oversight

The Paterson Housing Authority, Paterson, NJ, Had Weaknesses in Administration of its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-01-15.

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

 OFFICE OF AUDIT
 REGION 2
 NEW YORK-NEW JERSEY




         Housing Authority of the City of Paterson
                     Paterson, NJ

               Housing Choice Voucher Program




2014-NY-1001                            JANUARY 15, 2014
                                                          Issue Date: January 15, 2014

                                                          Audit Report Number: 2014-NY-1001




TO:            Balu Thumar
               Acting Director, Office of Public and Indian Housing, Newark, NJ, 2FPH

               //SIGNED//
FROM:          Edgar Moore
               Regional Inspector General for Audit, New York-New Jersey, 2AGA


SUBJECT:       The Paterson Housing Authority, Paterson, NJ, Had Weaknesses in
               Administration of its Housing Choice Voucher Program



    Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General (OIG), final audit report on our review of the Housing Authority of the City of
Paterson, Paterson, NJ’s 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
212-264-4174.
                                             January 15, 2014
                                             The Housing Authority of the City of Paterson, Paterson,
                                             NJ, Had Weaknesses in the Administration of its Housing
                                             Choice Voucher Program


Highlights
Audit Report 2014-NY-1001


 What We Audited and Why                      What We Found

We audited the Housing Authority of           The Authority lacked adequate controls to ensure that
the City of Paterson, Paterson, NJ’s          its program was administered in accordance with
Housing Choice Voucher program in             regulations. Specifically, documentation was lacking
support of the Office of Inspector            that assisted rental units were inspected annually,
General’s (OIG) goal to contribute to         annual quality control inspections were performed,
improving the U.S. Department of              and some units did not comply with housing quality
Housing and Urban Development’s               standards. As a result, housing assistance of almost
(HUD) execution of its fiscal                 $3.8 million was paid for units without evidence that
responsibilities. We selected the             they complied with housing quality standards, and
Authority based on a risk assessment of       $18,266 will be paid for units that officials recently
authorities administered by the HUD           made housing quality standards compliant.
Newark, NJ, field office that considered
funding, HUD’s 2012 risk score, and          Documentation was inadequate to support that rental
prior OIG audits. The audit objectives       subsidy amounts were accurately calculated, all
were to determine whether Authority          tenants were eligible for subsidy, and applicants were
officials implemented adequate controls      properly selected from the waiting list. Consequently,
to ensure that the program was               $184,867 in questionable housing assistance was
administered in accordance with HUD          disbursed, and HUD lacks assurance that tenants were
regulations and its own administrative       properly selected from the waiting list.
plan.
                                             Financial controls were not adequate to ensure that
 What We Recommend                           port-in receivables were collected, duplicate housing
                                             assistance payments were not made, and uncashed
                                             checks disbursed to landlords and tenants were
We recommend that HUD instruct               adequately monitored. As a result, Authority officials
Authority officials to provide               failed to collect all receivables on behalf of port-in
documentation to support that assisted       tenants, lacked assurance that housing assistance
units complied with housing quality          payments were not made for vacant units, and
standards, and strengthen controls over      outstanding checks to landlords and tenants were
the unit inspection, tenant certification,   cashed within a reasonable timeframe. In addition,
port-in receivables collection, and          Authority officials did not properly execute a contract
procurement processes.                       or adequately monitor the status of the contractor’s
                                             performance against the contact provisions.
                                             Consequently, the contractor has been paid in excess
                                             of the small procurement threshold.
                           TABLE OF CONTENTS

Background and Objectives                                                            3

Results of Audit
      Finding 1: Authority Officials Lacked Assurance That Assisted Units Complied   4
                 With HUD Housing Quality Standards

      Finding 2: The Authority Had Weaknesses in Housing Choice Voucher              8
                 Program Administrative Controls

      Finding 3: The Authority Had Weaknesses in Financial Controls and the          11
                 Procurement Process Used to Hire an Inspector

Scope and Methodology                                                                14

Internal Controls                                                                    16

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use                 18
B.    Auditee Comments and OIG’s Evaluation                                          20




                                            2
                        BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Paterson is a governmental, public corporation created in
1941 under Federal and State housing laws as defined by New Jersey State statute1 for the
purpose of engaging in the development, acquisition, and administrative activities of the low-
income housing program and other programs with similar objectives for low- and moderate-
income families residing in Paterson, NJ, in accordance with the rules and regulations prescribed
by the U.S. Department of Housing and Urban Development (HUD). The Authority is governed
by a seven-member board of commissioners, selected by the mayor, city council, and governor
for a 4-year term. The board appoints an executive director, who manages the day-to-day
operations of the Authority.

The Authority receives funding from HUD’s low-rent housing, Housing Choice Voucher, Public
Housing Capital Fund, and Family Self-Sufficiency programs. The Authority received
approximately $10.6 million and $14.1 million in Housing Choice Voucher program funding and
was authorized to administer 1,166 and 2,2372 program units in fiscal years 2012 and 2013,
respectively. The Authority also received $2.5 million in 2013 to operate 1,490 low-rent housing
units.

The audit objectives were to determine whether Authority officials implemented adequate
administrative and financial controls to ensure that the Authority’s Housing Choice Voucher
program was administered in accordance with HUD regulations and its own administrative plan.
Specifically, we evaluated controls over unit inspections, tenant selection and certification,
housing assistance payment calculations, waiting list administration, procurements, and housing
assistance payments and receipts.




1
  N.J.S.A. 4A:12A-1, et. Seq. the Housing Authority Act
2
  The Authority had been administering the City of Paterson’s Housing Choice Voucher program under an
intergovernmental memorandum of understanding since 2006 and was receiving the City’s housing assistance
payments and administrative fees directly from HUD. After we questioned this arrangement, HUD formally
incorporated the City’s 1,000 units into the Authority’s annual contributions contract in January 2013.

                                                      3
                                       RESULTS OF AUDIT


Finding 1: Authority Officials Lacked Assurance That Assisted Units
           Complied With HUD Housing Quality Standards
Authority officials lacked documentation to assure HUD that all program-assisted units complied
with HUD housing quality standards. Specifically, the Authority’s records disclosed that units
were not inspected annually, documentation was lacking to support that annual quality control
inspections were performed, and some units sampled did not comply with housing quality
standards. We attributed these conditions to weaknesses in the Authority’s unit inspection
records and inadequate controls over the unit inspection process. As a result, housing assistance
of almost $3.8 million was paid for units without evidence that they had been inspected for
compliance with housing quality standards and is therefore regarded as unsupported, and
$18,266 to be paid for units that officials recently made housing quality standards compliant will
be put to good use. In addition, we considered $122,977 of the Authority’s administrative fee to
be unsupported. Consequently, Authority officials could not assure HUD that the Authority’s
program units always complied with HUD’s housing quality standards.


    Unit Inspections Were Not
    Conducted Annually

                  The Authority’s housing quality inspection log reported that 252, or 13.3 percent,
                  of the average 1,889 units leased during the period July 2012 through June 2013
                  had not been inspected annually as required by regulations at 24 CFR (Code of
                  Federal Regulations) 982.405(b) and HUD Guidebook 7420, chapter 10. Further,
                  the log disclosed that some units had not been inspected since 2005. Therefore,
                  Authority officials could not support that approximately $3.8 million in housing
                  assistance disbursed for these 252 units during the period July 2012 through June
                  20133 was paid for units that complied with housing quality standards. As such,
                  until controls over its inspection process are strengthened, Authority officials will
                  pay approximately $3.8 million in housing assistance in the next year without
                  assurance that the funds will assist compliant units.

                  HUD monitoring reviews had also cited the Authority for weaknesses in its unit
                  inspection process, resulting in a score of zero for its Section 8 Management
                  Assessment Program (SEMAP) 4 indicator 12 related to annual housing quality

3
  While the Authority’s records indicated that inspections had not been performed in prior years as well, the
determination of an unsupported amount and associated administrative fee were limited to the timeframe noted
because the Authority’s records did not provide a historical accounting of inspections conducted for individual units
yearly.
4
  SEMAP measures the performance of the public housing authorities that administer the Housing Choice Voucher
program in 14 key areas. SEMAP helps HUD target monitoring and assistance to authority programs that need the
most improvement.


                                                          4
                  standards inspections for fiscal years 2010 through 2012. In its responses to
                  HUD’s reviews, Authority officials had promised to take corrective action for
                  conducting and documenting the Authority’s inspection process. Authority
                  officials said that inspections were performed but were not always recorded, and
                  acknowledged that inspections may not have always been performed as required;
                  noting that one of the Authority’s two inspectors was on extended leave in
                  program year 2012. Regulations at 24 CFR 982.152(d) permit HUD to reduce or
                  offset any program administrative fees paid to a public housing authority that fails
                  to perform its administrative responsibilities adequately. Therefore, we
                  considered $122,9775 of the Authority’s administrative fee associated with these
                  units to be unsupported.

                  Authority officials recently took action to conduct inspections in a timelier
                  manner and executed a contract in May 2013 with an independent inspector to
                  assist the Authority’s two inspectors in conducting up to 500 unit inspections to
                  become current with required annual inspections. As of July 2013, the inspector
                  had completed more than 600 inspections. However, Authority officials will lack
                  assurance that their two inspectors would be able to inspect all units annually as
                  required when the inspector’s contract is terminated.

    Documentation That Annual and
    Quality Control Inspections
    Were Conducted Was
    Inadequate

                  Authority officials were unable to provide a historical inspection log to document
                  that all units were inspected annually as required by HUD Guidebook 7420. The
                  inspection log documented the most recent inspection completed for current units
                  only. Since the Authority’s records did not provide a historical log, we were
                  unable to determine whether all units were inspected annually in prior years as
                  required.

                  Regulations at 24 CFR 982.405(b) and HUD Guidebook 7420, sections 10.6 and
                  10.9, as well as the Authority’s administrative plan, require that quality control
                  inspections be completed as part of SEMAP indicator 2. Section 10.9 further
                  requires that a public housing authority maintain a quality control tracking system
                  to document units inspected and the results. However, Authority officials could
                  not provide documentation to support that required quality control inspections
                  were conducted during program years 2010, 2011, and 2012. Authority officials
                  said that they conducted the quality control inspections, but the inspections were
                  not identified in the inspection tracking system because they were entered with an
                  incorrect inspection code.




5
  This represents one half of the $245,954 administrative fee associated with the 13.3 percent of units that were not
inspected.

                                                          5
    Sampled Units Did Not Always
    Comply With Housing Quality
    Standards

                  Inspection of 16 randomly selected units conducted between April 8 and 12, 2013
                  disclosed that 9 units, for which rental assistance of $62,789 had been paid, failed
                  with material6 deficiencies as noted below. In addition, six units failed with
                  minor deficiencies.

                             Nature of deficiency               Number of material
                                                            deficiencies found in 9 of the
                                                                  16 units inspected
                  Security concern (doors, locks, etc.)                    9
                       Tripping-walking hazards                            8
                       Improper outlet grounding                           8
                 Deterioration of walls-ceilings-floors                    7
                  Leak-disrepair of toilet-sink-shower                     5
            Disrepair of kitchen-bathroom cabinets-counters                5
                      Inoperable smoke detectors                           5
                          Inoperable windows                               3
                               Infestation                                 3
                             Blocked egress                                3
                          Exposed heating pipe                             1
                    Total occurrence of deficiencies                      57
                  Ten of the fifteen units had been inspected by Authority officials as recently as
                  March 13, 2013, and five had no record of having been inspected. After we
                  informed Authority officials of the inspection results, they re-inspected the units,
                  concurred with the deficiencies observed, and notified the landlords that housing
                  assistance payments would be abated in accordance with regulations until the
                  deficiencies were corrected. As of September 13, 2013, Authority officials said
                  that the material deficiencies in six units had been corrected and payment for the
                  other three had been abated. In addition, they said that the minor deficiencies in
                  four of the remaining units had been corrected and two units were being
                  corrected.

    Conclusion

                  Authority officials could not provide assurance that all program-assisted units
                  complied with HUD housing quality standards. We attributed this weakness to
                  the Authority’s inadequate unit inspection record keeping and inadequate controls

6
  We concluded that a material deficiency exists if (1) the condition causing the deficiency was present for an
extended period, (2) the condition existed but was not noted in a prior inspection, (3) deferred maintenance
consistently failed the unit, and (4) the serious deficiency is non-tenant caused.



                                                          6
          over the unit inspection process. As a result, approximately $3.8 million in
          housing assistance was paid for units that were not inspected to ensure that they
          complied with housing quality standards, and $122,977 of the Authority’s
          administrative fee associated with these units was considered unsupported.
          Authority officials had taken action to ensure that the housing quality standards
          deficiencies identified in our inspections would be corrected.

Recommendations

          We recommend that the Director of the HUD Newark Office of Public and Indian
          Housing instruct Authority officials to

          1A. Provide documentation to support that the 252 units for which the
              Authority’s records did not document that an annual inspection was
              performed during program year 2012 comply with housing quality
              standards. If such documentation cannot be provided, the $3.89 million
              (consisting of $3,768,868 in housing assistance payments and $122,977 of
              the Authority’s administrative fee paid related to those units) should be
              reimbursed to the program from non-federal funds.

          1B. Strengthen housing quality standards inspection procedures by determining
              the Authority’s inspection needs and prepare a plan acceptable to HUD that
              ensures that required inspections will be accomplished in a timely manner,
              thus providing greater assurance that units for which housing assistance
              payments of $3,768,868 will be paid would comply with housing quality
              standards.

          1C. Reimburse from non-federal funds the $62,789 in housing assistance
              disbursed for the nine units that materially failed housing quality standards
              inspection.

          1D. Provide certifications from the landlords and the Authority’s re-inspections
              supporting that the deficiencies in the nine units that evidenced housing
              quality standards noncompliance have been corrected, or documentation that
              the housing assistance payments have been abated thus ensuring that
              $18,266 to be paid for these units during the current certification period will
              be put to good use.

          1E. Strengthen controls to ensure that a historical log of all housing quality
              standards inspections is maintained as required by the Authority’s
              administrative plan.




                                           7
Finding 2: The Authority Had Weaknesses in Housing Choice
           Voucher Program Administrative Controls
There were administrative control weaknesses in the Authority’s Housing Choice Voucher
program. Specifically, Authority officials lacked adequate documentation to support that rental
subsidy amounts were accurately calculated, all tenants were eligible for assistance, and
applicants were properly selected from the waiting list. We attributed this deficiency to
Authority officials’ not ensuring compliance with their controls over tenant certification, rental
subsidy determinations and documentation, and selection of tenants from the waiting list.
Consequently, Authority officials disbursed $184,867 in questionable housing assistance
payments.


 Documentation To Support
 Subsidy Amounts and Tenant
 Eligibility Was Inadequate

               The Authority lacked adequate documentation to support rental subsidy
               calculation and tenant eligibility in compliance with regulations at 24 CFR Part
               982 and the Authority’s administrative plan. We reviewed 25 randomly selected
               tenant files to determine whether the Authority’s files had adequate
               documentation for and correctly calculated participants’ housing assistance and
               utility allowance payments. While the administrative controls established in the
               Authority’s program administrative plan and applicable policies were adequate if
               implemented as designed, these controls were not adequately implemented.

               We observed significant deficiencies with rental subsidy calculation and other
               administrative issues that could have an impact upon the proper rental subsidy
               determination in 5 of the 25 tenant files reviewed. These deficiencies included
               improperly applying income limitation rules, incorrectly calculating or
               inadequately supporting amounts to determine tenant income, and not adequately
               supporting allowances and deductions. Without adequate support for tenant rental
               subsidy calculation, HUD could not be assured that five program participants and
               their families were eligible for assistance and received the proper rental subsidy.
               Specifically, $49,350 in housing assistance payments provided for four tenants
               whose files did not properly document subsidy calculations was considered
               unsupported, and $18,756 provided for one tenant who underreported income
               over multiple years was considered ineligible.

               In addition, 19 files contained documentation deficiencies, such as failure to
               document current leases and housing assistance payments contracts, and 3 files
               lacked documentation that tenants’ income was verified through the Enterprise
               Income Verification (EIV) System during the most recent recertification.
               Regulations at 24 CFR 982.158(e) require maintenance of a copy of the executed
               lease during the term of each assisted lease and for at least 3 years thereafter, and

                                                 8
             regulations at 24 CFR 5.233(a) requires the use of EIV as a third party source to
             verify tenant employment and income information during mandatory
             reexaminations or recertifications of family composition and income.

             Further, the Authority did not document valid Social Security numbers for all
             tenants as required by regulations at 24 CFR 5.233 or the use of EIV as required
             by Public and Indian Housing Notice 2012-10. Analysis of the Authority’s
             housing assistance payment register for all of its Section 8 programs identified
             three tenants with invalid Social Security numbers on file, and Authority officials
             could not provide documentation that the Authority collected valid Social
             Security numbers for these three tenants or that their incomes were verified
             through EIV. HUD requires the use of EIV to reduce administrative and subsidy
             payment errors. Therefore, we considered the housing assistance of $116,761
             paid for these tenants from April 2010 to June 2013 to be unsupported.

Applicants Not Always
Properly Selected From the
Waiting List

             Authority officials did not properly administer the City’s Housing Choice
             Voucher program waiting list. Our review of Housing Choice Voucher program
             applicants who were provided vouchers during the period April 1, 2012, through
             March 31, 2013, disclosed that five tenants had not been on the Authority’s
             waiting list and one applicant was bypassed in favor of other applicants lower on
             the list. Authority officials did not provide documentation to support these
             selections. However, the Authority’s administrative plan provides that families
             are to be selected from the waiting list in their determined sequence, regardless of
             family size, subject to income targeting requirements and that when there is
             insufficient funding available for the family at the top of the waiting list, the
             Authority will not admit another applicant until funding is available for the first
             applicant. Further, while Authority officials merged their Housing Choice
             Voucher program with that of the City of Paterson in January 2013, they
             continued to maintain two waiting lists.

Conclusion

             The Authority had weaknesses in its administrative controls over rental subsidy
             calculations, tenant certifications, and the selection of tenants from its waiting list.
             Consequently, HUD lacked assurance that the $166,111 in unsupported and
             $18,756 in ineligible housing assistance payments for five tenants were disbursed
             in accordance with program regulations. We attributed this deficiency to
             Authority officials’ not ensuring compliance with established controls over (1)
             rental subsidy calculation determination and documentation , (2) tenant
             certification, and (3) the order of selection of tenants from the waiting list.




                                                9
Recommendations

          We recommend that the Director of the HUD Newark Office of Public and Indian
          Housing instruct Authority officials to

          2A. Provide adequate documentation to support that the $49,350 disbursed on
              behalf of four tenants with inadequately supported housing assistance
              determinations was properly disbursed. Any amount for which support
              cannot be provided should be repaid from non-Federal funds.

          2B. Reimburse the Authority’s program from non-federal funds the $18,756
              disbursed on behalf of a tenant who underreported income for multiple
              years.

          2C. Provide adequate documentation of a valid Social Security number for the
              three tenants without valid Social Security numbers on whose behalf
              $116,761 in housing assistance payments was disbursed. Any amount not
              supported should be repaid from non-Federal funds, and the status of any
              tenant deemed ineligible should be determined in accordance with the
              Authority’s administrative plan.

          2D. Strengthen controls over tenant certification and rental subsidy calculation
              documentation to provide greater assurance that housing assistance
              payments are properly determined and documented in accordance with
              regulations.

          2E. Strengthen controls over tenant certification files to ensure that up-to-date
              copies of tenant leases, or addendums, housing assistance payment contracts
              and documentation evidencing the use of EIV are maintained in the tenant
              files in accordance with regulations at 24 CFR 982.158(e) and 5.233(a).

          2F. Strengthen controls over waiting list administration to ensure that applicants
              are placed on and selected from the waiting list in a fair and consistent
              manner in accordance with program regulations.

          2G. Take action in consultation with HUD, to merge the separately maintained
              Paterson Housing Authority and the City of Paterson Housing Choice
              Voucher program waiting lists to ensure that applicants are selected for
              assistance in a fair and consistent manner in accordance with program
              regulations.




                                          10
Finding 3: The Authority Had Weaknesses in Financial Controls and the
           Procurement Process Used To Hire an Inspector
There were weaknesses in the Authority’s Housing Choice Voucher program financial controls.
Specifically, officials lacked adequate financial controls to ensure the collection of port-in
receivables, that duplicate housing assistance payments were not made, and disbursements to
landlords and tenants were monitored to ensure receipt. We attribute these deficiencies to
Authority officials’ inadequate oversight in administering the program. As a result, Authority
officials failed to collect all receivables on behalf of port-in tenants7 , and lacked assurance that
housing assistance payments were not made for vacant units and outstanding checks to landlords
and tenants were cashed within a reasonable timeframe. In addition, there were weaknesses in
the Authority’s procurement process used to hire a housing quality standards inspector.
Specifically, Authority officials did not properly execute a contract or adequately monitor the
status of the contractor’s performance against the contact provisions. Thus, the lack of oversight
resulted in a contractor being paid more than the amount allowed by the Authority’s small
purchase policy.


    Financial Controls Were
    Inadequate

                 Authority officials did not implement adequate financial controls to ensure that
                 receivables on behalf of port-in tenants were collected in a timely manner,
                 housing assistance payments were not made for vacated units, and disbursements
                 to landlords and tenants were monitored to ensure receipt. Authority officials
                 wrote off as uncollectible $440,173 in receivables for port-in tenants as of March
                 31, 2012. Authority officials stated that although bills were sent to the initial
                 public housing authorities, collection was not made and they did not seek HUD
                 assistance to collect the receivable amount.

                 HUD Guidebook 7420.10G, section 13-5, provides that Authority officials may
                 contact HUD to reduce the administrative fees for the initial public housing
                 authority if the authority does not promptly reimburse the receiving authority or
                 impose other sanctions against authorities that do not comply with portability
                 procedures. Authority officials acknowledged that in the past, there had been
                 weaknesses with their procedures for ensuring collection of port-in receivables.
                 However, analysis of the port-in receivable account as of June 30, 2013, disclosed
                 that $90,666 was 90 days past due and no action had been taken to recover this
                 amount. Without adequate controls over the monitoring of its port-in accounts
                 receivable, the Authority lacked assurance that the $90,666 would be collected.



7
  “Port-in tenants” refers to the process of portability, a feature of the Housing Choice Voucher program in which
an eligible family has been issued a housing choice voucher and may use that voucher to lease a unit anywhere in
the United States where there is a housing agency operating a Housing Choice Voucher program.

                                                        11
            HUD Guidebook 7420.10G, section 11-4 prohibits making duplicate housing
            assistance payments for a tenant in the same month unless a tenant moved out
            after the first of the month. However, Authority officials made duplicate housing
            assistance payments related to five tenants who had transferred out of their units.
            For the same month, officials paid the landlords for the tenants’ prior unit and the
            unit into which the tenant transferred without explanation. We attributed this
            deficiency to an oversight on the part of Authority officials. As a result, we
            considered the $6,285 in payments as potential duplicate housing assistance
            payments.

            As of June 30, 2013, the Authority had a balance of $255,100, representing
            housing assistance payments and utility allowances that had been paid but not
            cashed for more than 180 days. The Authority’s accountant had reclassified
            $47,483 of the $255,100 as deferred revenue as of March 31, 2012, for amounts
            uncashed before January 1, 2010. However, without following up on
            disbursements outstanding for more than 180 days, the Authority lacked
            assurance that the amounts disbursed represented valid and proper housing
            assistance payments and utility allowance obligations. Since the amount of these
            uncashed checks was not included in the Authority’s housing assistance payment
            reserve account, these funds could not be used to offset future drawdown of
            housing assistance funds.

Procedures for Contracting for
an Inspector Were Inadequate


            There were weaknesses in the small purchase procurement process used to hire a
            housing quality standards inspector. We attributed this deficiency to inadequate
            oversight due to the expedited need to have unit inspections conducted. While the
            Authority’s small purchase procurement regulations, part 1, section 2-5, provide
            that an independent cost estimate must be prepared before a solicitation, no
            independent estimate had been prepared. In addition, the Authority’s
            procurement regulations provide that the quality and quantity of materials or
            services to be procured should be clearly and concisely described. Authority
            officials stated that a cost estimate was completed by analyzing three bids that had
            already been solicited. Further, the Authority’s board passed a resolution
            approving the procurement of an inspector for a 1-year period to assist in
            conducting 500 inspections; however, while the resolution specified the amount to
            be paid for three different types of inspections, neither the resolution nor the
            contract specified a maximum amount to be paid. Authority officials said that the
            contractor had performed more than 600 inspections as of July 2013, had been
            paid $24,148 as of September 19, 2013, and would complete at least 300
            additional inspections. Consequently, the number of inspections performed
            exceeded the contract provisions, and the amount paid exceeded the Authority’s
            small purchase threshold of $21,500.




                                             12
Conclusion

             There were weaknesses in the Authority’s Housing Choice Voucher program’s
             financial controls and the procurement controls used to hire a housing quality
             standards inspector. We attributed these deficiencies to Authority officials’ lack
             of adequate oversight in administering the Authority’s program. Consequently,
             Authority officials failed to collect all receivables that were more than 90 days
             past due on behalf of port-in tenants and lacked assurance that duplicate housing
             assistance payments were not made and payments were properly reconciled. In
             addition, Authority officials executed a contract for unit inspections using the
             small purchase method, but paid the contractor more than the amount allowed
             through the small purchase method.

Recommendations

             We recommend that the Director of the HUD Newark Office of Public and Indian
             Housing instruct Authority officials to

             3A. Strengthen financial controls to bill for port-in receivables in a timely
                 manner and seek assistance from HUD when receivables are 90 days
                 overdue to provide greater assurance that the Authority will collect the
                 revenue and administrative fees to which it is entitled. If these controls are
                 implemented, the Authority will have greater assurance that its receivables
                 of $90,666 will be collected, thus provide greater assurance that these funds
                 will be put better use.

             3B. Reimburse from non-Federal funds the $6,285 in duplicate housing
                 assistance payments.

             3C. Implement procedures to determine whether uncashed housing assistance
                 and utility allowance payments represent a valid obligation and if not, return
                 the amounts to the program to provide greater assurance that funds totaling
                 $255,100 will be available for other eligible purposes.

             3D. Take action to develop an independent cost estimate and procure a new
                 contract for housing quality control inspection services that specify the
                 number of inspections to be conducted and a maximum dollar amount to be
                 paid, and seek Board approval for the $2,648 disbursed to date in excess of
                 the approved small purchase threshold.




                                              13
                         SCOPE AND METHODOLOGY

The audit focused on whether Authority officials established adequate controls to ensure that
they administered their Housing Choice Voucher program in accordance with applicable
regulations. We performed the audit fieldwork from March to September 2013 at the
Authority’s office at 60 Van Houten Street, Paterson, NJ.

To accomplish the audit objectives, we

      Reviewed HUD’s Housing Choice Voucher program regulations and the Authority’s
       program policies and procedures.

      Documented and obtained an understanding of the Authority’s financial and
       administrative controls.

      Interviewed HUD field office and Authority officials.

      Reviewed the Authority’s independent public accountant reports and HUD monitoring
       reports for program years 2010 through 2012.

      Reviewed the Authority’s financial and management data reported in HUD’s Central
       Accounting and Program System, Voucher Management System, and Public and Indian
       Housing Information Center system, and reconciled the data to the Authority’s records.
       Our assessment of the reliability of these data was limited to the data sampled and
       reconciled with data in the Authority’s records; therefore, we did not assess the reliability
       of these systems.

      Reviewed the Authority’s HUD-approved Housing Choice Voucher program annual
       plans for fiscal years 2009, 2010, 2011, and 2012; annual contributions contracts;
       voucher for payment of annual contribution and operating statement; financial data
       schedules; contract files; general ledger, and outstanding check register.

      Applied computer-assisted auditing techniques to identify questionable housing
       assistance payments, duplicate payments, port-ins and port-outs, possible prohibited
       tenant and landlord relationships, and the validity of Social Security and employer
       identification numbers.

      Applied EZ Quant to pick a nonstatistical sample of 25 tenant files from the housing
       assistance payment register to test compliance with HUD regulations regarding (1) tenant
       eligibility, (2) unit size, (3) rent reasonableness determination, (4) subsidy computation,
       (5) tenant share of the rent, and (6) timely recertification. The results of this sample are
       limited to the items tested and cannot be projected to the universe of tenant certifications.
       The nonstatistical sample of 25 tenant files included 15 tenant files from the Authority’s
       initial Housing Choice Voucher program unit inventory of 1,166 units and 10 tenant files
       from the Authority’s inventory of 2,237 units after absorbing the City’s inventory.


                                                14
      Applied EZ Quant to pick a nonstatistical sample of 15 units from the Authority’s
       original Housing Choice Voucher program inventory of 1,166 units to test for housing
       quality standards compliance. The results of this sample are limited to the items tested
       and cannot be projected to the current universe of 2,237 program-assisted units as of
       February 2013.

      Reviewed the disposition of the 75 applicants on the City’s waiting list who were
       requested by Authority officials to attend a Housing Choice Voucher program briefing on
       June 6 and 7, 2012.

      Reviewed and analyzed the Authority’s housing quality standards inspection logs and
       reports to determine whether inspections were conducted as required and that proper
       follow-up was being conducted for units that failed inspections.

      Reviewed the Authority’s procurement process for the contract awarded to a housing
       quality standards inspector.

      Reviewed Authority officials’ administration of the Housing Choice Voucher program
       waiting list and the selection of tenants to receive program assistance.

The review generally covered the period March 1, 2010, through June 30, 2013, and was
extended as needed to accomplish our objectives. We conducted the audit in accordance with
generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our objectives.




                                                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
               objectives:

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

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

                  Safeguarding of resources – Policies and procedures that management has
                   implemented to reasonably ensure that resources are safeguarded against waste,
                   loss, and misuse.

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

               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:

                   Authority officials did not have adequate controls over program operations
                    and compliance with regulations when they did not ensure that program-
                    assisted units were inspected annually, a housing quality standards
                    inspection log was properly maintained, quality control inspections of
                    housing quality standards inspections were performed, and tenants were
                    properly selected from the waiting list (see findings 1 and 2).

                   Authority officials did not have adequate controls over the reliability and
                    validity of data when they did not maintain adequate documents to support
                    tenant certifications and rental subsidy assistance calculations (see finding
                    2).

                   Authority officials did not have adequate controls to safeguard resources
                    when they did not ensure that port-in receivables and associated earned
                    administrative fees were collected (see finding 3).




                                              17
                                    APPENDIXES

Appendix A

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


         Recommendation                                                   Funds to be put to
             number            Unsupported 1/             Ineligible 2/     better use3/
               1A                  $3,891,845
               1B                                                                $3,768,868
               1C                                             $62,789
               1D                                                                     18,266
               2A                        49,350
               2B                                              18,756
               2C                      116,761
               3A                                                                     90,666
               3B                                               6,285
               3C                                                                   255,100
               3D                        2,648
              Total                 $4,060,604                $87,830            $4,132,900



1/   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.

2/   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.

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 case, if Authority officials (1) develop a plan in
     consultation with HUD to ensure that all assisted units are inspected annually as required
     (2) document that the nine noncompliant units now comply with housing quality
     standards, (3) implement controls to provide greater assurance that port-in receivables
     will be timely collected and (4) implement procedures to ensure that uncashed assistance

                                              18
checks are valid obligations, they can be assured that more than $4.1 million in funds will
be put to better use.




                                        19
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1

Comment 2



Comment 3



Comment 4




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 5

Comment 6




Comment 7



Comment 8




Comment 9




Comment 8


Comment 8




                         21
Ref to OIG Evaluation   Auditee Comments




Comment 8


Comment 10




Comment 8




Comment 11




Comment 8




                         22
23
                           OIG Evaluation of Auditee Comments

Comment 1 During a teleconference on December 20, 2013 Authority officials stated that they
          could produce documentation to support that many units questioned as
          uninspected had in fact been inspected. However, they were advised that such
          documentation was not provided during the audit or at the exit conference, and
          that any documentation will need to be provided to HUD during the audit
          resolution process.

Comment 2     In an audit notification letter dated January 28, 2013, Authority officials were
              advised that the Authority’s Housing Choice Voucher Program would be the
              subject of an OIG review, the objectives of which “are to determine whether
              Authority officials established adequate controls to ensure that Housing Choice
              Voucher Program funding is expended for eligible purpose and that the Program
              is administered in compliance with HUD Section 8 regulations”. In addition, at
              the entrance conference Authority officials were advised that the Authority’s
              Housing Choice Voucher Program had been selected for a survey based upon a
              risk assessment by the OIG that considered various factors, including the fact that
              the Authority’s program had not been recently reviewed by the OIG.

Comment 3     As stated in the January 28, 2013 audit notification letter, the Authority was
              advised that “the review period will generally be April 1, 2010 through December
              31, 2012, and can be extended as needed”. In order to acknowledge and report on
              corrective actions undertaken by the Authority in the area of housing quality
              standards inspections, we did extend the period through June 30, 2013. In
              addition, the Authority had been administering the City’s program under an
              intergovernmental agreement; however, it officially assumed responsibility for the
              program and merged it with its own program during our review in January 2013.

Comment 4 As agreed to by Authority officials at the exit conference, the language was
          changed to “Financial controls were not adequate to ensure that port-in
          receivables were collected, duplicate housing assistance payments were not made,
          and uncashed checks disbursed to landlords and tenants were adequately
          monitored”.

Comment 5 The Authority’s inspection log provided during the audit disclosed that 252
          assisted units had not been identified as having been inspected within the year
          ending June 30, 2013. Although officials state that they subsequently inspected
          most of these units, evidence to support such inspections was not provided to the
          OIG auditors while on-site. Therefore, any additional documentation to support
          that units were inspected should be provided to HUD during the audit resolution
          process. Further, since Authority officials did not provide documentation during
          the audit that quality control inspections were conducted, this evidence must also
          be provided to HUD as required by regulations at 24 CFR 982.405(b). In
          addition, the $18,266 still represents assistance that will be paid for units that
          Authority officials made housing quality standards compliant during the audit.



                                               24
Comment 6     The report was not adjusted to show that 96 units remain uninspected because as
              stated in comment 5 above, auditee officials did not provide evidence of
              additional inspections during the audit. Nevertheless, modification of the
              unsupported housing assistance payments and administrative fees will be made
              with HUD during the audit resolution process upon review of any additional
              supporting documents provided to HUD.

Comment 7     The $62,789 representing housing assistance payments deemed ineligible because
              they were paid for units that did not comply with housing quality standards, will
              have to be repaid unless additional documents are provided to HUD during the
              audit resolution process that indicate that the amount should be modified or not
              repaid.

Comment 8     The proposed corrective action responds to the report finding and related
              recommendation and HUD will determine whether the action implemented is
              sufficient.

Comment 9     The OIG disagrees with the Authority officials’ position concerning the tenant
              files cited in the draft report. While Authority officials were made aware of the
              deficiencies observed in the four tenant files on April 30, 2013 and August 30,
              2013, they did not provide a response to our observations. Any documentation
              Authority officials have now obtained should be provided to HUD during the
              audit resolution process.

Comment 10 During subsequent review we concluded that one, not two applicants were by-
           passed, and have adjusted the report to reflect that. However, this applicant was
           by-passed by other non-port-in applicants contrary to the waiting list procedures.
           Additionally, while the deficiency in the selection of the other five tenants was
           communicated to Authority officials on August 6, 2013, they did not provide a
           response during the audit or any documentation at the exit conference to support
           that the tenants were properly selected. Further, during the audit Authority
           officials provided two separate waiting lists dated June 28, 2013 that were not
           merged. Therefore, any documentation Authority officials have now should be
           provided to HUD during the audit resolution process.

Comment 11 The proposed action is responsive to the recommendation to return outstanding
           checks that do not represent valid obligations; however, Authority officials also
           need to strengthen procedures to determine in a more timely manner whether
           outstanding checks represent valid obligations.




                                               25