oversight

The Sanford Housing Authority, Sanford, NC, Did Not Comply With HUD's and Its Own Section 8 Housing Choice Voucher Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-13.

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

             Sanford Housing Authority,
                    Sanford, NC
          Section 8 Housing Choice Voucher Program




Office of Audit, Region 4       Audit Report Number: 2016-AT-1013
Atlanta, GA                                     September 13, 2016
To:            Michael Williams, Director, Public and Indian Housing, Greensboro Field Office,
               4FPH
               Craig T. Clemmensen, Director, Departmental Enforcement Center, CACB


               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Sanford Housing Authority, Sanford, NC, Did Not Comply With HUD’s and
               Its Own Section 8 Housing Choice Voucher Program 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 Sanford Housing Authority’s Section 8
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
404-331-3369.
                   Audit Report Number: 2016-AT-1013
                   Date: September 13, 2016

                   The Sanford Housing Authority, Sanford, NC, Did Not Comply With HUD’s
                   and Its Own Section 8 Housing Choice Voucher Program Requirements



Highlights

What We Audited and Why
We audited the Sanford Housing Authority’s Section 8 Housing Choice Voucher Programs as a
result of problems identified during a technical assistance review performed by the U.S.
Department of Housing and Urban Development’s (HUD) North Carolina State Office of Public
Housing. Additionally, our audit is in keeping with our annual audit plan to ensure that public
housing agencies sufficiently administer HUD’s programs in accordance with regulations and
guidance. This is the second and last of two reports we plan to issue on the Authority’s
operations. Our audit objective was to determine whether the Authority administered its
program in accordance with HUD’s and its own requirements.

What We Found
The Authority did not administer its program in accordance with HUD regulations and its own
requirements. Specifically, it did not ensure that the physical conditions of its units complied
with housing quality standards or maintain required eligibility documentation. Also, it made
housing assistance payments on an expired project-based contract. These conditions occurred
because the Authority did not have adequate policies and procedures or follow its administrative
plan. In addition, the former executive director did not provide proper guidance or training. As
a result, the Authority disbursed and earned more than $250,000 for improper housing assistance
payments and administrative fees and disbursed and earned more than $3,000 in housing
assistance payments and administrative fees for files with missing documentation. Unless the
Authority improves the administration of its program, we estimate that over the next year, HUD
will pay more than $3.3 million in improper housing assistance.

What We Recommend
We recommend that the Director of Public and Indian Housing require the Authority to (1)
reimburse its program more than $250,000 from non-Federal funds, (2) support or reimburse its
program more than $3,000 from non-Federal funds, (3) ensure that all unit violations cited have
been corrected and certify that the units meet standards, and (4) develop and implement program
controls to address deficiencies cited. We also recommend that the Director of the Departmental
Enforcement Center take appropriate administrative action against the Authority’s former
executive director.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Ensure That Program Units Met HUD’s
         Housing Quality Standards .............................................................................................. 4

         Finding 2: The Authority Did Not Comply With Eligilibity Program
         Requirements................................................................................................................... 13

         Finding 3: The Authority Made Housing Assistance Payments on an Expired
         Project-Based Contract .................................................................................................. 17

Scope and Methodology .........................................................................................19

Internal Controls ....................................................................................................22

Appendixes ..............................................................................................................23

         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 23

         B. Auditee Comments and OIG’s Evaluation ............................................................. 25

         C. Schedule of Units in Material Noncompliance With Housing Quality
         Standards…………………………………………………………………………….... 28

         D. Schedule of Missing Eligibility Documentation………………………………….30

         E. Schedule of Costs for Files Missing Eligibility Documentation…………………32




                                                                   2
Background and Objective
The Sanford Housing Authority was established on September 8, 1961, in accordance with State
and Federal laws. The Authority’s mission is to promote adequate and affordable housing,
economic opportunity, and a suitable living environment free from discrimination. The
Authority is responsible for administering 446 low-income public housing units and 741 housing
choice vouchers.
The Authority is governed by the provisions of a consolidated annual contributions contract
between it and the U.S. Department of Housing and Urban Development (HUD). The Authority’s
oversight is the responsibility of a seven-member board of commissioners, appointed by the mayor
of Sanford, NC. The board of commissioners selects the executive director. The board is
responsible for the operational, financial, and compliance oversight of the Authority. The executive
director is responsible for the day-to-day activities at the Authority.
The Section 8 Housing Choice Voucher program provides subsidies helping very low-income
families, the elderly, and the disabled afford decent, safe, and sanitary housing in the private market.
The program regulations include basic housing quality standards, which all units must meet
before assistance can be paid on behalf of a family and at least annually throughout the term of
the assisted tenancy. The Authority administered more than 1,900 tenant-based housing choice
vouchers and received more than $8 million in program funding for fiscal years 2013 through
2015.
The Authority’s former executive director left the Authority on November 12, 2014. The current
executive director began on January 1, 2015. The current executive director assessed the
Authority’s operating systems and identified significant issues. HUD then performed a technical
assistance review of the Authority’s public housing and Housing Choice Voucher programs in
August 2015.
Our audit objective was to determine whether the Authority administered its program in
accordance with HUD’s and its own requirements. Specifically, we focused on the physical
conditions of the units as well as the policies and procedures for administering the Authority’s
program.




                                                   3
Results of Audit

Finding 1: The Authority Did Not Ensure That Program Units Met
HUD’s Housing Quality Standards
The Authority did not ensure that its program participants lived in units that complied with HUD
standards and its own administrative plan. For the 62 program units inspected, 56 (90 percent)
failed to meet minimum acceptability requirements for housing quality standards. Additionally,
37 (66 percent) of the 56 failed units were in material noncompliance with HUD standards. For
the 56 units that failed inspection, the Authority’s inspectors failed to observe or report 541
violations that existed when they conducted their latest inspections. The excessive violations
occurred because the previous executive director’s administration did not follow its
administrative plan and did not have quality control inspection procedures to ensure that its
inspectors performed complete and accurate inspections. As a result, some tenants lived in units
that did not meet minimum housing quality standards, and the Authority paid more than $65,000
in housing assistance and received more than $8,700 in administrative fees for the 37 units in
material noncompliance with HUD standards. Unless the Authority improves its inspection
process and ensures that all program units meet minimum housing quality standards, we estimate
that over the next year, HUD will pay more than $1.7 million in housing assistance for units in
material noncompliance with HUD standards.

Housing Quality Standards Were Not Met
We performed housing quality standards inspections on 62 1 statistically selected units from a
universe of 167 program units that passed an Authority housing quality standards inspection
between August and October 2015. The 62 units were selected to determine whether the
Authority ensured that its program units met minimum housing quality standards. We inspected
the units in December 2015 and from January to March 2016. Of the 62 units inspected, 56 (90
percent) failed to meet minimum housing quality standards and had a total of 607 housing quality
standards violations, 541 of which existed before the Authority’s latest inspection. The
following table lists the top 3 most frequently occurring violations for the 56 units.




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



                                                          4
           Violation category                 Number of violations        Number of units
        Security of unit windows                     125                       35
    Security of unit doors (interior and              93                       32
                 exterior)
        Exposure to live electrical                     84                        34
               components

Additionally, 37 of the 56 (66 percent) failed units were in material noncompliance with housing
quality standards. We considered these units to be in material noncompliance based on the
severity of the violations and the period when the deficiency existed. Violations were
determined to be preexisting if they existed before the Authority’s latest inspection. A
combination of less severe violations caused a unit to be in material noncompliance if the
violations caused a significant risk of danger to the family. Of the 37 units that materially failed
the inspection, 21 were found to have 39 life-threatening items requiring correction within 24
hours, which existed at the time of the Authority’s latest inspection. Appendix C provides the
number of violations for the 37 units and identifies the number of 24-hour, health and safety, and
non-health and safety violations.
Throughout the inspection process, we kept the Authority’s staff aware of the life-threatening 24-
hour violations and the results of each inspection. The Authority immediately required the
landlords make the 24-hour repairs and address the other violations identified. HUD regulations 2
require that owners correct life-threatening defects within 24 hours of the inspection.




2
    24 CFR (Code of Federal Regulations) 982.404



                                                    5
Types of Deficiencies
The following photographs illustrate some of the violations noted during our housing quality
standards inspections of the 56 units that failed to meet HUD standards. The most prevalent
deficiencies were window, door, and electrical violations.

Windows
A total of 125 window violations were found in 35 units that failed to meet housing quality
standards.




This picture shows a bent frame and torn screen on a window. The tenant could not open the
window without letting insects and debris into the house.




                                                6
Doors
A total of 94 door violations were found in 32 units that failed to meet housing quality standards.




The picture above shows a keyed deadbolt lock on the kitchen exit door.
If the tenant could not find the key, the exit would be blocked in case of emergency.




                                                 7
Electrical
A total of 84 electrical violations were found in 34 units that failed to meet housing quality
standards.




The picture above shows a fuse panel without an internal cover, and the external
cover could easily be removed, exposing electrical contacts.

We also found other health and safety hazards, including unsound structural kitchen cabinets,
holes in the foundation of the property, and damaged walls. The following photographs illustrate
examples of these types of violations noted during our inspection of the units.




                                                  8
The picture above shows dilapidated kitchen cabinets and a sagging counter
top sitting on bricks.




                                               9
The picture above shows a large hole in the foundation of the property, allowing
water, air, and insect infiltration.




The picture above shows damage to a wall in the hallway.



                                                10
Code of Federal Regulations 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, 4 HUD may 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 standards.

The Authority disbursed more than $65,000 in housing assistance payments and received more
than $8,700 in program administrative fees for the 37 units that materially failed to meet HUD’s
housing quality standards. Based on the results of the 62 statistically selected units, we estimate
that over the next year, HUD will pay more than $1.7 million in housing assistance for units in
material noncompliance with the standards unless the Authority takes action to improve its
inspection process.

Management Lacked Quality Controls To Ensure Adequate Inspections
Under the previous executive director’s
administration, the Authority did not
follow its administrative plan and did not
                                               Fifty-six of sixty-two units did not
have quality control procedures to ensure      meet housing quality standards.
that its inspectors performed complete and
accurate inspections. This deficiency
resulted in 56 of 62 units inspected not meeting housing quality standards.
Although the Authority had an administrative plan in place that was developed in accordance
with Federal regulations, 5 the former inspectors did not follow the administrative plan. The
current executive director became aware that program units did not meet housing quality
standards after HUD’s technical assistance review in August 2015. She hired a new program
director in November 2015, and when the former inspector retired in December 2015, the
Authority immediately hired a new inspector. During our inspections, tenants informed us that
the former inspectors conducted inspections within 5 minutes and were surprised that our
inspections took much longer to perform.

HUD regulations 6 require public housing agencies to perform supervisory quality control
inspections. Before March 2016, the Authority did not perform quality control inspections to
ensure that its inspectors conducted inspections in accordance with housing quality standards.
Of the 554 total failed items for the 37 units that materially failed our inspections, 505 (91
percent) existed at the time of the Authority’s latest inspection. The Authority should use the
quality control inspections to verify that each inspector conducts accurate and complete
inspections to ensure consistency among inspectors in applying the housing quality standards and
determine whether individual performance or training issues need to be addressed.



3
    24 CFR 982.401(a)(3)
4
    24 CFR 982.152(d)
5
    Sanford Housing Authority Administrative Plan, chapter 8 page 189
6
    24 CFR 982.405(b)



                                                        11
The Authority started taking corrective actions to resolve the issues with its housing quality
standards process. The current executive director began establishing and implementing quality
control procedures in March 2016. Although corrective action has taken place under the current
administration, there are still instances where program units are not meeting housing quality
standards. In addition, the Authority hired a contractor to inspect all of the program units to
ensure that they comply with housing quality standards.
Conclusion
The housing quality standards deficiencies described above occurred because the former
executive director did not have quality control procedures in place to ensure that the Authority’s
program units complied with HUD’s housing quality standards. The Authority did not follow its
administrative plan, and its quality control program was ineffective in improving its inspectors’
performance. 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 more than $65,000 in program housing
assistance payments and received more than $8,700 in program administration fees for the 37
units that materially failed to meet HUD’s 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 $1.7 million7 in housing assistance for units in
material noncompliance with the standards.

Recommendations
We recommend that the Director of HUD’s Greensboro, NC, Office of Public Housing require
the Authority to
           1A.      Reimburse its program $74,210 from non-Federal funds for the $65,430 in
                    housing assistance payments and $8,780 in administrative fees received for the 37
                    units that failed to meet HUD’s housing quality standards.

           1B.      Ensure that housing quality standards violations identified for the 56 units were
                    corrected and certify that the units meet HUD’s housing quality standards.

           1C.      Fully implement its procedures to ensure that all program units meet HUD’s
                    housing quality standards to prevent $1,709,556 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
                    consistently conduct accurate and complete inspections.

           1D.      Fully implement its quality control inspection procedures to ensure that
                    supervisory inspections are used to determine whether individual performance or
                    training issues need to be addressed and ensure consistency among the
                    Authority’s inspectors when applying HUD’s housing quality standards.

7
    Our calculation for the $1.7 million in housing assistance payments is located in the Scope & Methodology section
    of this audit report.



                                                           12
Finding 2: The Authority Did Not Comply With Program
Eligibility Requirements
The Authority did not comply with HUD’s requirements and its own administrative policies and
procedures when determining tenant eligibility. For 57 (76 percent) of the 75 payments made, the
Authority did not maintain required eligibility documentation. These conditions occurred because
the Authority’s former executive director provided improper guidance to the Section 8 staff. In
addition, the staff was not properly trained and lacked sufficient knowledge of documentation
requirements. Further, the Authority did not have quality control procedures to ensure that files
were properly documented. As a result, the Authority paid more than $22,000 in housing
assistance and earned more than $3,000 in administrative fees for housing assistance payments
that did not comply with documentation requirements. Unless the Authority improves the
administration of its program, we estimate that over the next year, HUD will pay more than $1.6
million in housing assistance for households in noncompliance with program requirements.

The Authority Lacked Proper Documentation to Support Eligibility
We statistically selected 75 8 single monthly housing assistance payments from the universe of
13,866 housing assistance and utility allowance payments from October 1, 2013, through
September 30, 2015. We reviewed the housing assistance payments to determine the tenants’
eligibility for the sampled months. We also verified the eligibility of the tenants’ units by
ensuring that the tenant files contained the housing assistance payments contracts, deeds, utility
allowances, and inspection reports 9 for the monthly payments reviewed. Of the 75 tenant files,
57 (76 percent) were missing one or more documents needed to determine tenant eligibility.

Specifically,
   • 51 files were missing housing assistance payments contracts, 10
   • 5 files were missing only the deeds, 11 and
   • 1 file was only missing the utility allowance documentation 12 (appendix D).




8
     The sample selection methodology for the statistical sample is explained in the Scope and Methodology section
     of this audit report.
9
     The Authority was unable to locate one file resulting in a missing inspection report. Since the housing assistance
     payment contract was also missing, the housing assistance payment was considered ineligible.
10
     Regulations at 24 CFR 982.158(e) require the Authority to keep the housing assistance payments contract during
     the term of each assisted lease.
11
     Sanford Housing Authority Administrative Plan, chapter 13, pages 320-321, states that a deed is required to
     establish legal ownership of a unit.
12
     Regulations at 24 CFR 982.517 require that the PHA maintain a utility allowance schedule.



                                                            13
From the 57 monthly housing assistance payments that did not comply with HUD’s
requirements, 51 were improperly paid because staff did not obtain housing assistance payments
contracts. Federal regulations provide that during the term of each assisted lease and for at least
3 years thereafter, the authority must keep the housing assistance payments contract. 13 The
Housing Choice Voucher Guidebook states that the contract must run concurrently with the
lease. 14 The failure to establish and maintain the housing assistance payments contracts made the
housing assistance payments inappropriate. As a result, the Authority paid more than $20,000 in
improper housing assistance and earned more than $2,800 in improper administrative fees for the
51 monthly housing assistance payments (appendix E). Unless the Authority improves the
administration of its program, we estimate that over the next year, HUD will pay more than $1.6
million15 in housing assistance for households in noncompliance with program requirements.

In addition, the remaining 6 of the 57 tenant files were missing only the deeds (5 instances) 16 and
a utility allowance determination (1 instance) 17 necessary to support the housing assistance
payment and household eligibility. The Authority’s administrative plan states that certified
copies of deeds are necessary to establish legal ownership of the units. 18 Federal regulations also
require that the PHA maintain a utility allowance schedule. 19 Therefore, the Authority paid more
than $2,700 in housing assistance and earned more than $300 in administrative fees for the six
monthly housing assistance payments that were not properly documented (appendix E). After
we informed the current executive director of the issue, she began obtaining and providing the
missing documentation.




13
     24 CFR 982.158(e)(2)
14
     Housing Choice Voucher Program Guidebook, section 11.3
15
     Our calculation for the $1.6 million in housing assistance payments is located in the Scope & Methodology
     section of this audit report.
16
     There were 14 total files missing deeds. The other nine files missing deeds were also missing housing assistance
     payment contracts; therefore, the housing assistance was improper. That left only 5 files counted as missing
     deeds.
17
     There were 3 utility allowance reviews missing from the files. Only 1 was counted for reporting purposes
     because the other 2 were also missing HAP contracts which made them ineligible.
18
     Sanford Housing Authority Administrative Plan, chapter 13, pages 320-321
19
     24 CFR 982.517



                                                           14
Staff Lacked Proper Guidance and Training on Requirements
Under the previous executive director’s administration, the Authority did not provide proper
guidance to its Section 8 staff. The former executive director informed the Section 8 staff that
housing assistance contracts were required only when the tenant moved into a unit or transferred
to another unit. The former executive director did not require staff to obtain and maintain
contracts for each assisted lease and did not require staff to obtain warranty deeds. In addition,
Section 8 staff members were not properly trained and did not know they were required to
document the necessary support in the tenant files. The Section 8 staff members stated that they
did not receive formal program training under the former executive director. Instead, they stated
that they received day-to-day instructions. These conditions continued to occur because the
Authority did not have quality control procedures to provide assurance that monthly housing
assistance payments were proper and supported. The current executive director began taking
corrective actions by revising the Authority’s procedures, scheduling formal training for its
Section 8 manager and staff, and developing formal quality control policies and procedures.

Conclusion
Because 76 percent of the files were missing the required eligibility documentation, HUD and
the Authority lacked assurance that tenants were eligible to receive housing assistance payments.
As a result, the Authority paid more than $22,000 in housing assistance and earned more than
$3,000 in administrative fees for housing assistance payments that did not comply with
documentation requirements. Unless the Authority improves the administration of its Housing
Choice Voucher program, we estimate that over the next year, HUD will pay more than $1.6
million in housing assistance for households in noncompliance with program requirements.
Although the Authority had made progress, improvement is needed. Once the Authority fully
implements its policies and procedures, it will be able to assure HUD that it can properly
administer its program.

Recommendations
We recommend that the Director of HUD’s Greensboro, NC, Office of Public Housing require
the Authority to


       2A.     Reimburse its program $22,967 from non-Federal funds for the $20,111 in
               housing assistance payments and $2,856 in administrative fees received for the 51
               ineligible housing assistance payments missing housing assistance payments
               contracts.

       2B.     Support or reimburse its program $3,092 from non-Federal funds for the $2,756 in
               housing assistance payments and $336 in administrative fees received for the six
               unsupported housing assistance payments missing deeds, utility allowance
               determinations, and inspection reports.

       2C.     Develop and implement quality control procedures to ensure that its staff
               complies with HUD regulations and its administrative plan.




                                                 15
2D.   Fully implement its policies and procedures to ensure that its staff complies with
      HUD regulations and its administrative plan when administering its program to
      prevent disbursing $ 1,607,706 in program funds for improper housing assistance
      payments over the next year.

2E.   Continue providing training to ensure that its staff administers its Housing Choice
      Voucher program in compliance with HUD regulations and its administrative
      plan.




                                       16
Finding 3: The Authority Made Housing Assistance Payments on
an Expired Project-Based Contract
The Authority continued making housing assistance payments to Brick Capital Community
Development Corporation, a project-based manager, on an expired contract from September 1,
2012, to August 31, 2015. This condition occurred because the former executive director did not
follow regulations for extending the housing assistance payments contract. As a result, the
Authority paid Brick Capital more than $129,000 in housing assistance and earned more than
$24,000 in improper administrative fees.

Payments Were Made on an Expired Contract
The former executive director did not follow 24 CFR 983 20 requirements for extending the
housing assistance payments contract. The former executive director did not require staff to
maintain the original contract after it was executed; therefore, the Authority continued to pay on
the contract after the expiration date. Once a contract was executed, the former administration
treated it as a never ending agreement. If the service provided through the contract was still
needed, the Authority continued to operate under the contract without renewing it.

The current executive director was made aware of the expired contract when HUD completed its
review of the Authority’s program in August 2015; however, the funds were not reimbursed to
the program. On August 24, 2015, the current executive director informed Brick Capital that the
agreement had expired and the Authority would not extend the agreement. The Authority
provided the 12 tenants individual housing choice vouchers and advised Brick Capital that it
would need to sign a new housing assistance payments contract for each tenant if the tenant
chose not to move out.




20
     24 CFR Part 983 – A public housing agency may enter into a housing assistance payments contract for a term of
     up to 10 years. At the end of the contract term, the agency may extend the housing assistance payments contract
     with an owner for a period appropriate to achieve long-term affordability or to expand housing opportunities.



                                                          17
Recommendations
We recommend that the Director of HUD’s Greensboro, NC, Office of Public Housing require
the Authority to
3A.    Reimburse its program $153,593 from non-Federal funds for the $129,558 in housing
       assistance payments made and $24,035 in administrative fees received for the payments
       made to Brick Capital Community Development Corporation on the expired contract.
Based on the lack of oversight by the former executive director noted in all three findings, we
recommend that the Director of the Departmental Enforcement Center, in coordination with the
Director of the Greensboro HUD Office of Public Housing,

3B.    Take appropriate enforcement action against the former executive director responsible for
       the noncompliance with Federal regulations.




                                                18
Scope and Methodology
We performed our onsite audit work between December 2015 and July 2016, at the Authority’s
central office located at 1000 Carthage Street, Sanford, NC, and at our office in Atlanta, GA.
Our audit period was November 1, 2013, through October 31, 2015. We expanded the audit
period as needed to accomplish our objective.
To accomplish our audit objective we did the following:

   •   Reviewed HUD’s technical assistance review conducted in August 2015.

   •   Reviewed and obtained an understanding of the Authority’s policies and procedures,
       relevant laws, regulations, bylaws, consolidated annual contributions contract with HUD,
       and HUD’s guidance.
   •   Reviewed 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.

   •   Reviewed the Authority’s program administrative plan, tenant files, inspection reports,
       and housing assistance payment register.

   •   Reviewed the Authority’s board of commissioners meeting minutes and organizational
       chart and HUD monitoring reports.

   •   Conducted a housing quality standards inspection of the tenants’ units.

   •   Reviewed documents between the Authority and Brick Capital for the project-based
       tenants.
   •   Reviewed the Authority’s audited financial statements for its fiscal years 2013 and 2014.
   •   Interviewed the Authority’s employees, tenants, and former executive director and HUD
       staff.
Finding 1
To assess the physical conditions of the Authority’s units, we statistically selected a stratified
systematic sample of 62 of the Authority’s program units to inspect from the 167 units that
passed the Authority’s inspections from August 1 through October 31, 2015. The 62 units were
inspected to determine whether the Authority ensured that its program units met HUD’s and its
own housing quality standards. We used statistical sampling because each sampling unit was
selected without bias from the audit population, 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 based on the severity of the


                                                 19
violation and the period when the deficiency existed. Violations were determined to be
preexisting if they existed before the Authority’s latest inspection. A combination of less severe
violations caused a unit to be in material noncompliance if the violations caused a risk of danger
to the family.
Based on our review of the 62 statistically selected units, we found that 37 of the units were in
material noncompliance with housing quality standards, although they had recently passed an
Authority inspection. Using a one-sided confidence interval of 95 percent, we projected that at
least 51.3 percent of the units had material violations. Extending this rate to the monthly count
of 633 occupied units on the Authority’s program, we can say that at least 325 units would not
have complied with housing quality standards or the requirements in the Authority’s program
administrative plan, despite having passed the Authority’s inspection. Based on the average
housing assistance paid for the 62 units, less a deduction to account for a statistical margin of
error, we can say with a one-sided confidence interval of 95 percent that the average amount of
monthly housing assistance spent on inadequate units was $225 per unit. Extending this amount
to the 633 active units on the Authority’s program over 12 months yields at least $1.7 million in
monthly 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
which the housing assistance was incorrectly paid for units that materially failed to meet HUD’s
minimum and its own housing quality standards.
Finding 2
To evaluate the policies and procedures for administering the program, we statistically selected a
stratified random sample of 75 monthly housing assistance payments from the Authority’s
13,866 monthly disbursements to landlords from October 1, 2013, through September 30, 2015
(23 months). The total housing assistance paid during this timeframe was more than $5.3
million. We reviewed 73 housing assistance payments from the selected sample to determine
whether the Authority appropriately determined households’ eligibility for program participation,
correctly calculated the housing assistance payments, and conducted the recertifications in a
timely manner. We reviewed only 73 housing assistance payments because 1 was in the Section
8 home-ownership program and the Authority was unable to locate the other file in our sample.
The home-ownership voucher case was subject to different requirements, which were unlike the
requirements for the other monthly housing assistance payments in the sample. Because the
sample could not be reviewed under the same guidelines as the rest of the sample, we kept the
original universe and assigned a zero dollar finding (no finding) to the Section 8 home-
ownership voucher. The missing tenant file was counted as missing the housing assistance
payment contract. We found that 51 of the 75 housing subsidy payments reviewed were not
eligible. This amounts to a weighted average of $268 per month per tenant payment. After
deducting the margin of error to accommodate the uncertainties inherent in statistical sampling,
we can still say with a one-sided confidence interval of 95 percent that this amounts to $232 per
tenant per month disbursed on subsidy payments that were not eligible. We estimate that over
the next year, if the Authority continues to disburse ineligible subsidy payments, this will amount
to at least $1.6 million.



                                                 20
The calculation of administrative fees was based on the administrative fees received by the
Authority from HUD and the number of vouchers the Authority reported through HUD’s
Voucher Management System. The fees were considered inappropriately received for each
month in which the housing assistance was incorrectly paid and household eligibility was
unsupported.
Finding 3
We selected and reviewed Brick Capital Community Development Corporation based on the
technical assistance review performed by HUD’s Greensboro, NC, Office of Public Housing to
determine whether the Authority properly extended the project-based contract from September 1,
2012, to August 31, 2015.
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
which the housing assistance was incorrectly paid.
Other information
We relied in part on computer-processed data contained in the Authority’s system to achieve our
audit objective. 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. The tests for reliability included but were not limited to comparing computer-
processed data to housing assistance payments, information in the sample tenant files, and other
supporting documentation.
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.




                                                 21
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.
•   Relevance and reliability of information – Policies and procedures that management has
    implemented to reasonably ensure that operational and financial information used for
    decision making and reporting externally is relevant, reliable, and fairly disclosed in reports.
•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation 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 Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The Authority did not ensure that its program participants lived in units that complied with
HUD’s requirements and its own administrative plan. Also, the Authority did not comply with
HUD’s requirements and its own administrative policies and procedures when administering its
Section 8 Housing Choice Voucher program.




                                                  22
Appendixes

Appendix A


          Schedule of Questioned Costs and Funds To Be Put to Better Use
        Recommendation                                    Funds to be put
                           Ineligible 1/ Unsupported 2/    to better use 3/
            number
                1A             $74,210
                1C                                                  $1,709,556
                2A              22,967
                2B                                 $3,092
                2D                                                   1,607,706
                3A             153,593

              Totals           250,770             3,092             3,317,262



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/   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.
3/   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 for households in noncompliance with program requirements. Instead,
     the Authority will spend those funds in accordance with HUD’s requirements and the




                                              23
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.




                                         24
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments


Comment 1




                               25
26
                         OIG Evaluation of Auditee Comments


Comment 1   We acknowledge the Authority’s agreement with our report concerning its
            administration of its Housing Choice Voucher program. We also acknowledge
            the Authority has implemented policies and procedures in accordance with
            HUD’s rules and regulations, provided training for its staff, as well as executed a
            contract to have its program units inspected. Once the Authority fully implements
            its policies and procedures, it will be able to assure HUD that it can properly
            administer its programs. The Authority should work with HUD to ensure
            violations were corrected and properly certified and that its procedures and
            controls are implemented.




                                             27
Appendix C
    Schedule of Units in Material Noncompliance With Housing Quality Standards
                          24-hour          Health &safety        Non health &
                       deficiencies          deficiencies             safety
                                                                                      Total
  Unit     Tenant                Not                  Not                    Not
                      Pre-                  Pre-                 Pre-              deficiencies
                                 pre-                 pre-                  pre-
                    existing              existing             existing
                               existing             existing              existing
   2       12031       4          2          4         0          4         0          14
   7       10639       4          2          4         1         11         5          27
   9       13461       4          1          4         1          7         0          17
  11       13848       1          1          2         0          3         1           8
  12       21682       1          0          0         0          4         0           5
  13       22592       0          3          1         4          7         3          18
  14       21869       1          0          6         0          2         4          13
  15       11562       0          0          5         0          0         0           5
  25       10498       1          0          1         0          0         0           2
  26       13031       0          0          9         0          0         0           9
  29       14437       1          0         22         3          0         0          26
  30       21592       2          0         37         1          0         0          40
  32       21831       0          0         10         1          0         0          11
  33       10352       0          1         35         1          0         0          37
  34       10510       2          0         16         0          0         0          18
  35       10727       0          0          6         0          0         0           6
  36       10822       0          1          9         0          0         0          10
  37       11608       0          0          5         0          0         0           5
  39       20472       3          0         20         0          0         0          23
  40       14000       2          0          2         0          0         0           4
  41       22312       0          3          5         2          0         0          10
  42       22317       1          0          7         0          0         0           8
  43       11410       1          0         21         1          0         0          23
  44       12139       0          0         16         1          0         0          17
  45       13580       3          0          4         0          0         0           7
  46       13714       1          0          2         0          0         0           3
  47       20177       3          0         21         0          0         0          24
  48       21156       0          0         14         0          0         0          14




                                            28
                                                              Non-health &
                    24-hour            Health & safety
                                                                   safety
                   deficiencies         deficiencies
Unit                                                           deficiencies        Total
       Tenant
                             Not                   Not                    Not   deficiencies
                  Pre-                  Pre-                  Pre-
                             pre-                  pre-                  pre-
                existing              existing              existing
                           existing              existing              existing
49     10408       0          0         19          0          0         0           19
51     22618       0          0         23          0          0         0           23
52     10766       0          0          6          2          0         0            8
53     22828       0          0         12          0          0         0           12
54     14340       1          0         19          0          0         0           20
55     13208       1          0         40          0          0         0           41
57     10416       0          0          5          0          0         0            5
61     21025       1          1          9          1          0         0           12
62     14313       1          0          7          0          0         2           10
       Totals     39         15        428         19         38        15          554




                                        29
Appendix D
                Schedule of Missing Eligibility Documentation


                                Housing
                 Housing       assistance             Utility   Inspection
     Tenant                                Deed
                assistance     payments             allowance     report
                                          missing
              payment month     contract             missing     missing
                                missing
        2     September 2015       X
        5     September 2014       X
        6     September 2015       X
        8        May 2015          X
        9        July 2014         X
       10        June 2015         X        X
       11        April 2014        X
       12       March 2015         X
       16        May 2014          X
       17      January 2014        X
       20        July 2015         X
       23       March 2014         X        X
       24      January 2014        X
       26       August 2015        X        X
       27     November 2014        X
       28        May 2015          X
       29      February 2015       X
       30     November 2013        X        X
       31        June 2014         X                    X           X
       32        April 2014        X
       33       August 2014        X
       34        April 2015        X
       35       March 2014         X        X
       36      January 2014        X
       37     November 2014        X
       38        June 2014         X
       39       August 2015        X




                                      30
                            Housing
             Housing       assistance             Utility   Inspection
                                       Deed
Tenant.     assistance     payments             allowance     report
                                      missing
          payment month     contract             missing     missing
                            missing
 40        February 2015       X
 41       November 2013        X                   X
 43          April 2014                 X
 44       December 2014        X        X
 45          June 2015         X        X
 46        February 2014       X
 47          May 2014                              X
 49         August 2014                 X
 51       September 2015      X
 52       December 2013       X
 53        February 2015      X
 54         March 2014        X
 55          July 2015        X
 56       September 2014      X         X
 57       December 2014       X
 58        October 2013       X
 60       November 2013       X
 61       December 2014       X
 63         March 2015        X
 64       September 2015      X
 65        October 2014                 X
 66          May 2014         X
 67        January 2015                 X
 68       December 2013       X         X
 69          April 2015       X
 71         August 2014                 X
 72         August 2014       X
 73          July 2015        X
 74       November 2014       X
 75       November 2013       X
Totals                        51        14         3            1




                                   31
Appendix E
                    Schedule of Costs for Files Missing Eligibility Documentation
                                  Ineligible                       Unsupported
                   Housing
                                   housing         Ineligible        housing      Unsupported
Tenant            assistance
                                  assistance      admin. fee        assistance     admin. fee
               payment month
                                   payment                           payment
       2       September 2015         $80             $56
       5       September 2014        $308             $56
       6       September 2015        $360             $56
       8          May 2015           $418             $56
       9          July 2014         $570  21
                                                      $56
      10          June 2015          $542             $56
      11          April 2014         $646             $56
      12         March 2015          $745             $56
      16          May 2014           $173             $56
      17        January 2014          $64             $56
      20          July 2015          $205             $56
      23         March 2014          $211             $56
      24        January 2014         $280             $56
      26         August 2015         $208             $56
      27       November 2014         $281             $56
      28          May 2015           $220             $56
      29        February 2015        $276             $56
      30       November 2013         $263             $56
      31          June 2014          $208             $56
      32          April 2014         $243             $56
      33         August 2014         $340             $56
      34          April 2015         $313             $56
      35         March 2014          $356             $56
      36        January 2014         $298             $56
      37       November 2014         $317             $56
      38          June 2014          $315             $56
      39         August 2015         $360             $56
      40        February 2015        $310             $56
      41       November 2013         $319             $56



21
     The HAP payment includes the utility allowance payments for sample numbers 9, 10, 11, 12, 65, 68, 69, 72, 73,
      74, and 75



                                                           32
                           Ineligible                Unsupported
             Housing
                            housing     Ineligible     housing     Unsupported
Tenant.     assistance
                           assistance   admin. fee    assistance    admin. fee
          payment month
                            payment                    payment
 43          April 2014                                  $337          $56
 44       December 2014      $354            $56
 45          June 2015       $313            $56
 46        February 2014     $402            $56
 47          May 2014                                   $379           $56
 49         August 2014                                 $393           $56
 51       September 2015     $434            $56
 52       December 2013      $376            $56
 53        February 2015     $445            $56
 54         March 2014       $388            $56
 55          July 2015       $450            $56
 56       September 2014     $383            $56
 57       December 2014      $413            $56
 58        October 2013      $448            $56
 60       November 2013      $488            $56
 61       December 2014      $454            $56
 63         March 2015       $582            $56
 64       September 2015     $461            $56
 65        October 2014                                 $525           $56
 66          May 2014        $567            $56
 67        January 2015                                 $521           $56
 68       December 2013      $568            $56
 69          April 2015      $555            $56
 71         August 2014                                 $601           $56
 72         August 2014      $646         $56
 73          July 2015       $681         $56
 74       November 2014      $751         $56
 75       November 2013      $723         $56
Totals                      $20,111      $2,856        $2,756         $336




                                        33