The Cambridge Housing Authority Appropriately Handled Exception Payments

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-16.

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

                                                            U.S. DEPARTMENT OF
                                           HOUSING AND URBAN DEVELOPMENT
                                                     OFFICE OF INSPECTOR GENERAL

                                               September 16, 2015
                                                                                                  MEMORANDUM NO:
TO:           Marilyn O’Sullivan,
              Field Office Director, Boston Field Office, 1APH

FROM:         Edward Jeye
              Regional Inspector General for Audit, Boston Region, 1AGA

SUBJECT: The Cambridge Housing Authority Appropriately Handled Exception Payments


We conducted a limited review of the Cambridge Housing Authority’s Moving to Work Housing
Choice Voucher Program’s use of exception payment standards. This program allows public
housing authorities to use exception payment standards to set rental payments in excess of the
payment standard established for an authority’s rents1. The review was initiated as a result of a
concern raised by a member of Congress about whether public housing authority officials
properly implemented procedures to authorize exception vouchers. Our objective was to
determine whether the Authority (1) complied with the U.S. Department of Housing and Urban
Development’s (HUD) requirements and its own policies regarding the use of the exception
payment standards and (2) maintained support for its decisions regarding these payment
standards; including household and landlord selection.

                                    METHODOLOGY AND SCOPE

We conducted our audit between December 2014 and April 2015 at the Authority’s office
located at 362 Green Street, Cambridge, MA. Our audit covered the period July 2014 through
February 2015 and was extended when necessary to meet our audit objective. To accomplish our
audit objective, we

                Reviewed program requirements, including Federal laws, the Code of Federal
                 Regulations, public housing handbooks, the Moving to Work agreements between

 Regulations at 24 CFR (Code of Federal Regulation) 982.503b allow public housing authorities to set a rent
payment standard between 90 and 110 percent of the HUD established fair market rent. The HUD field office must
approve exception payment standards between 110 and 120 percent of the fair market rent, and amounts exceeding
120 percent require approval of the HUD Assistant Secretary.
                                                Office of Audit, Boston Region
                                  10 Causeway Street, Room 370, Boston, MA 02222-1092
                                         Phone: (617) 994-8380; Fax: (617) 565-6878
                              Visit the Office of Inspector General Web site at www.hudoig.gov.
                    HUD and the Authority, and the Authority’s Moving to Work annual plans and
                    annual reports.

                   Interviewed key staff members at the Authority to understand the leasing, voucher
                    payment, and exception payment processes.

                   Analyzed five tenant files, representing 100 percent of the population of tenants
                    whose rents exceeded 120 percent of the fair market rent to determine whether
                    exception rents were authorized in accordance with regulations.

                   Evaluated the management controls used by the Authority to address payment
                    standards, landlord and household selection, and tenant eligibility.

We conducted the audit in accordance with generally accepted government auditing standards,
except that we did not evaluate the Authority’s internal or information systems controls. 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).
While given the opportunity, auditee officials declined to provide written comments, noting they
agreed with the memorandum. We believe that the evidence obtained provides a reasonable
basis for our finding and conclusion based on our audit objective.


The Authority is an independent entity created by the City of Cambridge, MA, in 1935 under
State law. The Authority operates under a board of commissioner form of government to
provide safe and decent housing for eligible low- and moderate-income families and elderly
individuals. The board is comprised of five members who reside in Cambridge, MA. In fiscal
years 2012, 2013, and 2014, HUD provided $175 million in assistance to the Authority as

                                Moving to
                Competitive                     Moving to Work          Moving to
                Capital Fund                     program for              Work
    Year2                        program                                                   Other3       Total
                  stimulus                      Housing Choice         Program for
                                for Capital
                    grant                         Vouchers               low rent
    2012           $4.79           $1.95              $ 36.37              $11.39           $3.35      $57.86
    2013           $1.71           $2.76              $ 37.73              $10.29           $3.84      $56.32
    2014            $-             $5.73              $ 38.38              $10.92           $5.92      $60.94
    Total          $6.50          $ 10.44            $ 112.48              $32.60          $13.11      $175.12

  The data (in millions) for 2012 and 2013 come from audited financial statements, while the data for 2014 (in
millions) come from unaudited financial statements.
  Other programs are Supportive Housing for Persons with Disabilities, the Supportive Housing Program, Lower
Income Rental Assistance Program, Section 8 Moderate Rehabilitation, Resident Opportunity and Self Sufficiency,
and the Housing Choice Voucher program, as well as mainstream vouchers.

The Authority had a portfolio of 3,159 vouchers4 at November 1, 2013. Our work focused on the
Moving to Work program for the Housing Choice Vouchers. Congress enacted the Moving to
Work Demonstration program through Public Law 104-34. This law provided that an Authority
must establish a reasonable rent policy, designed to encourage employment and self-sufficiency
by participating families, consistent with the purpose of the Moving to Work Demonstration
program, such as by excluding some or all of a family’s earned income in determining rent.
HUD and the Authority signed an amended Moving to Work agreement on January 15, 2009,
effective through the end of the Authority’s 2018 fiscal year, in which HUD authorized the
Authority to set rent payment standards above 120 percent of the fair market rent without HUD
approval. Accordingly, Authority officials adopted a payment standard of up to 125 percent of
the associated fair market rent in 2008. Authority officials evaluated the payment standards each
year and updated the standards in 2009, 2013 and 2014. Since Authority officials had adopted a
payment standard of up to 125 percent of the fair market rent, exception rents would be rents
above that amount.

The established payment standards and their relationship to the associated fair market rent are as

    Bedroom                    %                         %                        %                      %
                 10/1/08                 10/01/09                09/01/135                11/01/14
      size                   FMR*                      FMR                      FMR                    FMR
     SRO**        $765         94          $810          95         $810         104        $810        101
        0        $1,194       111         $1,220        112        $1,242        115       $1,339       125
        1        $1,337       117         $1,362        118        $1,387        119       $1,495       125
        2        $1,610       120         $1,685        124        $1,733        119       $1,867       125
        3        $1,925       120         $2,000        123        $2,158        119       $2,326       125
        4        $2,116       120         $2,191        123        $2,346        119       $2,529       125
* FMR = fair market rent
** SRO = single room occupancy

                                        RESULTS OF REVIEW

While Authority officials rarely used exception payments, when they did, they complied with the
requirements of the Moving to Work agreement approved by HUD and the Authority’s own
policies regarding the use of the exception payment standards. Review of the five tenants with
rents at or above 120 percent of fair market rents disclosed that four tenants’ rent was below the
Authority’s allowed payment standard of 125 percent of the fair market rent and one tenant had
an exception payment. The exception payment was documented, justified, and appropriate. As a
result of this exception, the Authority spent an additional $1,698 over its payment standards6 for
the period May 2014 to February 2015.

  The 3,159 vouchers consisted of 2,398 Moving to Work Vouchers and 761 vouchers that were not Moving to
  Between 2009 and 2013, the Authority did not increase its payment standards.
  This rental payment exceeded the payment standard by $213 for 6 months and $105 for 4 months. The payment
standard changed during the lease term.

Authority officials maintained support for their decisions regarding the payment standards set.
To support the use of payment standards that were higher than fair market rents, Authority
officials hired an independent third party to conduct a rental study of the Cambridge housing
market. This study determined that the Cambridge market could support even higher rents.
Factors contributing to the high rents were low turnover in apartments, low inventory of houses
and condominiums for sale, easy access to public transportation, and a low unemployment rate.
Local news stories also identified low turnover in apartments, the need to expand affordable
housing in the area, and the popularity of the Cambridge housing market.


Authority officials made limited use of exception payments, but when they did, for the files
tested, they complied with HUD’s requirements and the Authority’s own policies regarding the
use of the exception payment standards and maintained appropriate support for their decisions
regarding these payment standards.