oversight

The Virgin Islands Housing Authority, St. Thomas, VI, Did Not Adequately Enforce HUD's Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-12-08.

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

   Virgin Islands Housing Authority, St.
                Thomas, VI
     Housing Choice Voucher Program Housing Quality
                       Standards




Office of Audit, Region 4     Audit Report Number: 2016-AT-1001
Atlanta, GA                                    December 8, 2015
To:            Antonio Cordova, Director, Public and Indian Housing, San Juan Field Office,
               4NPH


               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Virgin Islands Housing Authority, St. Thomas, VI, Did Not Adequately
               Enforce HUD’s Housing Quality Standards




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 Virgin Islands Housing Authority’s Section 8
Housing Choice Voucher program’s housing quality standards.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
404-331-3369.
                    Audit Report Number: 2016-AT-1001
                    Date: December 8, 2015
                    The Virgin Islands Housing Authority, St. Thomas, VI, Did Not
                    Adequately Enforce HUD’s Housing Quality Standards



Highlights

What We Audited and Why
We audited the Virgin Islands Housing Authority’s Section 8 Housing Choice Voucher
program’s housing quality standards as part of the activities in our fiscal year 2015 audit plan.
We selected the Authority because it had a large program receiving more than $14 million in
2014. Our audit objective was to determine whether the Authority’s inspection process
adequately ensured that its units complied with housing quality standards.

What We Found
The Authority’s inspections were not adequate for enforcing the U.S. Department of Housing
and Urban Development’s (HUD) housing quality standards. Of 65 program units inspected, 62
failed to comply with HUD’s minimum housing quality standards, and 44 of those were in
material noncompliance with the standards. For the 44 units in material noncompliance, the
Authority’s inspectors failed to observe or report 467 violations that existed when they
conducted their last inspections. As a result, some tenants lived in inadequately maintained
units, and the Authority disbursed $139,747 in housing assistance payments and received
$12,737 in administrative fees for the 44 units in material noncompliance with HUD standards.
Unless the Authority improves its inspection program and ensures that all of its units materially
meet minimum housing quality standards, we estimate that over the next year, HUD will pay
about $6.2 million in housing assistance for units in material noncompliance with the standards.

What We Recommend
We recommend that the Director of HUD’s San Juan Office of Public and Indian Housing
require the Authority to (1) reimburse its program more than $152,000 from non-Federal
funds for the 44 units that materially failed to meet HUD’s requirements; (2) ensure that all
violations cited for the units failing to meet housing quality standards have been corrected and
certify that the units meet the standards; and (3) implement adequate policies and procedures,
including staff training, to ensure that all units meet HUD’s housing quality standards to
prevent more than $6.2 million in program funds from being spent on units that do not comply
with HUD’s requirements over the next year.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Did Not Always Ensure That Program Units Met HUD’s
         Housing Quality Standards .............................................................................................. 4

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................15
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 15
         B. Auditee Comments and OIG’s Evaluation ............................................................. 16
         C. Schedule of Units in Material Noncompliance With Housing Quality
            Standards ................................................................................................................... 19




                                                                    2
Background and Objective
The Virgin Islands Housing Authority is a governmental-public corporation created under
Federal and State housing laws for the purpose of engaging in the development, acquisition, and
administrative activities of the low-rent housing program and other programs with similar
objectives for low- and moderate-income families residing on the islands of St. Thomas, St.
John, and St. Croix. The Authority is responsible for operating certain low-rent housing
programs approved by the U.S. Department of Housing and Urban Development (HUD). These
programs provide housing for eligible families under the United States Housing Act of 1937.

The Authority is governed by a board of commissioners. The executive director is appointed by
the board and has the responsibility of carrying out board’s policies and the Authority’s day-to-
day operations.

The Authority administers about 1,200 housing choice vouchers. It received more than $14
million in program funding for fiscal year 2014. The books and financial records are kept at the
Authority’s central office located at 4402 Estate Anna’s Retreat, St. Thomas, VI.

Our audit objective was to determine whether the Authority’s inspection process adequately
ensured that its units complied with housing quality standards.




                                                3
Results of Audit

Finding: The Authority Did Not Always Ensure That Program
Units Met HUD’s Housing Quality Standards
The Authority’s inspections were not adequate for enforcing HUD’s housing quality standards.
Of 65 program units inspected, 62 failed to comply with HUD’s minimum housing quality
standards, and 44 of those were in material noncompliance with HUD standards. For the 44
units in material noncompliance, the Authority’s inspectors failed to observe or report 467
violations that existed when they conducted their last inspections. The excessive violations
occurred because the Authority’s inspectors were not properly trained and lacked sufficient
knowledge of HUD’s housing quality standards. As a result, some tenants lived in inadequately
maintained units, and the Authority disbursed $139,747 in housing assistance payments and
received $12,737 in administrative fees for the 44 units in material noncompliance with the
standards. Unless the Authority improves its inspection program and ensures that all of its units
materially meet minimum housing quality standards, we estimate that over the next year, HUD
will pay about $6.2 million in housing assistance for units in material noncompliance with the
standards.

Housing Units Did Not Meet HUD’s Housing Quality Standards
We statistically selected 65 1 units from a universe of 273 program units that had passed an
Authority housing quality standards inspection between January 1 and March 31, 2015. The 65
units were selected to determine whether the Authority ensured that its program units met
minimum housing quality standards. We inspected the units from May 26 to June 16, 2015. The
Authority’s supervisory inspector accompanied us during our inspections and was made aware of
the results of each inspection.

Of the 65 program units inspected, 62 (about 95 percent) failed to meet minimum housing
quality standards (there were 645 individual fail items, and 499 of those were preexisting
conditions). The following table lists the 10 most frequently occurring violations for the 62
units.

    Table 1
                 Violation category                         Number of violations           Number of units
     Doors and locks                                              107                          46
     Smoke detector                                               107                          29
     Electrical                                                   102                          40
     Site-neighborhood                                             72                          38
     Stair-rail-porch                                              54                          26


1
     Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit
     report.


                                                           4
   Window                                                 35                     19
   Water heater                                           31                     23
   Range-refrigerator                                     30                     26
   Bathrooms, sinks, showers, tubs, and                   29                     18
   toilets
   Floor                                                  16                     14

Additionally, 44 of the 65 units (about 68 percent) were in material noncompliance with housing
quality standards. We considered these units to be in material noncompliance because they had
at least five health and safety violations or at least one 24-hour violation that predated the
Authority’s last inspection. The 44 units had a total of 584 individual fail items, and 467 of
those predated the Authority’s last inspection. Appendix C provides the number of violations for
the 44 units.

Throughout the inspection process, we kept the Authority’s staff aware of the life-threatening
health and safety violations. Regulations at 24 CFR (Code of Federal Regulations) 982.404
require that owners correct life-threatening defects within no more than 24 hours.

Types of Deficiencies
The following photographs illustrate some of the violations noted during housing quality
standards inspections of the 62 units that failed to meet HUD’s standards. The most prevalent
deficiencies were doors and locks, and smoke detectors violations.

Doors and Door Locks
A total of 107 doors and door locks violations were found in 46 units that failed to meet housing
quality standards.




                                                5
The picture above shows keyed deadbolt locks on a living room door. If the
tenant cannot find the key, exit is blocked in case of emergency.


Smoke Detectors
A total of 107 smoke detector violations were found in 29 units that failed to meet housing
quality standards. These violations included improperly mounted smoke detectors. HUD
regulations at 24 CFR 982.402(n)(1) require that smoke detectors be installed in accordance with
the requirements of National Fire Protection Association (NFPA) standard 74. NFPA 74
requires a maximum distance of 12 inches from flat ceilings and walls.




The picture above shows that the smoke detector was not installed in
accordance with NFPA 74. It is located above the door, 53 inches from the
ceiling.

We also found other health and safety hazards, including exposed electrical wiring, abandoned
vehicles and debris in yards, missing handrails, hot plates in lieu of stoves, unsafe bathrooms,
and water leak damaged ceilings. The following photographs illustrate examples of these types
of violations noted during our inspection of the units.

                                                6
The picture above shows a missing breaker panel cover with exposed wiring,
creating an electrical hazard.




The picture above shows abandoned vehicles, concrete blocks, and construction
debris piled up in the yard of unit. This clutter does not promote safe and
sanitary conditions.




                                              7
The picture above shows a retaining wall that does not have railings, creating a
falling hazard. The fall distance ranges from 31 to 79 inches. A fall distance of
30 inches or more requires a railing.




The picture above shows that a hot plate is used for cooking. Hot plates are not
acceptable substitutes for stoves or ranges.




                                                 8
The picture above shows a missing soap dish in the shower. The rusted and
sharp corners create a cutting hazard.




The picture above shows a water-damaged ceiling with loose plaster.

HUD regulations at 24 CFR 982.401(a)(3) require that all program housing meet housing quality
standards performance requirements both at commencement of assistance and throughout the
assisted tenancy. In accordance with regulations at 24 CFR 982.152(d), HUD is permitted to
reduce or offset program administrative fees paid to a public housing agency if it fails to
correctly or adequately meet its administrative responsibilities, such as enforcing housing quality


                                                 9
standards. The Authority disbursed $139,747 in housing assistance payments and received
$12,737 in program administrative fees for the 44 units that materially failed to meet HUD’s
housing quality standards. Based on the results of the statistical sample of 65 units, we estimate
that over the next year, HUD will pay about $6.2 million in housing assistance for units in
material noncompliance with the standards unless the Authority takes action to improve its
inspection process. 2

Lack of Proper Training
The Authority is required by HUD and its administrative plan to inspect Section 8 units at least
once a year to ensure that the properties meet minimum conditions for compliance with housing
quality standards. HUD requires and the Authority’s administrative plan provides minimum
conditions that must exist for a unit to be considered decent, safe, and sanitary. Each unit must
meet minimum housing quality standards for the entire period of tenancy.

We found 499 deficiencies that existed at the time of the Authority’s most recent inspections, but
the inspectors did not identify or did not report them. Damage from water leaks, missing
guardrails, improper smoke detector installations, and improper electrical installations were some
of the deficiencies not reported by inspectors. An Authority inspector attributed some of the
deficient inspections to her unfamiliarity with HUD requirements. In addition, two of the
Authority’s inspectors had not received formal training on housing quality standards. As a
result, Authority inspectors incorrectly passed units that did not meet the required standards.

Conclusion
The housing deficiencies described above occurred because the Authority did not ensure that its
housing inspectors were trained on HUD’s housing quality standards requirements. As a result,
some of the Authority’s households lived in inadequately maintained units and were subjected to
health- and safety-related violations, and the Authority did not properly use its program funds
when it failed to ensure that the units complied with HUD’s housing quality standards. The
Authority disbursed $139,747 in program housing assistance payments and received $12,737 in
program administration fees for the 44 units that materially failed to meet HUD’s standards.

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 enforce HUD’s housing quality
standards.

Unless the Authority improves its unit inspection program to ensure compliance with HUD’s
housing quality standards, we estimate that over the next year, HUD will pay more than $6.2
million in housing assistance on units in material noncompliance with the standards.

Recommendations
We recommend that the Director of the San Juan Office of Public and Indian Housing
require the Authority to



2
    The sampling methodology and calculations are shown in the Scope and Methodology section of this report.


                                                        10
1A.   Reimburse the program $152,484 from non-Federal funds for housing
      assistance payments ($139,747) and administrative fees received ($12,737)
      for the 44 units that materially failed to meet HUD’s housing quality
      standards.

1B.   Ensure that the housing quality standards violations have been corrected for
      the 62 units cited in this finding and certify that the units meet the standards.

1C.   Implement adequate procedures and controls to ensure that all program units
      meet HUD’s housing quality standards to prevent $6,217,059 in program funds
      from being spent on units that do not comply with HUD’s requirements over the
      next year. The procedures should include but not be limited to ensuring that
      inspectors are properly trained and familiar with HUD’s requirements and that
      they consistently conduct accurate and complete inspections and reinspections.




                                         11
Scope and Methodology
We performed our onsite audit work between April and June 2015 at the Authority’s main office
located at 4402 Estate Anna’s Retreat, St. Thomas, VI, and 5 Estate Bethlehem, St. Croix, VI.
The audit covered the period January 1 through March 31, 2015.

To accomplish our audit objective, we interviewed HUD program staff and the Authority’s
employees. In addition, we obtained and reviewed the following:

   •   Applicable laws, HUD’s regulations at 24 CFR Part 982, Office of Public and Indian
       Housing notices, HUD’s Guidebook 7420.10G, and HUD’s Housing Inspection Manual.

   •   The Authority’s program administrative plan, policies and procedures, tenant files,
       households’ inspection reports, and housing assistance payment register.

We statistically selected a stratified systematic sample of 65 of the Authority’s program units to
inspect from the 273 units that passed the Authority’s inspections from January 1 through March
31, 2015. The 65 units were inspected to determine whether the Authority ensured that its
program units met HUD’s housing quality standards. We used statistical sampling because each
sampling unit was selected without bias from the audit population, thereby allowing the results to
be projected to the population. After our inspections, we determined whether each unit passed,
failed, or materially failed. All units were ranked, and we used our materiality standards and
auditors’ judgment to determine the material cutoff point. Materially failed units were those that
had one or more exigent (24-hour) health and safety violations that predated the Authority’s
previous inspections, five or more health and safety violations that predated the Authority’s
previous inspections, or a combination of both.

Based on our review of the 65 statistically selected units, we found that 44 of the units had
material failures in housing quality standards, although they had recently passed an Authority
inspection. Using a confidence interval of 95 percent, we projected that at least 57.9 percent of
the units had material violations. Extending this rate to the monthly count of 1,230 occupied
units on the Authority’s program, we can say that at least 712 units would not have complied
with housing quality standards, despite having passed the Authority’s inspection.

Based on the average housing assistance paid for the 65 units, less a deduction to account for a
statistical margin of error, we can say with a confidence interval of 95 percent that the average
amount of monthly housing assistance spent on inadequate units was $421 per unit. Extending
this amount to the 1,230 active units on the Authority’s program over 12 months yields at least
$6.2 million in housing assistance paid per year for substandard units.

The calculation of administrative fees was based on HUD’s administrative fee per household
month for the Authority. The fees were considered inappropriately received for each month in



                                                 12
which the housing assistance was incorrectly paid for units that materially failed to meet HUD’s
minimum housing quality standards.

We relied in part on data maintained by the Authority. 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 San Juan Office of Public Housing and the Authority’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 objective.




                                                13
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’s inspection process was not adequate to ensure that program units complied
    with HUD’s housing quality standards (see finding).




                                                  14
Appendixes

Appendix A


            Schedule of Questioned Costs and Funds To Be Put to Better Use
                 Recommendation                     Funds to be put
                                     Ineligible 1/
                      number                        to better use 2/
                         1A          $152,484
                         1C                          $6,217,059
                         Totals           $152,484           $6,217,059


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   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, if the Authority implements our
     recommendations, it will stop incurring program costs for units that are not decent, safe,
     and sanitary and, instead, will spend those funds in accordance with HUD’s requirements
     and the Authority’s program administrative plan. Once the Authority improves its
     controls, this will be a recurring benefit. Our estimate reflects only the initial year of this
     benefit.




                                                15
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               16
             Auditee Comments
Ref to OIG
Evaluation




Comment 1




Comment 1




                            17
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority’s management agreed with the OIG finding and recommendations.
            The Authority stated that it will reimburse from non-Federal funds the ineligible
            housing assistance and administrative fees related to recommendation 1A, and
            will ensure that all cited violations are corrected and certify the corrections. In
            addition, the Authority stated that its inspectors received formal training and will
            conduct landlord workshops on housing quality standard requirements. We
            commend the Authority for its proposed actions to address the findings cited in
            this report. The Authority should work with HUD to ensure its procedures and
            controls are fully implemented.




                                              18
Appendix C
   Schedule of Units in Material Noncompliance With Housing Quality Standards
                                Type of violation                          Total of
     Identification                                           Total
                                  Health and                             preexisting
        number        24 hour                       Other   violations
                                     safety                               violations
       VT0535           1               2             0         3             3
      VT01035           1              13             2         16            14
       VT0044           0               9             2         11            11
      VX01388           1              12             2         15            15
      VX01701           3               8             2         13            8
       VX1064           2              13             3         18            15
     VXQH0133           4               3             2         9             8
     VX20130027         6               4             2         12            8
      VX40396           1              11             2         14            9
      VX404608          3               7             0         10            5
      VXQH047           0               5             1         6             6
      VX040272          1               9             1         11            11
      VX404736          2               0             0         2             1
       VX008            1               7             1         9             7
      VX31022           2               7             0         9             8
      VX00033           2               9             0         11            8
      VX404704          7               8             6         21            13
      VX03643           4               8             0         12            10
       VT0010           3              12             0         15            15
      VX03105           4              12             2         18            13
       VX551            7               9            12         28            18
     VT20130022         3               6             0         9             7
      VT03124           4               7             7         18            14
      VT404577          6              17             6         29            23
      VX40228           3               8             1         12            9
      VX404670          3               6             2         11            8
       VT5064           3              22             0         25            18
       VT-0669          5              19             6         30            22
       VT-0615          0              18             3         21            18
      VT16022           1               4             4         9             7
       VT1066           1               5             3         9             7
      VT15095           1              14             0         15            13
       VT1020           2               2             1         5             3
       VT5046           0               8             5         13            11
      VT02022           0               9             0         9             9
      VT03804           3              11             1         15            15
      VT40264           1              11             0         12            12
       VT-0568          3               5             5         13            10
       VT1009           7              10             0         17            16
      VT15090           4               3             1         8             7
       VT0582           1               9             0         10            7
      VX40208           5               4             8         17            11
       VT1065           1               5             0         6             6
      VT21002           2               6             0         8             8
        Totals         114            377            93        584           467



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