oversight

The Housing Authority of the County of Lackawanna, Dunmore, PA, Needs To Improve Its Housing Quality Standards Inspections and Properly Abate Housing Assistance Payments as Required

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-07-01.

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

 OFFICE OF AUDIT
 REGION 3
 PHILADELPHIA, PA




   Housing Authority of the County of Lackawanna
                   Dunmore, PA

               Housing Choice Voucher Program




2014-PH-1006                                    JULY 1, 2014
                                                        Issue Date: July 1, 2014

                                                        Audit Report Number: 2014-PH-1006




TO:            Dennis G. Bellingtier, Director, Office of Public Housing, Pennsylvania State
               Office, 3APH
               //signed//
FROM:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA


SUBJECT:       The Housing Authority of the County of Lackawanna, Dunmore, PA, Needs To
               Improve Its Housing Quality Standards Inspections and Properly Abate Housing
               Assistance Payments as Required


    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 Housing Authority of the County of
Lackawanna, PA.

    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
215-430-6730.
                                             July 1, 2014
                                             The Housing Authority of the County of Lackawanna,
                                             Dunmore, PA, Needs To Improve Its Housing Quality
                                             Standards Inspections and Properly Abate Housing
                                             Assistance Payments as Required


Highlights
Audit Report 2014-PH-1006


    What We Audited and Why                   What We Found

We audited the Housing Authority of          The Authority did not conduct adequate inspections to
the County of Lackawanna’s Housing           ensure that its program units met housing quality
Choice Voucher program because we            standards as required. Of 80 program units statistically
received an anonymous complaint              selected for inspection, 72 did not meet HUD’s
alleging incompetent leadership and          housing quality standards. Further, 35 of the 72 units
poor quality of life at the Authority.       were in material noncompliance with housing quality
This is the second of two audit reports      standards. The Authority disbursed $17,029 in
on the Authority. 1 Our objectives in        housing assistance payments and received $1,470 in
this audit were to determine whether the     administrative fees for these 35 units. We estimate
Authority ensured that its Housing           that over the next year if the Authority does not
Choice Voucher program units met U.S.        implement adequate procedures to ensure that its
Department of Housing and Urban              program units meet housing quality standards, HUD
Development (HUD) housing quality            will pay more than $1.1 million in housing assistance
standards and whether it abated housing      for units that materially fail to meet those standards.
assistance payments as required.
                                        The Authority did not abate housing assistance
                                        payments as required. As a result, it improperly paid
  What We Recommend
                                        owners at least $18,655 for units that did not meet
                                        housing quality standards. Additionally, it incorrectly
We recommend that HUD require the       certified on its Section 8 Management Assessment
Authority to (1) reimburse its program Program score that it enforced housing quality
$18,499 from non-Federal funds for the standards as required.
35 units that materially failed to meet
HUD’s housing quality standards; (2)
continue to implement procedures and
controls to ensure that program units
meet housing quality standards; and (3)
reimburse its program $18,655 from
non-Federal funds for housing
assistance payments that should have
been abated.

1
 Audit Report #2014-PH-1003, The Housing
Authority of the County of Lackawanna,
Dunmore, PA, Needs To Improve Its Controls
Over Its Operations To Comply With HUD
Requirements, issued February 28, 2014
                            TABLE OF CONTENTS

Background and Objectives                                                  3

Results of Audit
      Finding 1: Housing Quality Standards Inspections Were Inadequate      4
      Finding 2: The Authority Did Not Abate Housing Assistance Payments   13

Scope and Methodology                                                      16

Internal Controls                                                          19

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use       21
B.    Auditee Comments and OIG’s Evaluation                                22




                                            2
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the County of Lackawanna, PA, was established in 1961 to provide
low-income citizens with safe, clean, and affordable housing and help improve their quality of
life. The Authority is a nonprofit corporation, which was organized 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
Lackawanna County 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 board
of commissioners consisting of five members appointed by the Lackawanna County Board of
Commissioners. The board appoints an executive director to manage the day-to-day operations
of the Authority. The Authority’s executive director during the audit was James Dartt. Its main
office is located at 2019 West Pine Street, Dunmore, PA.

Under the Section 8 Housing Choice Voucher program, HUD authorized the Authority to
provide leased housing assistance payments to more than 880 eligible households in fiscal year
2013. HUD authorized the Authority the following financial assistance for housing choice
vouchers for fiscal years 2011 through 2013.

                                        Number of vouchers         Annual budget
                      Year                 authorized                authority
                      2011                    886                   $3,256,165
                      2012                    886                   $3,324,699
                      2013                    886                   $3,250,518

HUD regulations at 24 CFR (Code of Federal Regulations) 982.405(a) require public housing
authorities to perform unit inspections before the initial move-in and at least annually. The
authority must inspect the unit leased to the family before the term of the lease, at least annually
during assisted occupancy, and at other times as needed to determine whether the unit meets
housing quality standards. HUD regulations at 24 CFR 982.404(a)(2) require the Authority to
ensure that housing units and premises be maintained in accordance with HUD’s housing quality
standards and if not, the Authority is required to abate housing assistance payments to the owners
until the requirements are met.

Our audit objectives were to determine whether the Authority ensured that its Housing Choice
Voucher program units met HUD’s housing quality standards and whether it abated housing
assistance payments as required.




                                                 3
                                RESULTS OF AUDIT

Finding 1: Housing Quality Standards Inspections Were Inadequate
The Authority did not conduct adequate inspections to enforce HUD’s housing quality standards.
Of 80 program housing units inspected, 72 did not meet HUD’s housing quality standards, and
35 materially failed to meet HUD’s standards. The Authority’s inspector did not observe or
report 518 violations that existed at the 35 units when they conducted their inspections. This
condition occurred because: (1) the Authority did not have a quality control program for its
housing quality standards inspection program, (2) the inspector missed some violations during
inspections, (3) the inspector was not aware that some deficiencies were violations, (4) the
inspector did not always record violations on the inspection report and verbally communicated
them to the owner for resolution, and (5) the inspector did not always conduct follow-up
inspections to ensure that 24-hour and 30-day violations were corrected. As a result, the
Authority disbursed $17,029 in housing assistance payments and received $1,470 in
administrative fees for the 35 units that materially failed to meet HUD’s housing quality
standards. Unless the Authority improves its inspection program and ensures that all units meet
housing quality standards, we estimate that it will pay nearly $1.1 million in housing assistance
for units that materially fail to meet housing quality standards over the next year.


 Housing Units Did Not Meet
 HUD’s Housing Quality
 Standards

              We statistically selected 80 units from a universe of 121 units that passed an
              Authority housing quality standards inspection between August 15 and October
              15, 2013. The 80 units were selected to determine whether the Authority ensured
              that the units in its Housing Choice Voucher program met housing quality
              standards. We inspected the 80 units from November 12 to December 4, 2013.

              Of the 80 housing units inspected, 72 (90 percent) had 801 housing quality
              standards violations, including 284 violations that needed to be corrected within
              24 hours because the violations posed a serious threat to the safety of the tenants.
              Additionally, 35 of the 72 units (49 percent) were in material noncompliance with
              housing quality standards because they had 518 violations that predated the
              Authority’s last inspection. These violations were not identified by the
              Authority’s inspector, creating unsafe living conditions. Also, of the 72 units that
              failed our inspection, 2 had 2 violations that were noted on the Authority’s
              previous inspection reports, and the Authority later passed the units. However,
              during our inspection, we determined that the violations had not been corrected.
              HUD regulations at 24 CFR 982.401 require that all program housing meet
              housing quality standards performance requirements both at commencement of
              assisted occupancy and throughout the assisted tenancy. The following table



                                                4
                 categorizes the 801 housing quality standards violations in the 72 units that failed
                 our housing quality standards inspections.

                                  Key aspect 2                     Number of Number of Percentage
                                                                   violations  units    of units
                  Illumination and electricity                        320       59         74
                  Structure and materials                             224       54         68
                  Site and neighborhood                                82       40         50
                  Smoke detectors                                      73       39         49
                  Access                                               40       26         33
                  Food preparation and refuse disposal                 17       10         13
                  Interior air quality                                 14        9         11
                  Space and security                                   11        9         11
                  Sanitary facilities                                   9        8         10
                  Sanitary condition                                    8        8         10
                  Thermal environment                                   3        3          4
                  Total                                               801

                 We provided our inspection results to the Authority and the Director of HUD’s
                 Pennsylvania State Office of Public Housing during the audit.

                 The following photographs illustrate some of the violations we noted while
                 conducting housing quality standards inspections in the 35 units that materially
                 failed to meet HUD’s housing quality standards.




                 Inspection #24: The furnace and hot water heater flue pipes located in the
                 basement were not sealed, allowing fumes to enter the unit. The Authority did not
                 identify this violation during its August 29, 2013, inspection.


2
 Regulations at 24 CFR 982.401 categorize housing quality standards performance and acceptability criteria by 13
key aspects. Only 11 key aspects are listed in the table because we identified no violations for 2 key aspects.


                                                        5
Inspection #28: Flooring under the toilet was rotted, and the bathroom was not
functional. The Authority did not identify this violation during its
August 16, 2013, inspection.




Inspection #46: The 220-volt outlet was missing a cover, exposing the
electrical wiring. The Authority did not identify this violation during its
October 15, 2013, inspection.




                                         6
Inspection #46: The ceramic light fixture was not secured to the junction box, and
the romex connector was missing. The Authority did not identify this violation
during its October 15, 2013, inspection.




Inspection #57: The unit’s garage was not structurally sound. Support beams
were used to hold the ceiling in place. Additionally, the side wall was rotted
at the bottom, allowing the wall to lean. The unit’s kitchen was located above
the garage. The Authority did not identify this violation during its October 8,
2013, inspection.




                                        7
Inspection #58: Multiple handrails and railings were missing. Four or more steps
required handrails, and fall distances of greater than 30 inches required railings.
The Authority did not identify this violation during its August 27, 2013,
inspection.




Inspection #59: The basement door was rotted and was missing the bottom
section, allowing water and other outside elements to enter the basement. The
Authority did not identify this violation during its October 2, 2013,
inspection.




                                        8
Inspection #67: The junction box located in the basement of the unit had the
wrong cover, exposing the electrical contacts inside the box. The Authority did
not identify this violation during its September 27, 2013, inspection.




Inspection #74: The back yard of the unit was covered in trash and debris. An
abandoned truck was parked alongside the unit. Additionally, siding was missing on
the rear of the unit, and the tar paper was not functional. The Authority did not
identify this violation during its August 21, 2013, inspection.




                                       9
The Authority Needs To
Improve Its Housing Quality
Standards Inspection Process


            Although HUD regulations at 24 CFR 982.401 and the Authority’s administrative
            plan required the Authority to ensure that its program units met housing quality
            standards, it did not always do so. The Authority did not have a quality control
            program for its inspections to ensure that program units met program
            requirements. Because the Authority did not perform quality control inspections,
            it did not determine whether its inspector performed sufficient inspections to
            ensure compliance with HUD’s standards, and it did not provide performance-
            related feedback to the inspector to improve the Authority’s inspection program.
            HUD’s Housing Choice Voucher Program Guidebook 7420.10G states that the
            results of the quality control inspections should be provided as feedback on
            inspectors’ work, which can be used to determine whether individual performance
            or general housing quality standards training issues need to be addressed.

            The lack of a quality control program was critical for the Authority. The
            inspector did not identify some violations during inspections, such as improperly
            sloped flue pipes, unsecured fuse boxes, a missing smoke detector, and inoperable
            window locks. The inspector was not aware that some deficiencies, such as
            missing knockout plugs in junction boxes, improperly wired electrical outlets,
            deteriorated and broken concrete steps and walkways, and open sides on flights of
            stairs, were violations. Further, the inspector did not always record violations on
            the inspection report. Instead, the inspector verbally communicated the violations
            to the owners for resolution while on site, and did not always conduct follow-up
            inspections to ensure that 24-hour and 30-day violations were corrected. The
            inspector relied on the owners to make the necessary repairs. The inspector did
            not fail the units on the inspection reports if he considered the violations minor,
            such as inoperable smoke alarms and missing outlet covers. The inspector stated
            that he did not have enough time to reinspect all units. However, based on the
            Authority’s inspection data, the inspector completed five unit inspections per day
            on average.

            The Authority needs to improve its housing quality standards inspections by
            establishing a quality control inspection program and training its inspector.

The Authority Had Begun
Taking Action Based on the
Audit Results

            The Authority had taken action to improve its housing quality standards
            inspection program during the audit. The Authority informed us that it had hired
            a new inspector for its Housing Choice Voucher program units and reassigned the
            former inspector to a different department. The Authority’s new inspector,


                                            10
             Section 8 coordinator, and executive director had received housing quality
             standards inspection training from a housing industry organization recognized by
             HUD. Additionally, the Authority had proposed changes to its quality control
             process and sent a corrective action plan with the proposed changes to HUD for
             review and approval. The Authority planned to assign recertification inspections
             to one employee and quality control inspections to another employee to ensure
             that all units complied with housing quality standards. The Authority also
             planned to update its administrative plan to reflect these changes.

Conclusion

             The Authority’s program participants were subjected to housing quality standards
             violations that created unsafe living conditions during the participants’ tenancy.
             The Authority did not properly use its program funds when it inspected and
             passed program units that did not meet HUD’s housing quality standards. In
             accordance with HUD regulations at 24 CFR 982.152(d), HUD is permitted to
             reduce or offset program administrative fees paid to a public housing authority if
             it fails to perform its administrative responsibilities correctly or adequately, such
             as not enforcing HUD’s housing quality standards. The Authority disbursed
             $17,029 in housing assistance payments and received $1,470 in program
             administrative fees for 35 units that materially failed to meet HUD’s housing
             quality standards. If the Authority implements controls and trains its inspector
             and other responsible staff to ensure that all units meet housing quality standards,
             we estimate that nearly $1.1 million in future housing assistance payments will be
             spent for units that are decent, safe, and sanitary. Our methodology for this
             estimate is explained in the Scope and Methodology section of this report.

Recommendations

             We recommend that the Director of HUD’s Pennsylvania State Office of Public
             Housing direct the Authority to

             1A.    Certify, along with the owners of the 72 units cited in this finding, that the
                    applicable housing quality standards violations have been corrected.

             1B.    Reimburse its program $18,499 from non-Federal funds ($17,029 for
                    housing assistance payments and $1,470 in associated administrative fees)
                    for the 35 units that materially failed to meet HUD’s housing quality
                    standards.

             1C.    Continue to implement procedures and controls, including a quality
                    control program, training for its inspectors, and an evaluation of the
                    inspection workload to determine whether one inspector is sufficient to
                    conduct all of the necessary inspections, to ensure that program units meet




                                              11
housing quality standards, thereby ensuring that $1,096,644 in program
funds is expended for units that are decent, safe, and sanitary.




                        12
Finding 2: The Authority Did Not Abate Housing Assistance Payments
The Authority did not abate housing assistance payments as required. It did not reduce housing
assistance payments when owners failed to make repairs to their program units within the
required period. This condition occurred because managers did not understand how to properly
perform abatements. The Authority lacked policies and procedures pertaining to the abatement
process, and its staff lacked practical knowledge in the abatement process and the ability to use
its computer system to process abatements. As a result, the Authority made ineligible housing
assistance payments totaling at least $18,655 for units that did not meet HUD’s housing quality
standards. Additionally, it incorrectly certified on its Section 8 Management Assessment
Program score that it enforced housing quality standards as required.


    The Authority Did Not Abate
    Housing Assistance Payments

                    Contrary to the regulations at 24 CFR 982.404(a)(2), the Authority did not abate
                    housing assistance payments when units failed housing quality standards
                    inspections and repairs were not made within the required timeframe. The
                    Authority failed to abate housing assistance payments because managers did not
                    understand how to properly perform an abatement. Therefore, it did not
                    implement policies and procedures pertaining to the abatement process. The
                    responsible staff did not fully understand the abatement process and how to
                    process abatements in its computer system. As a result, the Authority made
                    ineligible housing assistance payments totaling $18,655 for 22 units 3 during the
                    period July 15, 2012, to October 16, 2013.

    The Authority’s SEMAP Score
    Was Overstated


                    Because the Authority is a participant in HUD’s Housing Choice Voucher
                    program, it is required to use HUD’s Section 8 Management Assessment Program
                    (SEMAP) to assess whether its Housing Choice Voucher program operates to
                    help eligible families afford decent rental units at the correct subsidy cost. The
                    Authority is required to annually self-certify to the effectiveness of its program.
                    SEMAP uses 16 indicators to measure the effectiveness of the Authority’s
                    program. Indicator 6, maximum 10 points, is used to determine whether the
                    Authority takes appropriate housing quality standards enforcement actions when
                    housing units do not meet housing quality standards.

                    Regulations at 24 CFR Part 985, subpart A, section 3, state that for indicator 6, if
                    housing quality standards deficiencies are not corrected in a timely manner, the
                    Authority should abate housing assistance payments beginning no later than the

3
    None of these 22 units was included in the sample of 80 units discussed in finding 1.


                                                           13
             first of the month following the specified correction period or terminate the
             housing assistance payment contract or for family-caused defects, take prompt
             and vigorous action to enforce the family’s obligations.

             For 2013, for indicator 6, the Authority gave itself a 10-point score for housing
             quality standards enforcement. However, based the results of our review, the
             score was incorrect. The Authority did not properly abate housing assistance
             payments as required. It did not reduce housing assistance payments when
             owners failed to make repairs to their program units within the required period
             and retroactively paid owners housing assistance, which is prohibited. The
             Authority’s SEMAP score was overstated. We discussed this issue with the
             Director of HUD’s Pennsylvania State Office of Public Housing, and the Director
             agreed to review the certification and rescore the Authority’s SEMAP submission.

The Authority Had Begun
Taking Action Based on the
Audit Results

             The Authority acknowledged that it did not abate housing assistance payments as
             required. It informed us that it had begun taking corrective action during the
             audit. It had begun training its staff on the abatement process and on its computer
             system to instill a working knowledge of the system functions involved with
             abatement.

Conclusion

             The Authority did not abate housing assistance payments as required. It did not
             reduce housing assistance payments when owners failed to make repairs to their
             program units within the required period. The Authority disbursed $18,655 in
             housing assistance payments for 22 units that failed to meet HUD’s housing
             quality standards. Additionally, it incorrectly certified on its Section 8
             Management Assessment Program score that it enforced housing quality
             standards as required. If the Authority implements policies and procedures and
             trains the responsible staff on the proper abatement of housing assistance
             payments and the use of its computer system to process abatements, we
             conservatively estimate that at least $18,655 in future housing assistance
             payments will be spent for units that meet housing quality standards. Our
             methodology for this estimate is explained in the Scope and Methodology section
             of this report.




                                             14
Recommendations

          We recommend that the Director of HUD’s Pennsylvania State Office of Public
          Housing direct the Authority to

          2A.     Reimburse its program $18,655 from non-Federal funds for housing
                  assistance payments that should have been abated.

          2B.     Continue to develop and implement policies and procedures and train the
                  responsible staff on the proper abatement of housing assistance payments
                  and the use of its computer system to process abatements, thereby
                  ensuring that at least $18,655 in program funds is expended for units that
                  meet housing quality standards as required over the next year.

          We recommend that the Director of HUD’s Pennsylvania State Office of Public
          Housing

          2C.     Rescore the Authority’s 2013 SEMAP submission to correct the points for
                  indicator 6, housing quality standards enforcement.




                                           15
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

   •   Applicable laws, regulations, the Authority’s administrative plan, HUD’s program
       requirements at 24 CFR Parts 982 and 985, HUD’s Housing Choice Voucher Guidebook
       7420.10G, and other guidance.

   •   The Authority’s inspection reports; computerized databases, including housing quality
       standards inspection, housing assistance payment, and tenant data; annual audited
       financial statements for 2012; tenant files; policies and procedures; board meeting
       minutes; and organizational chart.

   •   HUD’s monitoring reports for the Authority.

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

To achieve our audit objectives, we relied in part on computer-processed data from the
Authority’s computer system. Although we did not perform a detailed assessment of the
reliability of the data, we did perform a minimal level of testing and found the data to be
adequate for our purposes.

We statistically selected 80 of the Authority’s program units to inspect from a universe of 121
program units that passed an Authority-administered housing quality standards inspection
between August 15 and October 15, 2013. These inspections were conducted by one Authority
inspector. We selected the sample based on a confidence level of 90 percent, an estimated error
rate of 50 percent, and a precision level of plus or minus 10 percent. We inspected the selected
units between November 12 and December 4, 2013, to determine whether the Authority’s
program units met housing quality standards. The Authority’s inspector and maintenance
mechanic accompanied us on all of the inspections.

Our sampling results determined that 35 of the 80 units (44 percent) materially failed to meet
HUD’s housing quality standards. We determined that the 35 units were in material
noncompliance because they had 518 violations that existed before the Authority’s last
inspection, which created unsafe living conditions. All units were ranked according to the
severity of the violations, and we used auditors’ judgment to determine the material cutoff point.

We estimate, with a one-sided confidence interval of 95 percent, that at least 30.98 percent of the
121 units passed by the Authority’s inspector during the 2-month sample period were in material
noncompliance with housing quality standards. By averaging the housing assistance payments
made for substandard housing across all 121 units that passed an Authority inspection and
deducting for a statistical margin of error, we estimate, with a one-sided confidence interval of
95 percent, that the amount of monthly housing assistance payment dollars spent on substandard
housing passed by the Authority during the sample period was $125.36 per unit. Prorating the
121 units passed by the Authority inspector during the 2-month sample period to an annual basis


                                                16
yields 729 units expected to pass an Authority inspection in 1 year. Multiplying the 729 units by
the $125.36 per unit monthly housing assistance payment for substandard housing yields a total
of $91,387 per month. Multiplying the monthly amount of $91,387 by 12 months yields an
annual total of $1,096,644 in housing assistance payments for substandard housing that passed
an Authority inspection. This amount is presented solely to demonstrate the annual amount of
program funds that could be put to better use on decent, safe, and sanitary housing if the
Authority implements our recommendations. While these benefits would recur indefinitely, we
were conservative in our approach and included only the initial year in our estimate.

We reviewed a dataset of the Authority’s inspections for the period July 15, 2012, through
October 16, 2013, to determine whether the Authority should have abated housing assistance
payments. To pare down the universe, we eliminated all passed inspections, initial inspections,
and inspections for which the owner or the tenant failed to show up at the unit so it could be
inspected. We matched all of the failed inspections to their corresponding passed inspection, if
available.

We determined the amount of time that passed between the date when a unit failed inspection
and the date when it passed its follow-up inspection. If no date was entered into the system for a
“pass” inspection for a given unit, we gave the Authority until November 22, 2013, to provide
documentation supporting why no “pass” date was entered. The Authority provided inspection
reports with “pass” dates for all but 6 of the units that had no “pass” date in the system.
However, the lack of a “pass” date was correct for those 6 units because the units no longer
participated in the program after the failed inspection. We eliminated all units for which the
amount of time that passed between the date when the unit failed inspection and the date when it
passed its follow-up inspection was less than 30 days because the Authority needed to provide
owners at least 30 days’ notice that their housing assistance payments would be abated.

We determined the number of days that should have been abated by subtracting the date on
which the unit passed inspection from the date on which the abatement should have been started.
We found that the Authority should have abated housing assistance payments for 22 units. A
total of 1,256 days passed before each of the 22 units passed inspection. On average, the
Authority should have abated payments a total of 57 days for the 22 units, with the lowest
number of days being 1 day and the highest number being 303 days. We determined the housing
assistance payment for those 22 units for the months when the Authority should have abated it.
We divided the housing assistance payment by 30 to calculate the average housing assistance
payment per day and multiplied that figure by the number of days the housing assistance should
have been abated and determined that the Authority should have abated $18,655 in housing
assistance payments for the 22 units.

Since the Authority lacked procedures and knowledge regarding abatement, the problem was
systemic. Therefore, if the Authority implements our recommendations, it will stop making
ineligible housing assistance payments for units that should have their housing assistance abated.
While this benefit would recur indefinitely, we were conservative in our approach and reported
only $18,655 as our estimate of future housing assistance payments to be put to better use. We
believe that this figure is a conservative estimate because our inspections of 80 units showed that
72 (90 percent) of the units did not meet HUD’s housing quality standards and that 71 of the 72



                                                17
units had at least 1 pre-existing violation. Moreover, the Authority’s inspector did not always
fail units on the inspection reports and relied on the owners to make the necessary repairs.
Therefore, not all of the “passed” results recorded in the Authority’s computer system were
accurate. There could be significantly more assisted units that should have had the housing
assistance payment abated but did not. The Authority will identify those units and properly abate
the housing assistance payments when it fully implements the needed policies, procedures and
controls.

We conducted our onsite audit work from September 2013 through April 2014 at the Authority’s
offices located at 2019 West Pine Street, Dunmore, PA, and at our office located in Philadelphia,
PA. The audit covered the period July 2012 through August 2013 but was expanded when
necessary to include other periods.

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.




                                               18
                              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.

               •   Validity and reliability of data – Policies and procedures that management has
                   implemented to reasonably ensure that valid and reliable data are obtained,
                   maintained, and fairly disclosed.

               •   Compliance with laws and regulations – Policies and procedures that
                   management has implemented to reasonably ensure that the use of resources is
                   consistent with laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiencies

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


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           •   The Authority did not implement procedures and controls, including a quality
               control program, and train its inspector to ensure that program units met
               housing quality standards (see finding 1).

           •   The Authority did not implement policies and procedures for abating housing
               assistance payments, and the responsible staff did not fully understand the
               abatement process and the use of its computer system to process abatements
               (see finding 2).

Separate Communication of
Minor Deficiencies

           A minor internal control and compliance issue related to rent reasonableness was
           reported to the Authority by a separate letter, dated May 7, 2014.




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                                    APPENDIXES

Appendix A

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

                  Recommendation                           Funds to be put
                                         Ineligible 1/
                      number                               to better use 2/
                        1B                 $18,499
                        1C                                   $1,096,644
                        2A                  18,655
                        2B                                       18,655
                      Totals               $37,154           $1,115,299

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/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, if the Authority implements our
     recommendations, it will cease to incur program costs for units that are not decent, safe,
     and sanitary and, instead, will expend those funds for units that meet HUD’s standards,
     thereby putting nearly $1.1 million in program funds to better use. Once the Authority
     successfully improves its controls, this will be a recurring benefit. Our estimate reflects
     only the initial year of these benefits. Additionally, if the Authority implements our
     recommendations, it will stop making ineligible housing assistance payments for units
     that should have their housing assistance abated, thereby putting approximately $18,655
     in program funds to better use. Once the Authority begins abating housing assistance
     payments as required, this will be a recurring benefit. Our estimate reflects only the
     initial year of these benefits.




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Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




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                         OIG Evaluation of Auditee Comments

Comment 1   The Authority stated that it hired a new inspector; provided training to staff;
            implemented an intense quality control program; and updated its administrative
            plan to reflect the changes it has made to its housing quality standards and quality
            control programs. It also stated that all of the deficiencies that we identified
            during our inspections have been corrected by the landlords and that the units
            comply with housing quality standards. These actions relate to recommendations
            1C and 1A respectively. However, we did not verify the implementation of these
            actions. Therefore, as part of the normal audit resolution process, HUD will
            verify the Authority’s corrective actions and determine whether they were
            adequate to satisfy the intent of the recommendations.




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