oversight

The Housing Authority of the City of Durham, NC, Did Not Always Comply With HUD's and Its Own Section 8 Housing Choice Voucher Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-30.

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

        Housing Authority of the City of
                Durham, NC
          Section 8 Housing Choice Voucher Program




Office of Audit, Region 4       Audit Report Number: 2015-AT-1011
Atlanta, GA                                     September 30, 2015
To:            Michael A. Williams, Director of Public and Indian Housing, Greensboro, NC,
               4FPH

               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Housing Authority of the City of Durham, NC, Did Not Always Comply
               With HUD’s and Its Own Section 8 Housing Choice Voucher Program
               Requirements




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 City of Durham’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
404-331-3369.
                    Audit Report Number: 2015-AT-1011
                    Date: September 30, 2015

                    The Housing Authority of the City of Durham, NC, Did Not Always Comply
                    With HUD’s and Its Own Section 8 Housing Choice Voucher Program
                    Requirements



Highlights

What We Audited and Why
We audited the Housing Authority of the City of Durham’s Section 8 Housing Choice Voucher
program based on a hotline citizen complaint and as part of the activities in our fiscal year 2015
annual audit plan. Our objective was to determine whether the Authority administered its
program in accordance with the U.S. Department of Housing and Urban Development’s (HUD)
and its own requirements and whether the complaint was valid.

What We Found
The Authority did not always comply with HUD’s requirements and its own administrative plan
regarding the administration of its program, and some of the allegations in the complaint were
valid. The Authority did not always (1) maintain required eligibility documentation, (2)
correctly calculate housing assistance payments, (3) void a housing assistance payments contract
as required, (4) perform reexaminations and housing quality standards inspections in a timely
manner, (5) properly administer zero-income program households, and (6) limit annual unit rent
increases in accordance with its administrative plan. These conditions occurred because
Authority staff failed to always follow HUD’s and the Authority’s requirements for
administering the program. As a result of this noncompliance, the Authority paid more than
$31,800 in unsupported housing assistance, received more than $2,600 in unsupported
administrative fees, paid more than $13,500 in ineligible housing assistance, and received more
than $1,500 in ineligible administrative fees.

What We Recommend
We recommend that HUD require the Authority to (1) reimburse its program more than $15,000
for ineligible housing assistance payments and administrative fees from non-Federal funds, (2)
support or reimburse its program more than $34,000 in unsupported housing assistance payments
and administrative fees from non-Federal funds, (3) determine and reimburse its program from
non-Federal funds for the overpayment of any housing assistance due to approval of rent
increases contrary to its requirements, (4) develop and implement program controls to address
deficiencies cited in this report.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Did Not Always Comply With Program Requirements ...... 4

Scope and Methodology ...........................................................................................9

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs .................................................................................. 12

         B. Auditee Comments and OIG’s Evaluation ............................................................. 13




                                                             2
Background and Objective
The Housing Authority of the City of Durham, NC, was established under chapter 456 of the
public laws of 1935 as amended. The Authority’s mission is to be a leader for affordable
housing in Durham County by serving as a housing safety net, promoting individual self-
sufficiency, leveraging core housing competency to support the Authority’s mission, managing
real estate, and facilitating and participating in mixed-income housing development.
The Authority is a nonprofit municipal corporation governed by a seven-member board of
commissioners. The board is comprised of active public servants who are appointed by the
Durham City Council. The board’s responsibilities include setting policies and appointing the
Authority’s chief operating officer, who is in charge of the Authority’s day-to-day operations.
The Authority administers public housing and Section 8 Housing Choice Voucher programs
funded by the U.S. Department of Housing and Urban Development (HUD). The Section 8
Housing Choice Voucher program provides assistance to low- and moderate-income individuals
seeking decent, safe, and sanitary housing by subsidizing rents with owners of private housing.
The Authority administers nearly 2,500 housing choice vouchers and received more than $92
million in program funding for fiscal years 2010 through 2014.
We audited the Authority based on a complaint alleging program mismanagement. The
complaint alleged (1) files were missing required documents, (2) landlords were paid without
properly executed subsidy contracts, and (3) annual rent increases at one property were approved
in excess of the Authority’s limit. Our objective was to determine whether the Authority
administered its program in accordance with HUD’s and its own requirements. Specifically, we
wanted to determine whether the Authority (1) obtained and maintained required documents to
determine household eligibility, (2) correctly calculated housing assistance and utility allowance
payments, and (3) whether the citizen complaint allegations were valid.




                                                 3
Results of Audit

Finding: The Authority Did Not Always Comply With Program
Requirements
The Authority did not always comply with HUD’s requirements and its own administrative
policies and procedures when administering its Section 8 Housing Choice Voucher program. In
addition, some of the allegations in the citizen compliant were valid. Specifically, the Authority
did not always (1) maintain required eligibility documentation, (2) correctly calculate and
process housing assistance payments, (3) void a housing assistance payments contract as
required, (4) perform reexaminations and housing quality standards inspections in a timely
manner, (5) properly administer zero-income program households, and (6) limit annual rent
increases as required. These conditions occurred because Authority’s staff failed to always
follow HUD’s and the Authority’s requirements for administering the program. As a result of
this noncompliance, the Authority paid more than $31,800 in unsupported housing assistance,
received more than $2,600 in unsupported administrative fees, paid more than $13,500 in
ineligible housing assistance, and received more than $1,500 in ineligible administrative fees.

The Authority Lacked Documentation To Support Households’ Eligibility
We reviewed 14 1 program household files to determine whether the Authority maintained the
required documentation to support households’ eligibility for the program. Six (43 percent)
household files were missing one or more documents needed to determine household eligibility.
Specifically,

    •   Four files were missing evidence of criminal background checks, 2

    •   One was missing a citizenship certification for all family members, 3 and

    •   One was missing an executed form HUD-9886, Authority for the Release of
        Information. 4

Because 43 percent of the files were missing required eligibility documentation, HUD and the
Authority lacked assurance that the households were eligible for the program. As a result,




1
  The sample selection methodology for the statistical sample is explained in the Scope and Methodology section of
this audit report.
2
  Regulations at 24 CFR (Code of Federal Regulations) 5.855(a) and 5.856 and section 3-III.D of the Authority’s
administrative plan required that a criminal background check be performed at initial screening and at
reexaminations for all household members 18 years of age or older.
3
  24 CFR 5.508(b)(1)
4
  24 CFR 5.230 and 982.516(g)



                                                         4
$25,590 in housing assistance was unsupported. In addition, because there was no support
showing that the Authority ensured that the household members were eligible for the program in
accordance with HUD’s requirements, $2,275 in administrative fees received by the Authority
was also unsupported.

Housing Assistance Payments Were Not Always Calculated Correctly
We reviewed 14 certifications for the 14 households to determine whether the Authority
correctly calculated housing assistance payments for the period January 1, 2013, through April
30, 2015. Our review was limited to the information maintained by the Authority in its
household files. For the 14 certifications, 3 (21 percent) had incorrectly calculated housing
assistance. The annual income was not calculated correctly in two instances, 5 and the utility
allowance was miscalculated in one instance. 6 These errors resulted in $672 in overpayment of
housing assistance. Because the housing assistance was incorrectly calculated, the Authority
inappropriately received $574 in administrative fees for the three households.

Payments Were Made on an Overdue Contract
For 1 of the 14 household files reviewed, the Authority paid housing assistance on an overdue
housing assistance payments contract. Both HUD’s and the Authority’s requirements 7 state that
any housing assistance payments contract that is executed after 60 calendar days from the
beginning of the lease term is void and no payments may be made to the owner. In this instance,
the contract was executed 92 days after the beginning date of the lease agreement. As a result,
the Authority paid $10,228 in housing assistance on an overdue contract that should have been
voided. Because the Authority failed to ensure that the housing assistance payments contract
was executed within the required timeframe, it inappropriately received $503 in administrative
fees.

Interim Recertifications and Annual Unit Inspections Were Late
The Authority failed to adjust housing assistance in a timely manner when 2 of the 14
households’ incomes increased by at least $5,200 in accordance with its own requirements. 8 The
Authority was 5 and 3 months late, respectively, in performing the required recertification and
recalculating the households’ housing assistance payments. As a result, it overpaid $537 in
housing assistance for the two households. Because the Authority failed to complete interim
recertifications in a timely manner, it inappropriately received $140 in administrative fees.




5
  24 CFR 982.515
6
  24 CFR 982.517
7
  24 CFR 982.305(c)(4) and chapter 6 of the Authority’s administrative plan
8
  Section 11-II.C of the Authority’s administrative plan



                                                         5
In addition, the Authority failed to conduct unit inspections in a timely manner to ensure that
units were eligible and met program requirements. 9 A review of 10 10 of the 193 households
listed as having late housing quality standards unit inspections performed in HUD’s Public and
Indian Housing Information Center system determined that

     •   For nine of the units, the Authority did not ensure that the inspection forms were
         completed;

     •   For four of the units, the Authority did not ensure that it updated and provided correct
         information in HUD’s system;

     •   For three of the units, the Authority did not stop paying housing assistance for units that
         failed housing quality standards inspections and were not documented as having been
         repaired or when the Authority failed to perform an annual inspection of the unit to
         ensure that it was eligible to remain on the program; and

     •   For two of the units, the Authority did not ensure that a description was provided for all
         failing conditions.
As a result, the Authority could not support whether $6,223 in housing assistance was provided
for units meeting program requirements. In addition, the Authority inappropriately received
$326 in administrative fees.

Zero-Income Households Were Not Administered Properly
We reviewed 10 11 of 110 households listed as zero-income households in HUD’s system and
determined that the Authority did not comply with its own requirements 12 for the administration
of the zero-income households. Specifically the Authority did not

     •   Require a zero-income affidavit for nine households;

     •   Perform quarterly reexaminations for eight households;

     •   Obtain and review applicable income reports when conducting reexaminations for eight
         households;

     •   Recalculate and adjust the housing assistance to reflect increases in income in a timely
         manner for two households; and




9
  24 CFR 982.405(a) and sections 8-II.C and 8-II.G of the Authority’s administrative plan
10
   The sample selection methodology for the random sample is explained in the Scope and Methodology section of
this audit report.
11
   The sample selection methodology for the random sample is explained in the Scope and Methodology section of
this audit report.
12
   Section 7-III.I of the Authority’s administrative plan outlined the procedures for administering zero-income
program households.



                                                        6
     •   Conduct a credit check for all family members age 18 or older reporting income less than
         $1,200 for one household.
Because the Authority failed to adjust the housing assistance to reflect increases in income in a
timely manner, it overpaid $2,152 in housing assistance and inappropriately received $345 in
administrative fees.

Excessive Rent Increases Were Approved
The Authority inappropriately approved annual unit rent increases in excess of its 3.5 percent
annual limit. The Authority’s administrative plan limited the annual rent increases for its
Housing Choice Voucher program units to a maximum of 3.5 percent. 13 However, based on the
information provided by the Authority, it had approved rent increases exceeding the 3.5 percent
limit for more than 100 program participants at the property identified in the complaint. Based
on the Authority’s report, the excessive percentage of annual rent increases ranged from a low of
3.56 percent to a high of 19.08 percent. Our review was limited to the audit scope, January 1,
2012, through April 30, 2015, and only for the landlord in the complaint; however, this condition
may have existed previously and for other landlords.

An Additional Deficiency Was Noted During the Review
HUD required the Authority to run the deceased tenants report available in its Enterprise Income
Verification system monthly. 14 The Authority’s program director stated that there were no
written policies or procedures for reviewing the deceased tenant report monthly, but that a report
was run monthly as part of normal business practices. We reviewed all four program participants
listed on the report as deceased as of May 19, 2015, and found no problems with the Authority’s
handling of the deceased tenants’ housing assistance payments. All four deceased program
participants’ housing assistance had stopped as required. Although the Authority ran the report
monthly as good business practice, it should incorporate the requirement into its policy to ensure
continued compliance with HUD’s requirements.

Conclusion
The Authority did not always comply with HUD’s or its own requirements when administering
its Housing Choice Voucher program. Specifically, it did not always (1) calculate housing
assistance payments correctly, (2) conduct reexaminations and unit inspections in a timely
manner, and (3) administer zero-income households in accordance with its requirements. In
addition, we determined that allegations in the citizen complaint were valid, to include (1) lack
of documentation to support household eligibility, (2) timely execution of housing assistance
payments contract, and (3) approval of excessive rent increases for one landlord. These
conditions occurred because Authority staff failed to always follow HUD’s and its own
requirements for administering the program. As a result, HUD lacked assurance that the
Authority used program funds efficiently and effectively since it paid housing assistance




13
   Section 8-III.B of the Authority’s administrative plan limited the annual rent increases to 3.5 percent of the unit’s
total contract rent.
14
   Office of Public and Indian Housing (PIH) Notice PIH 2010-19



                                                            7
payments of over $31,800 and over $13,500 that were unsupported and ineligible, respectively
and received over $2,600 and over $1,500 in associated administrative fees.
Recommendations
We recommend that the Director of HUD’s Greensboro Office of Public and Indian Housing
require the Authority to

        1A.     Support or reimburse its program $34,414 15 from non-Federal funds for the
                unsupported payment of housing assistance due to missing eligibility
                documentation.
        1B.     Reimburse its program $15,151 16 from non-Federal funds for the deficiencies
                cited in the finding.
        1C.     Reimburse its program from non-Federal funds for the overpayment of any
                housing assistance for approval of rent increases on program units contrary to its
                requirements.
        1D.     Develop and implement program controls to help ensure that rent increases are
                authorized only in accordance with its requirements.
        1E.     Amend its administrative plan to include requirements for running the deceased
                tenants report monthly to ensure compliance with HUD’s requirements.
        1F.     Develop and implement program controls to help ensure that, Authority staff
                follows both HUD’s and the Authority’s program requirements in the future.




15
  $25,590 + $6,223 in housing assistance payments + $2,275 + $326 in associated administrative fees.
16
  $672 + $10,228 + $537 + $2,152 in housing assistance payments + $574 + $503 + $140 + $345 in associated
administrative fees.



                                                      8
Scope and Methodology
We performed our onsite audit work between May and July 2015 at the Authority’s central office
located at 330 East Main Street, Durham, NC. The audit covered the period January 1, 2012,
through April 30, 2015.
To accomplish our audit objective, we interviewed HUD program staff and the Authority’s
employees. In addition, we obtained and reviewed the following:

     •   Applicable laws; HUD’s regulations at 24 CFR Parts 5, 982, and 984; Office of Public
         and Indian Housing notices; and HUD’s Guidebook 7420.10G.

     •   The Authority’s accounting records; bank statements; general ledger; policies and
         procedures; 5-year plan; annual audited financial statements for 2012, 2013, and 2014;
         annual funding notices; board meeting minutes for January 2013 through April 2015;
         organizational chart; and HUD monitoring reports.

     •   HUD’s Public and Indian Housing Information Center and Enterprise Income
         Verification systems.

We statistically selected a stratified random sample of 90 monthly housing assistance payments 17
from the Authority’s 64,196 monthly disbursements to landlords from January 2013 through
April 2015 (28 months). We reviewed the first 14 records of the selected sample to determine
whether the Authority correctly calculated the housing assistance payments, appropriately
determined households’ eligibility for program participation, and conducted recertifications in a
timely manner. We selected and reviewed additional random samples to determine whether the
Authority properly administered (1) zero-income households, (2) deceased tenants, and (3)
housing quality standards inspections. Specifically,
     (1) As of May 19, 2015, HUD’s Public and Indian Housing Information Center system listed
         110 households that had zero income for the period January 1, 2013, through April 30,
         2015. We randomly selected record 82 and every 11th record thereafter to obtain a
         sample of 10 households for review. We reviewed the 10 households to determine
         whether the Authority administered zero-income households in accordance with its
         administrative plan.
     (2) As of May 19, 2015, HUD’s Public and Indian Housing Information Center system listed
         193 households as having had their most recent unit inspection conducted 13 or more
         months earlier. We randomly selected record 4 and every 19th record thereafter to obtain



17
  The 90 monthly housing assistance payments were from the 90 household certifications, which represented 89
households.



                                                       9
       a sample of 10 units for review. We reviewed the household files to determine whether
       unit inspections were conducted in a timely manner.
In addition, we reviewed all four of the households’ files that were listed as deceased in HUD’s
Enterprise Income Verification system as of May 19, 2015. We reviewed the household files to
determine whether housing assistance had stopped for deceased individuals in accordance with
HUD’s requirements.
The review results for the sampled items were limited to the specific items reviewed and cannot
be projected to the universe of items from which the samples were selected.
The calculation of administrative fees was based on the administrative fees received by the
Authority from HUD and the number of vouchers the Authority reported through HUD’s
Voucher Management System. The fees were considered inappropriately received for each
month in which the housing assistance was incorrectly paid and household eligibility was
unsupported. We limited the inappropriate administrative fees to the amounts of housing
assistance payment calculation errors for the household files that had administrative fees
exceeding the housing assistance payment errors.
We relied in part on computer-processed data contained in the Authority’s systems to achieve
our audit objective. Although we did not perform detailed assessments of the reliability of the
data, we performed minimal levels of testing and found the data to be adequately reliable for our
purposes. The tests for reliability included but were not limited to comparing computer-
processed data to housing assistance payments, information in the sample household files, and
other supporting documentation.
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 objective.




                                                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 objective:

•   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.

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

•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resource use is consistent with laws and
    regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   The Authority did not always comply with HUD’s requirements and its own administrative
    plan regarding the administration of its Section 8 program (see finding 1).




                                                  11
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                               $34,414
                          1B             $15,151

                        Totals           $15,151           $34,414



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               13
Ref to OIG   Auditee Comments
Evaluation




Comment 2




                                14
Ref to OIG   Auditee Comments
Evaluation




Comment 2




                            15
Ref to OIG   Auditee Comments
Evaluation




Comment 2




Comment 2




                            16
Ref to OIG   Auditee Comments
Evaluation




Comment 2




Comment 2




                          17
Ref to OIG   Auditee Comments
Evaluation




Comment 3




Comment 4




                        18
                                OIG Evaluation of Auditee Comments


Comment 1          The Authority attributed its failure to comply with HUD’s and its own
                   requirements to HUD’s funding of its program administrative fees at less than 100
                   percent. While HUD may not have fully funded the program administrative fees,
                   the Authority was not excused from its responsibility to administer its program in
                   compliance with HUD’s and its own program requirements. Further, HUD
                   recognized the issue caused by reduced funding and provided alternate means to
                   facilitate housing authorities’ ability to continue, without interruption and with
                   minimal burden, the delivery of rental assistance to eligible families in their
                   communities. Specifically, Public and Indian Housing Notices 2013-03, 2013-26,
                   and 2015-04 detail the administrative assistance provided by HUD. We commend
                   the Authority for acting upon the recommendations included in this report and
                   encourage it to consider initiating the administrative processes provided by HUD
                   to offset the cost burden associated with continued program compliance.
Comment 2          We commend the Authority for its proposed actions to address the findings cited
                   in this report. The Authority should work with HUD to ensure that the revisions
                   and updates to its administrative plan and policies and procedures are appropriate
                   and the new policies are fully implemented.
Comment 3          The Authority proposed to change its policy to not place a restriction on rent
                   increases when the increases are determined to be rent reasonable. According to
                   HUD’s requirements, the Authority must administer the program in accordance
                   with its administrative plan. 18 Therefore, it must determine the amount of any
                   overpayment in housing assistance for the approval of rent increases contrary to
                   its own requirements while the restriction existed in its requirements as noted in
                   recommendation 1C of this report.
Comment 4          Although the Authority asserted that it did not have to update its policy, it stated
                   that it will update its 2015-2016 annual and administrative plan to be effective
                   October 1, 2015, which will include requirements for downloading and retrieving
                   the required data from HUD’s Enterprise Income Verification system. We
                   commend the Authority for implementing the update to its administrative plan.
                   The Authority should work with HUD to ensure that the updated plan is
                   appropriate and the new policies are fully implemented.




18
     24 CFR 982.54(a)-(b)



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