oversight

HUD Did Not Adequately Oversee Enhanced Vouchers Administered by New York Agencies

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-07-29.

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

    U.S. Department of Housing and
  Urban Development, Washington, DC
   Housing Choice Voucher Program, Enhanced Voucher
                      Assistance




Office of Audit, Region 3    Audit Report Number: 2015-PH-0003
Philadelphia, PA                                   July 29, 2015
To:            Unabyrd L. Wadhams, Deputy Assistant Secretary for Public and Indian Housing
               Field Operations, PQ

               Milan M. Ozdinec, Deputy Assistant Secretary for Public Housing and Voucher
               Programs, PE
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       HUD Did Not Adequately Oversee Enhanced Vouchers Administered by New
               York Agencies




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s oversight of enhanced voucher assistance
provided through its 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
215-430-6730.
                    Audit Report Number: 2015-PH-0003
                    Date: July 29, 2015

                    HUD Did Not Adequately Oversee Enhanced Vouchers Administered by New
                    York Agencies




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of
enhanced vouchers provided under its Housing Choice Voucher program based on our annual
audit plan. We focused on vouchers administered by three New York agencies because the
related subsidies represented 59 percent of the total monthly housing subsidies associated with
enhanced vouchers nationwide. Our objective was to determine whether HUD had adequate
oversight related to enhanced vouchers administered by the New York agencies.

What We Found
HUD did not adequately oversee enhanced vouchers administered by three New York agencies
that were responsible for administering most of the funds associated with the vouchers. The
three New York agencies could not fully justify program subsidies they provided to voucher
recipients. Of 28 cases reviewed across the agencies, HUD overpaid subsidies for 15 units (54
percent) that were larger than the family was allowed. Also, for another 264 families, HUD
potentially overpaid subsidies for units that were larger than those families were allowed. In
addition, one of the agencies did not perform rent reasonableness determinations as required for
544 units at 2 of its properties; therefore, the rent charged for the units may not have been
reasonable. As a result, about $1.1 million in program subsidies used for housing assistance
payments was unsupported. In addition, HUD could save approximately $1.2 million over a 1-
year period by ensuring that agencies implement policies and procedures to prevent deficiencies.

What We Recommend
We recommend that the Deputy Assistant Secretary for Public and Indian Housing Field
Operations (1) require the three agencies to justify approximately $1.1 million in program
subsidies spent on housing assistance payments and (2) require the agencies to implement
policies and procedures to ensure that they make housing assistance payments related to
enhanced vouchers in accordance with all applicable requirements and detect and prevent future
deficiencies. We also recommend that the Deputy Assistant Secretary for Public Housing and
Voucher Programs develop policies to implement periodic targeted monitoring and related
followup procedures for agencies responsible for administering the most funds associated with
enhanced vouchers to help prevent potential waste of program funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: HUD Did Not Adequately Oversee EnhancedVouchers Administered by
         New York Agencies ........................................................................................................... 5

Scope and Methodology .........................................................................................13

Internal Controls ....................................................................................................15

Appendixes ..............................................................................................................17
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 17

         B. Auditee Comments and OIG’s Evaluation ............................................................. 18




                                                                  2
Background and Objective
The Housing Choice Voucher program is the U.S. Department of Housing and Urban
Development’s (HUD) largest rental assistance program. Under the program, HUD provides
assistance in the form of subsidies that allow very low-income families, the elderly, and the
disabled to afford decent, safe, and sanitary housing in the private market. Housing choice
vouchers are generally administered locally by public housing agencies, which receive Federal
funds from HUD to administer the program. A family that is issued a voucher is responsible for
finding a suitable housing unit of the family’s choice, which the owner agrees to rent under the
program. A housing subsidy is paid directly to the owner on behalf of the participating family.
The family then pays the difference between the rent charged by the owner and the amount
subsidized by the program.

Participants in the voucher program are allowed to select any housing that meets program
requirements. Public housing agencies establish a payment standard, which is the amount
generally needed to rent a moderately priced housing unit in the local market. The payment
standard is used to calculate the housing assistance paid to an owner on behalf of the family
leasing the unit. Agencies have flexibility in establishing payment standards by bedroom size.
The range of possible payment standard amounts is based on HUD’s public fair market rent
schedule for the area in which an agency has jurisdiction.

Through the Housing Choice Voucher program, HUD provides special vouchers known as
enhanced vouchers to tenants of federally assisted, rent-regulated apartments, who would
otherwise be adversely affected by the actions of the project owners. Examples of such actions
include owners prepaying Federal loans to opt out of programs or opting not to renew contracts
under Federal programs. In these instances, enhanced vouchers are issued to provide continued
assistance for families. If the family remains in the same unit, a higher (enhanced) payment
standard is used to determine the amount of the monthly subsidy in cases in which the gross rent
of the unit exceeds the normally applicable payment standard. In such instances, the gross rent
for the unit is used in the monthly subsidy calculation instead of the normally applicable
payment standard.

HUD expects agencies to generally assign vouchers for units with the smallest number of
bedrooms needed to house a family without overcrowding. For the purposes of this report, a
family was considered overhoused if the voucher size exceeded the number of persons in the
family and oversubsidized if the housing assistance paid for the family exceeded the authorized
level of assistance, thereby resulting in a subsidy overpayment.

At the beginning of the audit, HUD had issued about 1.9 million vouchers under the Housing
Choice Voucher program. Of this universe, approximately 29,500 were enhanced vouchers. The
monthly total housing assistance payments for the enhanced vouchers was about $38 million.
The top five public housing agencies with enhanced vouchers are shown in the table below.



                                                3
                                                                               Monthly            Percentage of
                                                                                housing             housing
                                                            Number of         assistance           assistance
                                                            enhanced           payments             payment
    Rank                     Agency
                                                             vouchers        (in millions)          universe
              New York City Department of
      1         Housing Preservation and                      7,101             $13.0                34%
                      Development
              New York State Housing Trust
      2                                                       4,217                6.5               17%
                    Fund Corporation
      3      New York City Housing Authority                  2,203                2.8                7%
      4         Boston Housing Authority                       804                 1.4                4%
                New Jersey Department of
      5                                                        358                 0.7                2%
                   Community Affairs
    Totals                                                   14,683             $24.4

The three New York agencies in the table above were responsible for vouchers with a cumulative
monthly housing assistance payment value of $22.3 million, 1 representing approximately 59
percent 2 of the total monthly housing assistance payments associated with enhanced vouchers
nationwide. We focused on these three agencies during the audit. 3

Our objective was to determine whether HUD had adequate oversight related to enhanced
vouchers administered by the New York agencies.




1
  $13.0 million + $6.5 million + $2.8 million = $22.3 million
2
  $22.3 million / $38 million = .5868 (or .59 rounded)
3
  As of May 2015, HUD had issued about 1.9 million vouchers under the Housing Choice Voucher program, of
which 28,500 were enhanced vouchers with approximately $25 million in associated monthly housing assistance
payments. However, the three agencies on which we focused were still the top three, and their percentage of the
universe of housing assistance payments for enhanced vouchers had increased to 63 percent.



                                                        4
Results of Audit

Finding: HUD Did Not Adequately Oversee Enhanced Vouchers
Administered by New York Agencies
New York agencies responsible for administering most of the funds associated with enhanced
vouchers could not fully justify subsidies they paid for voucher recipients. Of 28 cases reviewed
for the agencies, 15 (54 percent) of the families were oversubsidized because of overhousing.
Data reviews showed that another 264 families were potentially overhoused and oversubsidized.
In addition, one of the agencies did not perform rent reasonableness determinations in
accordance with requirements for 544 units at 2 of its properties; therefore, the rent charged for
the units may not have been reasonable. These problems occurred because HUD lacked
adequate controls to oversee enhanced vouchers. It did not focus on potential problems
associated with enhanced vouchers, and its onsite monitoring risk assessments did not cover
enhanced vouchers. As a result, about $1.1 million in program subsidies was unsupported. Also,
HUD could save approximately $1.2 million over a 1-year period by ensuring that agencies
implement policies and procedures to prevent deficiencies.

Agencies Could Not Justify Overhousing In 54 Percent of Cases Reviewed
Agencies could not adequately justify overhousing for 15 of 28 cases reviewed, and overpaid an
estimated $814,382 in rental assistance subsidies for 12 of the overhoused families. According
to HUD’s Public and Indian Housing Notice 2008-12, for families that receive enhanced
vouchers, a higher (enhanced) payment standard is used to determine the amount of the monthly
subsidy in cases where the gross rent of the unit exceeds the normally applicable payment
standard. The monthly subsidy is based on the gross rent rather than the normally applicable
payment standard. If a family occupies a unit in which the number of bedrooms exceeds the
number of bedrooms for which it qualifies under the agency’s subsidy payment standards, the
family is overhoused. To receive enhanced voucher assistance, an overhoused family must move
to an appropriate-size unit in the property when one becomes available. If an overhoused family
refuses to move to an available appropriate-size unit, the monthly subsidy for the oversized unit
is based on the normally applicable payment standard and the family is responsible for any
portion of the gross rent not covered by the monthly subsidy.

Our review of 28 cases from the New York agencies disclosed overhousing in 15 (54 percent) of
the cases as shown below.




                                                5
                                                                      Overhoused
                                  Agency                                 cases
                   New York City Department of Housing
                                                                            8
                       Preservation and Development
                     New York City Housing Authority                        5
                New York State Housing Trust Fund Corporation               2
                                      Total                                 15

In three cases, the families had been overhoused for about 7 to 14 months. In the remaining
cases, the families had been overhoused anywhere from 3 to 8 years. Reasons that the agencies
provided for the overhousing included family members refusing to move, family members being
granted time to increase family size to comply with payment standards, case manager error at
two properties, political pressure, and agencies generally failing to take a proactive approach to
ensure resolution of overhousing situations. Details related to some of the reasons agencies
provided follow.

   •   In one case under the New York State Housing Trust Fund Corporation, a family of two
       lived in a three-bedroom unit from August 2004 until December 2005 when the family
       size was reduced to one member. Other than some communication in 2008 with the
       property owner regarding the availability of one-bedroom units, the Corporation made no
       significant efforts to relocate the family member to an appropriate-size unit until almost 5
       years later in July 2010. The Corporation finally relocated the family member to a one-
       bedroom unit in February 2013. It admitted that it failed to implement prompt
       communication with the family member and the property owner to ensure that the family
       member was relocated as quickly as possible. As a result of its failure to take prompt
       action, for several years, the Corporation did not know whether the property owner had
       one-bedroom units available.

   •   In one case under the New York City Department of Housing Preservation and
       Development, a tenant had been living in a four-bedroom unit since June 2005. The
       tenant refused to move, claiming that she could not move because of the stress associated
       with moving. In December 2008, the Department granted her a medical waiver so that
       she could remain in the unit. However, the waiver did not address the medical need for
       the additional three bedrooms.

   •   The senior manager for quality assurance at the New York City Housing Authority’s
       Leased Housing Department stated that the Authority had suspended its policy on unit
       transfers because it’s executive department started receiving calls from local politicians
       immediately upon implementation of the policy in late 2008; therefore, no action had
       been taken related to overhousing cases since then.

For the 12 cases in which the families had been overhoused for more than 3 years, we compared
the gross rents for the units with the payment standards for the appropriate-size units and




                                                6
calculated an estimated potential overpayment or oversubsidization amount of $814,382 as
shown below.

                                                               Overhoused        Total
                         Agency                                   cases       Overpayment
          New York City Department of Housing
                                                                    6            $609,052
              Preservation and Development
       New York State Housing Trust Fund Corporation                1              134,533
            New York City Housing Authority                         5               70,797
                              Total                                 12           $814,382

Agencies Paid Subsidies for 264 Potentially Overhoused Families
Based on the results of the sample case reviews, we also analyzed HUD’s Public and Indian
Housing Information Center data for cases in which families were overhoused by at least two
bedrooms. The review results are detailed in the table below.

                                                          Monthly        Annualized excess
                Agency                     Cases       excess subsidy       assistance
      New York City Department of
        Housing Preservation and            171          $ 86,294            $1,035,528
             Development
        New York City Housing
                                             46            17,438               209,256
               Authority
      New York State Housing Trust
                                             47            10,060               120,720
           Fund Corporation
                   Total                    264          $113,792            $1,365,504

The analysis showed that 264 families were potentially overhoused across the 3 agencies. We
provided the results to the agencies. The agencies reviewed the cases identified and provided
responses regarding the potentially overhoused families. The following paragraphs describe the
agencies’ responses.

New York City Department of Housing Preservation and Development

The Department stated that as a result of the audit, it had made several policy changes to address
overhousing. It stated that it had changed its subsidy standards and established waiting lists by
unit size for each property in which it had identified overhoused families that were enhanced
voucher recipients. The Department also stated that it had informed families that had been
granted reasonable accommodations that they would need to resubmit requests for reasonable
accommodations to continue to receive a voucher size exceeding the number of family members.
In addition, it stated that it met with property owners to inform them of their obligation to report
vacant units and offer those units to overhoused families first. It added that as a result of its



                                                   7
policy changes, more than a third of the overhoused families had been moved to appropriate-size
units.

New York City Housing Authority

The Authority confirmed that 45 of the 46 cases identified were overhoused. It stated that some
of the overhousing started in 2006 and project owners claimed that there were no available
appropriate-size units for the overhoused families. However, because the Authority admittedly
voluntarily suspended its policy of unit transfers in 2008, it could have missed opportunities to
transfer overhoused families to appropriate-size units.

New York State Housing Trust Fund Corporation

The Corporation analyzed the cases we identified and provided the following breakdown:



                                          Response                           Number of cases
                                Families on priority list                              35
                             Families in correct-size unit                              5
                       Families paying correct payment standard                         3
                       Families with reasonable accommodation                           1
                                 Family size increased                                  1
                          Family member recently deceased                               1
                        Immaterial oversubsidization amount 4                           1
                                             Total                                     47

We verified that the information the Corporation provided was generally accurate. However, we
also determined that the Corporation relied solely on property owners to provide information on
available appropriate-size units for overhoused families. For example, in 2007, one property had
nine overhoused families that needed one-bedroom units. However, the property rent rolls
showed that the property owner leased 1-bedroom units to 59 families that did not have enhanced
vouchers without considering the needs of the 9 overhoused families. Therefore, the Corporation
made unnecessary housing payments to these nine families. In this case, HUD said that the
Corporation could not be held responsible for the owner’s failure to let it know when units
became available. HUD said it was consulting its Office of General Counsel to determine what
enforcement actions the Corporation could take against the owner in this matter. As a result of
the audit, the Corporation improved its followup with property owners on available units by
creating a priority list for each property and identifying needed unit sizes.




4
    In this case, the monthly oversubsidization as a result of overhousing was about $2.



                                                            8
HUD should ensure that the agencies implement adequate ongoing policies and procedures that
require monitoring of overhoused cases and active followup with property owners on the
availability of appropriate-size units. This will help to ensure that housing assistance payments
are based on the appropriate subsidy and payment standards and detect and prevent overhousing.

One Agency Did Not Perform Rent Reasonableness Determinations According to HUD
Requirements
Based on our review of cases from the New York City Department of Housing Preservation and
Development, we determined that the Department failed to document or show that it performed
rent reasonableness determinations as required for units at two of its properties. HUD
regulations at 24 CFR (Code of Federal Regulations) 982.4 define reasonable rent as rent to an
owner that is not more than rent charged for comparable units in the private unassisted market
and for comparable units in the premises. Regulations at 24 CFR 982.507(b) require agencies to
determine whether rents charged by owners to program participants are reasonable. In
conducting rent reasonableness, the agency must determine whether the rent charged is
reasonable compared to rent for other comparable unassisted units. HUD requires that rent
reasonableness be documented for each case based on an evaluation of several factors, including
location, quality, size, unit type, age, amenities, and maintenance provided by the owner.
Agencies must determine that initial rent is reasonable before lease approval and rent increases.

For two of its properties, the Department performed rent reasonableness determinations when
program participants converted from receiving regular vouchers to enhanced vouchers.
However, it failed to properly determine reasonableness for rent increases. The conversion
happened for one property (Glen Gardens) in 2002 and for the other (Independence Plaza) in
2004. For rent increases before 2009, the Department determined rent reasonableness based only
on 1- and 2-year allowable rent increase rates established by the New York City Rent Guidelines
Board. It did not evaluate any of the required factors or determine whether rents were reasonable
compared to rents for comparable unassisted units because it did not have policies or procedures
to ensure that it performed rent reasonableness determinations as required.

Effective December 1, 2010, the Department established a policy to determine reasonable rent by
using owners’ rent roll data to identify and compare with comparable unassisted units for each
unit type in the property. However, the Department stated that it did not perform reasonableness
determinations in accordance with the new policy for the two properties because of pending
litigation involving the property owners. It also stated that it did not take steps to resolve cases
of overhousing at the properties. According to a HUD attorney, since 2006, HUD had sought a
legal determination that the properties should have been subject to rent stabilization, as a result
of receiving tax abatements, and attempted to recover overpayments in assistance because the
buildings charged market rents. However, the attorney stated that the courts did not put a stay on
rents during litigation and HUD did not advise the Department to suspend rent reasonableness
determinations for the properties. Therefore, the Department should have performed rent
reasonableness determinations for the properties in accordance with HUD requirements.

The Department processed rent increases every year at Glen Gardens and every 2 years at
Independence Plaza. Based on the Board’s rent guidelines, approved rent increases would total



                                                 9
about 19 and 13 percent, respectively, for Glen Gardens and Independence Plaza for the period
of conversion through the audit period. The schedule below shows the total increase in monthly
rents from the time of conversion to enhanced vouchers through the audit period for each of the
two properties.

                             Total monthly
                                               Approved total           Total
                                  rents
                                               monthly rents at      monthly rent    Percentage
                               as of April
   Property        Units                         conversion           increases       increase
                                  2013
 Glen Gardens       106       $ 336,485              $    282,680     $    53,805         19
 Independence
                    438          1,345,258               1,194,470        150,788         13
     Plaza
   Monthly                      1,681,743           1,477,150            204,593
  Annualized                  $20,180,916         $17,725,800         $2,455,116

The percentage increase in total monthly rent was within the Board’s guidelines for both
properties. However, according to HUD, by using the Board’s guidelines, the Department likely
artificially kept increases below market rate.

HUD’s Housing Choice Voucher Program Guidebook 7420.10G, chapter 9.1, states that
ensuring rent reasonableness is important for effective program operations. If approved rents are
too high, government funds are wasted; therefore, limited housing subsidies are squandered. If
approved rents are lower than comparable units in the private market, some owners opt to not
participate in the program, or they participate only with their lowest cost and lowest quality
units.

The Department failed to ensure that rents paid for assisted units were reasonable in relation to
rents charged for comparable unassisted units. Therefore, it may have subsidized units at rents
that were higher or lower than rents considered reasonable. As a result, at least $204,593 in rent
increases was unsupported.

HUD Lacked Adequate Controls To Oversee Enhanced Vouchers
Enhanced vouchers represented less than 2 percent of vouchers under the Housing Choice
Voucher program; therefore, HUD’s risk assessments for the program did not specifically
address them. HUD’s New York City Office of Public and Indian Housing was responsible for
monitoring the three agencies reviewed. However, it had performed no recent onsite monitoring
of the agencies. It had not performed onsite monitoring of the Corporation and the Authority
since 2006 and the Department since 2009. In its last monitoring report on the Department,
HUD noted that 66 families receiving enhanced vouchers were potentially overhoused and
oversubsidized. However, HUD did not follow up on the cases. HUD stated that it lacked the
resources to monitor enhanced vouchers compared to other priorities such as funding housing
agencies.

Although enhanced vouchers represented less than 2 percent of vouchers under the program,
HUD needs to periodically include specific coverage of the vouchers in its monitoring


                                                10
procedures to prevent or lessen the problems identified. Since enhanced vouchers were
concentrated in New York City, HUD could periodically assess the risk associated with
enhanced vouchers administered by New York agencies and implement some targeted
monitoring procedures related to those vouchers. Also, HUD should ensure that the agencies
implement ongoing policies and procedures to ensure that they make housing assistance
payments related to enhanced vouchers based on the appropriate subsidy and payment standards
and that the Department implements policies to ensure that it performs rent reasonableness
determinations as required. HUD should also implement policies to ensure that it monitors and
resolves potential cases of overhousing as quickly as possible.

Conclusion
HUD lacked adequate controls to oversee New York agencies responsible for administering most
of the funds associated with its enhanced vouchers. Three New York agencies reviewed could
not fully justify program subsidies they paid for voucher recipients. All three agencies paid
program subsidies that exceeded authorized levels because of overhousing. One of the agencies
did not perform rent reasonableness determinations in accordance with HUD requirements;
therefore, the rent charged for the units may not have been reasonable. As a result, about $1.1
million in program subsidies used for housing assistance payments was unsupported. In
addition, HUD could save approximately $1.2 million over a 1-year period by implementing
internal management controls related to enhanced vouchers and ensuring that agencies
implement policies and procedures to prevent deficiencies.

Recommendations
We recommend that the Deputy Assistant Secretary for Public and Indian Housing Field
Operations


        1A.     Require the three agencies to justify $814,382 in unnecessary assistance payments
                made for the overhoused cases or either reduce future HUD funding or reduce the
                contract or budget authority for any funding increment by the applicable amounts
                that the agencies could not justify.

        1B.     Require the agencies to review the cases identified as potentially overhoused and
                justify at least $103,732 in related unnecessary housing assistance payments made
                or correct vouchers as appropriate. 5 Any overpayments of assistance should be
                repaid to HUD from non-Federal funds.

        1C.     Require the three agencies to implement ongoing policies and procedures that
                require monitoring of overhoused cases and active followup with property owners
                on the availability of appropriate-size units, thereby ensuring that approximately



5
 This recommendation includes only costs associated with the New York City Department of Housing Preservation
and Development and New York City Housing Authority because the New York State Housing Trust Fund
Corporation provided justifications for its potentially overhoused families.



                                                     11
                      $1,244,784 6 in program funds is spent on appropriate-size units over a 1-year
                      period.

           1D.        Require the New York City Department of Housing Preservation and
                      Development to support rent reasonableness for Glen Gardens and Independence
                      Plaza or either reduce its future HUD funding or reduce its contract or budget
                      authority for any funding increment by $204,593.

           1E.        Require the New York City Department of Housing Preservation and
                      Development to implement policies to ensure that it follows program
                      requirements related to performing rent reasonableness determinations.

We also recommend that the Deputy Assistant Secretary for Public Housing and Voucher
Programs

           1F.        Strengthen its program controls by developing policies to implement periodic
                      targeted monitoring and related followup procedures for agencies responsible for
                      administering the most funds associated with enhanced vouchers to help prevent
                      potential waste of program funds.




6
    See footnote 5.



                                                      12
Scope and Methodology
We conducted the audit from August 2012 through February 2015, at the offices of the New
York City Department of Housing Preservation and Development, the New York State Housing
Trust Fund Corporation, and at our offices located in New York, NY and Richmond, VA. The
audit covered the period August 2010 through April 2013.

To accomplish our objective, we reviewed

   •   Applicable HUD rules, notices, and guidance;
   •   HUD monitoring reports for the agencies reviewed;
   •   Tenant files maintained by the New York City Department of Housing Preservation and
       Development and the New York State Housing Trust Fund Corporation;
   •   Rent rolls for enhanced voucher properties administered by the New York City
       Department of Housing Preservation and Development and the New York State Housing
       Trust Fund Corporation;
   •   Appraisals for rents at two properties (Glen Gardens and Independence Plaza) under the
       New York City Department of Housing Preservation and Development; and
   •   Voucher data in HUD’s Public and Indian Housing Information Center database as of
       August 2012 and April 2013.

We communicated with HUD program officials and staff located in headquarters and field
offices in New York, NY, Washington, DC, Baltimore, MD, and Richmond, VA. We also
communicated with officials of the three agencies reviewed.

At the beginning of the audit, the universe of enhanced vouchers totaled 29,538. The monthly
total housing assistance payments associated with the enhanced vouchers was about $38 million.
The three New York agencies were responsible for 13,521 of the enhanced vouchers with a
cumulative monthly housing assistance payment value of about $22 million, representing
approximately 59 percent of the total monthly housing assistance payments associated with
enhanced vouchers nationwide. We nonstatistically selected for review 28 cases from the 3
agencies based on potential overhousing and high rents. We analyzed voucher data to identify
properties with gross rents of $3,000 or more per month. We identified 11 properties for the
New York City Department of Housing Preservation and Development and 2 for the New York
State Housing Trust Fund Corporation. We then analyzed data related to the 13 properties to
identify potential cases for review. We found that one of the New York City Department of
Housing Preservation and Development properties had only four vouchers so we substituted
another property based on analysis indicating potential overhousing issues.

For the 13 properties, we identified 33 cases for the New York City Department of Housing
Preservation and Development and 5 cases for the New York State Housing Trust Fund
Corporation based on potential overhousing and high rents (rent exceeding the payment standard


                                              13
for the applicable bedroom size). We selected the most apparently questionable 10 of the 33
cases for the New York City Department of Housing Preservation and Development and the 5
cases for the New York State Housing Trust Fund Corporation. For the New York City Housing
Authority, we made selections for review based on potential overhousing and high rents. We
selected 13 cases from 6 of the top 10 properties based on the total monthly subsidies paid
(exceeding $3,000) and from 2 properties with indications of potential overhousing.

In addition, for the three agencies, we analyzed HUD’s Public and Indian Housing Information
Center database as of April 2013 to identify cases in which families were overhoused by at least
two bedrooms. We identified 171 cases for the New York City Department of Housing
Preservation and Development, 47 for the New York State Housing and Trust Fund Corporation,
and 46 for the New York City Housing Authority. We then determined the monthly total excess
subsidies paid for each agency by calculating and totaling the differences between the gross rent
and the payment standard for the applicable-size unit. We also estimated the annual excess
subsidies paid by multiplying the total monthly excess subsidies for each agency by 12. The
total monthly excess subsidies paid for the three agencies was $113,792, and the annualized total
was more than $1.3 million.

We relied in part on computer-processed data in HUD’s Public and Indian Housing Information
Center database. 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 adequate for our purposes.
The testing entailed matching information obtained from HUD’s system to hardcopy documents
provided by the agencies reviewed.

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. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               14
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 program 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 program participants comply with program 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:

•   HUD lacked adequate controls to oversee enhanced vouchers. It lacked controls to ensure that
    (1) agencies responsible for administering most of the funds associated with enhanced
    vouchers implemented policies to ensure that related assistance payments were made based



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on the appropriate subsidy and payment standards and consistently performed rent
reasonableness determinations in accordance with program requirements and (2) potential
cases of overhousing were monitored and resolved as quickly as possible.




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Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
           Recommendation                             Funds to be put to
                                  Unsupported 1/
                number                                   better use 2/
                  1A                 $ 814,382
                    1B                      103,732
                    1C                                           $1,244,784
                    1D                      204,593
                  Totals                 $1,122,707              $1,244,784


1/   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.
2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this instance, HUD could save approximately $1.2
     million over a 1-year period by ensuring that agencies implement policies to ensure that
     housing assistance payments are based on the appropriate subsidy and payment standards
     and made in accordance with other applicable program requirements and detect and
     prevent overhousing.




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Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1


Comment 2




                              18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




                              19
                         OIG Evaluation of Auditee Comments


Comment 1   HUD stated that the report noted that enhanced vouchers represented less than 2
            percent of housing choice vouchers nationwide, and that it appropriates its limited
            monitoring resources based on the size and scale of program risk. We understand
            the concept of risk-based monitoring. However, with the overhousing issue for
            example, the audit disclosed that the three New York agencies had not
            implemented any policies or procedures to address or resolve problems before the
            audit. Therefore, as stated in the report, HUD should periodically include specific
            coverage of enhanced vouchers in its monitoring procedures to prevent or lessen
            the problems identified.

Comment 2   HUD stated that it was concerned about the extrapolation of unsupported or
            unnecessary payments in recommendation 1C because the audit only examined 28
            cases and determined that agencies could not justify overhousing in 15 of the
            cases. The projected savings were based on the 217 potentially overhoused
            families under New York City Department of Housing Preservation and
            Development and New York City Housing Authority. As explained in the report,
            we analyzed data from HUD’s Public and Indian Housing Information Center for
            cases in which families were overhoused by at least two bedrooms. By doing so,
            we potentially identified the worst cases of overhousing, and thus determined a
            relatively conservative estimate of potential savings. Also, the agencies had not
            implemented any procedures to address or resolve overhousing related to
            enhanced vouchers before the audit. Therefore, the projected amount simply
            represents an estimate of how much HUD could save annually if it ensures that
            the agencies implement policies and procedures to prevent future deficiencies.




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