oversight

Alaska Housing Finance Corporation's Management and Occupancy Reviews Were Not Always as Comprehensive as Required for a Section 8 Performance-Based Contract Administrator

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-12-17.

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

                                                                  Issue Date
                                                                        December 17, 2010
                                                                  
                                                                  Audit Report Number
                                                                          2011-SE-1001




TO:        Renee Greenman, Director, Region X Multifamily Hub, 0AHMLA

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 7AGA


SUBJECT: Alaska Housing Finance Corporation’s Management and Occupancy Reviews
           Were Not Always as Comprehensive as Required for a Section 8
           Performance-Based Contract Administrator


                                   HIGHLIGHTS

 What We Audited and Why

            We audited the Alaska Housing Finance Corporation (Corporation) to determine
            whether it fulfilled its contractual responsibilities as a performance-based contract
            administrator (contract administrator) of project-based Section 8 housing
            assistance payments contracts. We performed this audit because we noted
            indications of weaknesses in the Corporation’s performance as a contract
            administrator while we were performing other audit work.

            Our audit objectives were to determine whether the Corporation fulfilled its
            responsibilities as a contract administrator and whether it conducted
            comprehensive management and occupancy reviews of the Section 8 projects it
            oversaw.
What We Found

           The Corporation generally fulfilled its responsibilities as a contract administrator.
           However, its management and occupancy reviews were not always as
           comprehensive as required by its annual contributions contract. We noted
           deficiencies that existed at the time of the Corporation’s reviews but were either
           unidentified or unreported. In addition, the Corporation did not always properly
           rate projects when deficiencies were identified.


What We Recommend

           We recommend that you require the Corporation to improve its management
           occupancy reviews to make them more comprehensive and review the annual
           contributions contract to gain a greater understanding of its responsibilities in
           monitoring the project owners’ compliance with their obligation to provide
           decent, safe, and sanitary housing to assisted residents.


Auditee’s Response

           On October 20, we requested that the Corporation provide a response to the draft.
           The Corporation provided its written comments on November 4, 2010. It
           generally disagreed with our results. The complete text of the auditee’s response,
           along with our evaluation of that response, can be found in appendix A of this
           report.




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                          TABLE OF CONTENTS

Background and Objectives                                                       4

Results of Audit

      Finding: The Corporation Did Not Adequately Complete Its Management and   5
                 Occupancy Reviews

Scope and Methodology                                                           9

Internal Controls                                                               11

Appendixes
      A. Auditee Comments and OIG’s Evaluation                                  12




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                      BACKGROUND AND OBJECTIVES

The U.S. Department of Housing and Urban Development (HUD) outsources the contract
administration services for project-based housing assistance payments contracts to qualified
public housing agencies, which act as performance-based contract administrators (contract
administrator). The contract administrators are required to administer housing assistance
payments contracts in accordance with HUD regulations and guidelines. Their responsibilities
are governed by an annual contributions contract between the housing agency and HUD. After
execution of the contract, the contract administrator acts as an agent of HUD and enters into
housing assistance payments contracts with owners that previously had contracts with HUD.
The contract administrator administers each housing assistance payments contract and is
responsible for ensuring owner compliance with Section 8 regulations and guidance.

Under the performance-based contract administration program, HUD sought to achieve correct
calculation and payment of Section 8 rental subsidies, consistent administration of project-based
Section 8 housing assistance payments contracts, and enforcement of owner obligations to
provide decent housing for eligible families and obtain the best value for dollars spent on
program services.

The Alaska Housing Finance Corporation (Corporation) is headquartered in Anchorage, AK. It
is a self-supporting public corporation with offices in 16 communities statewide. The
Corporation provides statewide financing for multifamily complexes, congregate facilities, and
single-family homes, with special loans for first-time home buyers, low- to moderate-income
borrowers, veterans, teachers, nurses, public safety officers, and those living in rural areas of the
State. The Corporation also provides energy and weatherization programs, low-income rental
assistance in 17 communities, and special programs for the homeless. The Corporation manages
roughly 1,300 public housing units and 4,300 Housing Choice Voucher program units. It began
its performance-based contract administration program on November 1, 2000, and administers
19 projects with about 1,004 units.

Our audit objectives were to determine whether the Corporation fulfilled its contractual
responsibilities as a contract administrator of project-based Section 8 housing assistance
payments contracts and whether it conducted comprehensive management and occupancy
reviews of the Section 8 projects it oversaw.




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                                RESULTS OF AUDIT

Finding: The Corporation Did Not Adequately Complete Its
Management and Occupancy Reviews
The Corporation’s management and occupancy reviews were not always as comprehensive as
required by its annual contributions contract. This condition occurred because the Corporation
misunderstood its responsibilities under the contract. As a result, it did not recommend needed
corrective actions relating to the operations of the projects that it monitored.




 Management and Occupancy
 Reviews Were Not
 Comprehensive

              The Corporation’s management and occupancy reviews were not always as
              comprehensive as required by its annual contributions contract. We reviewed the
              form HUD-9834, Management Review for Multifamily Projects, checklists and
              summary reports from the Corporation’s management and occupancy reviews for
              nine projects. The management and occupancy reviews took place between 2007
              and 2009. Although the forms HUD-9834 appeared to show that the Corporation
              conducted comprehensive reviews at the projects, our follow-up site visits found
              unidentified and/or unreported deficiencies that existed at the time of the
              Corporation’s reviews. In addition, the Corporation did not always properly rate
              projects when deficiencies were identified.


 HUD Requires Annual Reviews
 and a Quality Control Plan

              Section 3.2 of the annual contributions contract requires that the public housing
              authority (authority) conduct an annual onsite management and occupancy review
              of each Section 8 project it oversees. The review must be a comprehensive
              assessment of the owner’s procedures for directing and overseeing project
              operations and the adequacy of the procedures for carrying out day-to-day front-
              line activities. The objective of the review is to identify and resolve areas of
              noncompliance with HUD regulations and other requirements. The authority is
              required to use the form HUD-9834 or other appropriate documentation for the
              review and must evaluate the owner’s operating policies and procedures following
              guidance in the appropriate HUD directives. The annual contributions contract
              also requires the authority to have a detailed quality control plan to ensure that
              contract performance requirements are met.


                                                5
The Corporation Did Not
Always Assess TRACS
Monitoring

           Question E.17.b. on the form HUD-9834 asks whether the owner/agent follows up
           and corrects Tenant Rental Assistance Certification System (TRACS)
           deficiencies. For the Chester Creek Estates and Chester Park Estates projects, the
           reviewer responded by writing “unable to determine” on the review forms. In the
           review reports, the Corporation noted that the TRACS monitoring was performed
           by the management agent in California. However, the Corporation did not follow
           up with the management agent to determine whether the agent complied with
           requirements to correct TRACS deficiencies. Instead, the reports recommended
           that management certify to the Corporation that the TRACS errors are being
           researched and corrected as needed.


Tenant Complaint Procedure
Deficiencies Were Not Reported

           Question F.20.a. on the form HUD-9834 asks whether the project has a written
           procedure to resolve tenant complaints or concerns and instructs the reviewer to
           review a copy. For the Coho Park Apartments, the reviewer answered “no.” This
           deficiency was not noted in the formal report, and no corrective actions were
           recommended. This project was rated “satisfactory” for tenant services when it
           should have been rated “below average” due to the lack of written procedures.

           At the Chester Creek Estates and Jewel Lake Villa Apartments, the complaint
           procedures did not provide a phone number or other contact information for the
           Corporation in the event that the project management was unresponsive to a
           tenant’s complaints. However, the Corporation did not identify this issue during
           its review.

           Question G.22.g. asks whether after-hours/emergency telephone numbers are
           posted. At all nine projects reviewed, emergency numbers were posted.
           However, none of the postings included a contact number for the Corporation.
           The Corporation did not recommend that the project owners add its number to the
           posted contact list. Although there is no specific requirement to post the
           Corporation’s number, tenants should be informed of this option in the event that
           project management is unresponsive to tenant calls.




                                           6
Projects Lacking Work Order
Procedures Were Rated
Satisfactory

           Question C.5.i of the form HUD-9834 asks whether the project has a written
           procedure for completing work orders and instructs the reviewer to review a copy
           of the procedure. For the Chinook Apartments and Coho Park Apartments, the
           reviewer indicated that the projects did not have a written work order procedure.
           HUD Handbook 4350.1 states that management should be rated “below average”
           if its policies and procedures are ineffective or inappropriate for the project.
           However, the Corporation gave these two projects a “satisfactory” rating for
           maintenance and standard operating procedures.



The Corporation Misunderstood
Its Responsibilities

           We discussed our assessment of the management occupancy reviews with
           Corporation officials. We informed them that the annual contributions contract
           requires the contract administrator to evaluate the owner’s operating procedures
           following guidance in the appropriate HUD directives. In response, the officials
           told us that there was no HUD requirement for project owners to have policies
           and procedures. Nonetheless, form HUD-9834 and HUD Handbook 4350.1
           require the review and assessment of written policies and procedures and suggest
           ratings based on the adequacy of these procedures.


The Corporation Did Not
Recommend Needed Corrective
Actions

           The annual contributions contract requires the authority to verify that owners
           comply with HUD rules and other requirements related to TRACS payment
           requests. HUD relies on authorities to verify the accuracy of owner payment
           requests made through TRACS. Unless the Corporation verifies that the owners
           review and correct TRACS errors, HUD will not have sufficient assurance that
           the data in TRACS are accurate.

           Section 3.6 of the contract requires the authority to accept resident complaints and
           follow up with owners to ensure that owners take appropriate action. The
           authority must respond immediately to all life-threatening health and safety
           issues. Tenants at the Coho Park, Chester Creek Estates, and Jewel Lake Villa
           projects told us that they were unaware that they could contact the Corporation if
           management was unresponsive to their complaints, including delays in repairs to
           correct unsafe conditions. Unless tenants are provided the Corporation’s contact



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           information, the Corporation cannot provide assurance to HUD that it receives
           and follows up on tenant complaints regarding health and safety issues.

           Although the Corporation recommended that the two projects without written
           work order procedures establish written policies and procedures for maintenance,
           its recommendation did not provide guidance on what should be included in the
           procedures. We visited these projects in April 2010 and found that written
           policies for work orders did not exist and neither project had established a system
           for logging and tracking work orders.

           Without an adequate system for tracking work orders, management cannot ensure
           that repairs requested by tenants are completed in a timely manner. This issue
           could be critical for problems that affect tenant health and safety. In addition, the
           lack of a work order tracking system makes it difficult for the contract
           administrator to evaluate whether management is responsive to tenant complaints
           and fully complies with the housing quality standards provisions of the housing
           assistance payments contracts.



Recommendations

           We recommend that the Director of the Region X Office of Multifamily Housing
           require the Corporation to

           1A. Improve its management occupancy reviews to make them more
               comprehensive. Specifically, the staff assigned to conduct the reviews
               should

                 Be more responsive to the questions asked in the form HUD-9834,
                  Management Review for Multifamily Projects, checklist;
                 Determine that owners/agents follow up and correct TRACS deficiencies;
                 Evaluate written policies and procedures relating to work orders and
                  tenant complaints and make recommendations to correct any identified
                  deficiencies;
                 Include reviews of work order logs and files to determine whether project
                  management responds to tenant-requested repairs in a timely manner;
                 Ensure that the Corporation’s contact information is given to tenants and
                  is included with posted emergency contact numbers; and
                 Follow the ratings guidelines found in HUD Handbook 4350.1.

           1B. Review the annual contributions contract to gain a greater understanding of
               its responsibilities in monitoring the project owners’ compliance with their
               obligation to provide decent, safe, and sanitary housing to assisted residents.




                                             8
                        SCOPE AND METHODOLOGY

Our audit covered the period February 2007 through February 2010 and reviewed the
Corporation’s performance of its contractual obligations as a contract administrator.

To accomplish our objectives, we

      Obtained an understanding of the Section 8 multifamily performance-based contract
       administration program by reviewing the annual contributions contract and applicable
       HUD handbooks,
       Reviewed the Corporation’s policies and procedures for administering and monitoring
       the Section 8 multifamily housing assistance payments contracts under terms of the
       annual contributions contract,
      Reviewed documentation in the Corporation’s project files,
      Interviewed Corporation and HUD staff, and
      Reviewed the Corporation’s responses to tenant complaints regarding life-threatening and
       non-life-threatening health and safety issues.

We also reviewed the Corporation’s management and occupancy reviews that took place at nine
projects between February 2007 and September 2009. Using nonstatistical sampling, we
selected the 9 projects for review out of the 19 that were administrated by the Corporation. The
nine projects were selected because they had a large number of units and were located in the
cities of Anchorage, Fairbanks, and Juneau, where it was practical for us to travel, considering
the resource, weather, and other relevant circumstances. Our project selection included projects
that were not selected by HUD for its most recent reviews. Our review included

      Reviewing the Corporation’s management and occupancy review questionnaires and
       reports;
      Reviewing project management policies and procedures, including work order and tenant
       complaint procedures;
      Reviewing project work order files;
      Interviewing project managers and tenants; and
      Reviewing Real Estate Assessment Center inspection reports and follow-ups.

We reviewed project tenant files to determine whether the Corporation properly reviewed the
files during its management and occupancy reviews. For this review, we used nonstatistical
sampling and randomly selected tenant files at each project from the files reviewed by the
Corporation as follows:




                                                9
                                                       Number
                                       Number of files of files
                                       reviewed by     reviewed
          Project                      the Corporation by OIG*
          Chester Park Estates               12             4
          Chester Creek Estates               7             3
          Jewel Lake Villa                   12             3
          The Glen Apartments                 7             4
          Little Dipper Apartments            5             3
          Chenana Apartments                  5             3
          Chinook Apartments                  4             3
          Coho Apartments                     5             3
          Gruening Apartments                 5             3

       *Office of Inspector General


We did not use computer-generated data as audit evidence or to support our audit conclusions.

We performed our audit onsite at the main office of the Corporation, 4300 Boniface Parkway,
Anchorage, AK, and at four housing projects in Anchorage, two projects in Fairbanks, and three
projects in Juneau, AK. We performed our audit phase work from March through June 2010.

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




                                               10
                              INTERNAL CONTROLS

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

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

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


               We determined that the following internal controls were relevant to our audit
               objectives:

                     Policies and procedures implemented to reasonably ensure compliance
                      with applicable laws and regulations.
                     Controls to ensure fulfillment of the objectives of the Section 8
                      multifamily performance-based contract administration program.

               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.

               We evaluated internal controls related to the audit objectives in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion on
               the effectiveness of the Corporation’s internal controls.




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                        APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation      Auditee Comments




Comment 1




                            12
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 2




                         13
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 5




Comment 6
Comment 7
Comment 8




Comment 7




Comment 9




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 8
Comment 6


Comment 9




Comment 5




Comment 4




                         15
Ref to OIG Evaluation   Auditee Comments




                         16
OIG Evaluation of Auditee Comments

Comment 1: This is consistent with our report finding. The Corporation did not make further
           determinations if the agent was following up and correcting deficiencies. The
           Corporation’s monitoring report did not require the project manager to send
           documentation to show that it followed up and corrected any TRACS
           deficiencies, but only required management to certify to the Corporation that the
           TRACS errors are being researched and corrected as needed.

Comment 2: We asked the Corporation for documentation showing that it conducted the
           review to determine if the management agent was following up on TRACS
           deficiencies. The documentation sent did not show that the Corporation
           conducted follow up reviews to determine if the management agent was following
           up on TRACS deficiencies after its on-site management and occupancy reviews at
           Chester Creek Estates and Chester Park Estates.

Comment 3     In April 2009 HUD conducted an annual compliance review of the Corporation’s
              performance as a contract administrator. HUD’s June 1, 2009 annual compliance
              review report contained a finding that the Corporation did not have a quality
              control plan in place and required that the Corporation submit a quality control
              plan for review. As noted in the corporation’s response, the quality control plan
              was not developed until the spring of 2010. The quality control plan did not exist
              when it conducted the management and occupancy reviews that we reviewed and
              reported on, nor did it exist when we began our audit field work.

Comment 4     Our report does not state that the Corporation has to be on call 24 hours a day.
              Our draft report indicated that the Corporation did not provide an emergency
              contact number. To avoid confusion, this was changed to state that it did not
              provide a contact number. In order for the Corporation to be aware of issues that
              tenants are having with project management, tenants should be informed how to
              contact the Corporation for help. As noted in our report finding, tenants at 3
              projects told us that they were unaware that they could contact the Corporation if
              project management was unresponsive to their complaints. During its
              management and occupancy reviews the Corporation needs to ensure that tenants
              are aware that they have the right to contact the Corporation and are given the
              contact information to do so.

Comment 5     The posters were not displayed at the time of our site visits in March and April
              2010. The posters were delivered to the projects in June and July of 2010. As
              described, the new posters provide adequate contact information to the tenants.
              The Corporation should confirm that the posters are displayed at all of the
              projects that it oversees.

Comment 6     As stated in our report, management at the Coho Park Apartments and Chinook
              Apartments did not establish a system for logging and tracking work orders. The
              Corporation states that the work order forms are completed and filed in tenant



                                              17
            files. Since there was no system in place to track work orders, it would be
            impossible to determine if all work orders were included in the tenant files.
            Further, during our site visits at these projects, we found that the work orders did
            not contain the date that the repairs were requested, making it difficult to
            determine if there were any undue delays on the part of management to respond to
            tenant requests for repairs.

Comment 7   Having written procedures is a critical element in establishing controls over the
            work order process. Written procedures are needed to establish consistency in the
            way repair requests are handled and to ensure continuity in the event that project
            personnel are replaced. Unwritten procedures are ineffective at establishing such
            consistency and continuity. In addition, written policies and procedures allow the
            Corporation to determine that a project’s policies and procedures remain
            consistent between management and occupancy reviews.

Comment 8   Although the Corporation states that the unwritten policies effectively meet the
            needs of the tenant, its management and occupancy reports properly
            recommended that the management of the Coho Park Apartments and Chinook
            Apartments projects establish written policies and procedures for maintenance.

Comment 9   Rating a project’s work order policies and procedures as satisfactory when there
            are no written work order procedures is inconsistent with the annual contributions
            contract requirement for the contract administrator to monitor compliance of
            Section 8 project owners with their obligation to provide decent, safe, and sanitary
            housing to assisted residents. Giving the management of a project a below
            average rating for not having written policies and procedures for work orders, and
            making recommendations to establish these written procedures, could strengthen
            project controls to ensure that repairs are properly completed in a timely manner
            and that units are maintained to provide decent, safe, and sanitary housing to
            assisted residents.




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