oversight

The Women's Development Center, Las Vegas, NV, Charged Unallowable Flat Fees and Miscalculated Resident Rents

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-12-08.

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

                                                                Issue Date
                                                                         December 8, 2011
                                                                Audit Report Number
                                                                             2012-LA-1002




TO:        Maria F. Cremer, Acting Director, Office of Community Planning and
           Development, San Francisco, Region IX, 9AD



FROM:      Tanya E. Schulze, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Women’s Development Center, Las Vegas, NV, Charged Unallowable Flat
         Fees and Miscalculated Resident Rents


                                 HIGHLIGHTS

 What We Audited and Why

            We audited the Women’s Development Center’s administration of its
            Supportive Housing Program (SHP) with concentration on the transitional
            housing grants provided by the U.S. Department of Housing and Urban
            Development (HUD). Our review was initiated because of a referral from the
            Office of Inspector General’s (OIG) Office of Investigation due to concerns
            about the Center’s compliance with SHP requirements. Our overall objective
            was to determine whether the Center administered its SHP grants in
            compliance with HUD regulations. Specifically, we concentrated our review
            on determining whether the Center provided assistance to eligible participants
            and whether participants were charged rent in accordance with HUD rules and
            regulations.
What We Found


           All transitional housing participants whose cases we reviewed were eligible
           due to homelessness. However, the Center charged its participants incorrect
           rents in 11 of 14 cases reviewed. As a result, the 11 participants whose cases
           we reviewed were overcharged a total of $9,660 and undercharged a total of
           $3,532.

What We Recommend


           We recommend that the Acting Director, Office of Community Planning and
           Development, require that the Center (1) calculate the applicable resident rent
           for participants from 2008 through 2011; (2) attempt to find and reimburse or
           collect from participants the overpayment or underpayment of resident rent,
           including the $13,192 identified during the audit as funds to be put to better
           use; and (3) establish procedures to ensure that caseworkers follow HUD
           requirements for income verification and rent calculations.

           For each recommendation in the body of the report without a management
           decision, please respond and provide status reports in accordance with HUD
           Handbook 2000.06, REV-4. Please furnish us copies of any correspondence or
           directives issued because of the audit.

Auditee’s Response


           We provided a draft report to the auditee on November 14, 2011, and held an
           exit conference with auditee officials on November 17, 2011. The auditee
           provided written comments on November 29, 2011. It generally disagreed
           with our report conclusions.

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




                                           2
                             TABLE OF CONTENTS

Background and Objective                                                     4

Results of Audit
Finding: The Center Charged Flat Fees and Miscalculated Rents                5

Scope and Methodology                                                        9

Internal Controls                                                            10

Appendixes

       A.   Schedule of Funds To Be Put to Better Use                        12
       B.   Auditee Comments and OIG’s Evaluation                            13
       C.   Tables of Participants’ Rent Mischarges and Other Deficiencies   35
       D.   Criteria                                                         36




                                              3
                     BACKGROUND AND OBJECTIVE

The Women’s Development Center is a nonprofit housing agency that began in 1990. The
Center has been providing housing services to the homeless and working poor of southern
Nevada for the past 20 years. It has expanded its mission to address the gaps in permanent
housing and provide support services for families and individuals in need throughout Clark
County.

The Center’s major source of support is the U.S. Department of Housing and Urban
Development (HUD) and other Federal agencies and State pass-through grants received from
local governmental entities. The direct Supportive Housing Programs (SHP) funded by HUD
that serve homeless persons are Continuum of Care, the Supplemental Assistance for
Facilities To Assist the Homeless Program, transitional housing, and Housing Opportunities
for Persons with AIDS. For the audit period, the Center administered three SHP grants for
transitional housing totaling $455,865.

SHP was authorized under the McKinney-Vento Homeless Assistance Act. The program
provides grants for housing and related supportive services to help people move from
homelessness to independent living. Transitional housing is one of the eligible uses of SHP
grants, providing a stable place to live while supportive services enable participants to
increase both life and job skills to increase income and gain more control over decisions that
affect their lives. The population served under the Center’s transitional housing program was
restricted to homeless single-parent families with minor children. Many participants were
victims of domestic violence.

Our overall objective was to determine whether the Center administered its SHP grants in
compliance with HUD regulations. Specifically, the review concentrated on determining
whether transitional housing participants were eligible and rents were calculated in
accordance with HUD requirements.




                                              4
                               RESULTS OF AUDIT

Finding: The Center Charged Flat Fees and Miscalculated Rents
The Center charged unallowable flat fees and miscalculated rents. Of 14 case files in our
sample, 11 contained incorrect rents. This problem occurred because the Center did not
follow HUD regulations. As a result, transitional housing participants were overcharged a
total of $9,660 and undercharged $3,532 for resident rents. If the Center corrects these errors,
it would result in $13,192 in funds to be put to better use.



 Flat Fees


               Before July 2008, the Center charged homeless participants a fee amounting to
               the greater of $150 per month or 30 percent of adjusted income but no more
               than $275. Regulations at 24 CFR (Code of Federal Regulations) 583.315(a)
               do not require grantees to charge transitional housing participants rent, but if
               they do charge rent, the regulations require the use of a formula to ensure that
               housing costs for rent and tenant-paid utilities do not exceed 30 percent of the
               adjusted income. If participants were charged $150 and that exceeded 30
               percent of adjusted income, they were overcharged. For example, the Center
               calculated one participant’s rent at 30 percent to be $72 per month; however, it
               charged the participant $150 per month, or a $78 overcharge.

               The Center changed its policy in July 2008, substituting a flat fee of $200 per
               month for rent and discontinuing income calculations entirely, although it still
               required participants to submit income documentation each month to monitor
               progress toward self-sufficiency. The Center stated that the flat fee was not
               rent but a fee for services it provided to participants. However, there was no
               documentation to show that its monthly fee was reasonable based on the actual
               cost of services as required by the Supportive Housing Program Desk Guide.
               There was also no documentation showing that participants actually received
               the services they paid for or that the fees were applied to services that were not
               paid for with grant funds. During a 2009 monitoring, HUD determined that the
               fees being charged were actually rent. After the monitoring review, the Center
               stopped charging flat fees, began charging income-based rents, and began
               paying for the participants’ monthly utilities. For the 14 files, there were 7
               participants who paid flat fees in lieu of rent (see appendix C).




                                               5
HUD’s Rent Formula Not
Followed

            The Center did not follow the required formula for determining resident rent.
            Under Office of Community Planning and Development (CPD) Notice CPD
            96-03, certain adjustments must be made to annual gross income before
            determining the 30 percent rents. The only adjustments to annual gross income
            applicable to the population served by the Center’s transitional housing
            program were $480 for each minor child in the household and reasonable
            childcare expenses. The Center deducted the child allowance, added an
            unallowable deduction for estimated annual utility costs, and gave no
            allowance for childcare. The result was a miscalculation of the annual adjusted
            income. Although the improper deduction of utilities during the income
            calculation and the failure to subtract childcare costs did not directly cause an
            overpayment or underpayment, (all four participants in our sample that were in
            the program during this time were paying the flat fees of either $150 or the
            $275 cap), this example illustrates that the Center did not implement HUD’s
            formula. The Center’s failure to provide a monthly utility allowance did result
            in participant overpayments, as discussed below.

Utility Allowance Not Provided



            From 2001 through December 2009, participants were required to pay for their
            own utilities but were not given the required monthly utility allowance. In
            cases in which the utility allowance exceeded monthly rent, the Center was
            required to provide the difference to the participant. As a result, 9 of the 14
            participants in our sample, who were in the program before December 2009,
            were overcharged. One participant was overcharged a total of $1,510 over 6
            months because the Center charged a flat fee when the participant had no
            income and failed to provide a utility allowance.

Errors in Calculating Annual
Income


            HUD has established guidelines for calculating income-based rents to ensure
            that program participants pay a reasonable portion of their current income for
            rent. The Center did not establish adequate procedures for verifying income or
            for the first step in the formula for calculating gross annual income. As a
            result, six files contained income calculation errors, which included

                   Weekly gross income multiplied by 48 weeks instead of 52,




                                            6
                    Averaging income for 57 weeks instead of a recent period,

                    Starting with net instead of gross income, and

                    Failure to include all sources of income.

             Caseworkers frequently failed to correctly verify or calculate the participants’
             anticipated gross annual income, which caused incorrect rent charges. For
             example, a caseworker miscalculated annual income at intake based on the
             assumption there are exactly 4 weeks in every month or a total of 48 weeks per
             year instead of 52, resulting in a rent undercharge of $23 per month. After the
             participant secured stable employment, the caseworker recalculated annual
             income but, instead of using available recent pay stubs to determine how much
             the participant was currently earning, averaged income over the prior 57
             weeks. The caseworker said she relied on a report by an agency that provided
             employment verification services because her supervisor told her that third-
             party verification was preferable to pay stubs. The report showed weekly
             earnings for 57 weeks, but weekly earnings had changed over time. The result
             was an overcharge of $46 per month. The Center needs to establish procedures
             that ensure rents are reasonable based on the participants’ current income and
             application of the correct formulas for annual and adjusted income.


The Center’s Own Policy Not
Followed


             The Center’s policy was to recalculate participant rent approximately 30 days
             after securing a stable source of income. When there was a rent change,
             participants received a 45-day notice before the effective date. However, in
             our sample, the Center did not follow this policy in four cases. We reviewed a
             case file for a participant who was in the program for 20 months and was
             receiving Temporary Assistance for Needy Families (welfare) during intake in
             October 2009. Rent calculation was not performed until December 2009,
             although the participant paid $48 prorated rent for October and $83 based on
             welfare in November. In January 2010, the participant found a stable job but
             still paid $83 in rent until April 2011. This error resulted in an underpayment
             of $1,320.

Conclusion

             The Center charged unallowable fees and miscalculated rents. This problem
             occurred because the Center did not follow HUD rules and regulations when it
             charged a flat fee (see appendix D). At other times, rents were miscalculated
             because the Center did not establish procedures to ensure that income was


                                            7
          adequately verified and annual income was correctly calculated. As a result,
          homeless participants in the transitional housing program were not charged the
          appropriate rents (see appendix A for estimated rent miscalculations considered
          funds to be put to better use).

Recommendations

          We recommend that the Acting Director, Office of Community Planning and
          Development, require the Center to:

          1A.     Calculate the applicable resident rent for all participants from 2008
                  through 2011 to determine any overpayments or underpayments.

          1B.     Attempt to locate and reimburse or collect from participants the
                  overpayments or underpayments of rent indentified in recommendation
                  1A, including the $13,192 identified for 11 residents during our audit
                  (funds to be put to better use) (see appendix C).

          1C.     Establish procedures to ensure that caseworkers follow HUD
                  requirements for income verification and rent calculations.




                                          8
                        SCOPE AND METHODOLOGY

We performed our onsite audit work in Las Vegas, NV, at the Center between July and
September 2011. The audit generally covered the period February 1, 2008, through June 30,
2011.

To accomplish our objective, we interviewed HUD officials and auditee staff responsible for
program execution. We also reviewed

               Applicable HUD requirements, including the Code of Federal Regulations, the
               Supportive Housing Program Desk Guide, and relevant CPD notices;

               Annual progress reports for each transitional housing grant starting or expiring
               in 2008 through 2011;

               SHP grant applications and agreements;

               The Center’s accounting and program policies and procedures; and

               Participant case files.

We selected 14 participant case files to review for eligibility and rent calculation. This
number represented approximately 25 percent of the 58 total participants from 2008 through
2011. We selected the participants using every fourth name on the list of total participants.


We conducted the 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 objective.




                                               9
                             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
               objective:

                      Controls to ensure that the Center follows applicable laws and
                      regulations with respect to the eligibility of SHP participants and
                      activities and

                      Controls to ensure that the Center only charged its transitional housing
                      participants under its SHP grant rents and fees allowed under applicable
                      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.




                                                 10
Significant Deficiency


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

                The Center did not have adequate controls in place to ensure that rents it
                charged transitional housing participants were allowable under applicable
                laws and requirements (finding).




                                           11
                                 APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                         Recommendation        Funds to be put to
                                number              better use 1/
                                       1B               $13,192



1/   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 (see appendix C).




                                          12
Appendix B

       AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation                    Auditee Comments




Comment 1



Comment 2




Comment 3




             Names have been redacted for privacy reasons.


                                          13
Comment 4




Comment 5




Comment 6




Comment 7




Comment 8




            14
Comment 9




Comment 10




             15
Comment 11




             16
17
Comment 1




            18
19
Comment 4




            20
Comment 4




            21
22
Comment 5




            23
24
25
26
Comment 5




            27
28
29
30
31
Comment 7
Comment 8




            32
                       OIG Evaluation of Auditee Comments

Comment 1   The OIG has two components – the Office of Investigation and the Office of
            Audit. The records requested three years ago were related to a request from
            the Office of Investigation. Our office, Office of Audit, was not involved in
            that review; therefore, we cannot comment on that matter. .

Comment 2   We do not have any specific knowledge as to whether the Senior CPD
            Representative reviewed, audited and oversaw every item. Regardless,
            ultimately, it is the grantee’s responsibility to assure compliance with the HUD
            requirements. Further, we disagree that the Senior CPD Representative is our
            agent. There is no consensual relationship as described in the response. While
            OIG works closely with HUD program staff, the OIG is a separate and
            independent organization. HUD program staff does not represent OIG. The
            Inspector General Act of 1978 sets out certain authorities that permit the
            Inspector General to initiate, carry out, and complete audits and investigations
            of Departmental programs and operations.

Comment 3   See Comments 1 and 2. As described in the Scope and Methodology and
            Background and Objective sections of this report, our audit generally covered
            the period February 1, 2008 through June 30, 2011, and the objective of our
            review concentrated on determining whether the Center provided assistance to
            eligible participants and whether participants were charged rent in accordance
            with HUD rules and regulations. We cannot comment on the Center’s program
            outside those parameters.

Comment 4   We agree to change the term “disregard” to “did not follow” to more accurately
            describe what caused the deficiencies to occur.

Comment 5   During the audit, the auditors reviewed the email correspondence and records
            of meetings between the Center management and HUD staff provided by the
            Center. The correspondence shows that a HUD representative stated that one
            form the Center provided for review and its contents “appear fine.” The Center
            did not provide evidence that HUD approved the fees. The document included
            in Center’s response, showing services received by one client was an
            exception. Other files did not contain a similar filled out form. Further, this
            one form does not meet the full documentation requirements for charging
            participant service fees.

Comment 6   We acknowledge that the Center stopped charging a service fee and resumed
            income based rents in December 2009.

Comment 7   During the period from 2001 through June 2008, the calculation of 30 percent
            of adjusted income was documented on the Center’s Financial Agreement form
            (see Attachment #5). This form shows only two deductions from gross
            income, neither of which was for a child care allowance.



                                           33
Comment 8     See the Center’s attachment #5: The $792 annual utility shown on this form
              did not meet HUD requirements to provide participants with an allowance for
              utilities. The correct utility allowance determined by the housing authority for
              2007 was $103 per month. Grantees were required to subtract $103 from
              income based rent monthly. Therefore, if income based rent exceeded $150
              per month (based on an incorrect calculation) the resident did not receive the
              full $103 per month allowance. If the income based rent was less than $150
              per month, the participant paid a flat fee of $150 and received no utility
              allowance. Furthermore, from July 2008 through November 2009, when the
              Center charged a $200 service fee in lieu of rent, no utility allowance was
              provided.

Comment 9     We agree that since December 2009, the Center has been paying participants’
              utilities directly; therefore, no utility allowance was needed.

Comment 10 The report noted cases where annual income was miscalculated because the
           errors show that procedures were inadequate to ensure correct rents were
           calculated and controls were inadequate because errors were not identified.
           Regarding The Work Number, we agree that this is a useful tool for
           verification of income, which is a different process from calculation of rent. It
           is important that rent is based on the best data for current income and not on
           what a participant was earning a year ago, due to the fact that income may have
           changed dramatically over time.

Comment 11 As noted in Comment 4, we agree to change the term “disregard”. Our report
           is based on our analysis of documentation provided which indicated that
           contrary to the Center’s response, we found that the Center did not follow
           HUD issued regulations and guidance to ensure that grantees charged only
           allowable rents.




                                             34
    Appendix C

      Tables of Participants’ Rent Mischarges and Other Deficiencies

                                  Table of overcharges and undercharges

                 Participant         Overcharge              Undercharge          Total
                      A                    $     0                    $     0      $    0
                                                 0
                         B                     322                         928      1,250
                         C                      46                         118        164
                         D                   1,659                           0      1,659
                         E                   1,510                           0      1,510
                         F                     732                           0        732
                         G                       0                           0          0
                         H                     671                          16        687
                         I                   1,787                         274      2,061
                         J                     144                           0        144
                         K                     142                          33        175
                         L                       0                           0          0
                         M                     393                       1,320      1,713
                         N                   2,254                         843      3,097
               Totals                       $9,660                      $3,532    $13,192

                                            Table of deficiencies

 Participant            Fee in    Wrong formula           No utility     Income    No rent recalculation
                        lieu of    for adjusted           allowance    calculation    when required
                          rent        income                              error
     A
     B                                                                     X
     C                                                                     X
     D                    X                                   X            X
     E                    X             X                     X                              X
     F                    X                                   X            X
     G
     H                    X                                   X                              X
     I                    X             X                     X                              X
     J                                                        X
     K                    X             X                     X            X
     L
     M                                                        X                              X
     N                    X             X                     X            X
TOTALS                    7             4                     9            6                 4




                                                     35
Appendix D

                                             Criteria
1. 24 CFR 583.315(a)

     Each resident of supportive housing may be required to pay as rent an amount determined
     by the recipient which may not exceed the highest of:

        (1)      30 percent of the family’s monthly adjusted income (adjustment factors include
                 the number of people in the family, age of family members, medical expenses
                 and child care expenses). The calculation of the family’s monthly adjusted
                 income must include the expense deductions provided in 24 CFR 5.611(a), and
                 for persons with disabilities, the calculation of the family’s monthly adjusted
                 income also must include the disallowance of earned income as provided in 24
                 CFR 5.617, if applicable;

        (2)      10 percent of the family’s monthly gross income; or

        (3)      If the family is receiving payments for welfare assistance from a public agency
                 and a part of the payments, adjusted in accordance with the family’s actual
                 housing costs, is specifically designated by the agency to meet the family’s
                 housing costs, the portion of the payment that is designated for housing costs.

2.   24 CFR 583.315(c)

     In addition to resident rent, recipients may charge residents reasonable fees for services
     not paid with grant funds.

3. SHP Desk Guide, Section D: Eligible Activities. Charging Clients Fees in Addition to
   Rent

     Participants may be charged up to 30 percent of their income for rent.

     Fees charged in excess of the 30 percent rent calculation are considered program fees and
     must be used only for services not covered by match or SHP funds, if there are such costs.

     Program fees may not be used to supplement operating costs.

     Charging fees is optional. If the grantee chooses to charge participants a fee for supportive
     service(s), the grantee must maintain written documentation of the actual costs of
     providing the supportive service(s) for which clients are being charged. They must show
     that participants are not paying for a service for which SHP is already paying. The grantee
     or sponsors must also maintain written documentation of the following:

              That the activity for which the fee is being charged is an actual supportive service;


                                                 36
            That SHP grant funds are not being used to pay for that portion of the service;

            How the supportive service charge was determined;

            That the fee is reasonable; and

            The participants are aware of how the fee is used.

4. SHP Desk Guide, Section K: Calculating Resident Rent

   Charging rent is optional and projects may charge rent as long as the amount does not
   exceed the statutory limitations. If grantees or project sponsors decide to charge rent, the
   SHP Self-Monitoring Tools worksheet in the “Tips & Tools” box above will take you
   through the steps to arrive at the maximum rent, and includes a section on determining
   resident rent for units when utilities are not included in the rent.

5. Notice CPD 96-03, Tenant Rent Calculations for Certain HUD McKinney Act Programs

      3.    Calculating Rent Payments/Worksheet.

       a. Resident Rent. To determine the appropriate rent payment, the following steps
            should be taken:

      (1)      Calculate 10 percent of monthly gross income. Determine whether the resident
               has income. The types of income listed in section 4a include the most common
               sources. Exclude any income that is from a source listed in section 4b. Total
               all eligible income to determine annual gross income, divide by 12 to
               determine monthly income, and then multiply by .1 to get 10 percent.

      (2)       Calculate 30 percent of monthly adjusted income. Deduct the items listed in
               section 5 from the resident's annual gross income to determine annual adjusted
               income, divide by 12 to determine monthly adjusted income, and multiply by 3
               to get 30 percent.

      (3)      Determine whether the conditions are present to consider a welfare rent, and if
               so, determine the amount. If the resident receives public assistance and you are
               unsure whether a welfare rent applies, check with the HUD Field Office’s
               Public Housing Division or the closest Public Housing Agency.

      (4)      Determine which of the above three items is highest. This is the amount of
               total resident payment, except for SHP. For SHP, the recipient may allow
               residents to pay a lesser amount, or no rent, if it so chooses.

6. Notice CPD 96-03

   4. Determining Annual Gross Income.


                                               37
a.        Income that must be included. For purposes of determining resident rent,
          annual gross income is the total income of all family members, excluding any
          employment income of children under age 18, from all sources anticipated to
          be received in the 12-month period following the effective date of the income
          certification.

     Annual gross income includes, but is not limited to:

         (1)     The full amount, before any payroll deductions, of wages and salaries,
                 overtime pay, commissions, fees, tips and bonuses,
                 and other compensation for personal services;

         (2)     The full amount of periodic payments received from social
                 security, annuities, insurance policies, retirement funds,
                 pensions, disability or death benefits and other similar types
                 of periodic receipts, including lump sum payment for delayed
                 start of a periodic payment, but see section 4b(3) below;

         (3)     Payments in lieu of earnings, such as unemployment and
                 disability compensation, worker's compensation and severance
                 pay (but see section 4b(3) below);

         (4)     Welfare assistance. Welfare or other payments to families or
                 individuals, based on need, that are made under programs
                 funded, separately or jointly, by Federal, State or local
                 governments (e.g., Aid to Families with Dependent Children
                 (AFDC) , Supplemental Security Income (SSI), and general
                 assistance available through state welfare programs);

         (5)     Periodic and determinable allowances, such as alimony and
                 child support payments, and regular contributions or gifts
                 received from persons not residing in the dwelling;

         (6)     Net income from the operation of a business or profession;

         (7)     Interest, dividends, and other net income of any kind from
                 real or personal property;

         (8)     All regular pay, special pay and allowances of a member of the
                 Armed Forces, except special hostile fire pay.




                                        38