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. 58 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 59 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- 60 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 61 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. 62
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)