordingly. The Authority did not provide sufficient documentation to
           support that participants were withdrawn from the program and funds were
           forfeited.

Comment 11 We acknowledge that there were goals of full-time employment, maintain
           employment, or that the final goal was listed as an activity or as an interim goal.
           We also acknowledge that the majority of the Authority’s graduates met this
           requirement prior to graduation, but not all. However, the contract of
           participation states that the final goal listed on the individual training and services
           plan of the head of the family must include getting and maintaining suitable
           employment specific to that individual’s skills, education, job training, and the
           available job opportunities in the area. Therefore the Authority failed to
           appropriately abide by the contracts of participation.

Comment 12 We do not dispute these results. In fact, we presented the results to the Authority.
           However, the Authority did not always follow HUD’s requirements for the
           administration of the family self-sufficiency program.

Comment 13 We adjusted the finding based upon the supporting documentation provided by
           the Authority. We determined that the Authority failed to maintain
           documentation showing that an extension was requested for five participants and
           eleven graduates. Without the written request from the family, which must
           include a description for the need of the extension, the Authority failed to support
           the family’s continuation in the program or their escrow account balance.


                                                53
Comment 14 We reviewed the supporting documentation provided by the Authority and
           adjusted the finding accordingly. We did not fully agree with the Authority on
           the justification for extension of the contract of participation. HUD’s regulations
           at 24 CFR 984.303(d) states that the public housing authority shall, in writing,
           extend the term of the contract of participation for a period not to exceed two
           years for any family self-sufficiency family that requests, in writing, an extension
           of the contract, provided the authority finds that good cause exists for granting the
           extension. The family's written request for an extension must include a
           description of the need for the extension. The regulations define good cause as
           circumstances beyond the control of the family self-sufficiency family, as
           determined by the authority, such as a serious illness or involuntary loss of
           employment. Extension of the contract of participation will entitle the family to
           continue to have amounts credited to its escrow account. We concluded that a
           restatement of the purpose of the family self-sufficiency program was not just
           cause for granting a participant’s extension of their contract.

Comment 15 The Authority provided sufficient documentation that it correctly extended the
           contract expiration date for eight current participants and 11 graduates. Based
           upon the supporting documentation, the report was revised to indicate that the
           Authority failed to maintain written approval for extensions for four participants
           and one graduate.

Comment 16 The Authority did not provide sufficient evidence to support that it maintained
           certifications that no family member received welfare assistance for 3 graduates,
           or that it maintained documentation regarding this status for 13 graduates.

Comment 17 We agree with the corrections made by the Authority. The report was adjusted to
           state that the form HUD-52650, Family Self-Sufficiency Contract of
           Participation, was not maintained for three participants, but the Authority took
           corrective actions and recovered these documents.

Comment 18 We revised the report based upon the supporting documentation provided by the
           Authority. The audit report was revised for one graduate, however, the Authority
           failed to provide documentation that indicated that the other graduate was
           employed at the time her 7-year contract expired in November 2009. The
           Authority allowed the participant to continue in the program ten months after the
           contract expiration date.
 
Comment 19 We reviewed the supporting documentation provided by the Authority and agreed
           that the 2010 annual statement was sent to the participant and the 2009 annual
           statement was not.

Comment 20 We commend the Authority for revising the interest rates for the escrow accounts
           to the actual rate as stated on the monthly bank statements. HUD will need to
           verify that the corrective action taken was appropriate.


                                              54
Comment 21 We made no adjustments because the Authority did not provide adequate
           supporting documentation.

Comment 22 We reviewed the supporting documentation provided by the Authority and
           determined that the documentation was insufficient to clear the errors identified.

Comment 23 We commend the Authority for making the corrections to the earned income and
           escrow accounts for the two families.

Comment 24 We commend the Authority for making the corrections in interest proration errors.

Comment 25 We disagree with the Authority. According to the supporting documentation
           provided by the Authority which identified graduates and their respective
           graduation dates, the participant graduated from the program on March 28, 2009.
           This graduation date agreed with the November 1, 2008, HUD-50058 report
           updated in Public and Indian Information Center (PIC) on March 13, 2009. Since
           the participant's graduation date was effective February 28, 2009, the participant
           should not have received an escrow credit for March 2009 as indicated in the
           subsidiary ledger. Therefore, the participant was overpaid $231 in escrow credits
           for March 2009.

Comment 26 We reviewed the supporting documentation provided by the Authority and
           disagree with the Authority. The training certificates provided by the Authority
           occurred in 2009. However, the deficiencies noted with the Authority’s practice
           of timing the effective date of the contract with the effective date of the next
           certification occurred prior to and following the training received by the
           Authority’s staff. Specifically, the instructions for completing Form HUD-52650,
           Contract of Participation, which state that the effective date is the first day of the
           month following the date the contract was signed by the family and the
           Authority’s representative. We commend the Authority for implementing a
           quality control process. HUD will need to ensure that the implementation of the
           quality control process is adequate.

Comment 27 The Authority failed to provide sufficient documentation; therefore, we did not
           make any changes to the finding.

Comment 28 We reviewed the supporting documentation provided by the Authority and we
           disagree with the Authority. In the audit report and the detailed summary
           spreadsheet provided to the Authority, we acknowledge that the Authority did
           provide some supportive services to its participants. However, the Authority’s
           family self-sufficiency action plan specifically stated that it would meet quarterly
           with its participants and maintain assessments of it participants. We could not
           determine, nor did the Authority provide documentation to support, that these
           particular supportive services were accomplished by the Authority.



                                               55
Comment 29 The documentation provided by the Authority was not adequate to support its
           stance. We acknowledge that the Authority has spent a portion of its time
           administering its family self-sufficiency program in accordance with HUD
           regulations and its action plan. The report also stated the Authority had missing
           or incomplete documents for 92 percent of the current participants or graduates
           reviewed, 97 percent of the current participants had an incorrect escrow balance
           and all 22 of its graduates had an incorrect escrow disbursement, and the
           Authority did not provide its participants with supportive services or maintain
           assessments as indicated in its action plan, which are indications of a lack of
           proper administration.

Comment 30 The Authority’s documentation supported a $103,038 revision to recommendation
           2A.

Comment 31 The supporting documentation provided by the Authority did not support any
           revision to the finding. Although we acknowledge that the Authority spent a
           portion of its time administering the family self-sufficiency program in
           accordance with HUD regulations and its action plan, the report also stated it had
           missing or incomplete documents for 92 percent of the current participants or
           graduates reviewed. This is an indication of a lack of proper administration of the
           program. In addition, 97 percent of the current participants had an incorrect
           escrow balance and all 22 of its graduates had an incorrect escrow disbursement.
           These are also indications of a lack of proper administration. Furthermore, the
           Authority did not provide its participants with supportive services or maintain
           assessments as indicated in its action plan, which is another indication of a lack of
           proper administration.

Comment 32 No changes were made to the finding or recommendations. The Authority did not
           provide the participants’ subsidiary ledgers to enable us to confirm whether or not
           interest was appropriately prorated to their escrow accounts. In addition, no
           documentation was provided to refute the other cited overpayments or to indicate
           that the overpayments were corrected.

Comment 33 The Authority provided sufficient documentation that they reimbursed $13,161 of
           the escrow funds that were underpaid. Recommendation 2E was revised to reflect
           the Authority’s actions.

Comment 34 We disagree with the Authority. The costs are not included in Recommendation
           2B. Recommendation 2F is for the overfunded escrow accounts.

Comment 35 The training certificates provided are not adequate to address the
           recommendation. HUD will need to ensure that the application of training
           information is effective in the administration of the Authority’s family self-
           sufficiency program.



                                              56
Comment 36 We commend the Authority for revising its quality control procedures. HUD will
           need to ensure that the implementation of the quality control procedures is
           adequate.




                                           57
Appendix C

      FEDERAL REQUIREMENTS AND THE AUTHORITY’S
                ADMINISTRATIVE PLAN

Finding 1

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

HUD's regulations at 24 CFR 982.162(a) state the public housing authority must use program
contracts and other forms required by HUD headquarters. Part (b) requires program contracts
and other forms must be word for word in the form required by HUD headquarters.

HUD’s regulations at 24 CFR 982.305(a) state that the public housing authority may not give
approval for the family of the assisted tenancy or approve a housing assistance contract until the
authority has determined that the following meet program requirements: (1) the unit is eligible,
(2) the unit has been inspected by the housing authority and passes HUD’s housing quality
standards, and (3) the rent to the owner is reasonable.

HUD’s regulations at 24 CFR 982.401 require that all program housing meet HUD’s housing
quality standards performance requirements, both at commencement of assisted occupancy and
throughout the tenancy.

HUD’s regulations at 24 CFR 982.401(a)(4)(ii) state that HUD may approve acceptability
criteria variations for variations which apply standards in local housing codes or other codes
adopted by the public housing authority.

HUD’s regulations at 24 CFR 982.404(a) state that the owner must maintain the unit in
accordance with HUD’s housing quality standards. If the owner fails to maintain the dwelling
unit in accordance with HUD’s housing quality standards, the authority must take prompt and
vigorous action to enforce the owner’s obligations. Remedies for such breach of the housing
quality standards include termination, suspension, or reduction of housing assistance payments
and the termination of the housing assistance payments contract. The authority must not make
any housing assistance payments for a dwelling unit that fails to meet the housing quality
standards unless the owner corrects the defect within the period specified by the authority and
the authority verifies the correction. If a defect is life threatening, the owner must correct the
defect within 24 hours.

HUD’s regulations at 24 CFR 982.405(a) require public housing authorities to perform unit
inspections before the initial move-in and at least annually. The authority must inspect the unit
leased to a family before the term of the lease, at least annually during assisted occupancy, and at
other times as needed to determine whether the unit meets housing quality standards.

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HUD's Housing Choice Voucher Guidebook, 7420.10G, Chapter 10, states that in order to meet
all housing quality standards requirements, inspections must be conducted and recorded using
form HUD 52580-A or HUD 52580.

Authority’s Administrative Plan
Housing Quality Standards and Inspections, Chapter 10, Section F, Acceptability Criteria and
Exceptions to Housing Quality Standards, PHA Requirements: deadbolts on all main doors. The
dwelling unit must have screens in all windows. The dwelling unit must have storm windows.
The dwelling unit must have clothes dryer vented to the outside. The dwelling unit must have
downspouts. The dwelling unit must have storm doors (unless part of historical preservation).

Finding 2

HUD’s regulations at 24 CFR 984.102 state that under the family self-sufficiency program, low-
income households are provided opportunities for education, job training, counseling, and other
forms of social service assistance so they may obtain the education, employment, and business
and social skills necessary to achieve self-sufficiency.

HUD’s regulations at 24 CFR 984.103 state that the contract of participation includes all
individual training and service plans entered into between the public housing authority and all
members of the household who will participate in the family self-sufficiency program, and which
plans are attached to the contract of participation as exhibits.

HUD regulations at 24 CFR 984.201 state that the authority must have a HUD-approved action
plan that complies with the requirements of this section before the authority implements a family
self-sufficiency program, whether the program is a mandatory or voluntary program.

HUD’s regulations at 24 CFR 984.303(b)(2) state that the individual training and services plan,
incorporated in the contract of participation, shall establish specific interim and final goals by
which the public housing authority, and the family, may measure the family’s progress toward
fulfilling its obligations under the contract of participation, and becoming self-sufficient. For
each participating family self-sufficiency family that is a recipient of welfare assistance, the
public housing authority must establish as an interim goal that the family become independent
from welfare assistance and remain independent from welfare assistance at least one year before
the expiration of the term of the contract of participation, including any extension thereof.

HUD’s regulations at 24 CFR 984.305(b) state that for purposes of determining the family self-
sufficiency credit, “family rent'' is: for the rental voucher program, 30 percent of adjusted
monthly income. The family self-sufficiency credit shall be computed as follows: For family
self-sufficiency families who are very low-income families, the family self-sufficiency program
credit shall be the amount which is the lesser of: Thirty percent of current monthly adjusted
income less the family rent, which is obtained by disregarding any increases in earned income
(as defined in Sec. 984.103) from the effective date of the contract of participation; or The
current family rent less the family rent at the time of the effective date of the contract of
participation. For family self-sufficiency program families who are low-income families but not

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very low-income families, the credit shall be the amount determined according to paragraph
(b)(1)(i) of this section, but which shall not exceed the amount computed for 50 percent of
median income. Family self-sufficiency program families who are not low-income families shall
not be entitled to any credit. The public housing authority shall not make any additional credits
to the family self-sufficiency program family's account when the family self-sufficiency program
family has completed the contract of participation, as defined in Sec. 984.303(g), or when the
contract of participation is terminated or otherwise nullified.

HUD’s regulations at 24 CFR 984.303(b)(4) state the head of the family self-sufficiency program
family shall be required under the contract of participation to seek and maintain suitable
employment during the term of the contract and any extension thereof.

HUD’s regulations at 24 CFR 984.303(f) state that modifications to the contract of participation
may be modified in writing with respect to the training and service plans, and 24 CFR
984.303(c)(1) requires that no member of the family self-sufficiency program household be a
recipient of welfare assistance.

HUD’s regulations at 24 CFR 984.305(c)(2) state that to issue disbursements before completion
of the program, the authority must determine that the family self-sufficiency program household
has fulfilled certain interim goals established in the contract of participation and needs a portion
of the family self-sufficiency program account for purposes consistent with the contract of
participation.

United States Code, Title 42, chapter 8, subchapter I, subsection 1437u(a) states the purpose of
the family self-sufficiency program established under this section is to promote the development
of local strategies to coordinate use of public housing and assistance under the certificate and
voucher programs under section 1437f of this title with public and private resources to enable
eligible households to achieve economic and self-sufficiency.

HUD’s Family Self-Sufficiency program Contract of Participation (contract), Family Self
Sufficiency program Escrow Account, states the public housing authority will establish an
escrow account for the family. A portion of the increases in the family’s rent because of
increases in earned income will be credited to the family self-sufficiency escrow account in
accordance with HUD requirements. The family’s annual income, earned income, and family
rent when the family begins the family self-sufficiency program will be used to determine the
amount credited to the family’s family self-sufficiency escrow account because of future
increases in earned income.

The contract, Housing Authority Responsibilities, states to establish an family self-sufficiency
escrow account for the family, invest the escrow account funds, and give the family a report on
the amount in the family self-sufficiency escrow account at least once a year. Determine which,
if any, interim goals must be completed before any family self-sufficiency escrow funds may be
paid to the family; and pay a portion of the family self-sufficiency escrow account to the family
if the public housing authority determines that the family has met these specific interim goals
and needs the funds from the family self-sufficiency escrow account to complete the contract.
Determine if the family has completed this contract. Pay the family the amount in its family self-

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sufficiency escrow account, if the family has completed the contract and the head of the family
has provided written certification that no member of the family is receiving welfare assistance.

The contract, Completion of the Contract of Participation, states the completion of the contract
occurs when the public housing authority determines that: the family has fulfilled all of its
responsibilities under the contract; or 30 percent of the family’s monthly adjusted income equals
or is greater than the fair market rent amount for the unit size for which the family qualifies.

The contract, Housing Authority Instructions for Executing the Family Self Sufficiency Contract
of Participation, Term of Contract, states the effective date is the first day of the month following
the date the contract was signed by the family and the housing authority’s representative.

The contract, Housing Authority Instructions for Executing the Family Self-Sufficiency Contract
of Participation, Family Self Sufficiency Escrow Account, states the income and rent numbers to
be inserted on page one may be taken from the amounts on the last reexamination or interim
determination before the family’s initial participation in the family self-sufficiency program,
unless more than 120 days will pass between the effective date of the reexamination and the
effective date of the contract of participation. If it has been more than 120 days, the public
housing authority must conduct a new reexamination or interim redetermination. If a family
moves under housing choice voucher portability procedures and is going to participate in the
receiving public housing authority’s family self-sufficiency program, the receiving housing
authority must use the amounts listed for annual income, earned income, and family rent on page
one of the contract between the initial public housing authority and the family.

The contract, Housing Authority Instructions for Executing the Family Self-Sufficiency Contract
of Participation, Individual Training and Services Plan, states the contract must include an
individual training and services plan for the head of the family. One of the interim goals for
families receiving welfare assistance is to become independent of welfare assistance for at least
twelve consecutive months before the end of the contract. Any family that is receiving welfare
assistance must have this included as an interim goal in the head of the family’s individual
training and services plan. The final goal listed on the individual training and services plan of
the head of the family must include getting and maintaining suitable employment specific to that
individual’s skills, education, job training, and the available job opportunities in the area.

HUD’s Housing Choice Voucher Guidebook, 7420.10G, Chapter 23, Section 23.5, state the
amount of the escrow credit is based on increases in the family’s total tenant payment resulting
from increases in the family’s earned income during the term of the family self-sufficiency
program contract. As a family's income increases, the public housing authority calculates rent
and the family pays increased rent, as does any other subsidized tenant. The public housing
authority then makes deposits to an escrow account in the appropriate amount. The public
housing authority must compute escrow credit at any time it conducts an annual or interim
reexamination of income for a family self-sufficiency program family during the term of the
contract of participation. Investment income must be credited periodically, but no less than
annually, to each participating family's ledger account based on the balance in each account at
the end of the period for which the investment income is prorated. If the public housing


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authority has information that the family owes the owner for unpaid rent or other amounts due,
the amount credited to the family's account should be reduced by the amount owed.




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