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
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)