oversight

The Chicago Housing Authority, Chicago, IL, Did Not Always Ensure It Complied With HUD's Requirements For Exception Payment Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-02-24.

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

              Chicago Housing Authority
                     Chicago, IL
     Moving to Work Housing Choice Voucher Program




Office of Audit, Region 5    Audit Report Number: 2015-CH-1001
Chicago, IL                                   February 24, 2015
To:            Dominique Blom, Deputy Assistant Secretary for Public Housing Investments, PI

               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The Chicago Housing Authority, Chicago, IL, Moving to Work Housing Choice
               Voucher Program


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 Chicago Housing Authority’s Moving to Work
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
(312) 353-7832.
                   Audit Report Number: 2015-CH-1001
                   Date: February 24, 2015

                   The Chicago Housing Authority, Chicago, IL, Did Not Always Ensure It
                   Complied With HUD’s Requirements For Exception Payment Standards




Highlights

What We Audited and Why
We audited the Chicago Housing Authority’s Moving to Work Housing Choice Voucher
program as part of the activities in our fiscal year 2014 annual audit plan. We selected the
Authority based on a request from Congressman Aaron Schock and recent media attention
regarding the Authority’s exception payment standards. Our objective was to determine whether
the Authority complied with its Moving to Work agreement, the U.S. Department of Housing
and Urban Development’s (HUD) requirements, and its own policies for the use of exception
payment standards for its Housing Choice Voucher program.

What We Found
The Authority lacked documentation to support that its policy increasing the exception payment
standards up to 300 percent of HUD’s 50th percentile rents was reasonable and cost effective. As
a result, HUD and the Authority lacked assurance that the housing assistance paid for its program
households using the exception payment standard amounts was appropriate. We estimate that
the Authority could pay nearly $5 million in housing assistance over the next year for households
that exceed 110 percent of HUD’s 50th percentile rents.

What We Recommend
We recommend that the Deputy Assistant Secretary for Public Housing Investments require the
Authority to (1) conduct an analysis to determine whether its exception payment standards
exceeding 110 percent of HUD’s 50th percentile rents were reasonable and cost effective and
provide the results of the analysis, along with support, to HUD for review and approval and (2)
reimburse its program from non-Federal funds for the excess housing assistance paid for the
households.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: The Authority Did Not Always Ensure It Complied With HUD’s
         Requirements For Exception Payment Standards......................................................... 5

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................11
         A. Schedule of Funds To Be Put to Better Use ............................................................ 11

         B. Auditee Comments and OIG’s Evaluation ............................................................. 12

         C. Federal and Authority Requirements ..................................................................... 14




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Background and Objective
The Chicago Housing Authority was established in April 1934 under the laws of the State of
Illinois to provide decent, safe, and sanitary housing. It is governed by a 10-member board of
commissioners appointed by the mayor of Chicago, IL, to 5-year staggered terms. The board
is responsible for the approval of policies and resolutions for the Authority. The board also
appoints the Authority’s chief executive officer. The chief executive officer is responsible for
ensuring that policies are followed and providing oversight of the Authority’s day-to-day
operations.

The Omnibus Consolidated Rescissions and Appropriations Act of 1996, dated April 26,
1996, authorized the Moving to Work Demonstration program. The program was established
to give public housing agencies and the U.S. Department of Housing and Urban Development
(HUD) flexibility to design and test innovative, locally designed strategies in pursuit of the
national goal of delivering rental assistance more efficiently. The program’s intent is to
pursue three statutory objectives: (1) reduce cost and achieve greater cost effectiveness in
Federal expenditures; (2) give incentives to families with children in which the head of the
household is working; seeking work; or participating in job training, educational programs, or
programs that assist people in obtaining employment and becoming economically self-
sufficient; and (3) increase housing choices for low-income families.

In pursuit of these objectives, Congress exempted Moving to Work housing agencies from
many portions of the U.S. Housing Act of 1937 and associated regulations. In addition, the
agencies were authorized to combine funds for the Housing Choice Voucher program and
public housing capital and operating funds interchangeably. The Authority was approved to
participate in the program on February 20, 2000. The Moving to Work agreement requires
the Authority to abide by the statutory requirements in Section 8 of the Act and the annual
contributions contract, except as necessary for the implementation of its Moving to Work
demonstration initiatives.

HUD’s regulations require public housing authorities to maintain specific utilization rates as part
of their Section Eight Management Assessment Program (SEMAP) scores; however, the
Authority’s amended and restated Moving to Work agreement with HUD does not require
Moving to Work agencies to submit SEMAP reports. Therefore, the Authority is not subject to
utilization requirements for its Moving to Work program. However, the Authority’s Moving to
Work agreement requires that the Authority continue to assist substantially the same number of
households in both its Housing Choice Voucher and public housing programs. As of July 30,
2014, the Authority met this requirement by administering 25,128 public housing units and
51,588 vouchers under its Section 8 Housing Choice Voucher program.
The Authority maintains separate waiting lists for its family public housing, property rental
assistance, and Section 8 Housing Choice Voucher program. It closed its Section 8 waiting list
in 2008 and reopened all three waiting lists on October 27, 2014. The application period for the



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Authority’s waiting lists ended on November 24, 2014. Based on the Authority’s policy, it
would randomly select applicants to add to the three waiting lists.
As of December 31, 2013, the Authority’s unrestricted net assets account balance was more than
$220 million. This balance represents the funds that are readily available for use in the
administration of its Housing Choice Voucher program as well as other housing-related
activities.1
Under State law, Illinois property owners who rent to tenants in the program may receive
property tax abatement savings in an amount up to 19 percent of a property’s equalized assessed
value. The actual amount will depend upon (1) tax rates, (2) the state equalizer, (3) equalized
assessed value, and (4) the number of qualified units rented to program participants. The
Authority contracted with two entities to provide mobility and relocation counseling services to
assist qualified families to move into opportunity areas. The Authority’s contracts state that the
contractors would (1) recruit landlord participation for the program in opportunity areas, (2)
promote the Authority’s program tax savings program, which allows eligible property owners to
lower their annual property taxes, to develop interest in participation in the Authority’s program,
and (3) inform landlords that they may be able to take advantage of exception rents in
opportunity areas.
Our objective was to determine whether the Authority complied with its Moving to Work
agreement, HUD’s requirements, and its own policies for the use of exception payment standards
for its Housing Choice Voucher program.




1
 Since the Authority is under the Moving to Work program, all funds are fungible. The Authority calculates this
amount annually.



                                                         4
Results of Audit

Finding: The Authority Did Not Always Ensure It Complied With
HUD’s Requirements For Exception Payment Standards
The Authority lacked documentation to support that its policy increasing the exception payment
standards up to 300 percent of HUD’s 50th percentile rents2 was reasonable and cost effective.
The weakness occurred because the Authority lacked adequate procedures and controls to ensure
that it complied with its Moving to Work agreement. As a result, HUD and the Authority lacked
assurance that the housing assistance paid for its program households using the exception
payment standard amounts was appropriate. We estimated that the Authority could pay nearly
$5 million in housing assistance over the next year for households that exceed 110 percent of
HUD’s 50th percentile rents.
Although the Authority did not always ensure it complied with HUD’s requirements for
exception payment standards, it generally (1) selected the appropriate households from its
program waiting list and (2) ensured that landlords were eligible to participate in the program.
Further, there did not appear to be any apparent conflicts of interest among the Authority’s
employees, program households, and participating landlords.
The Authority Lacked Support for Its Exception Payment Standards
In its 2010 annual Moving to Work plan, the Authority requested HUD’s approval to increase its
exception payment standards up to 300 percent of HUD’s 50th percentile rents. The increased
rents were part of the Authority’s strategy to increase the housing opportunities for program
participants in low poverty opportunity areas.3 In September 2010, HUD approved the
Authority’s plan with the caveat that the approval would not constitute endorsement of the
Authority’s policies described in the plan. In January 2011, the Authority began providing
assistance to low-income households using the increased exception payment standards.
According to the Authority’s Moving to Work agreement with HUD, a goal of the Moving to
Work program is to design and test innovative methods of providing housing and delivering
services to low-income households in an efficient and cost-effective manner. In addition, the
agreement authorized the Authority to adopt and implement any reasonable policy to establish
payment standards, rents, or subsidy levels for tenant-based assistance.4 However, the Authority
was unable to support that its policy, increasing the exception payment standards up to 300
percent of HUD’s 50th percentile rents, was reasonable and cost effective.



2
  HUD established 50th percentile fair market rent areas to ensure that low-income families have access to a broad
range of housing opportunities throughout a metropolitan area.
3
  An opportunity area is a community in which no more than 20 percent of the households have income below the
poverty level and the concentration of subsidized housing is less than 5 percent.
4
  Moving to Work agreement, attachment C, section D.2.a



                                                          5
Public housing agencies have the ability to establish rents between 90 and 110 percent of HUD’s
fair market rents.5 HUD may approve exception payment standard amounts above 110 percent if
justified and supported.6 Because the Authority was unable to support that its exception payment
standard amounts were reasonable and cost effective, we calculated the monthly housing
assistance paid exceeding 110 percent of HUD’s 50th percentile rents for the households with
exception payment standards as of July 2014. Using the most recent household report, dated
July 31, 2014, we determined that the Authority paid an additional $406,466 per month for the
766 households for which payment standards exceeded 110 percent of HUD’s 50th percentile
rents. Projecting this amount over the next year showed that the Authority would pay more than
$4.8 million ($406,466 x 12 months) for households with payment standards exceeding 110
percent of HUD’s 50th percentile rents.
The Authority Generally Managed Its Households and Landlords Appropriately
We reviewed files for 15 of the Authority’s households and 6 landlords, who owned a total of 73
units that received housing assistance using exception payments standards. We determined that
the Authority generally (1) obtained and maintained the required documentation to support the
households’ eligibility and continued assistance for the program, (2) selected and admitted
households to the program appropriately, and (3) ensured that landlords were eligible to
participate in the program. Further, there did not appear to be any apparent conflicts of interest
among the Authority’s employees, program households, and participating landlords for 314 of
the Authority’s 766 households that received housing assistance using exception payments
standards.
The Authority Lacked Adequate Procedures and Controls
The Authority, under its previous administration, lacked adequate procedures and controls to
ensure that it complied with its Moving to Work agreement. The Authority’s former executive
director and senior vice president of the program could not (1) explain why the Authority
decided to use 300 percent as the maximum exception payment standard percentage or (2) recall
whether an analysis was completed to determine that the percentage was reasonable and cost
effective. Further, the Authority’s current administration was unable to provide supporting
documentation, such as an analysis that assessed the cost effectiveness or reasonableness of the
Authority’s use of exception payment standards up to 300 percent of HUD’s 50th percentile rents.
In January 2014, the Authority initiated a preliminary review of its exception payment standards,
and based on the results, on August 18, 2014, it reduced the maximum exception payment
standard percentage from 300 to 150 percent of HUD’s 50th percentile rents.7 According to the
Authority’s policies, the payment standards for the households receiving exception payment
standard amounts which exceed 150 percent of HUD’s 50th percentile rents will be reduced,
which will require the households to pay the difference or relocate to lower cost housing




5
  24 CFR (Code of Federal Regulations) 982.503(b)(1)(i)
6
  24 CFR 982.503(c)(2)(i)
7
  The Authority plans to continually assess the reasonableness of its exception payment standards.



                                                          6
units. However, the Authority was unable to provide sufficient documentation to support that its
decision to reduce the exception payment standards to 150 percent of HUD’s 50th percentile rents
was reasonable and cost effective.
According to HUD’s requirements,8 when a payment standard is reduced, the lower payment
standard must be used to calculate the assistance on the household’s second certification
following the effective date of the decrease. Since the Authority performs biennial and triennial
household income recertifications, the payment standards for the households that recertify in
2015 would not be reduced until 2017 or 2018, respectively. Therefore, the Authority should
conduct special recertifications for the households with payment standards above the percentage
determined to be reasonable and cost effective so the payment standards can be reduced within 1
year.
Conclusion
The weakness described above occurred because the Authority lacked adequate procedures and
controls to ensure that it complied with its Moving to Work agreement. As a result, HUD and
the Authority lacked assurance that the housing assistance paid for the Authority’s program
households using the exception payment standard amounts was appropriate. We estimated that
the Authority could pay nearly $5 million in housing assistance over the next year for households
that exceed 110 percent of HUD’s 50th percentile rents. These funds could potentially be used to
provide assistance to additional households.
Recommendations
We recommend that the Deputy Assistant Secretary for Public Housing Investments require the
Authority to
      1A. Conduct an analysis to determine whether its exception payment standards exceeding
          110 percent of HUD’s 50th percentile rents were reasonable and cost effective and
          provide the results of the analysis, along with support, to HUD for review and
          approval. This measure would ensure that $4,877,592 in program funds is
          appropriately used for future housing related costs such as housing assistance
          payments.

      1B. Conduct special recertifications for the households with payment standards above the
          percentage determined to be reasonable and cost effective so that their payment
          standards can be reduced within 1 year.9

      1C. Reimburse its program from non-Federal funds for the excess housing assistance paid
          for the households based on the results of the analysis.




8
 24 CFR 982.505(c)(3)
9
 This recommendation does not apply to households with exception payment standards due to a reasonable
accommodation.



                                                       7
Scope and Methodology
We performed our onsite audit work at the Authority’s main office located at 60 East Van Buren,
Chicago, IL between August and October 2014 and the HUD Office of Inspector General’s
(OIG) Chicago and Columbus offices. The audit covered the period January 1, 2009, through
July 31, 2014, but was expanded as determined necessary.
To accomplish our review objective, we interviewed HUD program staff and Authority
employees. In addition, we obtained and reviewed the following:

       Applicable laws, regulations, HUD’s program requirements at 24 CFR (Code of Federal
        Regulations) Parts 5 and 982, HUD public and Indian housing notices, and HUD’s
        Guidebook 7420.10G.

       The Authority’s Moving to Work agreement, annual plans, and annual reports;
        comprehensive financial annual reports; bank statements; policies and procedures; board
        meeting minutes for January 2009 through July 2014; organizational chart; HUD’s fair
        market and 50th percentile rents; and applicable program reports, to include the
        Authority’s payment standards, household and landlord lists, waiting lists, housing
        assistance payments register, and occupancy reports.

       HUD’s files for the Authority

Using the Authority’s list of 759 households that it identified as receiving housing assistance
payments based on the exception payment standards, we selected a random sample of 15
households to determine whether the Authority obtained and maintained the required
documentation to support the households’ eligibility for the program. In addition, we reviewed
the Authority’s waiting list to ensure that the 15 households were appropriately selected and
admitted to the program. In addition, we selected a judgmental sample of 30 households and
conducted interviews. Our results were limited to our review of the 15 household files and
interviews with the 30 households.
The Authority provided a list of 460 landlords that received housing assistance using the
Authority’s exception payment standards. We selected a judgmental sample of 6 landlords, who
owned a total of 73 units. We reviewed the Authority’s files to ensure that the Authority (1)
appropriately approved the landlords to participate in its program and (2) maintained required
eligibility documentation. Our results were limited to our review of the six landlords.

We reviewed the Authority’s Housing Choice Voucher program and public housing program
occupancy reports for 2009 through 2014 to ensure that the Authority continued to assist
substantially the same number of households in accordance with HUD’s requirements.




                                                8
Further, for the Authority’s list of 759 households, using LexisNexis Accurint,10 we created
relationship reports for 314 that had the highest exception payment standard amounts to ensure
that there were no apparent conflicts of interest among the households, landlords, and Authority
staff.

We obtained the Authority’s listing of all its program households and determined the households
that received exception payment standard amounts above 110 percent of HUD’s 50th percentile
rents. We compared this list to the list of the 759 households that the Authority identified as
receiving exception payment standards. Based on the comparison, we identified 57 households
that were included with the 759 households but not on the list of all program households. In
addition, we identified 64 households that were on the list of all program households but not
included on the list of 759 households. Therefore, the Authority had 766 (759 -57 + 64)
households that received exception payment standard amounts above 110 percent or HUD’s 50th
percentile rents. Using the 766 households, for each household we calculated 110 percent of the
applicable 50th percentile rent and subtracted the result from the exception payment standard
amount to determine the monthly housing assistance paid in excess of 110 percent.

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
  LexisNexis® Accurint ® for Government is a point-of-need investigative solution that enables government
agencies to locate people, detect fraud, uncover assets, verify identity, perform due diligence, and visualize complex
relationships. It helps enforce laws and regulations; fight fraud, waste, and abuse; and provide essential citizens’
services.



                                                           9
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 lacked documentation to support that its policy, increasing the exception
    payment standards up to 300 percent of HUD’s 50th percentile rents, was reasonable and cost
    effective (see finding).




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Appendixes
                                         Appendix A
                       Schedule of Funds To Be Put to Better Use


                          Recommendation         Funds to be put
                              number             to better use 1/
                                  1A               $4,877,592

                                 Total             $4,877,592


1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an 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 stop incurring
     excessive program costs for housing assistance payments that are not reasonable or cost
     effective.




                                              11
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1


Comment 1




Comment 2


Comment 3




                               12
                                  OIG Evaluation of Auditee Comments


Comment 1          The Authority contends that it increased the payment standards up to 300 percent
                   of HUD’s 50th percentile rents to allow program participants access to units on the
                   north side of Chicago and on-site supportive services. The Authority did not
                   provide documentation that program participants (1) were not able to rent units on
                   the north side of Chicago without exception payment standards or (2) needed
                   supportive services. In addition, the Authority also did not provide
                   documentation to support that the housing units with the increased payment
                   standards offered supportive services. The Authority’s Moving to Work activity
                   in its 2014 plan stated that the Authority applied exception payment standards to
                   increase housing options in opportunity areas throughout Chicago. However, the
                   Authority’s plan does not mention the need for supportive services for households
                   residing in opportunity areas. Further, as stated in the audit report, in January
                   2014, the Authority initiated a preliminary review of its exception payment
                   standards, and based on the results, it reduced the maximum exception payment
                   standard percentage from 300 to 150 percent of HUD’s 50th percentile rents
Comment 2          According to the Authority’s Moving to Work agreement with HUD,11 a goal of
                   the Moving to Work program is to design and test innovative methods of
                   providing housing and delivering services to low-income households in an
                   efficient and cost-effective manner. In addition, the agreement authorized the
                   Authority to adopt and implement any reasonable policy to establish payment
                   standards, rents, or subsidy levels for tenant-based assistance. Because the
                   Authority lacked an analysis of its decision to increase its payment standards up
                   to 300 percent of HUD’s 50th percentile rents, we were unable to determine
                   whether the rents were reasonable or cost effective. Our review was limited in
                   scope; thus we did not audit the Authority’s day-to-day operations. Additionally,
                   the audit does not provide assurance that no other issues exist within the
                   Authority’s programs.
Comment 3          We commend the Authority for planning to conduct an analysis to determine
                   whether increasing the payment standards up to 300 percent of HUD’s 50th
                   percentile rents was reasonable and cost effective. The Authority should work
                   with HUD while conducting its analysis to determine the appropriate actions
                   needed to satisfy our recommendations.




11
     Moving to Work agreement, attachment C, section D.2.a



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Appendix C
                             Federal and Authority Requirements


The amended and restated Moving to Work agreement between HUD and the Authority,
executed June 26, 2008, states that section 204(a) of the 1996 Appropriations Act provides that
public housing agencies that administer Section 8 and public housing and the Secretary of HUD
must have the flexibility to design and test various approaches for providing and administering
housing assistance that (1) reduce cost and achieve greater cost effectiveness in Federal
expenditures; (2) give incentives to families with children whose heads of household are either
working, seeking work, or participating in job training or educational or other programs that
assist in obtaining employment and becoming economically self-sufficient; and (3) increase
housing choices for low-income families.
The amended and restated Moving to Work agreement between HUD and the Authority states
that it is a goal of this program to design and test innovative methods of providing housing and
delivering services to low-income families in an efficient and cost-effective manner and HUD
and the Authority agree to fully cooperate with each other to make this program a success.
The amended and restated Moving to Work agreement between HUD and the Authority,
attachment C, section D.2.a, states that the Authority is authorized to adopt and implement any
reasonable policy to establish payment standards, rents, or subsidy levels for tenant-based
assistance that differ from the currently mandated program requirements in the U.S. Housing Act
of 1937 and its implementing regulations.
The amended and restated Moving to Work agreement between HUD and the Authority,
attachment D-8, states that HUD increased the fair market rent for the Chicago market area to the
50th percentile beginning in December 2000. The Authority continues to be authorized to use a
50th percentile fair market rent.
Section 16-II.B of the Authority’s Section 8 Housing Choice Voucher program administrative
plan states that the Authority, under the terms of its Moving to Work agreement, may approve
special exception payment standards on a unit-by-unit basis up to 300 percent of the HUD
published fair market rents for the City of Chicago under a demonstration program to expand
affordable housing choices within housing opportunity areas in Chicago.
Section 16-VI.A of the administrative plan states that the Authority must maintain complete and
accurate accounts and other records for the program in accordance with HUD requirements in a
manner that permits a speedy and effective audit. All such records must be made available to
HUD or the Comptroller General of the United States upon request.




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