OFFICE OF AUDIT REGION 2 NEW YORK-NEW JERSEY New York City Housing Authority New York, NY Section 8 Housing Choice Voucher Program 2014-NY-1002 MAY 1, 2014 Issue Date: May 1, 2014 Audit Report Number: 2014-NY-1002 TO: Luigi D’Ancona Director, Office of Public and Indian Housing, New York, 2APH //SIGNED// FROM: Edgar Moore Regional Inspector General for Audit, New York-New Jersey Region, 2AGA SUBJECT: The New York City Housing Authority, New York, NY, Did Not Always Administer Its Section 8 Housing Choice Voucher Program in Accordance With Regulations Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) final results of our review of the New York City Housing Authority, New York, NY’s Section 8 Housing Choice Voucher program. HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit. The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov. If you have any questions or comments about this report, please do not hesitate to call me at (212) 264-4174. May 1, 2014 The New York City Housing Authority, New York, NY, Did Not Always Administer Its Section 8 Housing Choice Voucher Program in Accordance With Regulations Highlights Audit Report 2014-NY-1002 What We Audited and Why What We Found We audited the New York City Housing The Authority did not always administer its Section 8 Authority’s administration of its Section Housing Choice Voucher program in accordance with 8 Housing Choice Voucher program. HUD regulations and did not execute or maintain We selected the Authority based on documentation to support eligibility. Specifically, indicators from the U.S. Department of Authority officials did not document whether rent Housing and Urban Development’s reasonableness determinations for 34.7 percent of the (HUD) monitoring reports. The sample of 115 cases were performed to properly ensure objectives of the audit were to determine that rents paid for assisted units were reasonable in whether the Authority administered its relation to rents for comparable units. Therefore, Section 8 Housing Choice Voucher Authority officials could not assure HUD that at least 5 program in accordance with HUD percent of the $87.1 million, or more than $4.3 million, regulations and made housing assistance in administrative fees received was reasonable. payments for eligible program participants. This report is the first of In addition, officials did not always maintain (1) two reports on the Authority’s executed housing assistance payments contracts, (2) administration of its Section 8 Housing executed lease agreements, and (3) documents to Choice Voucher program. support the sources of tenant income for recertification. These conditions occurred because Authority officials did not provide adequate oversight What We Recommend to ensure that staff responsible for reviewing tenant case files verified that documents were maintained in We recommend that the Director of accordance with HUD requirements. As a result, the HUD’s New York Office of Public Authority could not assure HUD that $24,009 in Housing require Authority officials to housing assistance payments was disbursed and (1) strengthen controls to ensure that adequately supported in accordance with HUD rent reasonableness determinations are regulations. performed and documented and repay more than $4.3 million in unreasonable administrative fees from non-Federal funds, and (2) provide justification for the $24,009 in Section 8 Housing Choice Voucher program funds related to tenant files that did not contain HUD- required support. Any costs determined to be ineligible should be repaid with non-Federal funds. TABLE OF CONTENTS Background and Objectives 3 Results of Audit Finding 1: Authority Officials Did Not Document That Rent Reasonableness Determinations Were Always Performed 4 Finding 2: The Authority Did Not Always Administer Its Section 8 Housing Choice Voucher Program in Accordance With Regulations 7 Scope and Methodology 9 Internal Controls 11 Appendixes A. Schedule of Questioned Costs 13 B. Auditee Comments and OIG’s Evaluation 14 C. Schedule of Missing Documentation 21 2 BACKGROUND AND OBJECTIVES The United States Housing Act of 1937 established the Federal framework for government- owned affordable housing and was amended by the Quality Housing and Work Responsibility Act of 1998. The U.S. Department of Housing and Urban Development (HUD) provides funding for rent subsidies for tenants eligible for the Section 8 Housing Choice Voucher program. The New York City Housing Authority was created in 1934 and provides public housing for low- and moderate-income residents throughout the five boroughs of New York City. It is the largest public housing authority in the United States. The Authority is governed by a board of directors, which oversees the activities of the Authority. The board chairman is appointed by the mayor. The board meets to vote on contracts, resolutions, policies, motions, rules, and regulations. The Authority administers a Section 8 Housing Choice Voucher program, which it refers to as the citywide Section 8 Leased Housing Program. As of January 1, 2013, the Authority’s Section 8 Housing Choice Voucher program consisted of 92,561 rented units, of which 1,749 were portability vouchers located outside New York City. Additionally, the program includes 225,000 residents in Section 8 units and 31,436 participating private landlords. The table below shows the funding authorized by HUD and disbursed by the Authority for fiscal years 2007 through 2013. Fiscal year Funds authorized Funds disbursed 2013 $936,142,788 $936,142,788 1 2012 $991,054,505 $953,333,730 2011 $1,006,907,317 $ 1,006,907,317 2010 $1,008,253,419 $ 1,008,253,419 2009 $772,324,616 $772,324,616 2008 $730,311,059 $730,311,059 2007 $801,518,276 $801,518,276 This report is the first of two reports on the Authority’s administration of its Section 8 Housing Choice Voucher program. The objectives of the audit were to determine whether the Authority administered its Section 8 Housing Choice Voucher program in accordance with HUD regulations and made housing assistance payments for eligible program participants. 1 The amount authorized for fiscal year 2013 is as of December 21, 2013. Authorized amounts for fiscal years 2007 through 2012 consist of calendar months January through December. 3 RESULTS OF AUDIT Finding 1: Authority Officials Did Not Document That Rent Reasonableness Determinations Were Always Performed Authority officials did not document that rent reasonableness determinations were always performed to ensure that rents paid for assisted units were reasonable in relation to rents charged for comparable units. Specifically, a review of 115 statistically selected tenant files disclosed that 49 did not contain documentation showing that rent reasonableness determinations had been conducted. This condition occurred because Authority officials failed to establish adequate controls to ensure that rent reasonableness determination reviews were documented. Based on the results of our sample, we estimated that $1.16 billion2 in housing assistance payments disbursed may not have been supported by confirmation of HUD-required rent reasonableness determinations. Rent Reasonableness Determinations Were Not Documented in Tenant Files Authority officials did not document whether rent reasonableness determinations were always conducted. Regulations at 24 CFR (Code of Federal Regulations) 982.507(b) require that public housing authorities determine whether rents charged by owners and landlords to Housing Choice Voucher program participants are reasonable. The Authority’s administrative plan requires the Authority to determine whether rents charged are reasonable in relation to rental values in the private market. Specifically, in conducting rent reasonableness determinations, an authority must determine whether rent to the landlord is reasonable to ensure that subsidized rents do not exceed rental values in the private market. HUD requires that the rent reasonableness determinations be documented for each case in the tenant file and be based on the evaluation of the following nine factors: • Location, • Quality, • Size, • Unit type, • Age of the contract unit, • Amenities, • Housing services, 2 This amount represents an estimate of housing assistance payments projected over a 47-month period based on the results of our statistical sample. 4 • Maintenance provided by the owners, and • Utilities to be provided by the owner in accordance with the lease. The Authority used computerized systems to assist in administering the Section 8 Housing Choice Voucher program. The systems, called Siebal and the Universal Content Management system, were used to update tenant recertification information. The Authority’s procedures included performing a rent reasonableness determination at the initial lease of an apartment and at the lease renewal. The Authority used a rent reasonableness database to compare the unit being reviewed and print a rent certification report, which listed comparables and was to be documented in the tenant file. However, there was no evidence that responsible staff conducted the rent reasonableness determination in 49 of the 115 tenant case files reviewed. Based on the results of our sample testing of 49 files out of 115 tenant case files reviewed, we projected that at least 34.7 percent or 1.45 million payments made monthly to tenants were disbursed during our audit period, December 1, 2007, to November 30, 2011, may not be supported by the HUD-required rent reasonableness determinations. This equates to $1.16 billion in disbursed housing assistance payments. This condition occurred because Authority officials did not establish controls to ensure that staff documented rent reasonableness determinations. Further, based on the results of our sample, we projected that at least $1.16 billion in disbursed housing assistance payments may have been made for units without evidence that a rent reasonableness determination was performed. As a result, HUD had no assurance that housing assistance payments complied with HUD requirements regarding rent reasonableness determinations. Further, the Authority earned approximately $87.1 million in administrative fees per year; however, officials did not ensure that rent reasonableness determinations were conducted and documented in 34.7 percent of the cases tested. As a result, the administrative fee earned by the Authority did not appear to be reasonable. Based on our sample results, we projected that 32,128 tenant files did not contain HUD-required rent reasonableness determinations and the administrative fee collected by the Authority for these units would have been $30 million. Therefore, we conservatively estimated that Authority officials could not assure HUD that at least 5 percent of the $87.1 million in administrative fees, or $4,355,000, was reasonable. Conclusion The weaknesses discussed above occurred because authority officials failed to establish adequate controls to ensure that rent reasonableness determinations were documented. As a result, HUD lacked assurance that reasonable rents were paid for assisted units. In accordance with 24 CFR 982.152(d), HUD is permitted to reduce or offset any program administrative fees paid to a public housing authority if it fails to perform its administrative responsibilities correctly. Our 5 review disclosed that 49 of the 115 tenant files reviewed did not contain evidence of a rent reasonableness test; therefore, we considered 5 percent of its administrative fee received for 1 year to be a reasonable amount that should be repaid to HUD from non-Federal funds. Recommendations We recommend that the Director of HUD’s New York Office of Public and Indian Housing instruct Authority officials to 1A. Repay HUD from non-Federal funds at least 5 percent of the administrative fees received for one year, or $4.3 million. 1B. Strengthen controls to ensure that rent reasonableness determinations are always documented to show compliance with the Authority’s policies and HUD requirements. 6 Finding 2: The Authority Did Not Always Administer Its Section 8 Housing Choice Voucher Program in Accordance With Regulations In 31 of the 115 tenant files reviewed, Authority officials did not maintain one or more of the following documents: executed housing assistance payments contracts, executed lease agreements, and documents to support the sources of tenant income for recertification. These deficiencies occurred because Authority officials did not provide adequate oversight to ensure that staff responsible for reviewing tenants’ case files complied with HUD requirements. As a result, Authority officials could not assure HUD that housing assistance payments were disbursed in accordance with HUD rules and regulations for eligible program participants. Therefore, we considered that at least $627 million may not have been supported by HUD- required documentation. Authority Officials Did Not Maintain HUD-Required Documents in Tenant Files Authority officials did not ensure that tenant case files included executed housing assistance payments contracts, executed lease agreements, and documents to support the sources of tenant income for recertification as required by HUD regulations. 3 The housing assistance payments contract is executed between the authority and the owner or landlord. It defines the tenant information, lease terms, monthly rent, and housing assistance payment to be made by the authority to the landlord. A lease agreement is required to be executed between the landlord or owner and the tenant. This agreement grants the use or occupancy of the property during a specified period in exchange for a specified rent. Sources of tenant income include third-party verification of annually reported family income, the value of assets, expenses related to deductions from annual income, and other factors that affect the determination of adjusted income. 4 This issue was also identified in the Authority’s A-133 Single Audit, dated December 31, 2010, which indicated that the Authority lacked documentation to support tenant eligibility, including tenant applications, third-party verifications, and lease agreements, in noncompliance with HUD regulations. Our review of 115 tenant files disclosed that the Authority lacked HUD required documentation for 31 or 20.13 percent of housing assistance payments it made 3 Regulations at 24 CFR 982.158(e) require that the Authority keep a copy of the executed lease and housing assistance payments contract during the term of each assisted lease and for 3 years thereafter. 4 Regulations at 24 CFR 982.516(2) require that the Authority obtain and document in the tenant files third-party verification source documents for tenant income. 7 within the audit period of December 1, 2007 through November 30, 2011 (see appendix C). Therefore, we estimated that at least 20 percent, or 843,000, of its housing assistance payments within the audit period may not have been supported with HUD-required documentation. Further, at least $627 million in housing assistance payments disbursed may not have been adequately supported with HUD-required documents. As a result, Authority officials could not assure HUD that housing assistance payments disbursed during the period complied with HUD requirements. Conclusion The weaknesses discussed above occurred because Authority officials failed to provide adequate oversight to ensure that staff responsible for reviewing tenant case files verified that the documents obtained complied with HUD requirements. As a result, they could not assure HUD that housing assistance payments amounting to $24,009, related to the tenants whose files were missing one or more of the required documentation, were disbursed in accordance with HUD regulations. Further, potentially more than $627 million in disbursed housing assistance payments may not have been supported. Recommendations We recommend that the Director of HUD’s New York Office of Public and Indian Housing instruct Authority officials to 2A. Provide documentation to support the $24,009 in disbursed housing assistance payments associated with the tenant case files missing (1) executed housing assistance payments contracts, (2) lease agreements, and (3) source documentation to support tenant income. Any costs determined to be ineligible should be reimbursed from non-Federal funds. 2B. Strengthen controls over the oversight of staff responsible for tenant case file reviews to ensure that all tenant case files include (1) housing assistance payments contracts; (2) executed lease agreements and lease amendments; and (3) third-party verification of reported family annual income, the value of assets, expenses related to deductions from annual income, and other factors that affect the determination of adjusted income. 8 SCOPE AND METHODOLOGY Our review generally covered the period December 1, 2007, through November 30, 2011, and was extended as needed. We performed our fieldwork from November 2012 through May 2013 at the Authority’s offices located at 90 Church Street, New York, NY. To accomplish our audit objectives, we • Reviewed applicable laws, regulations, HUD handbooks, HUD notices, and the Authority’s policies and procedures. • Obtained an understanding of the Authority’s financial and administrative controls. • Interviewed HUD field office and Authority officials. • Reviewed the Authority’s financial and management data in the Federal Audit Clearing House and HUD’s Public and Indian Housing Information Center system and Line of Credit Control System. • Reviewed the Authority’s HUD-approved annual contributions contract for fiscal year 2010. • Evaluated internal controls and reviewed computer controls to identify potential weaknesses related to our objectives. We relied in part on computer-processed data primarily for obtaining background information on the Authority’s Section 8 Housing Choice Voucher program. We performed a minimal level of testing and found the data to be adequate for our purposes. • Reviewed records of the Authority’s board minutes, independent public auditor’s reports, and written HUD monitoring reviews of the Authority’s Section 8 Housing Choice Voucher program. We obtained monthly housing assistance payment data from the Authority covering a period of 47 months. We statistically selected a sample of 115 monthly payments from the Authority’s housing assistance payment data for the period December 1, 2007, to November 30, 2011. The universe included more than $4.19 million in monthly payments, which amounted to $3.57 billion in housing assistance payments made to 112,424 recipients during the 47-month period. Our sampling method was variable with a projected one-sided 95 percent confidence interval. The sample results support an estimate that the Authority may have disbursed housing assistance payments for participants, for whom files were incomplete because they were missing rent reasonableness determinations, housing assistance payments contracts, lease agreements, and tenant income source documentation. Thus, our results were applied to the $4.19 million in monthly housing assistance payments in the sample universe. 9 Rent reasonableness not documented: Based on 49 occurrences in our weighted, stratified sample, at least 34.71 percent, or 1.45 million housing assistance payments within the audit period, were not supported by the HUD-required rent reasonableness determination. Therefore, at least $1.16 billion in housing assistant payments disbursed during the audit period may not have been supported by HUD-required rent reasonable determination documentation. Payments not supported with HUD-required documents: Based on 31 occurrences in our weighted, stratified sample, at least 20.13 percent, or 843,000 housing assistance payments within the audit period, were missing at least one of the required HUD documents: housing assistance payments contract, lease agreement, or income documentation. Therefore, at least $627 million in housing assistance payments disbursed during the audit period may not have been supported by one of the required documents, including an executed housing assistance payments contract, lease agreement, or tenant income documentation, as required by HUD regulations. We conducted the audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective(s). We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 10 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 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. 11 Significant Deficiencies Based on our review, we believe that the following items are significant deficiencies: • Authority officials did not have adequate controls over compliance with laws and regulations when they did not provide evidence that required rent reasonableness determinations were documented and that the required housing assistance payments contracts, lease agreements, and tenant income data were maintained in tenant files (see findings 1 and 2). • Authority officials did not have adequate controls over program operations when they did not provide adequate oversight of staff responsible for ensuring that tenant case files were complete and consistent with HUD regulations (see finding 2). 12 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS Recommendation Unsupported 1/ Unreasonable or number unnecessary 2/ 1A $4,355,000 2A $24,009 Total $24,009 $4,355,000 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/ Unreasonable or unnecessary costs are those costs not generally recognized as ordinary, prudent, relevant, or necessary within established practices. Unreasonable costs exceed the costs that would be incurred by a prudent person in conducting a competitive business. 13 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 14 Ref to OIG Evaluation Auditee Comments Comment 2 Comment 3 15 Ref to OIG Evaluation Auditee Comments Comment 3 16 Ref to OIG Evaluation Auditee Comments Comment 4 Comment 5 Comment 6 Comment 1 17 Ref to OIG Evaluation Auditee Comments Comment 1 18 OIG Evaluation of Auditee Comments Comment 1 The actions taken by Authority officials are responsive to our recommendations. Comment 2 Authority officials disagreed with finding 1, contending that cases cited in the finding were based, in part, on a rent reasonableness determination policy that the Authority is no longer using. Further, officials contend that for 3 out of 49 cases cited in the finding, two cases did contain the documentation in the file, and one case did not require the rent reasonable determination because the tenant ported out; therefore, the finding should be reduced to 46 cases. It is true that HUD’s 2008 monitoring report determined that the Authority’s rent reasonableness procedures were inconsistent with HUD requirements for which in response, Authority officials secured a vendor to provide the market rent comparables. However, contrary to the officials claim that in 2009 the rent reasonableness solution was fully implemented, our review of the tenant cases files reviewed found that there was no documentation to exhibit that rent reasonableness determinations were performed for the audit period of December 2007 to November 2011, in 49 out of 115 cases reviewed. In response to Authority officials’ additional claims of supporting documentation, HUD will have to determine the sufficiency of such documentation during the audit resolution process. Comment 3 Authority officials disagree that 31 out of the 115 tenant files reviewed did not maintain one or more of the required documents, claiming that they reviewed the files and found that some support was available in tenant files. Authority officials provided documentation for review and requested that the finding be modified. Also, the officials acknowledged that the missing documentation was a result of a back file conversion process, which began in 2009 that converted files from hardcopy to electronic record. We have reviewed the documentation provided subsequent to the onsite audit work and determined that it was not sufficient to modify the finding. For example, we had noted that an executed lease agreement was not on file for the period tested of November 2010. Authority officials subsequently provided an expired lease for the period February 1, 2009 to January 31, 2010, and claim that the tenant was on a month to month lease at that point in time and did not require an executed lease. However, we found no evidence in the tenant file to suggest that the tenant was on a month to month lease. In another example, Authority officials provided a payment change notification form indicating no lease renewal and also provided a lease agreement, beginning in September 1986, without a signature page. Thus, the documentation provided subsequent to the audit work was found to be insufficient to modify the finding as we cannot determine eligibility. Officials are reminded that unsupported costs are those cost charged to a HUD financed program or activity and eligibility cannot be determined at time of audit, requiring a decision by HUD program officials. As such, additional documents will be needed for HUD to make a determination during the audit resolution process. Comment 4 Authority officials disagree with recommendation 1A to repay from non-Federal 19 funds at least 5 percent of the administrative fees received for one year, or $4.3 million, contending that rent reasonableness determinations were conducted in accordance with policies and procedures in place at the time. Further, officials request reconsideration of any reimbursement of administrative fees, or a reduction in the reimbursement amount based on corrective actions taken. Our review found that the rent reasonableness determinations were not documented in accordance with HUD requirements and the new procedures established by the Authority officials, which require the rent reasonableness determinations to be documented in the tenant file. Further, the administrative fee collected did not appear to be reasonable. In accordance with 24 CFR 982.152 (d), HUD is permitted to reduce or offset any program administrative fees paid to a public housing authority if it fails to perform its administrative responsibilities correctly. The audit identified errors throughout the test period of December 1, 2007 to November 30, 2011, which consisted of 47 months. Thus, the reimbursement calculation of $4.3 million in administrative fees received for one year is already conservative considering that our sample results indicates that the Authority collected over $30 million in administrative fees for the units with no documented rent reasonableness determination in the files. Thus, reconsideration is not necessary. Comment 5 Authority officials indicated that they are already in compliance with determining rent reasonableness, since they implemented an interface to ensure that all rent reasonableness certifications are automatically uploaded and stored in their system. While we commend the officials for taking steps to implement corrective actions to address this recommendation, HUD will need to determine the sufficiency of the enhancements made to ensure compliance with regulations. Comment 6 Authority officials indicated that they have experienced issues with missing documents in their back file conversion (see comment 3 above) and they will continue to work to retrieve those records. Therefore, they request consideration of any reimbursement of HAP based on the corrective action already taken. During the audit resolution process, HUD will take the officials request for consideration. 20 Appendix C SCHEDULE OF MISSING DOCUMENTATION Missing Monthly housing Missing housing assistance tenant assistance Sample payments Missing income payment item no. contract lease support amount 1 X $988.00 2 X $648.23 3 X X $796.77 4 X $229.68 5 X $1,501.00 6 X $697.47 7 X $1,107.45 8 X X $408.55 9 X X $1,012.59 10 X $582.82 11 X $426.51 12 X X $309.68 13 X $505.56 14 X $1,097.00 15 X X $822.83 16 X X $834.84 17 X $957.50 18 X X $735.84 19 X $931.25 20 X $442.59 21 X $893.01 22 X X $89.00 23 X $803.35 24 X $803.35 25 X $1,300.21 26 X X $784.13 27 X X X $573.00 28 X X X $1,127.00 29 X $911.90 30 X $840.88 30 31 X $847.00 Total 12 21 11 $24,008.99 21
The New York City Housing Authority, New York, NY, Did Not Always Administer Its Section 8 Housing Choice Voucher Program in Accordance With Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-05-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)