oversight

The Moline Housing Authority, Moline, IL, Did Not Always Follow HUD's Requirements and Its Own Policies Regarding the Administration of Its Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-14.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




                  Moline Housing Authority
                         Moline, IL

       Section 8 Housing Choice Voucher Program




2014-CH-1004                                 JULY 14, 2014
                                                        Issue Date: July 14, 2014

                                                        Audit Report Number: 2014-CH-1004




TO:            Eleny Ladias, Acting Director of Public Housing Hub, 5APH

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

SUBJECT:       The Moline Housing Authority, Moline, IL, Did Not Always Follow HUD’s
               Requirements and Its Own Policies Regarding the Administration of Its Program


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG), final results of our review of the Moline Housing Authority’s Section
8 Housing Choice Voucher program.

    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 8M, 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) 353-7832.




                                                  
                                            July 14, 2014
                                            The Moline Housing Authority, Moline, IL, Did Not
                                            Always Follow HUD’s Requirements and Its Own
                                            Policies Regarding the Administration of Its Program



Highlights
Audit Report 2014-CH-1004


 What We Audited and Why                     What We Found

We audited the Moline Housing               The Authority did not always comply with HUD’s
Authority’s Section 8 program as part       requirements and its own administrative plan regarding
of the activities in our fiscal year 2013   the administration of its Section 8 program.
annual audit plan. We selected the          Specifically, it did not (1) correctly calculate and
Authority based on a citizen’s              process housing assistance payments, (2) maintain
complaint to our office. Our objective      required eligibility documentation, and (3) ensure that
was to determine whether the Authority      assisted units were affordable. As a result of the
administered its program in accordance      Authority’s noncompliance, it had (1) more than
with the U.S. Department of Housing         $47,000 in overpayments, (2) nearly $221,000 in
and Urban Development’s (HUD) and           unsupported payments, and (3) more than $6,000 in
its own requirements.                       underpayments. Further, households paid nearly
                                            $26,000 for assisted units that were not affordable.
 What We Recommend
                                         The Authority inappropriately used Federal funds to
                                         pay ineligible expenditures. As a result, more than
We recommend that the Acting Director $31,000 in Federal funds was not available for eligible
of HUD’s Chicago Office of Public        program use.
Housing require the Authority to (1)
reimburse its program nearly $70,000
from non-Federal funds, (2) support or
reimburse its program nearly $221,000
from non-Federal funds, (3) pursue
repayment or reimburse its program
nearly $8,000 from non-Federal funds,
(4) reimburse its households or
landlords more than $32,000, and (5)
implement adequate controls to address
the findings cited in this audit report.




                                                   
                           TABLE OF CONTENTS

Background and Objective                                                       3

Results of Audit

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

      Finding 2: The Authority Inappropriately Used Federal Funds             10

Scope and Methodology                                                         12

Internal Controls                                                             14

Appendixes
A.    Schedule of Questioned Costs and Funds to Be Put to Better Use          16
B.    Auditee Comments and OIG’s Evaluation                                   18
C.    Federal and the Authority’s Requirements                                27




                                            2
                       BACKGROUND AND OBJECTIVE

The Moline Housing Authority was established under the laws of the State of Illinois to provide
decent, safe, and sanitary housing. The Authority is governed by a five-member board of
commissioners appointed by the mayor of Moline, IL, to 5-year staggered terms. The board’s
responsibilities include setting policies and appointing the Authority’s executive director. The
executive director is responsible for ensuring that policies are implemented and managing the
day-to-day operations of the Authority’s programs.

The Authority administers public housing and Section 8 Housing Choice Voucher programs funded
by the U.S. Department of Housing and Urban Development (HUD). 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 September 2013, the Authority had 234 units under contract and was authorized to receive $1.06
million in program funds for the fiscal year.

We audited the Authority based upon a complaint alleging a lack of oversight and poor
administration of the Authority’s Section 8 program. Our objective was to determine whether
the Authority administered its program in accordance with HUD’s and its own requirements.
Specifically, we wanted to determine whether the Authority (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 Authority Did Not Always Comply With HUD’s and Its
Own Requirements for Its Section 8 Program
The Authority did not always comply with HUD’s requirements and its own administrative plan
regarding the administration of its Section 8 program. 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 Authority lacked an understanding of HUD’s and its own requirements and failed to
implement an adequate quality control process. As a result, it overpaid more than $227,000 and
underpaid more than $6,000 in housing assistance and utility allowances. Further, the Authority
received more than $40,000 in administrative fees for the inappropriate overpayments. Based on
our statistical sample, we estimate that over the next year, the Authority will overpay more than
$13,000 and underpay more than $6,000 in housing assistance.


 The Authority Miscalculated
 Housing Assistance Payments

               We reviewed 69 of the Authority’s program household files, containing 304
               certifications, to determine whether it correctly calculated housing assistance
               payments for the period April 2011 through August 2013. Our review was
               limited to the information maintained by the Authority in its household files.

               For the 69 household files, 47 (68 percent) had 1 or more certifications with
               incorrectly calculated housing assistance. The 47 household files contained 135
               certifications with the following deficiencies:

                     78 certifications had incorrect utility allowances,
                     29 certifications had income incorrectly calculated,
                     26 certifications had incorrect payment standards, and
                     7 certifications had medical expenses incorrectly calculated.

               In addition, 49 of the 69 household files reviewed contained 153 certifications
               with errors that had no impact on the housing assistance calculation. The errors
               included incorrect structure types, asset values, incomes, medical expenses,
               payment standards, and utility allowances.


               Further, of the 69 household files reviewed, 8 contained documentation showing
               that the households had unreported or underreported income. However, contrary
                                                4


                                                  
                 to its administrative plan,1 the Authority failed to seek repayment for the overpaid
                 subsidy for the eight households. The administrative plan stated that in the case
                 of family-caused errors or program abuse, the family would be required to repay
                 any excess subsidy received.2

                 The Authority did not properly use program funds when it failed to correctly
                 calculate housing assistance payments for the 47 household files in accordance
                 with HUD’s requirements and its administrative plan. The errors, as stated above,
                 resulted in $21,546 in overpayments and $5,308 in underpayments of housing
                 assistance. In addition, the Authority had unsupported calculations, which
                 resulted in unsupported overpayments of $70. Further, the Authority’s failure to
                 take action on unreported income documented in the eight household files,
                 resulted in overpayments of $5,599 in housing assistance.

                 Because the housing assistance was incorrectly calculated, the Authority
                 inappropriately received $18,059 in administrative fees. If the Authority does not
                 correct its certification process, we estimate that it could overpay $13,007 and
                 underpay $6,013 in housing assistance over the next year.3

    The Authority Incorrectly
    Processed Housing Assistance
    and Utility Allowance Payments



                 For the 69 household files reviewed, we compared the housing assistance and
                 utility allowance payments from the Authority’s payments register to the amounts
                 calculated on the annual and interim certifications. Based on our review, the
                 Authority made housing assistance and utility allowance payments that did not
                 agree with its calculations and housing assistance payment contracts for 12 of the
                 69 households. As a result, it overpaid housing assistance by $2,095 and utility
                 allowances by $26 for eight households and underpaid housing assistance by
                 $1,143 for four households from April 2011 through August 2013.

    The Authority Lacked
    Documentation To Support
    Households’ Eligibility

                We reviewed 69 of the Authority’s household files to determine whether it
                maintained the required documentation to support the households’ eligibility for
                the program. Of the 69 household files reviewed, 63 (91 percent) were missing 1

1
  The Authority’s administrative plan, chapter 16, part IV.B
2
  The Authority’s administrative plan, chapter 14, part II.B
3
  Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.
                                                         5


                                                           
or more documents needed to determine household eligibility. The 63 household
files were missing the following eligibility documentation:

       61 files were missing proof that 1 or more landlords owned the assisted
        units,
       29 files were missing appropriate rent reasonableness determinations,
       25 files were missing support that criminal background checks were
        performed,
       17 files were missing copies of the original household applications,
       7 files were missing lead-based paint certifications,
       5 files were missing executed leases,
       4 files were missing requests for tenancy approval,
       3 files were missing full support for household members,
       2 files were missing citizenship declarations,
       1 file was missing a Social Security number,
       1 file was missing an authorization for release of information, and
       1 file was missing a housing assistance payments contract.

During the audit, the Authority was able to provide copies of unsupported
eligibility documentation. However, 20 of the 63 household files were still
missing 1 or more required eligibility documents as of July 14, 2014. For each
household file reviewed, the table below shows the number of documents
originally unsupported, documents provided during the audit, and documents that
remained unsupported.

                                       Originally   Provided during    Remaining
              Document                unsupported        audit        unsupported
     Proof of landlord ownership          61              56               5
   Appropriate rent reasonableness
            determinations                29              29               0
     Criminal background checks           25              22               3
         Original applications            17               7              10
     Lead-based paint disclosures         7               5                2
           Executed leases                5               3                2
    Requests for tenancy approval         4               2                2
 Full support for household members       3               2                1
       Citizenship declarations           2               0                2
        Social Security number            1               0                1
     Authorization for release of
             information                  1               0               1
    Housing assistance payments
                contract                   1              1               0


Because the 20 household files were missing required eligibility documentation,
HUD and the Authority lacked assurance that the households were eligible for the
program. As a result, there was $197,906 in unsupported housing assistance for
the households. In addition, because there was no support showing that the
                                 6


                                       
                   Authority ensured that the household members were eligible for the program in
                   accordance with HUD’s requirements, $22,702 in administrative fees received by
                   the Authority was unsupported.

    The Authority Allowed
    Households To Move Into
    Unaffordable Units

                   The Authority allowed 13 households 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 HUD regulations, the
                   Authority 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 the family initially occupies a unit.4 The 13
                   households made payments toward rent totaling $25,767 in excess of 40 percent
                   of their adjusted monthly incomes.

    The Authority 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 Authority lacked a sufficient
                   understanding of HUD’s and its own requirements and failed to implement an
                   adequate quality control process. The executive director said he reviewed the
                   household files for completeness. However, the quality control checklists used
                   during his reviews did not include all of the eligibility documents that the
                   Authority was required to maintain. In addition, the executive director said he did
                   not perform quality control reviews of the housing assistance calculations. As a
                   result of our audit, the Authority updated the checklists to include all of the
                   required eligibility documents and planned to implement a quality control review
                   process to ensure the accuracy of its housing assistance payments’ calculations.

    Conclusion

                   The weaknesses described above occurred because the Authority lacked adequate
                   quality control procedures and sufficient understanding of HUD’s and its own
                   requirements. As a result, HUD lacked assurance that the Authority used its
                   program funds efficiently and effectively since it overpaid $27,145 ($21,546 +
                   $5,599) and underpaid $5,308 in housing assistance. In addition, the Authority
                   incorrectly processed housing assistance payments for 12 households, which

4
    24 CFR (Code of Federal Regulations) 982.305(a)5
                                                       7


                                                        
          resulted in overpayments of $2,095 and underpayments of $1,143. Further, it had
          unsupported overpayments of $198,002 ($70 + $197,906 + $26), due to
          unsupported housing assistance calculations, missing eligibility documentation,
          and incorrectly processed utility allowance payments, and allowed 13 households
          to pay $25,767 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
          adequately under the program. The Authority received $40,761 ($18,059 +
          $22,702) in program administrative fees related to the inappropriate and
          unsupported housing assistance payments for the 47 program households with
          incorrectly calculated housing assistance, 12 households with incorrectly
          processed housing assistance and utility allowance payments, and 20 program
          households with missing eligibility documentation.

          If the Authority does not correct its certification process, we estimate that it could
          overpay $13,007 and underpay $6,013 in housing assistance over the next year.
          These funds could be put 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 Acting Director of HUD’s Chicago Office of Public
          Housing require the Authority to

          1A.     Reimburse its program $39,605 ($21,546 in housing assistance payments
                  + $18,059 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 $5,308 from program funds for the
                  underpayment of housing assistance due to inappropriate calculations.

          1C.     Pursue collection from the applicable households or reimburse its program
                  $5,599 from non-Federal funds for the overpayment of housing assistance
                  due to unreported income.

          1D.     Pursue collection from the applicable landlords or reimburse its program
                  $2,095 in housing assistance from non-Federal funds for the overpayment
                  of housing assistance due to discrepancies in the housing assistance
                  payments register.


                                            8


                                              
1E.   Reimburse the appropriate landlords $1,143 in housing assistance from
      program funds for the underpayment of housing assistance due to
      discrepancies in the housing assistance payments register.

1F.   Support or reimburse its program $220,704 ($70 + $197,906 in housing
      assistance payments + $26 in utility allowances + $22,702 in associated
      administrative fees) from non-Federal funds for the unsupported
      overpayment of housing assistance due to unsupported calculations,
      missing eligibility documentation, and discrepancies in the housing
      assistance payments register.

1G.   Reimburse the appropriate households $25,767 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.

1H.   Review the remaining household files to ensure that additional households
      are not residing in units that are not affordable.

1I.   For households currently residing in units that are not affordable,
      renegotiate the rents to owner or require the households to move to units
      that are affordable.

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

1K.   Implement adequate 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 $19,020
      ($13,007 in overpayments + $6,013 in underpayments) in program funds
      is appropriately used for future payments.

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




                                9


                                 
Finding 2: The Authority Inappropriately Used Federal Funds
The Authority inappropriately used Federal funds to pay ineligible expenditures. This weakness
occurred because the Authority lacked an understanding of HUD’s requirements. As a result,
more than $31,000 in Federal funds was not available for eligible program use.


    The Authority Had Ineligible
    Expenditures

                 We reviewed the Authority’s public housing and Section 8 program disbursement
                 report, credit card statements, and petty cash expenditures for April 2011 through
                 August 2013 to determine whether funds were used for allowable program
                 expenditures. The Authority used $31,204 for 273 ineligible expenditures. The
                 ineligible expenditures included

                        Coffee,
                        Bottled water,
                        Refreshments,
                        In-town meals (for meetings),
                        Meals for tenants (including holiday parties),
                        Plaques and gift cards (for tenants and Authority employees),
                        Amusement park trip for tenants,
                        Billboard advertisements, and
                        Tent and photo booth rentals for tenant parties.

                 The Authority’s executive director said the purchases of coffee, bottled water, and
                 meals for meetings were part of the Authority’s standard practice when he was
                 hired. Therefore, he continued the practice to improve employee morale.
                 However, Office of Management and Budget (OMB) guidance at 2 CFR Part 225
                 states that costs must be necessary and reasonable for proper and efficient
                 performance and administration of Federal awards.5 Therefore, purchases of
                 coffee, bottled water, and meals for meetings should not be a standard practice but
                 should be reserved for times when such purchases are necessary.6 Further,
                 HUD’s Section 8 annual contributions contract with the Authority states that
                 program receipts may be used only to pay program expenditures to provide
                 decent, safe, and sanitary housing for eligible families.7


    Conclusion

5
  OMB’s guidance at 2 CFR Part 225 was formerly located in OMB Circular A-87.
6
  2 CFR 225 Appendix B, number 27 and HUD’s PIH Notice 2001-3.
7
  HUD’s annual contributions contract, section 11
                                                    10


                                                       
          The Authority inappropriately used Federal funds to pay 273 ineligible
          expenditures because it lacked a sufficient understanding of HUD’s requirements.
          As a result, more than $31,000 in Federal funds was not available for eligible
          program use.

Recommendations

          We recommend that the Acting Director of HUD’s Chicago Office of Public
          Housing require the Authority to

          2A.     Reimburse its program $31,204 from non-Federal funds for the ineligible
                  expenditures cited in this finding.

          2B.     Implement procedures and controls to ensure that all program funds are
                  used for eligible activities and ensure that its staff is trained and familiar
                  with HUD’s regulations regarding allowable program expenditures.




                                             11


                                                
                         SCOPE AND METHODOLOGY

We performed onsite audit work between September 2013 and April 2014 at the Authority’s
offices located at 4141 11th Avenue A, Moline, IL. The audit covered the period April 1, 2011,
through August 31, 2013, but was adjusted as determined necessary.

To accomplish our objectives, we reviewed

               Applicable laws; OMB’s guidance at 2 CFR Part 225; HUD’s regulations at 24 CFR
                Parts 5, 964, and 982; Office of Public and Indian Housing notices; and HUD
                Guidebooks 7420.10G and 7510.1.

               The Authority’s accounting records; bank statements; general ledger; 5-year and
                annual plans; annual audited financial statements for 2010, 2011, and 2012;
                computerized databases; policies and procedures; board meeting minutes for April
                2011 through August 2013; organizational chart; and program annual
                contributions contract with HUD.

               HUD’s files for the Authority.

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

Finding 1

We statistically selected a random sample of 69 files from the Authority’s 266 households that
received housing assistance from April 2011 through August 2013 (853 days). Based on our
review of the 69 files, we found that the overpayment per household was an average of $248.
Therefore, projecting this amount to the audit universe of 266 program participants, the
overpayments totaled $66,192. Deducting for statistical variance to accommodate the
uncertainties inherent in statistical sampling, we can state with a confidence interval of 95
percent that at least $30,397 in housing assistance in the universe was overpaid. Over the next
year, this amount is equivalent to an additional overpayment of $13,007 ($30,397 x 365 days /
853 days) in housing assistance.

In addition, based on our review of the 69 files, we found that the underpayment per household
was an average of $74. Therefore, projecting this amount to the audit universe of 266 program
participants, the underpayments totaled $19,923. Deducting for statistical variance to
accommodate the uncertainties inherent in statistical sampling, we can state with a confidence
interval of 95 percent that at least $14,052 in housing assistance in the universe was underpaid.
Over the next year, this amount is equivalent to an additional underpayment of $6,013 ($14,052
x 365 days / 853 days) in housing assistance.



                                                 12


                                                   
The calculation of administrative fees was based on HUD’s administrative fee per household
month for the Authority. The fees were considered inappropriately received for each month in
which 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 Authority’s disbursement report, credit card statements, and petty cash
expenditures for the period April 2011 through August 2013. For the questionable expenditures,
we reviewed the supporting documentation and interviewed the Authority’s staff to determine
whether the expenditures were eligible under the program regulations.

We relied in part on data maintained by the Authority 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 Acting Director of HUD’s Chicago Office of Public
Housing and the Authority’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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               13


                                                 
                              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.


                                                 14


                                                   
Significant Deficiency

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

               The Authority 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).

Separate Communication of
Minor Deficiencies

                We informed the Authority’s executive director and the Acting Director of
                HUD’s Chicago office of Public Housing of minor deficiencies through a
                memorandum, dated July 14, 2014.




                                             15


                                                
                                   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                     $39,605
              1B                                                              $5,308
              1C                        5,599
              1D                        2,095
              1E                                                               1,143
              1F                                       $220,704
              1G                                                              25,767
              1K                                                              19,020
              2A                      31,204

              Total                  $78,503           $220,704              $51,238


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 Authority 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
     with HUD’s requirements and the Authority’s program administrative plan. Once the


                                                16


                                                  
Authority successfully improves its controls, this will be a recurring benefit. Our
estimate reflects only the initial year of this benefit.




                                        17


                                           
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         18


                           
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2


Comment 3




Comment 4




                         19


                           
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comments 5
 and 6




Comment 7




                         20


                           
Ref to OIG Evaluation   Auditee Comments




Comment 8




Comment 9



Comment 9


Comment 10




Comment 10




                         21


                           
Ref to OIG Evaluation   Auditee Comments


              2




Comment 10




Comment 1


Comment 11

Comment 4

Comment 4
 and 9


Comment 10


Comment 10


Comment 10




                         22


                           
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 10



Comment 3



Comment 6




Comment 3




                         23


                           
                         OIG’s Evaluation of Auditee Comments

Comment 1   The Authority acknowledged that it made calculation errors as to its housing
            assistance programs, unreported income, discrepancies in its housing assistance
            payments register, and issues regarding units being unaffordable. However, it
            disagreed that it made any significant unsupported overpayments since half of the
            unsupported documentation was provided during the audit. The report
            acknowledged that the Authority was able to provide some documents that were
            initially missing from its household files during the audit. However, the
            household files that were still missing significant documentation represent nearly
            30 percent of the household files reviewed.

Comment 2   The Authority contends that the documentation issues when presented in the
            aggregate do not accurately reflect the current policies and procedures in place
            and the current files had fewer defects. We agree that the files for the more recent
            households which were admitted in the Authority’s program contained fewer
            errors. However, the Authority did not always follow its current policies and
            procedures. Further, according to HUD’s regulations at 24 CFR 982.158(e) states
            that during the term of each assisted lease, and for at least three years thereafter,
            the Authority must keep: (1) a copy of the executed lease: (2) the housing
            assistance payments contract; and (3) the application from the family. Therefore,
            documentation, including initial applications, was required to be maintained.

Comment 3   The Authority contends that it had implemented several measures to ensure
            effective and efficient program administration and proper oversight. We
            commend the Authority for implementing measures to ensure proper oversight.
            In addressing the recommendations, the Authority should provide copies of its
            actions or procedures to HUD.

Comment 4   The Authority contends that the draft report revealed no findings where the
            resident was found to be ineligible for assistance. Further, it contends that
            requiring reimbursement under the report’s assumption that such records never
            existed, is inappropriate. We disagree. The household files identified in the report
            were missing required eligibility documentation. Without the required
            documentation, HUD and the Authority lacked assurance that the households
            were eligible for the program.

Comment 5   The Authority contends that expenditures made for coffee, bottled water, and
            meals for meetings should be considered under OMB circular A-87, attachment
            B, paragraph 12 (later relocated 2 CFR part 225). Office of Management and
            Budget (OMB) guidance at 2 CFR Part 225 appendix B, number 27 states that
            costs must be necessary and reasonable for proper and efficient performance and
            administration of Federal awards. Coffee, bottled water, and meals are not
            necessary and reasonable for the proper and efficient performance of the
            Authority’s program. Further, section 11 of HUD’s Section 8 annual
                                             24


                                               
            contributions contract with the Authority states that program receipts may be used
            only to pay program expenditures to provide decent, safe, and sanitary housing for
            eligible families. In addition, the Authority should contact its local HUD field
            office when it has questions regarding or interpreting HUD and Federal
            regulations.

Comment 6   The Authority contends that the new guidance published in the Federal Register
            identified that there was confusion regarding costs incurred for employee morale
            as present in the former guidance at 2 CFR part 225. Further, the presence of
            confusion suggested that the Authority’s interpretation of the guidance was in
            good faith. Our review of the Authority’s expenditures was from April 1, 2011,
            through August 31, 2013. The Federal Register Notice 78 FR 78590, cited by the
            Authority, was implemented December 26, 2013, after the period of our review.
            We held the Authority to the requirements applicable during the period of our
            review.

Comment 7   The Authority contends that it obtained authority from the Illinois State Office of
            Public Housing to purchase billboard advertisements to assist in the recruitment
            of landlords to participate in its Section 8 program. The Authority did not provide
            a copy of the approval from the Illinois State Office of Public Housing stating its
            purchase of billboard advertisement was appropriate. In addition, the Authority
            allocated the cost to both its public housing and Section 8 programs. However,
            the Authority stated that the billboard advertisements were to attract landlords to
            its Section 8 program. According to HUD’s Public and Indian Housing Low Rent
            Technical Accounting Guidebook 7510.1G chapter 2-16, public housing operating
            funds provided by HUD are to be used only for the purposes which the funds are
            authorized. Public Housing program funds are not fungible. In addition, the
            Authority cites OMB guidance as its basis for purchasing the advertising. The
            Office of Management and Budget (OMB) guidance at 2 CFR 225 appendix B.1
            C is not applicable to the Section 8 program.

Comment 8   The Authority contends that it obtained authority from the Illinois State Office of
            Public Housing to expend funds on English proficiency classes. The Authority
            did not provide documentation, such as an agenda stating the dates, times, and
            attendees of the training. However, we are not questioning the cost of the classes.
            The Authority included an email from HUD granting approval for the classes with
            its written response to the draft report. In the email the Authority stated that it
            would allocate the costs of the meals for the training between its central office
            cost center and the appropriate public housing asset management project.
            However during our review, we determined that the Authority did not maintain a
            central office cost center, as confirmed by both the executive director and the
            controller.

Comment 9   The Authority stated that it would comply. However, it contends that it does not
            have funds to reimburse its program. The Authority should work with HUD for
                                            25


                                               
              the repayment of funds that were used for ineligible purposes as cited in this
              report. In addition, section 6a of HUD’s annual contributions contract with the
              Authority states that if HUD determines that the Authority has failed to comply
              with any obligations under the consolidated annual contributions contract, HUD
              may reduce to an amount determined by HUD (1) The amount of the HUD
              payment for any funding increment or (2) The contract authority or budget
              authority for any funding increment.

Comment 10 The Authority stated that it would comply based on its written response and
           subsequent discussions to clarify its response. The Authority should work with
           HUD to determine the appropriate actions needed to satisfy these
           recommendations.

Comment 11 The Authority contends that reimbursement will serve only to limit the Authority
           in its ability to fulfill its mission and provide affordable housing to low-income
           residents. We disagree. The audit report recommends reimbursing its program
           landlords, households, or its own program; thus benefiting its low-income
           residents.




                                              26


                                                
Appendix C

      FEDERAL AND THE AUTHORITY’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 5.240(c) state that the responsible entity must verify the accuracy of the
income information received from the family and change the amount of the total tenant payment,
tenant rent, or program housing assistance payment or terminate assistance, as appropriate, based
on such information.

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 5.603(b) state that medical expenses, including medical insurance
premiums, are anticipated expenses during the period for which annual income is computed and
which are not covered by insurance.

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


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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.

Regulations at 24 CFR 982.305(a) state that the public housing agency may not give approval for
the family of the assisted tenancy or execute a housing assistance payments contract until the
agency has determined that at the time a family initially receives tenant-based assistance for
occupancy of a dwelling unit and when the gross rent of the unit exceeds the applicable payment
standard for the family, the family share does not exceed 40 percent of the family’s monthly
adjusted income.

Regulations at 24 CFR 982.308(g)(2) state that if there are any changes in lease requirements
governing tenant or owner responsibilities for utilities or appliances, tenant-based assistance
should not be continued unless the agency has approved a new tenancy in accordance with
program requirements and has executed a new housing assistance payments contract with the
owner.

Regulations at 24 CFR 982.402(a)(1) state that the public housing agency must establish subsidy
standards that determine the number of bedrooms needed for families of different sizes and
compositions. (b)(1) The subsidy standards must provide for the smallest number of bedrooms
needed to house a family without overcrowding. (3) The subsidy standards must be applied
consistently for all families of like size and composition.

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.

Regulations at 24 CFR 982.517(b)(2)(ii) state that the public housing agency must provide a
utility allowance for tenant-paid air conditioning costs if the majority of housing units in the
market provide centrally air-conditioned units or there is appropriate wiring for tenant-installed
air conditioners.

HUD’s Housing Choice Voucher Guidebook 7420.10G, Chapter 5 section 3, states that although
full-time students 18 years of age or older are technically identified as dependents, a small
amount of their earned income will be counted. Only earned income up to a maximum of $480
per year should be counted.

HUD’s Housing Choice Voucher Guidebook 7420.10G, Chapter 5 section 5, states that
reasonable child care expenses for the care of children age 12 and younger may be deducted
from annual income if the care is necessary to enable the family member to work, look for work,
or further education.
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The Authority’s administrative plan, chapter 5, part II.B, states that the Authority will assign one
bedroom for each two persons within the household except persons of the opposite sex (other
than spouses and children under age 3), live-in aides, and children with an age difference of 3
years.

The Authority’s administrative plan, chapter 7, part II.A, states that the Authority will require
families to furnish verification of legal identity for each household member, to include
certificates of birth.

The Authority’s administrative plan, chapter 13, part I.D, states that the Authority will enter into
a contractual relationship only with the legal owner of a qualified unit. No tenancy will be
approved without acceptable documentation of legal ownership.

The Authority’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 Authority’s administrative plan, chapter 16, part IV.B, states that any amount owed to the
Authority by a participating family must be repaid by the family.

Finding 2
Regulations at 2 CFR Part 225, appendix A.C.1, 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 Part 225, appendix B.1(C), state that the only allowable advertising costs
are those that are solely for (1) the recruitment of personnel required for the performance by the
governmental unit of obligations arising under a Federal award, (2) the procurement of goods
and services for the performance of a Federal award, (3) the disposal of scrap or surplus
materials acquired in the performance of a Federal award except when governmental units are
reimbursed for disposal costs at a predetermined amount, or (4) other specific purposes necessary
to meet the requirements of the Federal award.

Regulations at 2 CFR Part 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.

Regulations at 2 CFR Part 225, appendix B.27, state that Costs of meetings and conferences, the
primary purpose of which is the dissemination of technical information, are allowable. This
includes costs of meals, transportation, rental of facilities, speakers’ fees, and other
items incidental to such meetings or conferences. But see section 14 of this appendix.


                                                 29


                                                   
Regulations at 24 CFR 964.100 state that the role of a resident council is to improve the quality
of life and resident satisfaction and participate in self-help initiatives to enable residents to create
a positive living environment for families living in public housing.

HUD’s Public and Indian Housing Notice 2001-3 states that minimal refreshment costs that are
directly related to resident meetings for allowed activities are eligible uses of resident
participation funds. Refreshment costs associated with entertainment must be prohibited under
this funding.

HUD’s Public and Indian Housing Notice 2001-3 states that activities ineligible for resident
participation funds include but are not limited to entertainment, including associated costs such
as food and beverages; the payment of fees for lobbying services; any expenditures that are
incurred contrary to HUD or OMB directives; and any cost for which funds are provided from
other HUD sources.

HUD’s Public and Indian Housing Notice 2013-21 details the allowable activities for the use of
tenant participation funds, which include reasonable refreshment and light snack costs that are
directly related to resident meetings.

HUD’s annual contributions contract, section 11, states that the housing agency must use
program receipts to provide decent, safe, and sanitary housing for eligible families in compliance
with the U.S. Housing Act of 1937 and all HUD requirements. Program receipts may be used
only to pay program expenditures.




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