oversight

The Goshen Housing Authority, Goshen, IN, Failed To Follow HUD's and Its Own Requirements Regarding the Administration of Its Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-08-14.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




                  Goshen Housing Authority
                        Goshen, IN

       Section 8 Housing Choice Voucher Program




2014-CH-1006                                 AUGUST 14, 2014
                                                        Issue Date: August 14, 2014

                                                        Audit Report Number: 2014-CH-1006




TO:            Forrest Jones, Program Center Coordinator, 5HPH

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

SUBJECT:       The Goshen Housing Authority, Goshen, IN, Failed To Follow HUD’s and Its
               Own Requirements 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 audit report of our audit of the Goshen 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 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.




                                                 
                                            August 14, 2014
                                            The Goshen Housing Authority, Goshen, IN, Failed To
                                            Follow HUD’s and Its Own Requirements Regarding the
                                            Administration of Its Program



Highlights
Audit Report 2014-CH-1006


 What We Audited and Why                     What We Found

We audited the Goshen Housing               The Authority did not always administer its Section 8
Authority’s Section 8 program as part       program in accordance with HUD’s and its own
of the activities in our fiscal year 2014   requirements. Specifically, the Authority did not
annual audit plan. We selected the          correctly calculate and maintain its net restricted
Authority based on a request from the       assets. It also failed to maintain accurate books of
U.S. Department of Housing and Urban        record to support the appropriateness of (1) credit card
Development’s (HUD) Indianapolis            expenditures and (2) employee loans. Further, the
Office of Public and Indian Housing.        Authority did not properly manage its operating bank
Our objective was to determine whether      account. As a result, HUD and the Authority lacked
the Authority administered its program      assurance that program funds were (1) available to
in accordance with HUD’s and its own        provide assistance to eligible families and (2) used
requirements.                               appropriately.

 What We Recommend                       In addition, the Authority failed to ensure that 46
                                         program units, including 19 that materially failed,
                                         complied with HUD’s housing quality standards and
We recommend that the program center its program administration plan. As a result, the
coordinator of HUD’s Indianapolis        Authority’s households were subjected to health- and
Office of Public and Indian Housing      safety-related violations, and the Authority did not
require the Authority to (1) reimburse   properly use its program funds.
its program more than $83,000 from
non-Federal funds, (2) reimburse its net Further, the Authority did not always (1) correctly
restricted assets account from non-      calculate housing assistance payments, (2) apply the
Federal funds more than $640,000 or      appropriate payment standards, (3) maintain required
the current amount owed, (3) support or eligibility documentation, and (4) ensure that assisted
reimburse its program more than          units were affordable. As a result, HUD lacked
$274,000 from non-Federal funds, (4)     assurance that the Authority used its program funds
pursue repayment or reimburse its        appropriately.
program more than $10,000 from non-
Federal funds, and (5) reimburse its
households or landlords nearly $7,000.
We also recommend that HUD consider
a declaration of substantial default
based on the issues cited in this audit
report.



                                                   
                           TABLE OF CONTENTS

Background and Objective                                                       3

Results of Audit

      Finding 1: The Authority Did Not Appropriately Manage Its Program
                 Funds                                                        4

      Finding 2: The Authority Did Not Always Ensure That Program Units
                 Complied With HUD’s Housing Quality Standards and Its
                 Own Requirements                                             10

      Finding 3: The Authority Did Not Always Comply With HUD’s and Its Own
                 Requirements for Section 8 Program Household Files           21

Scope and Methodology                                                         27

Internal Controls                                                             31

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use          33
B.    Federal and the Authority’s Requirements                                35
C.    OIG Housing Quality Standards Inspection Results                        42




                                            2
                           BACKGROUND AND OBJECTIVE

The Goshen Housing Authority was established under the laws of the State of Indiana to provide
safe and sanitary housing. The Authority is governed by a seven-member board of commissioners
appointed by the mayor of Goshen, IN. The board’s responsibilities include (1) establishing
policies under which the Authority conducts business and (2) ensuring that the Authority is
successful in achieving its mission. The board appoints the Authority’s executive director. The
executive director is responsible for carrying out the policies established by the commissioners and
managing the day-to-day operations of the Authority.

The Authority administers the Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). The 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 320 units under contract and was authorized to receive more than $1.4 million in
program funds for the fiscal year.

During 2009, 2010, and 2011, HUD designated the Authority as a troubled agency because of its
Section 8 Management Assessment Program1 scores of 62, 38, and 59, respectively. Effective July
1, 2011, the Goshen Housing Authority and the Warsaw Housing Authority entered into a
management agreement. The agreement authorized the executive director of the Warsaw Housing
Authority to administer the funds and programs of both authorities in a manner that addressed the
needs of the citizens in the surrounding areas. However, the authorities’ assets and business
activities are maintained separately. Warsaw Housing Authority and its employees are
independent contractors of the Goshen Housing Authority. As of July 23, 2014, the Warsaw
Housing Authority continued to manage the Goshen Housing Authority.

We audited the Authority based on a request from HUD’s Indianapolis Office of Public and
Indian Housing alleging misappropriation of funds by Goshen’s former management and staff
and programmatic noncompliance. 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 its net restricted assets, (2)
appropriately used Federal funds for program expenditures, (3) conducted thorough housing
quality standards inspections of its program units, (4) correctly calculated housing assistance and
utility allowance payments, and (5) obtained and maintained documents required to determine
household eligibility.




1
  The Section 8 Management Assessment Program establishes a system for HUD to measure an authority’s
performance in key Section 8 program areas and to assign performance ratings. It provides procedures for HUD to
identify an authority’s management capabilities and deficiencies in order to target monitoring and program
assistance more effectively. No later than 120 calendar days after an authority’s fiscal year end, HUD must notify
the authority in writing of its (1) rating on each indicator and (2) overall score and performance rating. The letter
should identify and require correction of any deficiencies within 45 calendar days from the date of the HUD notice.
                                                          3
                                     RESULTS OF AUDIT


Finding 1: The Authority Did Not Appropriately Manage Its Program
Funds
The Authority did not correctly calculate and maintain its net restricted assets. It also failed to
maintain accurate books of record to support the appropriateness of (1) credit card expenditures
and (2) employee loans. Further, the Authority did not properly manage its operating bank
account. These weaknesses occurred because the Authority’s former staff (1) lacked a sufficient
understanding of program requirements, (2) disregarded HUD’s requirements, and (3) failed to
implement adequate financial controls. Further, its former board lacked adequate oversight of
the Authority’s administration of its program. As a result, more than $640,000 was not available
to provide assistance to eligible families. In addition, the Authority misused nearly $16,000 in
Federal funds, and HUD and the Authority lacked assurance that more than $156,000 in Federal
funds was used appropriately.


    The Authority Did Not Correctly
    Calculate Its Net Restricted
    Assets

                 The Authority did not correctly calculate and maintain its net restricted assets. Its
                 books and records were not accurately reconciled to show the correct balance of
                 the net restricted assets.2 Further, the Authority did not maintain a separate bank
                 account for its net restricted assets.3

                 As of December 31, 2009, the Authority reported a zero balance for its net
                 restricted assets in HUD’s Voucher Management System. In a letter, dated
                 February 14, 2011, HUD recalculated the Authority’s net restricted assets balance
                 and determined that the balance should have been $547,237 as of December 31,
                 2009. On February 28, 2011, the Authority’s former acting executive director
                 responded to HUD’s letter, agreeing with the calculation. Using the balance
                 established by HUD and agreed upon by the Authority, we computed the
                 difference between the housing assistance payment funding received and the
                 Authority’s housing assistance payment expenditures reported in HUD’s system
                 for calendar years 2010 through 2011. As of June 30, 2011, the Authority’s net
                 restricted assets balance should have been $741,316. However as of June 30,
                 2011, the Authority reported a balance of $84,314 in its net restricted assets

2
 24 CFR (Code of Federal Regulations) 982.158
3
 On April 2, 2009, HUD provided guidance to executive directors and boards of commissioners reminding public
housing agencies that they must establish and maintain a separate net restricted assets account.
                                                      4


                                                        
                  account in HUD’s system. Warsaw Housing Authority’s executive director was
                  unsure of how the net restricted assets balance reported was calculated. However,
                  she believed the former fee accountant had verified the balance.

                  Using our calculated net restricted assets balance as of June 30, 2011, we
                  calculated the net restricted assets balance from July 1, 2011, through December
                  31, 2013. As of December 31, 2013, the Authority’s net restricted assets balance
                  should have been $640,283. However, the balance in HUD’s system as of
                  December 31, 2013, was $100,220. The Authority was unable to provide
                  documentation to (1) support the balance and (2) show that the net restricted
                  assets funds were maintained and available to provide assistance to eligible
                  families.

    The Authority Did Not Maintain
    Accurate Books Of Account And
    Records For Its Program

                  Contrary to HUD’s requirements, 4 the Authority did not maintain separate books
                  of record for each pooled resource in its operating account. 5 Therefore, we could
                  not identify the source of funds used to (1) pay for its credit card expenditures and
                  (2) fund employee loans.

                  The Authority Was Unable To Support Its Credit Card Expenditures

                  We reviewed all of the Authority’s credit card statements6 for the period February
                  2006 through April 2010 to determine whether funds were used for allowable
                  program expenditures. The Authority was unable to support 1,428 credit card
                  expenditures totaling $132,974. The unsupported transactions included but were
                  not limited to

                          Pet expenses (including pet food and veterinarian expenses),
                          Medical bills,
                          Prescriptions,
                          Coffee,
                          Flowers,
                          Clothing,
                          Gifts,
                          Travel (not appearing to be related to job functions),
                          In-town meals, and
4
  HUD’s Housing Choice Voucher Guidebook 7510.10G, chapter 20, section 7
5
  The Authority maintained one operating bank account for its housing assistance payments and administrative
funds, net restricted assets, State of Indiana housing assistance payments and administrative funds, rental income,
and miscellaneous funds.
6
  The Authority’s former executive director and two staff members each had their own Authority credit card.
                                                          5


                                                            
                           In-town fuel purchases.

                    The Authority made the credit card payments using its operating bank account. In
                    addition, for 673 of the 1,428 transactions totaling $64,605, the Authority was
                    unable to provide documentation such as receipts to support the purchases.
                    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

                    In addition, the Authority failed to make timely credit card payments, resulting in
                    41 late fees and finance charges totaling $3,036.

                    The Authority Was Unable To Support That Loans to Employees Were
                    Appropriate

                    From July 2005 through May 2009, five former staff members borrowed $36,252
                    from the Authority in the form of 29 separate loans. We reviewed the deposits
                    into the Authority’s operating bank account and determined that $12,899 was
                    repaid by four of the five former staff members. However, for the remaining
                    $23,353 ($36,252 - $12,899) the Authority was unable to provide support
                    showing that these funds had been repaid. The following table8 shows the
                    borrower, number of loans, loan amount, amount repaid, and balance due as of
                    June 6, 2014.

                                                 Number      Loan      Repayment       Balance
                           Borrower              of loans   amount      amount          due
                       Executive director               3     $9,200       $9,200             $0
                        Staff member A                 11      6,995        3,193          3,802
                        Staff member B                  5      2,189          225          1,964
                        Staff member C                  7     14,489          281        14,208
                        Staff member D                  3      3,379            0          3,379

                              Totals                   29    $36,252       $12,899       $23,353

    The Authority Did Not Properly
    Manage Its Operating Bank
    Account


                    From July 2008 through December 2009, it incurred $12,654 in bank overdraft
                    fees, nonsufficient fund checks, and related service charges for not having

7
    HUD’s annual contributions contract, section 11a
8
    The amounts in the table are rounded.
                                                        6


                                                         
             sufficient funds to meet its program expenditures. In addition, for 6
             nonconsecutive months, the Authority’s ending balance for the account was
             negative.

The Authority’s Former Staff
Disregarded HUD’s
Requirements and Its Former
Board Lacked Adequate
Oversight of Its Program


             The weaknesses described above occurred because the Authority’s former staff
             (1) lacked a sufficient understanding of program requirements, (2) disregarded
             HUD’s requirements, and (3) failed to implement adequate financial controls.
             Further, its former board lacked adequate oversight of the Authority’s
             administration of its program. The former board members said that they had not
             seen the letter from HUD, dated February 14, 2011, and that the person who
             signed the agreement with HUD’s net restricted balance calculation had not been
             appointed as the acting executive director.

             The former board chair said that the Authority’s credit cards were to be used for
             official work-related expenses only and he did not recall authorizing the staff to
             use the credit cards for personal expenses. In addition, he said that the former
             board did not (1) receive financial data such as accounts payable reports during its
             monthly board meetings and (2) inquire about the Authority’s finances since
             everything appeared to run smoothly. Whenever the Authority experienced
             financial issues, the former executive director would blame HUD, saying that
             there was a delay in transferring Federal funds to the Authority’s account.
             Further, the former chair said that he was not aware that employees took loans
             from the Authority.

Conclusion

             The Authority’s former staff lacked a sufficient understanding of and disregarded
             HUD’s requirements. Further, its former board of commissioners lacked adequate
             oversight of the Authority’s administration of its program. As a result, $640,283
             was not available to provide assistance to eligible families. In addition, the
             Authority misused $15,690 ($12,654 + $3,036) in program funds, and HUD and
             the Authority lacked assurance that $156,327 ($132,974 + $23,353) in program
             funds was used appropriately.




                                              7


                                                
Recommendations

          We recommend that the program center coordinator of HUD’s Indianapolis Office
          of Public and Indian Housing require the Authority to

           1A. Establish and maintain a separate net restricted assets account and
               reimburse the net restricted assets fund from non-Federal funds $640,283
               or the current amount owed and provide the results to HUD for
               verification.

           1B. Reconcile its books and accounting records to determine the sources and
               use of funds in its operating account.

           1C. Support that program funds were not used for the $132,974 ($68,369 in
               personal and inappropriate expenditures + $64,605 in unsupported
               expenditures) or reimburse its program from non-Federal funds for the
               unsupported credit card expenditures cited in this finding.

           1D. Reimburse its program $3,036 from non-Federal funds for the ineligible
               credit card late fees and finance charges.

           1E. Support that program funds used were not used to pay the $23,353 in
               employee loans or reimburse its program from non-Federal funds for the
               unsupported employee loans cited in this finding.

           1F. Reimburse its program $12,654 from non-Federal funds for the ineligible
               overdraft, nonsufficient fund checks, and service charges.

           1G. Implement policies, procedures, and adequate controls for the use of its
               credit cards.

           1H. Implement policies and procedures to ensure the accuracy of its financial
               records and reports. The policies should include but not be limited to
               accounting procedures for calculating and maintaining its net restricted
               assets and creating and maintaining separate accounting for each pooled
               resource in its operating account.

          We also recommend that the program center coordinator of HUD’s Indianapolis
          Office of Public and Indian Housing

           1I.    Inform the Deputy Assistant Secretary for Field Operations of the
                  Authority’s actions regarding the mismanagement of its program and in
                  accordance with section 15.a (1) of its contract, recommend considering a
                  declaration of substantial default (see findings 1, 2, and 3).

                                           8


                                            
    1J.   Ensure that all board members are trained and familiar with HUD’s
          regulations, including their overall roles and responsibilities related to
          internal controls and financial matters.
.




                                     9


                                      
                                RESULTS OF AUDIT


Finding 2: The Authority Did Not Always Ensure That Program Units
Complied With HUD’s Housing Quality Standards and Its Own
Requirements
The Authority did not always ensure that program units complied with HUD’s housing quality
standards and its own requirements. Of the 50 program units statistically selected for inspection,
46 did not meet minimum housing quality standards, and 19 had exigent health and safety
violations, multiple material violations that existed before the Authority’s previous inspections,
or a combination of both. The violations occurred because the Authority lacked adequate
procedures and controls to ensure that its program units complied with HUD’s housing quality
standards and its own requirements. It also failed to exercise proper supervision and oversight of
its program and inspections. As a result, nearly $36,000 in program funds was spent on units
that were not decent, safe, and sanitary. Based on our statistical sample, we estimate that over
the next year, the Authority will pay nearly $374,000 in housing assistance for units with
material housing quality standards violations.


 The Authority Passed Housing
 Units That Did Not Comply With
 HUD’s Housing Quality
 Standards or Its Own
 Requirements

               From the 134 program units that passed the Authority’s inspections from August
               2013 through January 2014, we statistically selected 50 units for inspection. The
               50 units were inspected to determine whether the Authority ensured that its
               program units complied with HUD’s housing quality standards and the
               requirements in its program administrative plan. We inspected the 50 units from
               March 11 through March 20, 2014.

               Of the 50 units inspected, 46 (92 percent) had a total of 296 housing quality
               standards violations, of which 238 violations predated the Authority’s previous
               inspections. Of these, 19 units containing 230 violations were considered to be in
               material noncompliance since they had one or more exigent health and safety
               violations that predated the Authority’s previous inspections, five or more health
               and safety violations that predated the Authority’s previous inspections, or a
               combination of both. The following table categorizes the 296 violations in the 46
               units.


                                               10


                                                  
                                                  Number of     Number of 
                    Category of violations        violations      units 
         Other interior                               61           24 
         Electrical                                   53           16 
         Fire exit                                    24           23 
         Window                                       21           13 
         Security                                     21           11 
         Floor                                        19           10 
         Interior stair‐railing                       15           12 
         Site‐neighborhood                            12            6 
         Sink                                         11            8 
         Exterior surface                             10            5 
         Smoke detector                                8            8 
         Range‐refrigerator                            8            7 
         Stair‐rail‐porch                              8            4 
         Wall                                          5            3 
         Toilet                                        3            3 
         Tub‐shower                                    3            3 
         Roof‐gutter                                   3            3 
         Heating equipment                             2            2 
         Ceiling                                       1            1 
         Paint                                         1            1 
         Food preparation‐storage                      1            1 
         Ventilation                                   1            1 
         Water heater                                  1            1 
         Plumbing‐sewer‐water supply                   1            1 
         Evidence of infestation                       1            1 
         Air quality                                   1            1 
         Other exterior                                1            1 
                             Total                   296              

        We provided our inspection results to the program center coordinator of HUD’s
        Indianapolis Office of Public and Indian Housing and Warsaw Housing
        Authority’s executive director on May 23, 2014. See appendix D for a detailed
        list of our housing quality standards inspection results.

The Inspected Units Had 61
Other Interior Violations

        Sixty-one other interior violations were present in 24 of the Authority’s units
        inspected. The following items are examples of other interior violations listed in
                                          11


                                               
           the table: drafty patio door; blade on fan missing, causing excess wobble; missing
           knob outside of door; cover on strip heaters not secure; exposed nails on door at
           foot of basement stairs; water seeping into basement; missing drain in floor;
           balcony without railing; and heater in bathroom not working.

The Inspected Units Had 53
Electrical Violations

           Fifty-three electrical violations were present in 16 of the Authority’s units
           inspected. The following items are examples of the electrical violations listed in
           the table: outlet not secured in junction box, missing junction box cover, broken
           receptacle shorting out at times, light fixture fan hanging by wires, wall light
           fixture with exposed contacts, terminated wiring outside junction box, switch
           plate broken, exposed energized wires running from light to power source, light
           missing the pull chain, multiple improper connections to tube and knob wiring,
           and overloaded electrical circuit.

The Inspected Units Had 21
Window Violations

           Twenty-one window violations were present in 13 of the Authority’s units
           inspected. The following items are examples of the window violations listed in
           the table: window sash that falls, missing mechanism to open window, gear
           broken on casement, arm on casement window that slips out of track, hole in
           window screen, window that does not lock, window pane broken, broken glass on
           window pane, and egress window that does not open completely.

           The following photographs illustrate examples of the violations noted during
           housing quality standards inspections of the 19 units that materially failed to meet
           HUD’s housing quality standards and the requirements in the Authority’s
           administrative plan.




                                            12


                                              
Unit # 35: Cover
missing, exposed
energized electrical
contacts




Unit # 8: Electric
disconnect box cover
not secure, exposing
electrical contacts




                       13


                         
Unit # 17: Storm
door, the only entrance
and exit to the unit on
the day of the
inspection, unable to
close and standing
mud and water,
causing a slipping
hazard




Unit # 28: Bathroom
lavatory not draining
properly, resulting in
stagnant water




                          14


                            
Unit # 31: Dishwasher
not working properly,
resulting in stagnant
water




Unit # 35: Exterior
view of roof caving
over a room in the
basement




                        15


                          
Unit # 35: Interior
view of roof caving
over a room in the
basement




Unit # 35: Uncovered
sump pump used as a
drain for the kitchen
sink and the bathroom
lavatory




                        16


                          
Unit # 35: Excess
trash accumulation on
enclosed back porch;
evidence of infestation




Unit # 38: Padlock on
outside of bedroom
door, causing a
trapping hazard




                          17


                            
Unit # 47: Combustible
materials too close to a
gas water heater,
causing a fire hazard




Unit # 6: Multiple
electrical connections
outside junction box




                           18


                             
Unit #28 and 29: No
handrail for steep
basement steps, posing
a falling hazard




              The Authority Lacked
              Adequate Procedures and
              Controls

                           The Authority did not always ensure that program units complied with HUD’s
                           housing quality standards and its own requirements because it lacked adequate
                           procedures and controls to ensure that its program units met HUD’s and its own
                           requirements. It also failed to exercise proper supervision and oversight of its
                           program and inspections. The Warsaw Housing Authority’s executive director
                           stated that while its inspectors had been trained to conduct thorough housing
                           quality standards inspections, there was a percentage of human error or personal
                           interpretation of HUD’s requirements. In addition, she met with the inspectors
                           and provided a memorandum with common errors and inconsistencies noted
                           during the audit.

              Conclusion

                           The weaknesses described above occurred because the Authority lacked adequate
                           procedures and controls to ensure that its program units complied with HUD’s
                           and its own requirements. As a result, the Authority’s households were subjected
                           to health- and safety-related violations, and the Authority did not properly use its
                           program funds when it failed to ensure that the units complied with HUD’s
                           housing quality standards and its own requirements. The Authority disbursed
                           $32,769 in program housing assistance payments for the 19 units that materially
                           failed to meet HUD’s housing quality standards and received $2,776 in program
                           administration fees.

                                                            19


                                                              
                    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 enforce HUD’s housing quality standards.

                    If the Authority implements adequate procedures and controls for its unit
                    inspections to ensure compliance with HUD’s housing quality standards and its
                    own requirements, we estimate that HUD will avoid spending $373,661 in future
                    housing assistance payments on units that are not decent, safe, and sanitary over
                    the next year.9

    Recommendations

                    We recommend that the program center coordinator of HUD’s Indianapolis Office
                    of Public and Indian Housing require the Authority to

                      2A. Certify, along with the owners, that the applicable housing quality
                          standards violations have been corrected for the 46 units cited in this
                          finding.

                      2B. Reimburse its program $35,545 from non-Federal funds ($32,769 for
                          program housing assistance + $2,776 in associated administrative fees) for
                          the 19 units that materially failed to meet HUD’s housing quality
                          standards and its own requirements.

                      2C. Implement adequate procedures and controls to ensure that all units meet
                          HUD’s housing quality standards and its own requirements to prevent
                          $373,661 in program funds from being spent on units that do not comply
                          with HUD’s requirements over the next year. The procedures and controls
                          should include but not be limited to providing feedback to the inspectors
                          to correct recurring inspection deficiencies, inspectors are properly trained
                          and familiar with HUD’s and its own requirements, and inspectors
                          consistently conduct accurate and complete inspections.

                    We also recommend that the program center coordinator of HUD’s Indianapolis
                    Office of Public and Indian Housing

                      2D. Review the Authority’s Section 8 Management Assessment Program
                          results and consider revising its designation and if warranted, conduct a
                          confirmatory review of the Authority’s scoring process.




9
    Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.
                                                           20


                                                             
                                         RESULTS OF AUDIT


Finding 3: The Authority Did Not Always Comply With HUD’s and Its
Own Requirements for Section 8 Program Household Files
The Authority did not always 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 housing assistance payments, (2) apply appropriate payment standard, (3) maintain
required eligibility documentation, and (4) ensure that assisted units were affordable. The
weaknesses 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 $147,000 and underpaid nearly $4,000 in housing assistance. Further, the
Authority received more than $13,000 in administrative fees for the inappropriate housing
assistance payments. Based on our statistical sample, we estimate that over the next year, the
Authority will overpay more than $27,000 and underpay more than $3,500 in housing assistance.


     The Authority Miscalculated
     Housing Assistance Payments

                    We reviewed one statistically selected10 certification for 75 of the Authority’s
                    program household files to determine whether the Authority correctly calculated
                    housing assistance payments for the period July 2011 through September 2013.
                    Our review was limited to the information maintained by the Authority in its
                    household files.

                    For the 75 certifications, 36 (48 percent) had incorrectly calculated housing
                    assistance. The 36 certifications contained 1 or more of the following
                    deficiencies:

                            15 certifications had incorrect utility allowances,
                            11 certifications had income incorrectly calculated,
                            11 certifications had incorrect payment standards,
                            6 certifications had medical expenses incorrectly calculated,
                            1 certification did not prorate the housing assistance payment for an
                             ineligible family member, and
                            1 certification had an incorrect minimum rent.



10
     Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit report.

                                                           21


                                                              
                 In addition, of the 75 certifications reviewed, 35 contained errors that had no
                 impact on the housing assistance calculations. The errors included incorrect
                 utility allowances, income, asset values, payment standards, minimum rent,
                 medical expenses, disability status, and structure types.

                 Further, of the 75 household files reviewed, 4 contained documentation showing
                 that the households had reported, unreported, or underreported income. However,
                 contrary to the Authority’s administrative plan, it failed to seek repayment11 for
                 the overpaid subsidy for two households and failed to process an interim
                 certification12 when income was reported for the remaining two households. The
                 Authority’s 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. It also stated that families would be required to report increases in
                 earned income within 10 business days and the Authority would conduct an
                 interim reexamination.

                 Lastly, 3 of the 75 households were living in shared housing. Contrary to HUD’s
                 guidebook,13 the Authority allowed each household to receive a full one-bedroom
                 payment standard. HUD’s guidebook states that the payment standard for shared
                 housing is the lower of the payment standard for the family unit size or the pro
                 rata share of the payment standard for the shared housing unit.

                 Therefore, the Authority did not properly use program funds when it failed to
                 correctly calculate housing assistance payments for the 37 households in
                 accordance with HUD’s requirements and its administrative plan. The errors
                 resulted in $12,221 in overpayments and $3,973 in underpayments of housing
                 assistance. Further, the Authority did not take action on reported or unreported
                 income documented in four household files, which resulted in overpayments of
                 $12,92714 in housing assistance. The Authority also allowed three households to
                 receive an inappropriate payment standard, resulting in overpayments of $9,420 in
                 housing assistance.

                 Because the housing assistance was incorrectly calculated, the Authority
                 inappropriately received $7,780 in administrative fees. If the Authority does not
                 correct its certification process, we estimate that it could overpay $27,211 and
                 underpay $3,553 in housing assistance over the next year.15




11
   Authority’s administrative plan, chapter 14, part II.B
12
   Authority’s administrative plan, chapter 11, part II.C
13
   HUD’s Guidebook 7420.10G, chapter 17, section 17.5
14
   This amount represents the total of the $10,369 overpayment due to unreported income and the $2,558
overpayment due to reported income not captured by the Authority.
15
   Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.
                                                        22


                                                           
     The Authority Lacked
     Documentation To Support
     Households’ Eligibility

                  We reviewed 75 of the Authority’s household files to determine whether the
                  Authority maintained the required documentation to support the households’
                  eligibility for the program. Of the 75 household files reviewed, 23 (31 percent)
                  were missing 1 or more documents needed to determine household eligibility.
                  The 23 household files were missing the following eligibility documentation:

                         14 files were missing copies of the original household applications,
                         10 files were missing requests for tenancy approval,
                         8 files were missing lead-based paint certifications,
                         6 files were missing a housing assistance payments contract,
                         4 files were missing executed leases,
                         3 files were missing citizenship declarations, and
                         1 file was missing an appropriate rent reasonableness determination.

                  Because the 23 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 $112,571 in unsupported housing assistance for
                  the households. In addition, because there was no support showing that the
                  Authority ensured that the household members were eligible for the program in
                  accordance with HUD’s requirements, $5,508 in administrative fees received by
                  the Authority was unsupported.

     The Authority Allowed a
     Household To Move Into an
     Unaffordable Unit

                  The Authority allowed one household to move into a unit that was not affordable.
                  For this household, the contribution to rent exceeded the initial maximum of 40
                  percent of the 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 a family initially occupies a unit.16 The household
                  made payments toward rent totaling $3,006 in excess of 40 percent of its adjusted
                  monthly income.




16
     24 CFR 982.305(a)5
                                                  23


                                                     
     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 Warsaw Housing Authority’s deputy
                    director stated that the errors occurred due to the complexity of the issues with the
                    former Authority’s files. For example, the Authority used utility allowance
                    schedules that had not been updated and were more than 10 years old. She also
                    stated that she had met with the program staff to discuss the errors and
                    inconsistencies noted during the audit.

     Conclusion

                    The weaknesses described above occurred because the Authority lacked adequate
                    quality control 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 $34,568 ($12,221 + $12,927 + 9,420)
                    and underpaid $3,973 in housing assistance. In addition, it had unsupported
                    overpayments of $112,571 due to missing eligibility documentation and allowed
                    one household to pay $3,006 in excess of 40 percent of its adjusted monthly
                    income for a unit that was not affordable.

                    In accordance with 24 CFR 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 $13,288 ($7,780 + $5,508) in program administrative fees
                    related to the inappropriate and unsupported housing assistance payments for the
                    37 program households with incorrectly calculated housing assistance and 23
                    program households with missing eligibility documentation.

                    If the Authority does not correct its certification process, we estimate that it could
                    overpay $27,211 and underpay $3,553 in housing assistance over the next year.17
                    Therefore, 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.




17
     Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.
                                                           24


                                                             
Recommendations

          We recommend that the program center coordinator of HUD’s Indianapolis Office
          of Public and Indian Housing require the Authority to

           3A. Reimburse its program $20,001 ($12,221 in housing assistance payments
               + $7,780 in associated administrative fees) from non-Federal funds for the
               overpayment of housing assistance due to inappropriate calculations of
               housing assistance payments.

           3B. Reimburse the appropriate households $3,973 from program funds for the
               underpayment of housing assistance due to inappropriate calculations of
               housing assistance payments.

           3C. Pursue collection from the applicable households or reimburse its program
               $10,369 from non-Federal funds for the overpayment of housing
               assistance due to unreported income.

           3D. Reimburse its program $2,558 from non-Federal funds for the
               overpayment of housing assistance due to not capturing income increases
               reported by the households.

           3E. Reimburse its program $9,420 from non-Federal funds for the
               overpayment of housing assistance due to allowing households a one-
               bedroom payment standard each for a shared-housing unit.

           3F. Support or reimburse its program $118,079 ($112,571 in housing
               assistance payments + $5,508 in associated administrative fees) from non-
               Federal funds for the unsupported overpayment of housing assistance cited
               in this finding.

           3G. Reimburse the appropriate household $3,006 from non-Federal funds for
               the rent amount paid in excess of 40 percent of its adjusted monthly
               income for the unit that was not affordable.

           3H     Review the remaining household files to ensure that additional households
                  are not residing in units that are not affordable.

           3I.    For households currently residing in units that are not affordable,
                  renegotiate the rent(s) to owner or require the households to move to units
                  that are affordable.

           3J.    Ensure that its staff is trained and familiar with HUD’s regulations and the
                  Authority’s policies.

                                           25


                                             
3K. 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 $30,764 ($27,211 in overpayments
    + $3,553 in underpayments) in program funds is appropriately used for
    future payments.

3L. 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.




                              26


                                
                         SCOPE AND METHODOLOGY

We performed our onsite audit work between November 2013 and May 2014 at the Authority’s
offices located at 109 West Catherine Street, Milford, IN. The audit covered the period July 1,
2011, through September 30, 2013, but was adjusted as determined necessary.

To accomplish our objective, we reviewed

               Applicable laws; HUD’s regulations at 24 CFR Parts 5 and 982; public and Indian
                housing notices; HUD Guidebooks 7510.1 and 7420.10G; and HUD’s letter to
                executive directors and chairs of public housing authorities’ boards of
                commissioners, dated April 2, 2009.

               The Authority’s accounting records; bank statements; general ledger; 5-year and
                annual plans; annual audited financial statements for 2008, 2009, and 2010;
                computerized databases; policies and procedures; board meeting minutes for July
                2011 through September 2013; organizational chart; and program annual
                contributions contract with HUD.

               HUD’s files for the Authority.

We also interviewed the Authority’s employees, HUD’s staff, the mayor of Goshen, past and
current board members, and the program households.

Finding 1

We reviewed HUD’s program annual payment schedule, the Authority’s bank statements, and its
Voucher Management System reports to compute the difference between the housing assistance
payment funding the Authority received and the Authority’s housing assistance payment
expenses reported in the system for calendar years 2010 through 2013. We reviewed the
Authority’s net restricted assets balance from January 1, 2010, through June 30, 2011, to
determine whether the former staff of the Authority correctly calculated the net restricted assets
reported to HUD. We used the December 31, 2009, net restricted assets balance, which was
calculated by HUD and agreed upon by the Authority, as a baseline for our calculation. We
continued our review through December 31, 2013, to determine what the current balance should
have been at the end of calendar year 2013.

We reviewed all credit card statements and available receipts maintained by the former staff of
the Authority for the period February 2006 through April 2010 to determine whether the credit
card expenditures were used for allowable program expenditures and were adequately supported.
We reviewed the promissory notes, deposit slips, and bank statements maintained by the former
staff of the Authority for the period 2006 through 2009 to determine whether all short-term loans
provided to the former staff of the Authority were repaid.

                                                 27


                                                   
We reviewed the bank statements maintained by the former staff of the Authority for the period
October 2007 through June 2011 to determine whether the Authority maintained an appropriate
balance of funds to cover its expenditures.

Finding 2

We statistically selected a stratified random sample of 50 of the Authority’s program units to
inspect from the 134 units that passed the Authority’s inspections from August 2013 through
January 2014. The 50 units were inspected to determine whether the Authority ensured that its
program units complied with HUD’s housing quality standards and the requirements in its
program administrative plan. After our inspections, we determined whether each unit passed,
failed, or materially failed. Materially failed units were those that had one or more exigent
health and safety violations that predated the Authority’s previous inspections, five or more
health and safety violations that predated the Authority’s previous inspections, or a combination
of both. Also, for each unit, we considered the severity of the violations, and we may have
categorized an inspection, which, according to the stated standards, would have resulted in the
inspection’s being categorized as a material failure, as failed. All units were ranked, and we
used auditors’ judgment to determine the material cutoff point.

Based on our review of the statistically selected sample, we found that 19 of the units had
material failures in housing quality standards or the requirements in the Authority’s
administrative plan, although they had recently passed the Authority’s inspection. Using a
confidence interval of 95 percent, we projected that at least 26.43 percent of the 134 units that
passed the Authority’s inspection during our audit scope had material violations. Extending this
rate to the 273 active units on the Authority’s program, we can say that at least 72 units would
not have complied with the housing quality standards or the requirements in the Authority’s
administrative plan, despite having passed the Authority’s inspection.

Based on the average housing assistance paid for the 50 properties, less a deduction to account
for a statistical margin of error, we can say with a confidence interval of 95 percent that the
amount of monthly housing assistance spent on inadequate units was $114.06. Extending this
amount to the 273 active units on the Authority’s program, monthly housing assistance payments
of at least $31,138 were made for inadequate units. This amounts to $373,661 in housing
assistance paid per year for substandard units.

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 for units that did not meet HUD’s minimum
housing quality standards and the Authority’s own requirements. If the questioned period was
less than a full month, we limited the administrative fee to a daily rate, based on the number of
days during which the unit did not comply with HUD’s requirements.

Finding 3

                                                28


                                                  
We statistically selected a stratified random sample of 80 monthly housing assistance payments
from the Authority’s 6,077 monthly disbursements to landlords from October 2011 through
September 2013 (24 months). The 80 monthly payments were for 75 households and were
calculated with 75 certifications. Five of the households reviewed had two monthly housing
assistance payments selected that occurred during the same certification; therefore, we reviewed
80 (75+5) monthly housing assistance payments. Based on the 80 randomly selected housing
assistance payments from the audit universe of 6,077 housing assistance payments, we found that
the overpayment per household was an average of $17.76. Therefore, projecting this amount to
the audit universe of 6,077 housing assistance payments, the overpayments totaled $107,902.
Deducting for statistical variance to accommodate the uncertainties inherent to statistical
sampling, we can state with a confidence interval of 95 percent that at least $54,421 in housing
assistance in the universe was overpaid. Over the next year, this is equivalent to an additional
overpayment of $27,211 ($54,421 x 12 months / 24 months) in housing assistance. 

In addition, based on the 80 randomly selected housing assistance payments, we found that the
underpayment per household was an average of $5.80. Therefore, projecting this amount to the
audit universe of 6,077 housing assistance payments, the underpayments totaled $35,228.
Deducting for statistical variance to accommodate the uncertainties inherent to statistical
sampling, we can state with a confidence interval of 95 percent, that at least $7,105 in housing
assistance in the universe was underpaid. Over the next year, this is equivalent to an additional
underpayment of $3,553 ($7,105 x 12 months / 24 months) in housing assistance.

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 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.

We relied in part on data maintained by the Authority. 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 program center coordinator of HUD’s Indianapolis Office of Public and Indian
Housing, the Warsaw Housing Authority’s executive director, and the Goshen Housing
Authority’s board during the audit.

We provided our discussion draft audit report to HUD’s staff, Warsaw Housing Authority’s
executive director, and the Goshen Housing Authority’s board on July 2, and July 3, 2014,
respectively. We held an exit conference with the Warsaw Housing Authority’s executive
director and the Goshen Housing Authority’s board on July 16, 2014. We asked the Warsaw
Housing Authority’s executive director and the Goshen Housing Authority’s board to provide
written comments to our discussion draft audit report by July 18, 2014. As of July 22, 2014,
neither the executive director, nor the board provided written comments to the report.

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
                                                29


                                                  
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.




                                               30


                                                 
                              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.

                                                 31


                                                   
Significant Deficiencies

             Based on our review, we believe that the following items are significant deficiencies:

                   The Authority lacked adequate financial controls to ensure that program
                    funds were appropriately tracked, maintained, and available to provide
                    assistance to eligible families (see finding 1).

                   The Authority lacked adequate procedures and controls to ensure that its
                    program units complied with HUD’s minimum housing quality standards
                    and its own requirements (see finding 2).

                   The Authority lacked adequate procedures and controls to ensure compliance
                    with HUD’s and its own requirements regarding (1) the calculation of
                    housing assistance payments and (2) maintenance of required eligibility
                    documentation (see finding 3).




                                              32


                                                 
                                   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                                                           $640,283
              1C                                        $132,974
              1D                       $3,036
              1E                                          23,353
              1F                       12,654
              2B                       35,545
              2C                                                             373,661
              3A                       20,001
              3B                                                               3,973
              3C                       10,369
              3D                        2,558
              3E                        9,420
              3F                                         118,079
              3G                                                              3,006
              3K                                                             30,764
             Total                    $93,583           $274,406         $1,051,687

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 this instance, if the Authority implements our

                                                33


                                                  
recommendations, it will (1) ensure that funds are available to provide assistance to
eligible families (2) cease to incur program costs for units that are not decent, safe, and
sanitary, (3) 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 Authority
successfully improves its controls, this will be a recurring benefit. Our estimate reflects
only the initial year of this benefit.




                                         34


                                           
Appendix B

      FEDERAL AND THE AUTHORITY’S REQUIREMENTS

Finding 1
Regulations at 24 CFR 5.109(h) state that if a State or local government voluntarily contributes
its own funds to supplement federally funded activities, the State or local government has the
option to segregate the Federal funds or commingle them. However, if the funds are
commingled, the requirements of this section apply to all of the commingled funds.

Regulations at 24 CFR 982.152 state that administrative fees may be used only to cover costs
incurred to perform administrative responsibilities for the program in accordance with HUD
regulations and requirements.

Regulations at 24 CFR 982.153 state that the public housing authority must comply with the
consolidated annual contributions contract, the application, HUD regulations and other
requirements, and the public housing authority’s administrative plan.

Regulations at 24 CFR 982.158(a) state that the public housing authority must maintain complete
and accurate accounts and other records for the program in accordance with HUD requirements
in a manner that permits a speedy and effective audit.

HUD’s Public and Indian Housing Notice 2006-3, section 9, states that starting January 1, 2005,
excess budget authority disbursed to the public housing authorities that is not used to make
housing assistance payments will become part of the undesignated fund balance account in
accordance with generally accepted accounting principles and may be used to assist additional
families only up to the number of units under contract. HUD will closely monitor both overuse
and underuse of funds and will take appropriate action to ensure that appropriated funds are used
to serve as many families as possible up to the number of vouchers authorized under the
program. The undesignated fund balance account also includes funds previously maintained in
the annual contributions contract reserve account, including but not limited to interest income on
housing assistance payment investments, Family Self-Sufficiency program escrow forfeitures,
and fraud recoveries. A housing authority must be able to differentiate housing assistance
payment equity (budget authority in excess of housing assistance payment expenses) from
administrative fee equity (administrative fees earned in excess of administrative costs).

HUD’s Public and Indian Housing Notice 2010-7, section 8, states that housing assistance
payment funding, which includes net restricted assets, may be used only for eligible housing
assistance payment needs of rent, Family Self-Sufficiency program escrow payments, or utility
reimbursements. Housing assistance payment should not under any circumstances be used for
any other purpose, such as to cover administrative expenses, or be loaned, advanced, or
transferred (referred to as operating transfers due to or due from) to other component units or
                                                35


                                                  
other programs such as low-rent public housing. Use of housing assistance payments for any
purpose other than eligible housing assistance payment needs is a violation of law, and such
illegal uses or transfers will result in sanctions and a possible breach of the annual contributions
contract. In instances in which a public housing authority is found to have misappropriated
housing assistance payment funds by using the funds for any purpose other than valid housing
assistance payment expenses for units up to the baseline, HUD will require the immediate return
of the funds of the housing assistance payment. HUD may take action against a public housing
authority or any party that has used housing assistance payment funds for non-housing assistance
payment purposes.

HUD’s Public and Indian Housing Notice 2010-16, section 3(a), states that

      Net restricted assets reported in HUD’s Voucher Management System must be updated
       through the end of each reporting month.
      Net restricted assets are the total of housing assistance payments received minus total
       housing assistance payment expenses for eligible units leased in a calendar year.
      HUD’s formula for calculating the net restricted assets is the total of
       1. The net restricted assets balance as of the end of the most recent public housing
           authority fiscal yearend, plus
       2. Housing assistance payment funding received since the most recent public housing
           authority fiscal yearend through the last day of the month being reported, plus
       3. All interest earned, fraud recovery, and Family Self-Sufficiency program forfeitures
           since the most recent public housing authority fiscal yearend through the last day of
           the month being reported, minus
       4. Housing assistance payment expenses incurred since the most recent public housing
           authority fiscal yearend through the last day of the month being reported.

HUD’s Public and Indian Housing Notice 2012-15 states that administrative fees must be used
only for program expenses. These expenses include but are not limited to (1) waiting list
management and updates; (2) preference verifications; (3) eligibility determinations; (4) intake
and briefings; (5) voucher issuances; (6) owner outreach efforts; (7) unit inspections; (8) rent
negotiations and reasonableness determinations; (9) annual and interim income reexaminations;
(10) tenant fraud investigations and hearings; (11) processing subsequent moves, including
portability moves outside the public housing authority’s jurisdiction; (12) the costs associated
with making housing assistance payments to owners; and (13) monthly reporting in HUD
systems.

HUD’s consolidated annual contributions contract, section 11a, states that the Authority 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.

Section 11b of the contract states that the Authority must not make any program expenditures,
except in accordance with the HUD-approved budget estimate and supporting data for its
program.
                                                36


                                                   
Section 14 of the contract states that (a) the Authority must maintain complete and accurate
books of account and records for a program. The books and records must be in accordance with
HUD requirements and must permit a speedy and effective audit. (b) The Authority must furnish
HUD such financial and program reports, records, statements, and documents at such times, in
such form, and accompanied by such supporting data as required by HUD.

Section 15 of the contract, subsections a(1) and a(4), state that upon written notice to the
Authority, HUD may take possession of all or any Authority property, rights, or interests in
connection with a program, including funds held by a depositary, program receipts, and rights or
interests under a contract for housing assistance payments with an owner, if HUD determines
that the Authority has failed to comply with any obligations under this consolidated annual
contributions contract or the Authority has made any misrepresentation to HUD of any material
fact.

HUD’s letter to executive directors and chairs of public housing authorities’ boards of
commissioners, dated April 2, 2009, stated that the information in the letter was a reminder that
effective January 1, 2005, each authority was required to establish and maintain its own housing
assistance payment net restricted account. Any housing assistance payment funds from the year
that were not used for eligible program purposes were required to be deposited by the authority
into its housing assistance payment net restricted assets account. Further, net restricted assets
could not be used to support vouchers in excess of the authority’s baseline units for
administrative expenses, development costs, or any other costs of the agency, and the
inappropriate use of funds might constitute a default under the annual contributions contract.

HUD’s letter to executive directors, dated February 17, 2012, stated that since the net restricted
assets balance comprises the resources available to support an agency’s Housing Choice Voucher
program, it was critical that the housing authority have a precise and accurate understanding of the
agency’s current net restricted assets balance. The housing authorities were expected to have
sufficient resources in cash and investments to support the full net restricted assets value, and it was
critical that the calculated net restricted assets balance be accurate. If the housing authority did not
have the cash and investments to support the December 2011 net restricted assets balance, the
housing authority was required to immediately notify the financial analyst of that situation and report
the cash and investments the housing authority did have to support the net restricted assets balance.

HUD’s Low-Rent Technical Accounting Guidebook 7510.1, chapter 1, section I-2, states that it
is the responsibility of the housing agency to maintain complete and accurate records of all
financial management functions. These records must be maintained in such a way that will (1)
provide an effective system of internal control to safeguard cash and other assets; (2) provide
budgetary control over the various programs; (3) provide timely, accurate, and complete
financial information for management decision making; (4) provide the housing agency with
financial data needed to prepare required HUD reports; and (5) permit a timely and effective
audit.



                                                  37


                                                     
HUD’s Housing Choice Voucher Guidebook 7510.10G, chapter 20, section 7, states that the
authority may pool deposits for different programs or it may establish a separate bank account
for the Housing Choice Voucher program. If the deposits are pooled, the authority must
maintain separate accounting for each pooled resource.

The Authority’s former credit card policy states that receipts are required for transactions
involving the use of the credit cards of the Authority. Credit cards will be kept by the office
manager and made available to employees who are traveling on Authority business. All
transactions must be verified with a receipt. Any transaction that occurs while the credit card is
being used by any individual that is not verified by receipt will be the responsibility of the
employee to repay on or before the date the employee receives his or her next pay check.

The Authority’s former employee loan policy states that the Authority recognizes the occasional
need of its employees for emergency funds in cases of personal emergency. This policy defines
the authority of the office manager and executive director to create a mechanism to issue short-
term (up to 1 year) emergency loans to eligible employees. This policy applies to all staff
members who may have financial hardship emergency needs.

      The promissory note should be a legal obligation of the employee.
      An eligible employee may borrow up to 10 percent of his or her annual salary with a
       minimum of $100 and a maximum of $3,000. The total amount due to the Authority
       from all loan programs’ emergency loans and any other programs may not exceed
       $3,000. Employees are limited to one loan per year and three loans during their
       employment at the Authority.

Finding 2
Regulations at 24 CFR 982.401 requires that all Section 8 program housing meet the housing
quality standards performance requirements both at commencement of assisted occupancy and
throughout the tenancy.

Regulations at 24 CFR 982.404(a)(1) state that the owner must maintain the unit in accordance
with housing quality standards. (2) If the owner fails to maintain the dwelling unit in accordance
with housing quality standards, the public housing authority must take prompt and vigorous
action to enforce the owner obligations. Public housing authority remedies for such breach of
the housing quality standards include termination, suspension or reduction of housing assistance
payments, and termination of the housing assistance payments contract. (3) The public housing
authority must not make any housing assistance payments for a dwelling unit that fails to meet
the housing quality standards, unless the owner corrects the defect within the period specified by
the public housing authority and the public housing authority verifies the correction. If a defect
is life threatening, the owner must correct the defect within no more than 24 hours. For other
defects, the owner must correct the defect within no more than 30 calendar days (or any public
housing authority-approved extension). (4) The owner is not responsible for a breach of the
housing quality standards that is not caused by the owner and for which the family is responsible.

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(However, the public housing authority may terminate assistance to a family because of a
housing quality standards breach caused by the family.)

Regulations at 24 CFR 982.404(b)(1) state that the family is responsible for a breach of the
housing quality standards that is caused by any of the following: (ii) the family fails to provide
and maintain any appliances that the owner is not required to provide but which are to be
provided by the tenant, or (iii) any member of the household or guest damages the dwelling unit
or premises (damages beyond ordinary wear and tear). (2) If a housing quality standards breach
caused by the family is life threatening, the family must correct the defect within no more than
24 hours. For other family-caused defects, the family must correct the defect within no more
than 30 calendar days (or any public housing authority-approved extension). (3) If the family
has caused a breach of the housing quality standards, the public housing authority must take
prompt and vigorous action to enforce the family obligations. The public housing authority may
terminate assistance for the family in accordance with section 982.552.

The Authority’s administrative plan, chapter 8, section 8-I.B, states that

      Dryer vents are required to be rigid pipe, taped, not screwed at joints, and secured to the
       structure when the dryer outlet is lower than the vent outlet;
      Any unit with a second level or higher living area is required to have a rope ladder or
       rope for a means of fire escape when a roof escape is not available;
      All ungrounded outlets must be grounded or replaced with a ground fault circuit
       interrupter and labeled nongrounded if a ground fault circuit interrupter is used;
      No locks are allowed where the use of a key to exit a unit is required;
      No locks requiring a key will be installed on sleeping rooms or any lock on the outside of
       an interior room that could result in locking someone in a room;
      All sink and toilet water lines must have a shut-off valve, unless faucets are wall
       mounted;
      A handrail is required on at least one side of a stairway where three or more risers are
       consecutive; and
      One screen in good condition is required on one operable window in each room when
       central air conditioning is not available to the unit.

Finding 3
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 United States passport or other appropriate documentation.

                                                 39


                                                   
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
that are not covered by insurance.

Regulations at 24 CFR 982.54(a) 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 the agency’s 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 (5) 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 982.402(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.

HUD’s Housing Choice Voucher Guidebook 7420.10G, chapter 6, section 3, states that for
families that include both members who are citizens or have eligible immigration status and
members who do not have eligible immigration status, the amount of assistance is prorated,
based on the percentage of household members who are citizens or documented eligible
immigrants.

Chapter 17, section 5, of the guidebook states that the payment standard for a family in shared
housing is the lower of the payment standard for the family unit size or the pro rata share of the
payment standard for the shared housing unit size. The pro rata share is calculated by dividing
the number of bedrooms available for occupancy by the assisted family in the private space by
the total number of bedrooms in the unit.

The Authority’s administrative plan, chapter 5, section 5-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 5) and live-in aides.



                                                40


                                                   
Chapter 6, section 6-III.A, of the Authority’s plan states that the Authority does not have a
minimum rent.

Chapter 6, section 6-III.C, of the Authority’s plan states that if the amount on the payment
standard schedule is decreased during the term of the housing assistance payments contract, the
lower payment standard generally will be used beginning on the effective date of the family's
second regular reexamination following the effective date of the decrease in the payment
standard. If the payment standard is increased during the term of the housing assistance
payments contract, the increased payment standard will be used to calculate the monthly housing
assistance payment for the family beginning on the effective date of the family’s first regular
reexamination on or after the effective date of the increase in the payment standard.

Chapter 11, section 11-II.C, of the Authority’s plan states that families are required to report all
increases in earned income, including new employment, within 10 days of the date the change
takes effect. The Authority will conduct interim reexaminations for families.

Chapter 11, section 11-II.D, of the Authority’s plan states that if the family share of rent is to
increase, the increase generally will be effective on the first of the month following 30 days’
notice to the family. If a family fails to report a change within the required timeframes or fails to
provide all required information within the required timeframes, the increase will be applied
retroactively to the date it would have been effective had the information been provided on a
timely basis. The family will be responsible for any overpaid subsidy and may be offered a
repayment agreement. The decrease will be effective on the first day of the month following the
month in which the change was reported and all required documentation was submitted. In cases
in which the change cannot be verified until after the date the change would have become
effective, the change will be made retroactively.

Chapter 14, section 14-II.B, of the Authority’s plan 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
may but is not required to offer the family a repayment agreement. If the family fails to repay the
excess subsidy, the Authority will terminate the family’s assistance.




                                                 41


                                                    
          Appendix C

                  OIG HOUSING QUALITY STANDARDS INSPECTION
                                  RESULTS

                 Total number                                       Total violations
                                  Total number     Total number                        Total number   Total number
Identification    of units that                                         for the
                                   of units that    of units that                         of HQS      of preexisting
  Number           materially                                          materially
                                       failed          passed                           violations      violations
                      failed                                          failed units
      1                 x                                                  30              30              27
      2                 x                                                  27              27              16
      3                 x                                                  22              22              21
      4                 x                                                  21              21              15
      5                 x                                                  16              16              14
      6                 x                                                  14              14              14
      7                 x                                                  13              13              11
      8                 x                                                  13              13              7
      9                 x                                                  10              10              9
     10                 x                                                   8               8              8
     11                 x                                                   8               8              7
     12                 x                                                   8               8              8
     13                 x                                                   7               7              6
     14                 x                                                   7               7              7
     15                 x                                                   6               6              6
     16                 x                                                   6               6              4
     17                 x                                                   6               6              4
     18                 x                                                   5               5              5
     19                 x                                                   3               3              3
     20                                 x                                   0              10              5
     21                                 x                                   0               6              4
     22                                 x                                   0               4              4
     23                                 x                                   0               3              2
     24                                 x                                   0               3              2
     25                                 x                                   0               3              2
     26                                 x                                   0               3              1
     27                                 x                                   0               3              2




                                                         42


                                                            
                  OIG HOUSING QUALITY STANDARDS INSPECTION
                               RESULTS (CONT.)
                 Total number                                       Total violations
                                  Total number     Total number                        Total number   Total number
Identification    of units that                                         for the
                                   of units that    of units that                         of HQS      of preexisting
  Number           materially                                          materially
                                       failed          passed                           violations      violations
                      failed                                          failed units
     28                                 x                                   0               3               2
     29                                 x                                   0               3               3
     30                                 x                                   0               2               0
     31                                 x                                   0               2               2
     32                                 x                                   0               2               2
     33                                 x                                   0               2               2
     34                                 x                                   0               2               1
     35                                 x                                   0               2               2
     36                                 x                                   0               2               1
     37                                 x                                   0               2               2
     38                                 x                                   0               1               0
     39                                 x                                   0               1               1
     40                                 x                                   0               1               1
     41                                 x                                   0               1               1
     42                                 x                                   0               1               1
     43                                 x                                   0               1               1
     44                                 x                                   0               1               1
     45                                 x                                   0               1               0
     46                                 x                                   0               1               1
     47                                                  x                  0               0               0
     48                                                  x                  0               0               0
     49                                                  x                  0               0               0
     50                                                  x                  0               0               0
                      19               27                4                 230             296             238




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