oversight

The Detroit Housing Commission, Detroit, MI, Did Not Always Manage Its Program Projects in Accordance With HUD's Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-08-26.

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

           Detroit Housing Commission,
                    Detroit, MI
           Section 8 Moderate Rehabilitation Program




Office of Audit, Region 5        Audit Report Number: 2015-CH-1002
Chicago, IL                                          August 26, 2015
To:            Douglas Gordon, Director of Public Housing Hub, 5FPH

               //signed//
From:           Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The Detroit Housing Commission, Detroit, MI, Did Not Always Manage Its
               Program Projects in Accordance With HUD’s 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 Detroit Housing Commission’s Section 8
Moderate Rehabilitation 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-1002
                    Date: August 26, 2015

                    The Detroit Housing Commission, Detroit, MI, Did Not Always Manage Its
                    Program Projects in Accordance With HUD’s Requirements




Highlights

What We Audited and Why
We audited the Detroit Housing Commission’s Section 8 Moderate Rehabilitation Program as
part of the activities in our fiscal year 2015 annual audit plan. We selected the Commission
based upon a citizen’s complaint alleging mismanagement in the administration of the
Commission’s former program projects, Colony Arms and Fisher Arms Apartments. Our audit
objectives were to determine whether the Commission appropriately (1) maintained required
program eligibility documentation and a waiting list to select applicants for housing and (2)
recaptured overpaid housing assistance after households were terminated from the program or
moved out of assisted units.

What We Found
The complainant’s allegation of mismanagement in the administration of the Commission’s
former program projects was partially valid. The Commission appropriately determined
households’ program eligibility; however, it did not maintain a waiting list or use its Section 8
program waiting list to refer applicants to the projects’ owner or management agent for housing.
In addition, our testing identified one additional issue with the Commission’s operation of its
program. Specifically, the Commission did not always recapture overpaid housing assistance
after households were terminated from the program or moved out of assisted units. As a result,
the Commission and the U.S. Department of Housing and Urban Development (HUD) lacked
assurance that applicants were properly selected to reside in an assisted unit in the projects.
Further, the Commission overpaid nearly $101,000 in housing assistance.

What We Recommend
We recommend that the Director of HUD’s Detroit Office of Public and Indian Housing
determine whether the households residing in the projects’ assisted units received housing in
accordance with the program’s requirements and if not, consider a referral to HUD’s Office of
Fair Housing and Equal Opportunity. We also recommend that HUD require the Commission to
(1) reimburse HUD nearly $101,000 from non-Federal funds for the overpayment of housing
assistance and (2) implement adequate controls to address the findings cited in this audit report.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Commission Did Not Always Manage Its Program Projects in
         Accordance With HUD’s Requirements ......................................................................... 4

Scope and Methodology ...........................................................................................7

Internal Controls ......................................................................................................8

Appendixes ................................................................................................................9
         A. Schedule of Questioned Costs .................................................................................... 9

         B. Auditee Comments and OIG’s Evaluation ............................................................. 10

         C. Federal and Commission Requirements ................................................................. 14




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Background and Objectives
The Detroit Housing Commission is a public housing agency created by the City of Detroit, MI,
in 1933 under the Michigan Housing Facilities Act. The Commission is governed by a five-
member board of commissioners appointed by the mayor. The board’s responsibilities include
performing the duties and functions prescribed by the Commission’s bylaws and any other duties
or functions established by the Commission. The executive director is responsible for
administering the Commission’s affairs according to the board’s operational, fiscal, and personnel
policies.

In July 2005, the U.S. Department of Housing and Urban Development (HUD) assumed control of
the Commission and placed it under administrative receivership as a result of unauditable financial
records, the distressed physical condition of housing units, regulatory compliance deficiencies, and
HOPE VI grants that were in default for lack of progress with redevelopment projects. On March
16, 2015, HUD returned the Commission from administrative receivership to the City of Detroit.

The Commission administers the Section 8 Moderate Rehabilitation Program funded by HUD.
The program provides project-based Section 8 rental assistance for low-income families. The
program was repealed in 1991, and no new projects were authorized for development.
Therefore, housing assistance was limited to properties that were under a housing assistance
payments contract between an owner and a public housing agency before the repeal. As of
March 2015, the Commission had program housing assistance payments contracts with 5
projects consisting of 144 assisted units. In fiscal year 2015, the Commission was authorized to
receive more than $1.3 million in program funds.

Colony Arms and Fisher Arms Apartments are two former Section 8 Moderate Rehabilitation
Program projects comprised of two buildings containing 81 and 80 units, respectively, for a total
of 161 units. The Commission paid more than $1.9 million in housing assistance to the projects’
owner from July 2012 through December 2014. On December 31, 2014, the projects’ project-
based Section 8 housing assistance payments contracts with the Commission were terminated.
As of January 1, 2015, the projects were receiving multifamily Section 8 housing assistance.

Our audit objectives were to determine whether the Commission appropriately (1) maintained
required program eligibility documentation and a waiting list to select applicants for housing and
(2) recaptured overpaid housing assistance after households were terminated from the program or
moved out of assisted units.




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Results of Audit

Finding: The Commission Did Not Always Manage Its Program
Projects in Accordance With HUD’s Requirements
The Commission did not always manage its program projects in accordance with HUD’s
requirements. Specifically, it appropriately determined households’ program eligibility but did
not maintain a waiting list or use its Section 8 program waiting list to refer applicants to the
projects’ owner or management agent for housing. Further, the Commission did not always
recapture overpaid housing assistance after households were terminated from the program or
moved out of assisted units. The weaknesses occurred because the Commission lacked adequate
procedures and controls to ensure that it complied with HUD’s requirements. As a result, the
Commission and HUD lacked assurance that applicants were properly selected to reside in an
assisted unit in the projects. Further, the Commission overpaid nearly $101,000 in housing
assistance.
The Commission Maintained Documentation To Support Household Program Eligibility
We reviewed 29 of the Commission’s household files to determine whether the Commission
maintained the required documentation to support the households’ eligibility for admission into
its former program projects. Of the 29 household files reviewed, all the households were eligible
to receive housing assistance.

The Commission Did Not Maintain a Program Project Waiting List
Contrary to 24 Code of Federal Regulations (CFR) 882.513(b), the Commission did not maintain
a program project waiting list or use its Section 8 program waiting list to refer applicants to the
program projects’ owner for housing. Instead, it relied on the owner or management agent of the
program projects to maintain a waiting list and select applicants to receive assisted housing.
Further, the Commission did not ensure that the households were appropriately selected from the
projects’ waiting list in accordance with HUD’s requirements.1

The Commission Failed To Capture Overpaid Housing Assistance
We reviewed 532 households’ housing assistance payments to determine whether the
Commission appropriately recaptured overpaid housing assistance after households (1) moved
out of assisted units or (2) were terminated from the program, deceased, or incarcerated. The
Commission continued to pay housing assistance




1
    24 CFR 882.514(b)
2
     Our methodology for this sample is explained in the Scope and Methodology section of this audit report.




                                                            4
         For 43 households between 1 and 15 months after the households moved out of their
          assisted units,
         For 7 households between 1 and 9 months after the households were terminated from the
          program for noncompliance,
         For 2 households between 2 and 6 months after the head of household passed away, and
         For 1 household for 6 months while the head of household was incarcerated.

As a result, the Commission overpaid $100,507 in housing assistance to the projects’ owner.3
The Commission failed to recapture the inappropriately paid housing assistance from the owner
after it received notification from the projects’ management agent or became aware that the
households no longer resided in the assisted units.

In accordance with 24 CFR 982.152(d), HUD is permitted to reduce or offset any program
administrative fees paid to a public housing agency if it fails to perform its administrative
responsibilities adequately under the program. The Commission received $11,254 in program
administrative fees related to the inappropriate housing assistance for the 53 program households
after the households left the program.
The Commission Lacked Adequate Procedures and Controls
The Commission lacked adequate procedures and controls to ensure that it complied with HUD’s
requirements regarding a waiting list. According to the Commission’s executive director, the
Commission had to address continuous complaints regarding the former projects, which had
prevented it from examining the waiting list process. Further, the executive director believed
that at some point, the projects’ owner had complained about the number of days units were
vacant. Therefore, in an attempt to speed up the leasing process, the Commission began having
the applicants go directly to the projects’ management agent rather than the Commission. This
practice resulted in confusion as to whether the Commission or the projects’ owner or
management agent was responsible for maintaining the waiting list.

The Commission also lacked adequate procedures and controls for monitoring the projects’
owner or management agent and recapturing overpaid housing assistance. According to the
Commission’s former deputy executive director, contrary to its contract,4 the owner or
management agent did not always (1) notify the Commission in a timely manner when
households moved out of assisted units and (2) return the overpaid housing assistance. However,
when the Commission started receiving complaints regarding the projects, it decided to validate
the amount of housing assistance paid to the projects’ owner. The Commission attempted to
obtain the projects’ rent rolls but did not always receive them in a timely manner. For example,
in February 2014, the Commission had just received the former projects’ rent rolls from 2013,
and when it compared the rent roll to its records, it identified that housing assistance was being




3
    The payments were not considered vacancy payments in accordance with 24 CFR 882.411.
4
    Section 1.5(f)(2)(ii) of the owner’s contract with the Commission.



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paid for 22 vacant units. The Commission recaptured $151,526 in housing assistance that was
inappropriately paid from March 2012 through February 2014 for the 22 households.

Based on the Commission’s records for the household files reviewed, the Commission was aware
or should have been aware that the households no longer resided in an assisted unit. However, it
did not recapture the overpaid housing assistance. According to the Commission’s former
deputy executive director, the Commission did not always recapture the housing assistance
because its Section 8 program staff did not always provide the required document that instructed
its finance department to recapture the inappropriately paid housing assistance.
Conclusion
The weaknesses described above occurred because the Commission lacked adequate procedures
and controls to ensure that it complied with HUD’s requirements. As a result, the Commission
and HUD lacked assurance that applicants were properly selected to reside in an assisted unit in
the projects. Further, the Commission overpaid nearly $101,000 in housing assistance and
received $11,254 in program administrative fees for the 53 households that had left the program.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public and Indian Housing

     1A. Determine whether the households residing in the projects’ assisted units received
         housing in accordance with the program’s requirements and if not, consider a referral
         to HUD’s Office of Fair Housing and Equal Opportunity.

We also recommend that the Director of HUD’s Detroit Office of Public and Indian Housing
require the Commission to

     1B. Maintain a waiting list or use its Section 8 waiting list to refer applicants to the
         owners of its remaining program projects to ensure that applicants are appropriately
         selected for housing.

     1C. Reimburse HUD $111,761 from non-Federal funds ($100,507 for housing assistance
         payments + $11,254 in associated administrative fees) for the overpayment of
         housing assistance cited in the finding.

     1D. Implement adequate procedures and controls to ensure it appropriately (1) recaptures
         overpaid housing assistance from project owners and (2) verifies that households
         reside in the assisted units for its remaining Section 8 Moderate Rehabilitation
         Program projects.




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Scope and Methodology
We performed our onsite audit work between January and May 2015 at the Commission’s office
located at 1301 East Jefferson Avenue, Detroit, MI. The audit covered the period July 1, 2012,
through October 31, 2014, but was expanded as determined necessary.

To accomplish our objectives, we interviewed HUD program staff and the Commission’s
employees. In addition, we reviewed the following:
       Applicable laws and HUD’s regulations at 24 CFR Parts 5, 882, 982.

       The Commission’s policies and procedures; board meeting minutes for July 2012,
        through October 2014; annual audited financial statements for 2011, 2012, and 2013;
        accounting records; organizational chart; household files; housing assistance payments
        register; and housing assistance payments contract with the program projects’ owner.

       The program projects’ rent rolls from June 2013 through October 2014.


We randomly reviewed 29 of the 227 households in an assisted unit that received housing
assistance from July, 1, 2012, through October 1, 2014, to determine whether the households
were eligible to receive program assistance.
We reviewed HUD’s Public and Indian Housing Information Center report to determine the
termination date, if applicable, for the 227 households at the program projects that received
program assistance through the Commission from July 1, 2012, through October 1, 2014. We
compared the termination dates to the housing assistance payment register and rent rolls. We
identified 47 households from the report and 6 households from the rent rolls, for a total of 53
households that may have inappropriately received housing assistance after they were terminated
from the program or moved out of their assisted unit.
We relied in part on data maintained by the Commission. Although we did not perform a
detailed assessment of the reliability of the data, we performed a minimal level of testing and
found the data to be adequately reliable for our purposes. We provided our review results and
supporting schedules to the Director of HUD’s Detroit Office of Public and Indian Housing and
the Commission’s executive director during the audit.
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.




                                                7
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:

   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 Commission lacked adequate procedures and controls to ensure that (1) it maintained a
    waiting list or used its Section 8 program waiting list to refer applicants to the projects’
    owner or management agent for housing, (2) the owner or management agent notified the
    Commission of overpaid housing assistance for households that were terminated from the
    program or moved out of an assisted unit, and (3) it recaptured overpaid housing assistance.


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Appendixes

Appendix A


                              Schedule of Questioned Costs
                          Recommendation
                              number              Ineligible 1/
                                1C                $111,761

                                Total             $111,761


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.




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Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




                               10
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 3




                               11
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                               12
                         OIG Evaluation of Auditee Comments


Comment 1   The Commission stated that it was maintaining a waiting list for each of its
            Moderate Rehabilitation Program projects. We commend the Commission for
            taking the necessary steps to improve its operations and ensure compliance with
            HUD’s requirements. The Commission should work with HUD to resolve the
            recommendations. In addition, the Commission should provide documentation to
            support its waiting list processes and actions to HUD to review for completeness
            and implementation of the processes.
Comment 2   The Commission stated that it agreed that the funds questioned in
            recommendation 1C should be repaid from non-Federal funds. The Commission
            also stated that it would work with HUD to resolve the recommendation. We
            commend the Commission for taking the necessary steps to resolve the
            recommendation.
Comment 3   The Commission stated that it agreed with recommendation 1D and had
            developed internal processes and taken actions to assist in eliminating
            overpayments of housing assistance. It also stated that it would implement
            additional procedures to improve its program. We commend the Commission for
            (1) developing quality control processes, (2) taking actions to assist in eliminating
            overpayments of housing assistance, and (3) agreeing to implement additional
            procedures to improve its program. The Commission should work with HUD to
            resolve the recommendations. In addition, the Commission should provide
            documentation to support its internal processes and actions to HUD to review for
            completeness and implementation of the processes.
            .




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Appendix C
                           Federal and Commission Requirements

Waiting List
Regulations at 24 CFR 882.513(b) state that the public housing agency must maintain a waiting
list for applicants of the Moderate Rehabilitation Program. This requirement may be met
through the use of waiting lists for other subsidized housing programs.

Regulations at 24 CFR 882.514(b) state that when vacancies occur, the public housing agency
should refer to the owner one or more appropriate-size families on its waiting list. The agency
must select families for program participation in accordance with the provisions of the program
and the agency’s application.

Section 1.4(a) of the Commission’s housing assistance payments contract with the project owner
states that the owner must select tenants for occupancy of vacant units from eligible families
referred by the Commission.

Inappropriate Housing Assistance Payments

Regulations at 24 CFR 882.411(b)(1) state that if an eligible family vacates its unit, the owner
may receive the housing assistance payments for the month in which the family vacates the unit.
Section 1.5(f)(1)(ii)(a) of the Commission’s housing assistance payments contract with the
projects’ owner states that the owner agrees that the endorsement on the check would be a
certification by the owner that contract units would be leased to an eligible family.
Section 1.5(f)(2)(i) of the Commission’s housing assistance payments contract with the projects’
owner states that if the Commission determines that the owner is not entitled to the payment or
any part of it, the Commission or HUD, in addition to other remedies, may deduct the amount of
the overpayment from any other amounts due to the owner.
Section 1.5(f)(2)(ii) of the Commission’s housing assistance payments contract with the project
owner states that the owner must notify the Commission promptly of any change of
circumstances that would affect the amount of the monthly payment and will return any payment
that does not conform to the changed circumstances.




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