OFFICE OF AUDIT REGION VI FORT WORTH, TX Summit Bradford Apartments, Tulsa, OK Section 8 Project-Based Program 2014-FW-1001 April 9, 2014 Issue Date: April 9, 2014 Audit Report Number: 2014-FW-1001 TO: Kelly M. Haines Hub Director, Fort Worth Multifamily Hub, 6AHMLAS //signed// FROM: Gerald R. Kirkland Regional Inspector General for Audit, Fort Worth Region, 6AGA SUBJECT: Summit Bradford Apartments, Tulsa, OK, Did Not Comply With the Requirements of Its Housing Assistance Payments Contract Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG), final results of our review of Summit Bradford Apartments’ Section 8 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 817-978-9309. April 9, 2014 Summit Bradford Apartments, Tulsa, OK, Did Not Comply With the Requirements of Its Housing Assistance Payments Contract Highlights Audit Report 2014-FW-1001 What We Audited and Why What We Found We audited the Section 8 program Bradford received more than $81,000 in Section 8 administered by Summit Bradford rental subsidies for units with questionable occupancy Apartments in Tulsa, OK. We selected and that did not meet HUD requirements. In addition, Bradford because we were informed HUD may have paid more than $96,000 for over that its management agent may have subsidized units. These conditions occurred because received Section 8 subsidies for vacant the management agent did not establish effective units. Our objective was to determine control systems for its onsite manager, who did not whether Summit Bradford Apartments, keep accurate or complete records. As a result, LP, the owner, and Summit Housing Bradford did not effectively and efficiently operate its Partners, LLC, the management agent, Section 8 program and incurred questioned costs administered Bradford’s Section 8 totaling more than $177,000. Bradford’s owner program in compliance with its housing benefited from these conditions because it may have assistance payments contract with the received more Section 8 subsidies than allowed. U.S. Department of Housing and Urban Development (HUD). What We Recommend We recommend that the Director of the Fort Worth Office of Multifamily Housing Programs require the owner to either support or repay HUD more than $177,000 spent on vacant, substandard, or over subsidized units. Further, the management agent should implement controls to prevent future questionable payments. TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding: The Management Agent Did Not Administer Bradford’s Section 8 Program in Accordance With Requirements 4 Scope and Methodology 14 Internal Controls 16 Appendixes A. Schedule of Questioned Costs 18 B. Auditee Comments and OIG’s Evaluation 19 2 BACKGROUND AND OBJECTIVE Summit Bradford Apartments is located at 564 East 32nd Street North, Tulsa, OK. The property is a 191-unit rental housing project. The U.S. Department of Housing and Urban Development (HUD) provided Section 8 housing assistance payments to subsidize the tenants’ rents in accordance with the United States Housing Act of 1937. HUD regulated the property’s rent amounts and operating methods. HUD controlled the property through a housing assistance payments contract that was renewed with Summit Bradford Apartments, LP, the owner, on September 23, 2007, for 20 years. The agreement summarized the terms and conditions for the Section 8 housing assistance payment amounts, including establishing the initial contract rents. The agreement also provided that housing assistance payments would be made only for decent, safe, and sanitary units occupied by eligible families. The property’s management agent, Summit Housing Partners Management, LLC, was an identity-of-interest management agent. A majority of the property’s day-to-day activities were managed at the property, while most of the financial operations were managed at the agent’s home office in Montgomery, AL. The owner was responsible for any action taken by the agent at the property. The Oklahoma Housing Finance Agency was the contract administrator of Bradford’s Section 8 program. The Agency had an annual contributions contract with HUD identifying it as Bradford’s contract administrator. However, due to litigation between HUD and other parties, HUD amended the latest contract on October 1, 2011. The amended contract did not allow the Agency to monitor Bradford. As a result, it had not performed an onsite monitoring review of Bradford since June 6, 2011. As contract administrator, the Agency reviewed and approved the housing assistance payment vouchers before sending them to HUD for payment. The vouchers contained information on the subsidies requested for the occupied units. Between August 1, 2011, and July 31, 2013, Bradford received more than $2.3 million in Section 8 subsidies. According to program rules, HUD expected residents to contribute to their rent and utility payments. The lease agreements required residents to maintain their own utility accounts. As part of the housing assistance payment calculation, HUD included a utility allowance, which was to be passed through to the resident by Bradford. Our objective was to determine whether the owner and its agent administered Bradford’s Section 8 program in compliance with its housing assistance payments contract with HUD. 3 RESULTS OF AUDIT Finding: The Management Agent Did Not Administer Bradford’s Section 8 Program in Accordance With Requirements Summit Housing Partners, LLC, Bradford’s management agent, did not adequately manage its Section 8 program as required by its housing assistance payments contract. It billed HUD for vacant or substandard units. The units did not have electricity and therefore, were substandard. Further, the agent did not maintain adequate records. In addition, the agent ignored its and HUD’s occupancy standards when Bradford over subsidized families by housing them in units with more bedrooms than they were authorized based upon the family composition. Further, it should improve the physical conditions of the units to better comply with its housing assistance payments contract. These conditions occurred because the agent did not comply with HUD’s and its own requirements and establish effective control systems for its onsite manager, who did not keep accurate or complete records. As a result, Bradford did not effectively and efficiently operate its Section 8 program and incurred questioned costs totaling more than $177,000. Bradford Apartments Received Section 8 Subsidies for Vacant or Substandard Units Contrary to HUD regulations, Bradford improperly submitted housing assistance payment vouchers to HUD for 17 substandard units that did not have electricity or were vacant. 1 As a result, HUD paid Bradford $70,497 in ineligible housing assistance. Sixteen of the units did not have electricity, and one unit’s electricity account was in Bradford’s name. The improper payments occurred because the agent ignored HUD requirements for managing its Section 8 housing. Further, Bradford’s controls did not always follow requirements, and management officials did not keep accurate or complete records. They failed to establish controls to determine when tenants moved out or did not have electricity. Bradford’s owner benefited from these conditions because it received more Section 8 subsidies than allowed. Bradford improperly reported occupancy and collected housing assistance payments for units that did not have electricity. According to HUD requirements, Bradford was required to bill only for occupied units that were decent, safe, and sanitary. For 30 unit utility records reviewed, 2 Bradford incorrectly reported occupancy for 17 units (57 percent) that either did not have electricity or the 1 According to section 4d(2) of its housing assistance payments contract, Bradford could accept housing assistance payments only for occupied units that were decent, safe, and sanitary. 2 In response to a subpoena, American Electric Power provided the utility records for the 30 units. 4 electricity was in Bradford’s name during periods when Bradford claimed occupancy. Three units did not have electricity during the entire time that Bradford claimed they were occupied. Bradford’s agent should have known that 4 of the 30 units were vacant because it maintained the electric utility accounts for these units when it claimed they were occupied. According to management officials, Bradford did not maintain the utility accounts for its units unless the units were vacant. Unit 585D had electricity in Bradford’s name for the entire 8 months during which Bradford claimed the unit was occupied. The remaining three units did not have electricity during all or part of the periods for which Bradford certified occupancy and received housing assistance payments. Table 1 shows the number of months in which Bradford collected housing assistance payments for these units and the number of months the units did not have electricity. Table 1: Subsidized units with Bradford utility accounts Months covered by Unit number housing assistance funds Months without electricity 506D 11 4 551D 7 1 573B 17 4 585D 8 0 593D 11 1 Bradford improperly billed HUD and kept the rental income for units in which the electricity was in Bradford’s name and for units that did not have electricity. HUD authorized Bradford’s gross rent, which included utility allowances. Bradford’s policies required the property manager to review and approve all utility reimbursements paid to tenants. However, a review of Bradford’s check register confirmed that HUD paid Bradford utility allowances for electricity that was in its name. 3 For example, Bradford held the electric account for unit 585D in its name for 8 months, claiming that a tenant lived in the unit. Utility allowance checks written to the tenant for the months of November 2011 through February 2012 were voided nearly a year later. After the checks went unclaimed, Bradford certified and continued receiving housing assistance payments for this unit through March 2, 2012. Bradford also collected and kept utility allowance funds for units that did not have electricity and were vacant. For example, Bradford collected HUD utility allowance funds for 5 months after a tenant moved out of unit 518C, although the unit did not have electricity. Bradford later voided the checks that it had written to the tenant. In both instances, Bradford did not repay the utility allowances to HUD. Bradford’s voiding of the utility allowance checks further demonstrated 3 According to section 7 of the lease agreements, Bradford did not maintain utility accounts for its occupied units. 5 that the tenants did not pick up their checks and cash them, indicating that the units were vacant during those months. Two Apparently Occupied Units Did Not Have Electricity During site visits of 22 units in August 2013, 2 of the 11 (18 percent) units that were listed on the housing assistance payment vouchers as occupied did not have electricity as required. 4 The two units, units 506A and 585B, were infested with flies. On the week of the visit, the heat index reached as high as 110 degrees, which could lead to dangerous conditions for a resident. Despite substandard conditions that violated HUD regulations and the lease agreements, Bradford claimed and received $10,516 in housing assistance for these units when they did not always have electricity. Bradford reported that unit 506A had been rented since February 1, 2013. 5 The December 2013 housing assistance payment voucher showed that the resident still lived in the unit. Management officials did not ensure that the occupied unit was habitable as it did not have electricity on the day of the visit. Bradford reported that a resident had rented unit 585B on July 3, 2013, and still lived there in December 2013. Since the unit did not have electricity, food in the refrigerator had spoiled, producing a foul smell throughout the unit. The utility records for this unit showed that the resident had opened a utility account but had made no payments, including the required utility deposit. On July 31, 2013, less than a month after the resident opened the account, the utility company sent a disconnect notice. Bradford should not have collected housing assistance payments for these two units that did not have electricity because they were not decent, safe, and sanitary. 6 Bradford Maintained Substandard Records Management officials should have known that Bradford’s units did not have electricity or were vacant. They asserted that they walked the property daily and looked for tagged electric meters. 7 However, if they did so, they failed to either identify units without electricity, confirm whether the units were occupied, or 4 24 CFR (Code of Federal Regulations) 5.703 required the owner to keep the kitchen, lighting, outlets, switches, and electrical systems of the units free of health and safety hazards, functionally adequate, and operable. 5 This unit was not included in the utility subpoena. 6 The management agent continued billing for the units through at least its December 2013 housing assistance payment voucher, which it submitted on October 29, 2013. 7 The utility company also placed yellow 4.25” by 11” disconnect notices on the front doors. Management officials should have seen these as they walked around the property. 6 remove the units from Bradford’s housing assistance payment vouchers because they were either vacant or not in decent, safe, and sanitary condition. As a result, Bradford collected improper rent subsidies and utility allowances for ineligible units. The improper payments occurred because Bradford did not have adequate controls and did not follow requirements. • Bradford did not have controls in place to follow up on tenants when they did not pick up their utility allowance checks. Thus, management officials took an average of 257 days to void unclaimed utility checks. • Bradford did not comply with HUD requirements. When the units did not have electricity or Bradford’s tenants vacated units, management officials continued billing HUD and receiving housing assistance payments for the units. Contrary to Bradford’s practice, HUD required that Bradford stop billing for units that did not have electricity 8 or when vacancies were discovered. 9 • Oklahoma State law 10 required the owner to store the property in a place of safekeeping. However, the housing assistance payment contract did not authorize the owner to charge HUD for vacant units. Instead of moving the tenants’ abandoned property to a storage unit, the owner elected to keep the abandoned property in the units and inappropriately billed HUD for the subsidies. For example, a site visit showed that unit 510C was clearly vacant on August 27, 2013. However, management officials reported on Bradford’s housing assistance payment voucher that the tenant moved out on September 16, 2013, 20 days later. Due to the significant control deficiencies, Bradford may have received improper housing assistance payments for other vacant or substandard units not included in the 30 units sampled. Management Officials May Have Placed Tenants into Units That Were Larger Than Authorized HUD required the owner to establish proper occupancy standards to identify whether a unit was the appropriate size. Further, Bradford was to certify annually that each family was in the proper unit, 11 maintain a transfer list for families that 8 24 CFR 5.703 required the owner to keep the property decent, safe, sanitary, and in good repair. 9 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, paragraph 9-12(E) 10 Oklahoma Residential/Non-Residential Landlord and Tenant Acts, title 41, section 130C 11 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, chapter 7 7 requested or needed a move, 12 and give families currently living in units that were not of the appropriate size priority to transfer into appropriate-size units before renting units to families that did not live at Bradford. 13 Management officials may have inappropriately placed tenants into units that were larger than they were authorized. This condition occurred because Bradford’s agent did not follow Bradford’s occupancy standards or HUD requirements for housing tenants. Specifically, it did not • Keep its records updated, • Maintain appropriate transfer lists, • Document annual recertifications, • Follow appropriate procedures, and • Implement proper controls to ensure tenants were living in proper size housing. As a result, Bradford may have collected $96,249 14 in improper subsidies 15 for units that exceeded its and HUD’s occupancy requirements. 16 Generally, Bradford’s written occupancy standards did not allow one person to have two or three bedrooms. 17 If Bradford placed the family into a unit that was larger than defined in the occupancy standards, the lease agreement required the family to move to a smaller unit as it became available. Data Analysis Results Based upon analysis of Bradford’s September 12, 2013, data, Bradford may have incorrectly claimed and HUD paid $87,173 18 in excess housing assistance for the 46 occupied units that were larger than Bradford’s occupancy standards authorized. 12 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, paragraph 7-16(C) 13 Required by Bradford Apartment Homes Tenant Selection Plan 14 The $96,249 consisted of $87,173 from the data analysis and $9,076 from a review of the tenant files. Of this amount, $7,947 was ineligible and $88,302 was unsupported. 15 The total questioned costs were $102,230. However, $5,981 of the costs was included as questioned costs due to a lack of electricity. So as to not duplicate costs, the $5,981 was removed from this calculation. 16 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, paragraph 3-23(A), required Bradford to develop and follow occupancy standards that took into account the size and number of bedrooms based on the family size. 17 Bradford Apartment Homes Tenant Selection Plan 18 This amount consisted of $2,735 in ineligible costs and $84,438 in unsupported costs. 8 Tenant File Review Results Based on a review of tenant files for 25 units, Bradford housed families in 5 HUD-subsidized units that were larger than allowed by its occupancy plan and HUD requirements. 19 For these five units, management officials ignored the forms HUD-50059 that listed the family members, did not follow up on expected changes in family size, and did not follow up on questionable custodies. • For more than a year, management officials inappropriately billed HUD for a two-bedroom unit, unit 509C, that was occupied by one tenant and his 18-year-old son, as reported on the form HUD-50059, which the management agent signed. This was improper because Bradford required children that age to enter into a lease agreement and HUD required them to submit consent forms and verification documents. Further, Bradford policies required the onsite manager to immediately include the son’s income in the family’s income. However, due to mismanagement, the son remained in the unit for 6 months without signing any of the required documents. The father wrongly continued to live in the unit by himself after the son moved out despite submitting an updated form HUD-50059, which management signed. • Management officials allowed a family with temporary custody of children to remain in unit 585B after the children left, although the signed forms HUD-50059 showed that two family members lived in the three- bedroom unit. The family wrongly remained in the unit for more than 2 years. • For units 585D and 534D, management officials did not follow up on expected changes in family size. The two families were provided additional bedrooms for expected children, but the tenant files did not contain evidence that the children had lived in the units. Unit 534D did not have electricity for 4 months after the expected birth of twins. Management officials should have attained evidence from the families following the births, such as copies of birth certificates, Social Security numbers, or other evidence to support occupancy of the larger units. • Management officials did not follow up on reported discrepancies regarding child custody. For nearly 7 years, a single father claimed custody of three children to live in unit 522D, a three-bedroom unit. However, the tenant file showed that the father had visitation rights only. If the father reported incorrect occupancy information on the application, certification, or recertification, the lease agreement required him to repay 19 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, paragraph 3-23(A), required Bradford to develop and follow occupancy standards that took into account the size and number of bedrooms based on the family size. 9 Bradford excess rent paid, and Bradford would then reimburse HUD. 20 The management agent did not have documentation to show that it followed up on this discrepancy. Bradford should have transferred these five families to smaller units because there were an adequate number of available appropriate-size units. The tenant files did not contain documented reasons for keeping the families in the larger units or Bradford’s notification that the families needed to move to smaller units. Further, Bradford could not support that it used a transfer list to keep track of families that needed to move and followed up on its progress in moving them. As a result, HUD paid Bradford $9,076 21 in excess housing assistance on these five units. Bradford collected $96,249 in improper Section 8 subsidies because its management agent did not have the controls needed to ensure that it placed families into the proper sized units. In addition, Bradford gave larger units to families that had questionable temporary custody of children, even when the forms HUD-50059 showed that the families were smaller than authorized for the units. The owner benefited from these improper controls because it received more Section 8 subsidies than allowed. Bradford’s Management Agent Should Improve the Unit Conditions. Bradford’s management agent should improve the unit conditions at the property. HUD’s latest physical inspection on February 19, 2013, rated the property at 67c*. 22 During site and unit observations with staff in August 2013, 6 of the 11 occupied units did not appear to meet HUD requirements. 23 As previously discussed, two of the occupied units did not have electricity. Deficiencies in the occupied units included • Safety and sanitation violations inside the properties, including foul smells from spoiled food due to no electricity, defective electrical switches, insect and rodent infestation, unsecured or damaged water heaters, missing window screens, and damaged or leaking ceilings. • Visible signs of damage such as holes in walls; damaged walls, doors, and knobs; and cracks in tiles. 20 HUD Handbook 4350.3, REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs, effective August 1, 2009, section 8-20 21 This amount consisted of $5,212 in ineligible costs and $3,864 in unsupported costs. 22 The c in the score meant that HUD noted life threatening issues. Specifically, 5 of 24 units inspected (21 percent) had life threatening issues. A 60 is considered a passing score. 23 24 CFR 5.703 required the owner to keep the property decent, safe, sanitary, and in good repair. 10 • Damaged or low-performing appliances and fixtures, such as kitchen range burners, garbage disposals, and faucets. Additionally, 10 of the 11 vacant units visited were in poor condition. It appeared that some of these units would need major repairs as a possible result of the agent not making repairs in a timely manner. According to the October 2013 housing assistance payment voucher, 24 Bradford showed 28 vacant units at the complex. Bradford would need to make significant repairs to provide acceptable living conditions before tenant occupancy. Based on observations of the units and discussions with tenants, it appeared that Bradford did not always conduct unit site visits as required. One tenant stated that he felt rushed into moving in and management officials did not conduct a proper site visit of the property. The unit included a bathroom ceiling that leaked when his neighbor upstairs used the facilities (figure 1). Another occupied unit had a rodent infestation according to the tenant and a hole in the pantry closet wall (figure 2). Another tenant complained that her unit had outlets and switches that emitted electrical sparks and her flooring included several pieces of cut up carpeting. Another occupied unit had a cracked and damaged water heater. Figure 1: Leaking bathroom ceiling Figure 2: Hole from rodent infestation Bradford asserted that it spent significant funds on security. However, some residents indicated that they did not feel safe living at Bradford, despite onsite private security. As a result, some residents stated that they barricaded their front door at night due to fear of break-ins. Some did not leave their units if possible due to potentially dangerous individuals loitering around the property. Others stated that they had reason to suspect that there were drug dealers and users on the property. 24 The management agent certified this voucher on September 3, 2013. 11 Conclusion Bradford violated its housing assistance payments contract with HUD for its Section 8 program by charging HUD for vacant or substandard units and units that exceeded its and HUD-authorized occupancy standards. Further, it did not maintain complete records in its tenant files or maintain the property in a decent, safe, and sanitary condition in accordance with requirements. These conditions occurred because its agent had not implemented effective controls. As a result, HUD paid Bradford at least $177,262 for ineligible and unsupported housing assistance payment subsidies and utility allowances. Recommendations We recommend that the Director of the Fort Worth Office of Multifamily Housing Programs require Bradford to 1A. Repay $70,497 to HUD for units that either did not have electricity or were vacant. Repayment should be from non-Federal funds. 1B. Provide documentation to support $10,516 in housing assistance payments for two units that did not have electricity during an August 2013 site visit or repay any unsupported amounts to HUD from non-Federal funds. 1C. Repay $7,947 to HUD from non-Federal funds for subsidies on units exceeding HUD’s occupancy standards. 1D. Provide documentation to support $88,302 in housing assistance payments for apparently over subsidized units or repay any unsupported amounts to HUD from non-Federal funds. 1E. Implement adequate written procedures and effective controls to ensure that it administers its Section 8 program in accordance with requirements. Minimally, the procedures and controls should ensure that • Units are occupied; the appropriate size; and decent, safe, and sanitary; • Family composition is verified, including ensuring that all reported family members live in the units and are eligible; • Families in over subsidized units are transferred to appropriate-size units in compliance with HUD requirements; • Bradford maintains waiting lists and transfer lists that are current and available to all staff members who process move-ins and move-outs; 12 • Bradford maintains and frequently updates tenant files and processes known changes in family composition within HUD- required timeframes; • Bradford maintains accurate records in the tenant files supporting reasons for allowing families to reside in units that exceed the published occupancy standards; and • Housing standard deficiencies are identified and corrected in a timely manner. 1F. Submit a monthly paper voucher in addition to the electronic voucher submitted in HUD’s tenant rental assistance certification system. The paper voucher documentation should include the corresponding form HUD-50059 for each individual rental assistance payment requested and an active property rent roll that provides a date stamp that corresponds with the submission date of the electronic voucher. This documentation should be submitted to the Tulsa staff on or about the 15th of each month for review. 1G. Perform a 100 percent tenant file review within 45 days from the issuance of the audit report. This should include a certification to the HUB upon completion and should include confirmation of compliance with HUD rules and regulations. 1H. Certify that it corrected the physical deficiencies identified in the units during our site visits in August 2013. We also recommend that the Director 1I. Perform a standard management and occupancy review, including site visits of the 161 units that were not included in our sample, to ensure that Bradford has implemented adequate procedures and has corrected the deficiencies identified in this report. 1J. Compare the occupancy noted in the housing assistance payment vouchers to the actual occupancy noted during the site visits of the 161 units that were not included in our sample. 13 SCOPE AND METHODOLOGY We performed our fieldwork at Bradford’s office located in Tulsa, OK, and our offices in Fort Worth, TX, and Oklahoma City, OK, from July through November 2013. Our audit scope was August 2011 through July 2013. However, in one instance, we expanded our scope to May 1, 2011. Also, we expanded our scope through December 31, 2013, for all over subsidized units and the two units without electricity that we visited in August 2013. To accomplish our objective, we • Reviewed relevant HUD guidance and requirements. • Reviewed the agent’s policies and procedures. • Reviewed and analyzed the owner’s housing assistance payments contract with HUD. • Reviewed Bradford’s December 31, 2011, and 2012, audited financial statements. • Reviewed the contract administrator’s management review report for Bradford, dated July 5, 2011. • Reviewed Bradford’s February 19, 2013, physical inspection report. • Subpoenaed American Electric Power’s policies and its utility records for 30 of Bradford’s units. • Interviewed agent, contract administrator, and HUD officials. • Selected a nonstatistical sample of 25 of 191 (13 percent) subsidized units to verify that the tenant files supported the vouchers. The results were not projected to the population. • Selected a nonstatistical sample of 30 of 191 (16 percent) subsidized units to review for occupancy. We compared subpoenaed utility records provided by American Electric Power to housing assistance payment vouchers. The results were not projected to the population. • Selected and visited a nonstatistical sample of 22 units. • Analyzed the September 12, 2013, tenant unit voucher data provided by the owner for 335 records. We identified 50 potentially over subsidized tenants in 46 units and selected a nonrepresentative sample of 7 tenant files for testing. For the remaining 43 tenants, we calculated the difference between unit gross rents for the family’s actual household size and the housing assistance payment voucher amounts Bradford charged for the actual unit size reported. We validated tenant move-in and move-out dates based on Bradford’s housing assistance payment vouchers through December 2013. We did not project the results to the population. To achieve our audit objective, we relied in part on computer-processed data from the agent. We analyzed the computer-processed data to determine whether the agent housed tenants in potentially over subsidized units and whether it complied with procedures for tenant utility allowance checks. We did not perform a detailed assessment of the reliability of the data. However, we assessed the reliability of data adequate for the analysis conducted. 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 14 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. 15 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: • Policies and procedures that Bradford’s management agent had implemented to ensure that its Section 8 program met its objectives. • Policies and procedures that Bradford’s management agent had implemented to ensure that it complied with laws and regulations. • Policies and procedures that Bradford’s management agent had implemented to ensure that its resource use was consistent with laws and regulations and that its resources were safeguarded against waste, loss, and misuse. 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. 16 Significant Deficiencies Based on our review, we believe that the following items are significant deficiencies: Bradford did not establish effective systems and controls to ensure that it • Requested housing assistance payments only for occupied units that were in decent, safe, and sanitary condition; • Maintained adequate documentation in its tenant files; • Housed families in appropriate-size units; and • Maintained its units in decent, safe, and sanitary condition (finding). 17 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Ineligible 1/ Unsupported 2/ number 1A $ 70,497 1B $ 10,516 1C 7,947 1D 88,302 Totals $ 78,444 $ 98,818 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. 18 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 19 Comment 2 20 Comment 1 Comment 3 21 Comment 4 Comment 4 Comment 5 Comment 6 22 Comment 6 Comment 7 Comment 8 Comment 9 Comment 4 23 Comment 10 Comment 11 Comment 12 Comment 13 24 Comment 14 25 Comment 14 26 Comment 15 27 Comment 16 Comment 16 Comment 4 Comment 16 Comment 15 28 Comment 6 Comment 5 Comment 14 Comment 17 Comment 4 Comment 15 Comment 4 Comment 15 Comment 18 29 30 OIG Evaluation of Auditee Comments Comment 1 On December 9, 2013, OIG sent Bradford a list of the tenants that did not have electricity and the dates that electricity was not in an individual’s name. Further, OIG provided Bradford copies of the subpoenaed records in Bradford’s name. Contrary to the management agent’s response it is not unusual for OIG to subpoena information, especially when that information contains personally identifiable information. Comment 2 The report shows that either HUD paid Bradford $70,497 in ineligible housing assistance for 17 units that did not have electricity, or the electricity was in Bradford’s name. During a site visit, units 506A and 585B also did not have electricity, resulting in an additional $10,516 unsupported costs. Besides not having electricity, the two allegedly occupied units were questionable in other ways. Unit 506A had some furniture in it, but appeared to be vacant. Two unauthorized people who were not on the lease occupied unit 585B. They claimed to have temporarily moved into the unit to housesit and babysit three children, who were 1, 4, and 7 years old. However, none of the children were in the unit during the visit. Management agent staff was present during these visits. Comment 3 We disagree. We did not change the classification from ineligible to unsupported as requested because the criteria, 24 CFR 5.703 states electrical systems must be operable and in good repair. It is not feasible to check the safety of the electrical system and whether it is operable if there is no electricity. For example, Ground Fault Circuit Interrupter and outlets must be checked to ensure they are properly grounded and working. With no electricity, this cannot be done. Without electricity, the refrigerator, ventilation systems and some other appliances cannot be checked to see they are operable. These appliances are required to be operating in the unit. Comment 4 The criteria, 24 CFR 5.703 clearly supports that units without electricity were not decent, safe, and sanitary. Comment 5 We have modified the language in the body of the report regarding the condition of the units. We stand by our observations made and reiterate that management agent staff was present for the visits. Comment 6 When Bradford identifies a unit with no electricity, it should require the tenant to immediately reinstate their account. If the tenant refuses or if the instance is repeated, the lease should be terminated as the lease specifically requires. If management performed quarterly inspections as it asserts, it should have found that 8 of the 17 units reviewed did not have electricity for more than 3 months. Comment 7 The finding did not imply that management should know instantaneously when tenants vacate their units without notice or if tenant-provided utilities are terminated. However, when management changes the utility account from the 31 tenant’s name to the property, or when tenant utility checks go uncashed for months, management should at a minimum determine if the tenant still occupies the unit and that the unit meets basic HUD requirements. Comment 8 HUD’s statement about alerting the multifamily owner to problems, as referred to by Bradford, was a response to a comment concerning tenant-paid utilities that were shut off shortly before HUD’s physical inspection of any HUD-subsidized property. The commenter stated that the property owner had no time to take action. HUD responded that, under statute and contract, it was the owner’s responsibility to schedule regular housekeeping and preventative maintenance site visits to ensure that its units met the required physical condition standards. Comment 9 We did not suggest that Bradford inspect all 191 tenant units monthly. However, with onsite management, maintenance, and security, it is not unreasonable for them to have seen disconnect notices, and report and follow up on suspected vacant units. Further, the onsite manager claimed that she walked the property every morning and looked for the electric company’s shut off notices on the front doors of the units, indicating that someone may have left without notice. She also explained that American Electric Power left red tags on the group electric meters. When she saw those, she would call the electric company to find out which unit had an electric shut off notice. Comment 10 Section 2.5c of the housing assistance payments contract applies to the results of contract administrator inspections. For the items identified in this report, Bradford will need to work with HUD to cure violations including financial sanctions. Comment 11 While Oklahoma state law did not require owners to move abandoned property to a storage unit, the owner is not entitled to HUD subsidies for vacated units. We made clarifications in the finding. Comment 12 We classified the costs as unsupported because the management agent’s data indicated that occupancy violations may have occurred. 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. As stated in footnote number 18, the $87,173 includes $2,735 in ineligible costs and $84,438 in unsupported costs. Comment 13 Refer to the Scope and Methodology section of the report for a description of our analysis. Comment 14 We recognize that there are numerous factors that can affect the unit size, which is in part why we classified the costs as unsupportable. Bradford will need to 32 provide support to HUD so that it can make a determination regarding all of the units we questioned. Comment 15 The report focused on deficiencies found in the occupied units. Our unit observations were not inspections and were not intended to use the Real Estate Assessment Center’s methodology or criteria as it was not our intent to cite every physical deficiency. Rather, our purpose was primarily to determine whether the units were occupied, and if so, by whom. As part of the review, we noted only serious, readily identifiable violations of HUD requirements. We discussed the issues with management, and management was taking notes, as we observed the units. The problems that we noted were major deficiencies that management should have noted. Comment 16 We modified the report as needed. Comment 17 The HUD Handbook 4350.3, REV-1, effective August 1, 2009, is the correct criterion for the audit period of August 1, 2011, through July 31, 2013. Comment 18 As discussed in footnote 14, the total questioned costs were $96,249, including costs for the data analysis and from the tenant files. Of the $96,249, $7,947 was ineligible and $88,302 was unsupported. 33
Summit Bradford Apartments, Tulsa, OK, Did Not Comply With the Requirements of Its Housing Assistance Payments Contract
Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-04-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)