oversight

The Inkster Housing Commission, Inkster, MI, Did Not Follow HUD's Requirements and Its Own Policies Regarding the Administration of Its Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-08-01.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




                  Inkster Housing Commission
                           Inkster, MI

          Public Housing and Section 8 Programs




2013-CH-1004                                   AUGUST 01, 2013
                                                        Issue Date: August 01, 2013

                                                        Audit Report Number: 2013-CH-1004




TO:            Willie C. Garrett, Director of Public Housing Hub, 5APH



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

SUBJECT:       The Inkster Housing Commission, Inkster, MI, Did Not Follow HUD’s
               Requirements and Its Own Policies Regarding the Administration of Its Programs


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final report of our audit of the Inkster Housing Commission’s public
housing and Section 8 programs.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

     The Inspector General Act, Title 5 United States Code, section 8L, requires that the OIG post
its publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
(312) 913-8684.
                                             August 01, 2013
                                             The Inkster Housing Commission, Inkster, MI, Did Not
                                             Follow HUD’s Requirements and Its Own Policies
                                             Regarding the Administration of Its Programs



Highlights
Audit Report 2013-CH-1004


    What We Audited and Why                   What We Found

We audited the Inkster Housing               The Commission did not comply with HUD’s
Commission’s public housing and              requirements and its own administrative plan regarding
Section 8 programs as part of the            the administration of its Section 8 program household
activities in our fiscal year 2013 annual    files. Specifically, it did not (1) correctly calculate and
audit plan. We selected the                  process housing assistance payments, (2) maintain
Commission based on a citizen’s              required eligibility documentation, and (3) ensure that
complaint to our office and our analysis     assisted units were affordable. As a result of the
of risk factors relating to public housing   Commission’s noncompliance, it had more than
agencies in Region 5’s jurisdiction. 1       $174,000 in overpayments, nearly $447,000 in
Our objective was to determine whether       unsupported payments, and nearly $11,000 in
the Commission administered its              underpayments. In addition, households paid nearly
programs in accordance with HUD’s            $66,000 for assisted units that were not affordable.
and its own requirements.                    Further, because the household files were missing
                                             required eligibility documentation, HUD and the
    What We Recommend                        Commission lacked assurance that the households
                                             were eligible for the program.
We recommend that the Director of            The Commission inappropriately used its Federal
HUD’s Detroit Office of Public               funds to pay ineligible expenditures. As a result, it
Housing require the Commission to (1)        used more than $27,000 in Federal funds for ineligible
pursue repayment or reimburse its            expenditures.
program more than $201,000 from non-
Federal funds, (2) support or reimburse
its program, households or landlords
nearly $447,000 from non-Federal
funds, (3) reimburse the households
nearly $77,000, and (4) implement
adequate controls to address the
findings cited in this audit report.




1
 Region 5 includes the States of Illinois,
Indiana, Michigan, Minnesota, Ohio, and
Wisconsin.
                           TABLE OF CONTENTS

Background and Objective                                                     3

Results of Audit

      Finding 1: The Commission Did Not Comply With HUD’s and Its Own
                 Requirements for Section 8 Program Household Files         4

      Finding 2: The Commission Inappropriately Used Federal Funds To Pay
                 Pay Ineligible Expenditures                                11

Scope and Methodology                                                       13

Internal Controls                                                           15

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use        17
B.    Auditee Comments and OIG’s Evaluation                                 19
C.    Federal and the Commission’s Requirements                             33




                                            2
                       BACKGROUND AND OBJECTIVE

The Inkster Housing Commission was established under the laws of the State of Michigan to
provide decent, safe, and sanitary housing. The Commission is governed by a five-member
board of commissioners appointed by the mayor of Inkster, MI, to 5-year staggered terms. The
board’s responsibilities include overseeing the administration of the Commission and approving
policies. The board appoints the Commission’s executive director. The executive director is
responsible for ensuring that policies are followed and providing oversight of the Commission’s
programs.

The Commission administers public housing and Section 8 Housing Choice Voucher programs
funded by the U.S. Department of Housing and Urban Development (HUD). The public housing
program provides decent and safe rental housing for eligible low-income families, the elderly, and
persons with disabilities. As of October 2012, the Commission maintained 737 public housing units
and was authorized $3.6 million in public housing operating funds and $1 million in Public Housing
Capital Fund grants for the fiscal year. The operating funds are provided to assist in funding the
operating and maintenance expenses of the public housing dwellings. The subsidies are required to
help maintain services and provide minimum operating services. The Capital Fund grants are used
to modernize public housing developments.

The Section 8 Housing Choice Voucher program provides assistance to low- and moderate-income
individuals seeking decent, safe, and sanitary housing by subsidizing rents with owners of existing
private housing. As of October 2012, the Commission had 751 units under contract and was
authorized to receive $3.3 million in program funds for the fiscal year.

Our objective was to determine whether the Commission administered its programs in
accordance with HUD’s and its own requirements. Specifically, we wanted to determine
whether the Commission (1) correctly calculated housing assistance and utility allowance
payments, (2) obtained and maintained documents required to determine household eligibility,
and (3) used Federal funds for eligible expenses.




                                                 3
                                 RESULTS OF AUDIT


Finding 1: The Commission Did Not Comply With HUD’s and Its Own
           Requirements for Section 8 Program Household Files
The Commission did not comply with HUD’s requirements and its own administrative plan
regarding the administration of its program household files. Specifically, it did not (1) correctly
calculate and process housing assistance payments, (2) maintain required eligibility
documentation, and (3) ensure that assisted units were affordable. The weakness occurred
because the Commission lacked an understanding of HUD’s and its own requirements and it
failed to consistently implement its quality control process. As a result, it overpaid more than
$521,000 and underpaid nearly $100,000 in housing assistance and utility allowances. Further,
the Commission earned nearly $78,000 in administrative fees for the inappropriate
overpayments. Based on our statistical sample, we estimate that over the next year, the
Commission will overpay more than $247,000 in housing assistance.


 The Commission Miscalculated
 Housing Assistance Payments

               We reviewed 76 of the Commission’s program household files to determine
               whether it had correctly calculated housing assistance payments and maintained
               the appropriate documentation to support household eligibility for the period
               January 2011 through December 2012. Our review was limited to the information
               maintained by the Commission in its household files.

               For the 76 household files reviewed, 61 (80 percent) had 1 or more certifications
               with incorrectly calculated housing assistance. For the 76 household files, we
               reviewed 276 certifications. For the 276 certifications,

                      79 certifications had income incorrectly calculated,
                      49 certifications had allowances incorrectly calculated (medical, disability,
                       child care, dependent, and utility allowance),
                      5 certifications had rent to owner incorrectly stated on the family report
                       (HUD-50058), and
                      3 certifications were not completed in a timely manner.

               The Commission also used incorrect payment standards based on the number of
               household members for 72 of the 276 certifications reviewed. The Commission’s
               administrative plan stated that one bedroom would be assigned for each two
                                                 4




                                                   
                 persons within the household, except persons of the opposite sex, other than
                 spouses and children under age 6.2 However, the executive director said the
                 Commission’s policy was to allow one bedroom for each child 6 years of age and
                 older, regardless of sex. Based on our review, the Commission did not follow
                 either method and inconsistently assigned the number of bedrooms for its
                 program households. According to HUD regulations,3 the subsidy standards
                 established by a public housing agency must provide for the smallest number of
                 bedrooms needed without overcrowding and must be applied consistently for all
                 households.

                 In addition, of the 276 certifications reviewed, 109 contained errors that had no
                 impact on the housing assistance calculation. The errors included unsupported
                 members; incorrect structure types, asset values, incomes, medical expenses, and
                 payment standards; and inappropriate dependent and utility allowances.

                 Further of the 76 household files reviewed, 15 contained documentation showing
                 that the households had unreported or underreported income. However, contrary
                 to the Commission’s administrative plan4, it failed to properly adjust the housing
                 assistance or seek repayment agreements for the overpaid subsidy for the 15
                 households. The administrative plan stated that the Commission would compare
                 family-reported income and expenditures to detect possible unreported income
                 and that in the case of program abuse, the household would be required to repay
                 any excess subsidy received.5

                 The Commission did not properly use program funds when it failed to correctly
                 calculate housing assistance payments in accordance with HUD’s requirements
                 and its administrative plan. The errors resulted in $78,727 in overpayments and
                 $10,779 in underpayments of housing assistance. In addition, the Commission
                 had unsupported calculations, which resulted in unsupported overpayments of
                 $19,924 and unsupported underpayments of $2,571. Further, the Commission did
                 not take action on unreported income documented in the household files, which
                 resulted in overpayments of $27,987 in housing assistance.

                 Because the housing assistance was incorrectly calculated, the Commission
                 inappropriately received $57,285 in administrative fees. If the Commission does
                 not correct its procedures and controls regarding housing assistance calculations,
                 we estimate that it could overpay $247,870 in housing assistance over the next
                 year.


2
  Commission’s administrative plan, chapter 5, part II.B
3
  24 CFR (Code of Federal Regulations) 982.402(b)
4
  Commission’s administrative plan, chapter 14, part I.B
5
  Commission’s administrative plan, chapter 14, part II.B
                                                            5




                                                             
The Commission Incorrectly
Processed Housing Assistance
and Utility Allowance
Payments

           For the 76 household files reviewed, we compared the housing assistance and
           utility allowance payments from the Commission’s payments register to the
           housing assistance and utility allowance amounts calculated by the Commission
           on the annual and interim certifications. Based on our review, the Commission
           did not always pay housing assistance in accordance with its calculations. The
           housing assistance and utility allowances were incorrectly paid for 33 households.

           The Commission made housing assistance and utility allowance payments that did
           not agree with its calculations for 33 of the 76 households. It was unable to
           provide supporting documentation for the amounts paid. Based on our review, the
           Commission underpaid housing assistance by $18,661 and utility allowances by
           $424 for 19 households, and overpaid housing assistance by $10,243 and utility
           allowances by $46 for 14 households.

The Commission Lacked
Documentation To Support
Households’ Eligibility

           We reviewed 76 of the Commission’s household files to determine whether it
           maintained the required documentation to support the households’ eligibility for
           the program. Of the 76 household files reviewed, 71 (93 percent) were missing 1
           or more documents needed to determine household eligibility. The 71 household
           files were missing the following eligibility documentation:

                  63 files were missing support that 1 or more criminal background checks
                   were performed;
                  27 files were missing 1 or more requests for tenancy approval or housing
                   assistance payments contracts;
                  25 files were missing 1 or more executed leases;
                  22 files were missing 1 or more citizenship declarations;
                  18 files were missing lead-based paint certifications;
                  6 files were missing full support for 1 or more household members;
                  6 files were missing 1 or more authorizations for release of information;
                   and
                  4 files were missing support for 1 or more Social Security numbers.


                                            6




                                              
           During the audit, the Commission provided copies of unsupported eligibility
           documentation. For each household file reviewed, the table below shows the
           documents that were originally unsupported, documents provided during the
           audit, and documents that remain unsupported.

                                                            Provided
                                            Originally       during       Remain
                     Document              unsupported        audit     unsupported
               Criminal background
                       checks                    63            52             11
               Request for Tenancy
             Approval/HAP Contracts              27            20              7
                   Executed lease                25            11             14
              Citizenship declarations           22            19              3
                  Lead-based paint
                     disclosures                 18            12              6
             Full support for household
                      members                     6             2              4
              Social Security numbers             4             2              2

           Because the household files were missing required eligibility documentation,
           HUD and the Commission lacked assurance that the households were eligible for
           the program. As a result, there was $384,755 in unsupported housing assistance
           for the households. In addition, because there was no support that the
           Commission ensured that the household members were eligible for the program in
           accordance with HUD’s requirements, $20,468 in administrative fees received by
           the Commission was unsupported.

The Commission Allowed
Households To Move Into
Unaffordable Units

           Based on our review of the 76 household files, 18 households were allowed to
           move into units that were not affordable. For these households, their
           contributions to rent exceeded the initial maximum of 40 percent of their adjusted
           monthly income. According to the program manager, the case managers ignored
           the system notifications that the units were not affordable because they believed
           the affordability applied only to new admissions to the program, not to unit
           changes. However, HUD regulations state that the public housing agency may
           not execute a housing assistance payments contract until it has determined that the


                                            7




                                              
                  household’s share does not exceed 40 percent of its monthly adjusted income at
                  the time a family initially occupies a unit.6

                  The 18 households the Commission allowed to move into units that were not
                  affordable made payments toward rent totaling $65,874 in excess of 40 percent of
                  their adjusted monthly incomes.

    The Commission Lacked an
    Understanding of HUD’s and
    Its Own Requirements


                  The housing assistance was incorrectly calculated and the files were missing the
                  required eligibility documentation because the Commission lacked an
                  understanding of HUD’s and its own requirements and failed to consistently
                  implement its quality control process. In September 2010, the Commission hired
                  an internal auditor to review household files. However after 6 months of
                  reviewing files, the auditor was transferred to the Section 8 department to conduct
                  annual reexaminations for program households due to staff turnover. After her
                  transition, no reviews of the files were completed.

    Conclusion

                  The weakness described above occurred because the Commission lacked an
                  understanding of HUD’s and its own requirements and it failed to consistently
                  implement its quality control process. As a result, HUD lacked assurance that the
                  Commission used its program funds efficiently and effectively since it overpaid
                  $106,714 ($78,727 + $27,987) and underpaid $10,779 in housing assistance. In
                  addition, the Commission incorrectly processed housing assistance and utility
                  allowance payments for 33 households, which resulted in unsupported
                  overpayments of $10,289 ($10,243 + $46) and unsupported underpayments of
                  $19,085 ($18,661 + $424). Further, it had unsupported overpayments of
                  $404,679 ($384,755 + $19,924) due to unsupported housing assistance
                  calculations and missing eligibility documentation and unsupported
                  underpayments of $2,571 due to unsupported housing assistance calculations and
                  allowed 18 households to pay $65,874 in excess of 40 percent of their adjusted
                  monthly income for units that were not affordable.

                  In accordance with 24 CFR (Code of Federal Regulations) 982.152(d), HUD is
                  permitted to reduce or offset any program administrative fees paid to a public
                  housing agency if it fails to perform its administrative responsibilities correctly or
6
    24 CFR 982.305(a)5
                                                    8




                                                      
          adequately under the program. The Commission received $77,753 ($57,285 +
          $20,468) in program administrative fees related to the inappropriate and
          unsupported housing assistance payments for the 61 program households with
          incorrectly calculated housing assistance, 33 households with incorrectly
          processed housing assistance and utility allowance payments, and 71 program
          households with missing eligibility documentation.

          If the Commission does not correct its certification process, we estimate that it
          could overpay $247,870 in housing assistance over the next year. Our
          methodology for this estimate is explained in the Scope and Methodology section
          of this audit report. The Commission could put these funds to better use if proper
          procedures and controls are put into place to ensure the accuracy of housing
          assistance payments.

Recommendations

          We recommend that the Director of HUD’s Detroit Office of Public Housing
          require the Commission to

           1A. Reimburse its program $136,012 ($78,727 in housing assistance payments
               + $57,285 in associated administrative fees) from non-Federal funds for
               the overpayment of housing assistance due to inappropriate calculations of
               housing assistance payments.

           1B. Reimburse the appropriate households $10,779 from program funds for
               the underpayment of housing assistance due to inappropriate calculations.

           1C. Support or reimburse its program $425,193 ($19,924 + $384,755 in
               housing assistance payments + $46 in utility allowances + $20,468 in
               associated administrative fees) from non-Federal funds for the
               unsupported overpayment of housing assistance and utility allowances due
               to unsupported calculations, missing eligibility documentations, and
               discrepancies in the housing assistance payments register.

           1D. Support or reimburse the appropriate households $2,995 ($2,571 in
               housing assistance + $424 in utility allowances) from program funds for
               the underpayment of housing assistance due to unsupported calculations
               and utility allowances due to discrepancies in the housing assistance
               payments register.

           1E. Pursue collection from the applicable households or reimburse its program
               $27,987 from non-Federal funds for the overpayment of housing

                                           9




                                            
      assistance due to unreported income.

1F. Support or reimburse the appropriate landlords $18,661 from program
    funds for the underpaid housing assistance due to discrepancies in the
    housing assistance payments register.

1G. Support, pursue collection from the applicable landlords, or reimburse its
    program $10,243 from non-Federal funds for the overpayment of housing
    assistance due to discrepancies in the housing assistance payments
    register.

1H. Reimburse the appropriate households $65,874 from non-Federal funds
    for the rent amounts paid in excess of 40 percent of their adjusted monthly
    income for units that were not affordable.

1I.   Ensure that its staff is trained and familiar with HUD’s regulations and the
      Commission’s own policies.

1J.   Implement procedures and controls to ensure that housing assistance is
      correctly calculated and repayment agreements are created to recover
      overpaid housing assistance when unreported income is discovered during
      the examination process to ensure that $247,870 in program funds is
      appropriately used for future payments.

1K. Implement procedures and controls to ensure that required eligibility
    documentation is obtained and maintained to support households’
    admission to and continued assistance on the program.




                               10




                                 
Finding 2: The Commission Inappropriately Used Federal Funds To Pay
           Ineligible Expenditures
The Commission inappropriately used Federal funds to pay ineligible expenditures. This
weakness occurred because the Commission lacked a sufficient understanding of HUD’s
requirements. As a result, it used more than $27,000 in Federal funds for ineligible expenditures.


    The Commission Had Ineligible
    Expenditures

                   We reviewed the Commission’s discretionary fund account transactions for
                   December 2003 through August 2012. The Commission deposited funds totaling
                   $15,775 into the discretionary account. According to the executive director, the
                   discretionary fund account was comprised of cash received from salvaging
                   windows and other items such as appliances, vehicles, and lawn equipment
                   purchased with Federal funds. We noted 88 ineligible expenditures totaling
                   $15,174 from the discretionary fund account. These ineligible expenditures
                   included flowers, gifts, refreshments, and entertainment7. The executive director
                   said that the expenditures were for condolences and employee perks and that it
                   was impossible to run a company without giving these perks to employees.

                   In addition, we reviewed the Commission’s disbursement reports and petty cash
                   expenditures for January 2011 through September 2012 to determine whether they
                   were allowable program expenditures. We noted 37 ineligible expenditures on
                   the disbursement reports. The expenditures included coffee supplies; charitable
                   event tickets; and gifts, supplies, disc jockey services, and hotel banquet services
                   for Christmas parties. In addition, we noted 40 ineligible petty cash expenditures.
                   The ineligible petty cash expenditures included purchases of food and
                   refreshments for meetings and cards. A total of $12,220 in Federal funds was
                   used for the 77 ineligible expenditures. The executive director said that the
                   Commission had been independently audited every year and nothing had been
                   reported previously about the expenditures being ineligible.

    Conclusion

                   The Commission inappropriately used $27,394 ($15,174 + $12,220) in Federal
                   funds to pay 165 (88 + 37 + 40) ineligible expenditures. This weakness occurred
                   because the Commission lacked a sufficient understanding of HUD’s

7
    Federal regulations at 2 CFR 225, appendix B
                                                    11




                                                      
          requirements. As a result, HUD and the Commission lacked assurance that
          Federal funds were used in accordance with HUD’s requirements.

Recommendations

          We recommend that the Director of HUD’s Detroit Office of Public Housing
          require the Commission to

           2A. Reimburse its program $27,394 from non-Federal funds for the ineligible
               expenditures cited in this finding.

           2B. Ensure that its staff is trained and familiar with HUD’s regulations
               regarding allowable program expenditures.




                                         12




                                           
                         SCOPE AND METHODOLOGY

We performed onsite audit work between October 2012 and May 2013 at the Commission’s
offices located at 4500 Inkster Road, Inkster, MI, and 29150 Carlysle Avenue, Inkster, MI. The
audit covered the period January 1, 2011, through December 31, 2012, but was adjusted as
determined necessary.

To accomplish our objectives, we reviewed

               Applicable laws; regulations; Office of Management and Budget Circular A-87;
                HUD’s program requirements at 24 CFR Parts 5, 905, 970, 982, and 990; Public and
                Indian Housing notices; HUD Handbook 7475.1; and HUD Guidebooks 7420.10G,
                7485.3G, and 7510.1.

               The Commission’s accounting records; bank statements; general ledgers; 5-year
                and annual plans; annual audited financial statements for 2009, 2010, and 2011;
                computerized databases; policies and procedures; board meeting minutes for
                January 2011 through September 2012; organizational chart; and program annual
                contributions contract with HUD.

               HUD’s files for the Commission.

We also interviewed the Commission’s employees and HUD staff.

Finding 1

Using Microsoft Excel, we randomly selected 15 household files from the Commission’s tenant
report, dated November 9, 2012. During the survey, we reviewed 8 of the 15 household files to
determine whether the Commission correctly calculated housing assistance and maintained the
required eligibility documentation. Based on our review of the eight household files, we
determined that there was sufficient cause to audit the Commission’s program. We statistically
selected a random sample of 70 files from the Commission’s 606 households that received
housing assistance from May 2011 through December 2012 (579 days). The sample of 70
households included 2 of the households reviewed during the survey. Therefore, we reviewed a
total of 76 of the Commission’s Section 8 program household files.

Based on the 70 randomly selected households from the audit universe of 606 program
participants, we found that the net miscalculation per household was overpaid by an average of
$968. Therefore, projecting this amount to the audit universe of 606 program participants, the
overpayments totaled $586,859. Deducting for statistical variance to accommodate the
uncertainties inherent to statistical sampling, we can state with a confidence interval of 95

                                               13




                                                   
percent, that at least $394,278 in housing assistance in the universe was overpaid. Over the next
year, this is equivalent to an additional overpayment of $247,870 ($394,278 * 364 days / 579
days) in housing assistance.

The calculation of administrative fees was based on HUD’s administrative fee per household
month for the Commission. The fees were considered inappropriately received for each month
the housing assistance was incorrectly paid and household eligibility was unsupported. We
limited the inappropriate administrative fees to the amounts of the housing assistance payment
calculation errors.

Finding 2

We reviewed the Commission’s discretionary fund schedule in its entirety and its disbursement
reports for January 2011 through September 2012. For the questionable expenditures, we
reviewed the supporting documentation to determine whether they were eligible under the
program regulations.

We relied in part on data maintained by the Commission in its systems. Although we did not
perform a detailed assessment of the reliability of the data, we performed a minimal level of
testing and found the data to be adequately reliable for our purposes. We provided our review
results and supporting schedules to the Director of HUD’s Detroit Office of Public Housing and
the Commission’s executive director during the audit.

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.




                                               14




                                                  
                              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:

                     Effectiveness and efficiency of operations – Policies and procedures that
                      management has implemented to reasonably ensure that a program meets
                      its objectives.

                     Reliability of financial reporting – Policies and procedures that
                      management has implemented to reasonably ensure that valid and reliable
                      data are obtained, maintained, and fairly disclosed in reports.

                     Compliance with applicable laws and regulations – Policies and
                      procedures that management has implemented to reasonably ensure that
                      resource use is consistent with laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.
                                                 15




                                                   
Significant Deficiency

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

                   The Commission lacked adequate procedures and controls to ensure
                    compliance with HUD’s and its own requirements regarding (1) the
                    calculation and processing of housing assistance payments and (2)
                    maintenance of required eligibility documentation (see finding 1).




                                             16




                                                
                                   APPENDIXES

Appendix A

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

        Recommendation                               Unsupported     Funds to be put
                                Ineligible 1/                         to better use 3/
            number                                       2/
              1A                 $136,012
              1B                                                             $10,779
              1C                                      $425,193
              1D                                        2,995
              1E                  27,987
              1F                                       18,661
              1G                                       10,243
              1H                                                              65,874
              1J                                                             247,870
              2A                  27,394
             Total               $191,393             $457,092             $324,523


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In these instances, if the Commission implements our
     recommendations, it will cease to incur program costs for the overpayment and
     underpayment of housing assistance and, instead, will expend those funds in accordance

                                                17




                                                  
with HUD’s requirements and the Commission’s program administrative plan. Once the
Commission successfully improves its controls, this will be a recurring benefit. Our
estimate reflects only the initial year of this benefit.




                                     18




                                        
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         19




                           
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         20




                           
Ref to OIG Evaluation   Auditee Comments




                         21




                           
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4



Comment 5

Comment 6




                         22




                           
Ref to OIG Evaluation   Auditee Comments




                         23




                           
Ref to OIG Evaluation   Auditee Comments




Comment 7




                         24




                           
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9


Comment 10




                         25




                           
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Comment 11



Comment 12

Comment 13

Comment 13

Comment 13
Comment 13
Comment 14

Comment 15

Comment 16


Comment 17




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Ref to OIG Evaluation   Auditee Comments




Comment 18




Comment 19



Comment 20




                         27




                           
Ref to OIG Evaluation   Auditee Comments




Comment 21



Comment 22

Comment 23

Comment 24




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                                    OIG’s Evaluation of Auditee Comments

Comment 1           The Commission’s administrative plan states that one bedroom would be assigned
                    for each two persons within the household, except persons of the opposite sex,
                    other than spouses and children under age 6.8 However during the audit, the
                    executive director said the Commission’s policy was to allow one bedroom for
                    each child 6 years of age and older, regardless of sex. Based on our review, the
                    Commission did not follow either method and inconsistently assigned the number
                    of bedrooms for its program households. According to HUD regulations9 and the
                    Commission’s administrative plan, the subsidy standards established by a public
                    housing agency must provide for the smallest number of bedrooms needed
                    without overcrowding and must be applied consistently for all households.

Comment 2           We acknowledge that the Commission’s administrative plan states that it may
                    grant an exception to the established subsidy standards if it determines the
                    exception is justified. However, the Commission failed to provide documentation
                    that an exception to the subsidy standards was granted for the 72 certifications in
                    which the incorrect subsidy standards were used.

Comment 3           The Commission did not provide documentation showing that the household did
                    not earn the reported income and that no repayment was due. Further, it did not
                    provide documentation that it entered into repayment agreements or terminated
                    housing assistance for the households with unreported or underreported income.

Comment 4           The calculation of administrative fees was based on HUD’s administrative fee per
                    household month for the Commission. The fees were considered inappropriately
                    received for each month the housing assistance was incorrectly paid and
                    household eligibility was unsupported. We limited the inappropriate
                    administrative fees to the amounts of the housing assistance payment calculation
                    errors. In accordance with 24 CFR (Code of Federal Regulations) 982.152(d),
                    HUD is permitted to reduce or offset any program administrative fees paid to a
                    public housing agency if it fails to perform its administrative responsibilities
                    correctly or adequately under the program.

Comment 5           We acknowledge that the Commission provided documentation to support
                    household eligibility in response to this report and adjusted the report as needed.
                    However, it did not provide documentation to support the unsupported payments
                    due to incorrectly calculated housing assistance payments.

Comment 6           The incorrect income calculations cited in this report were not the result of live-in
                    aides or their dependents.
8
    Commission’s administrative plan, chapter 5, part II.B
9
    24 CFR (Code of Federal Regulations) 982.402(b)
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Comment 7     The Commission’s Adjusted Income Quality Control Procedures should improve
              its income calculations if fully implemented. However, HUD will determine
              whether the improvements meet its requirements and that the procedures are fully
              implemented.

Comment 8     The Commission stated that it will review its procedures and quality controls over
              housing assistance payments standards. The Commission should provide
              sufficient documentation on the implementation of its revised controls to HUD
              including target completion dates to obtain technical assistance on the adequacy
              of the revised controls.

Comment 9     According to HUD’s requirements at 24 CFR 982.308(b)2, if the owner uses a
              standard lease form for rental to unassisted tenants in the locality or the premises,
              the lease must be in such standard form (plus the HUD-prescribed tenancy
              addendum). If the owner does not use a standard lease form for rental to
              unassisted tenants, the owner may use another form of lease, such as a public
              housing authority’s model lease (including the HUD-prescribed tenancy
              addendum). Further, the report did not address notations on the Request for
              Tenancy Approval Forms regarding appliances. However, it did address whether
              the required form was missing from the household files.

Comment 10 The incorrect calculations of housing assistance cited in this report were not the
           result of unsupported Supplemental Disability Insurance payments from the State
           of Michigan.

Comment 11 The Commission stated that it would review its procedures regarding housing
           assistance utility allowance payments. As recommended in this report, HUD will
           determine whether the Commission’s procedures regarding housing assistance
           utility allowance payments meet its requirements and that the procedures were
           implemented.

Comment 12 The Commission provided 61 criminal background reports with its comments. Of
           the 61 reports provided, 5 showed criminal convictions after admission, 2 were
           previously received during the audit, 2 showed potential criminal activity within 5
           years of admission, 1 was not missing from the household file based on our
           review, and 1 was a duplicate. Therefore, we revised the report as appropriate.

Comment 13 The Commission provided the following items: (1) 11 housing assistance
           payments contracts, of which 5 were not executed within 60 days of the lease and
           therefore not reduced; (2) 6 leases, (3) 4 citizenship declarations; and (4) 2 lead-
           based paint disclosure statements. Therefore, we revised the report as
           appropriate.
                                               30




                                                  
Comment 14 The Commission did not provide documentation to support the missing eligibility
           documents for the unsupported household members cited in this report. Further,
           the errors cited in this report were not the result of live-in aides or their
           dependents, see comment 6.

Comment 15 The Commission did not provide adequate documentation to support the missing
           authorizations for release of information cited in this report.

Comment 16 The Commission did not provide documentation to support the missing eligibility
           documents for the unsupported Social Security Numbers cited in this report. .
           Further, the errors cited in this report were not the result of live-in aides or their
           dependents, see comment 6.

Comment 17 As recommended in the audit report, the Commission should work with HUD to
           ensure the missing documentation is obtained to support household eligibility.

Comment 18 The Commission did not provide documentation to support that it only allowed
           households to rent units that were affordable. According to HUD’s regulations,
           the public housing agency may not execute a housing assistance payments
           contract until it has determined that the household’s share does not exceed 40
           percent of its monthly adjusted income at the time a family initially occupies a
           unit.10

Comment 19 The Commission’s policy and HUD’s regulations state that the family share must
           not exceed 40 percent of the family’s adjusted monthly income at the time the
           Commission approves the initial occupancy of a dwelling unit. Therefore, the
           requirement applies to initial leases whether they are due to a new admission or a
           move to a new unit. The Commission should work with the HUD Field Office to
           ensure its policies meet HUD’s requirements.

Comment 20 We commend the Commission for continuing to implement quality control in its
           program.

Comment 21 The Commission did not provide documentation to support that the expenditures
           were from non-Federal funds.

Comment 22 The Commission did not provide documentation to support that the expenditures
           of petty cash for items such as food and refreshments were an eligible use of
           Federal funds.


10
     24 CFR 982.305(a)5
                                               31




                                                 
Comment 23 HUD will work with the Commission for the repayment of funds used for
           ineligible purposes that was cited in the audit report.

Comment 24 The Commission should coordinate with HUD to ensure it appropriately
           establishes and maintains a central office cost center.




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Appendix C

     FEDERAL AND THE COMMISSION’S REQUIREMENTS


Finding 1
Regulations at 24 CFR 5.210(a) state that applicants for and participants in covered HUD
programs are required to disclose and submit documentation to verify their Social Security
numbers.

Regulations at 24 CFR 5.508(b)(1) state that for U.S. citizens or U.S. nationals, the evidence of
citizenship or eligible immigration status consists of a signed declaration of U.S. citizenship or
U.S. nationality. The responsible entity may request verification of the declaration by requiring
presentation of a U.S. passport or other appropriate documentation.

Regulations at 24 CFR 5.855(a) state that a public housing agency may prohibit admission of a
household to federally assisted housing under its standards if it determines that any household
member is currently engaging in or has engaged in during a reasonable time before the admission
decision (1) drug-related criminal activity; (2) violent criminal activity; (3) other criminal
activity that would threaten the health, safety, or right to peaceful enjoyment of the premises by
other residents; or (4) other criminal activity that would threaten the health or safety of the
agency or owner or any employee.

Regulations at 24 CFR 5.856 state that standards must be established to prohibit admission to
federally assisted housing if any member of the household is subject to a lifetime registration
requirement under a State sex offender registration program. In the screening of applicants,
necessary criminal history background checks must be performed in the State where the housing
is located and in other States where the household members are known to have resided.

Regulations at 24 CFR 982.54(1) state that the public housing agency must adopt a written
administrative plan that establishes local policies for the administration of the program in
accordance with HUD requirements. (b) The administrative plan must be in accordance with
HUD regulations and requirements. (c) The public housing agency must administer the program
in accordance with its administrative plan.

Regulations at 24 CFR 982.158(e) state that during the term of each assisted lease and for at least
3 years thereafter, the agency must keep (1) a copy of the executed lease, (2) the housing
assistance payments contract, and (3) the application from the family.



                                                33




                                                  
Regulations at 24 CFR 982.158(f) state that the public housing agency must keep the following
records for at least 3 years: (1) records that provide income, racial, ethnic, gender, and disability
status data on program applicants and participants; (2) an application from each ineligible family
and notice that the applicant is not eligible; (3) HUD-required reports; (4) unit inspection reports;
(5) lead-based paint records; (6) accounts and other records supporting agency budget and
financial statements for the program; (7) records to document the basis for agency determination
that rent to owner is a reasonable rent; and (8) other records specified by HUD.

Regulations at 24 CFR 982.516(g)(1) state that as a condition of admission to or continued
assistance under the program, the public housing agency must require the family head and such
other family members as the agency designates to execute a HUD-approved release and consent
form.

The Commission’s Administrative Plan, chapter 5, part II(b), states that the Commission will
assign one bedroom for each two persons within the household, except that persons of the
opposite sex (other than spouse and children under age 6) will be allocated separate bedrooms.

The Commission’s Administrative Plan, chapter 6, part III(a), states that if a family chooses a
unit with a gross rent that exceeds the Commission’s applicable payment standard, (1) the family
will pay more than the total tenant payment, and (2) at initial occupancy, the Commission may
not approve the tenancy if it would require the family share to exceed 40 percent of the family’s
monthly adjusted income.

The Commission’s Administrative Plan, chapter 14, part I(b), states that the Commission will
employ a variety of methods to detect errors and program abuse. At each annual reexamination,
current information provided by the family will be compared to information provided at the last
annual reexamination to identify inconsistencies and incomplete information. The Commission
will compare family-reported income and expenditures to detect possible unreported income.

The Commission’s Administrative Plan, chapter 14, part II(b), states that in the case of family-
caused errors or program abuse, the family will be required to repay any excess subsidy received.
The Commission may but is not required to offer the family a repayment agreement.

Finding 2
Regulations at 2 CFR 225, appendix B(C), state that to be allowable under Federal awards, costs
must (a) be necessary and reasonable for proper and efficient performance and administration of
Federal awards.

Regulations at 2 CFR 225, appendix B-12, state that contributions or donations, including cash,
property, and services, made by the government unit, regardless of the recipient, are unallowable.



                                                 34




                                                   
Regulations at 2 CFR 225, appendix B-14, state that costs of entertainment, including
amusement, diversion, and social activities, and any cost directly associated with such costs
(such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities)
are unallowable.




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