oversight

The Lansing Housing Commission, Lansing, MI, Did Not Always Comply With HUD's Requirements and Its Own Policies Regarding the Administration of Its Section 8 Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-12-16.

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

          Lansing Housing Commission,
                  Lansing, MI
          Section 8 Housing Choice Voucher Program




Office of Audit, Region 5       Audit Report Number: 2016-CH-1002
Chicago, IL                                      December 16, 2015
To:            Douglas Gordon, Director of Public Housing Hub, 5FPH

               //signed//
From:           Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The Lansing Housing Commission, Lansing, MI, Did Not Always Comply With
               HUD’s Requirements and Its Own Policies Regarding the Administration of Its
               Section 8 Housing Choice Voucher Program

Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Lansing Housing Commission’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
(312) 353-7832.
                          Audit Report Number: 2016-CH-1002
                          Date: December 16, 2015

                          The Lansing Housing Commission, Lansing, MI, Did Not Always Comply
                          With HUD’s Requirements and Its Own Policies Regarding the
                          Administration of Its Section 8 Housing Choice Voucher Program



Highlights

What We Audited and Why
We audited the Lansing Housing Commission’s Section 8 Housing Choice Voucher program
based on our analysis of risk factors related to the public housing agencies in Region 5’s1
jurisdiction and the activities included in our 2015 annual audit plan. Our audit objectives were
to determine whether the Commission (1) appropriately calculated housing assistance payments,
(2) maintained eligibility documentation required to support the admission and continued
occupancy of its program households, and (3) complied with the U.S. Department of Housing
and Urban Development’s (HUD) and its own Family Self-Sufficiency program requirements.

What We Found
The Commission did not always comply with HUD’s requirements and its own administrative
plan regarding the administration of its program household files. Specifically, it did not (1)
correctly calculate and process housing assistance payments, (2) maintain required eligibility
documentation, and (3) conduct interim reexaminations for zero-income households. As a result,
HUD lacked assurance that the Commission used its program funds appropriately.
The Commission also did not appropriately (1) maintain its Family Self-Sufficiency program
bank account and (2) extend participants’ contracts of participation. As a result, it (1)
underfunded participants’ escrow accounts and (2) failed to forfeit escrow funds for terminated
program participants. In addition, participants’ escrow balances were not properly supported.

What We Recommend
We recommend that the Director of HUD’s Detroit Office of Public and Indian Housing require
the Commission to (1) reimburse its program more than $33,000 from non-Federal funds for the
ineligible housing assistance payments, (2) support or reimburse its program nearly $93,000
from non-Federal funds for the unsupported payments, (3) pursue repayment or reimburse its
program nearly $5,000 from non-Federal funds for the overpayment of housing assistance due to
unreported income and discrepancies in the housing assistance payments register, (4) reimburse
its households or landlords more than $3,000 for the underpayment of housing assistance, and (5)
implement adequate controls to address the findings cited in this audit report.



1
    Region 5 includes the States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Commission Did Not Always Comply With HUD’s and Its Own
         Requirements for Section 8 Program Household Files ................................................. 4


         Finding 2: The Commission Did Not Always Comply With HUD’s and Its Own
         Family Self-Sufficency Program Requirements ........................................................... 11

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

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

Appendixes ..............................................................................................................16
         A. Schedule of Funds To Be Put to Better Use ............................................................ 16

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

         C. Federal and Commission Requirements ................................................................. 28




                                                            2
Background and Objectives
The Lansing Housing Commission is a public housing agency created by the City of Lansing,
MI, on August 2, 1965. The Commission is governed by a five-member board of commissioners
appointed by the mayor. The board’s responsibilities include performing the duties and functions
prescribed by the Commission’s bylaws and any other duties or functions established by
resolution of the board. The board appoints the Commission’s executive director. The executive
director is responsible for providing general supervision over the administration of the
Commission’s affairs in accordance with the operational, fiscal, personnel, and other policies
adopted by the board and all other laws. In addition, the executive director is responsible to
maintain all records of the Commission.

The Commission administers the Section 8 Housing Choice Voucher program funded by the U.S.
Department of Housing and Urban Development (HUD). The program provides assistance to low-
and moderate-income individuals seeking decent, safe, and sanitary housing by subsidizing rents
with owners of existing private housing. As of October 29, 2014, the Commission had 1,834 units
under contract and was authorized to receive more than $10 million in program funds for the
fiscal year.

The Family Self-Sufficiency program promotes the development of local strategies to coordinate
public and private resources to help Housing Choice Voucher program participants and public
housing tenants obtain employment that will enable participating families to achieve economic
independence. The Family Self-Sufficiency program is administered by public housing agencies
with the help of program coordinating committees. The program coordinating committees
usually consist of representatives of local government, employment and job training agencies,
welfare agencies, nonprofit providers, local businesses, and assisted families. The major
components of the program include a contract of participation between the public housing
agency and the family, an individual training and services plan for each participating family
member, and an interest-bearing escrow account.

The program establishes an escrow account for each family that is funded by the Housing Choice
Voucher program’s housing assistance payments. The family’s annual income, earned income,
and family rent at the beginning of the program are used to determine the amount credited to the
escrow account based on increases in earned income. The full amount of the escrow account not
owed to the public housing agency becomes available to the family when it has fulfilled its
obligations under the contract and certified that no family member currently receives welfare
assistance.

Our audit objectives were to determine whether the Commission (1) appropriately calculated
housing assistance payments, (2) maintained required eligibility documentation to support the
admission and continued occupancy of its program households, and (3) complied with HUD’s
and its own Family Self-Sufficiency program requirements.



                                                3
Results of Audit

Finding 1: The Commission Did Not Always Comply With HUD’s
and Its Own Requirements for Section 8 Program Household Files
The Commission did not always comply with HUD’s requirements and its own administrative
plan regarding the administration of its program household files. Specifically, it did not (1)
correctly calculate and process housing assistance payments, (2) maintain required eligibility
documentation, and (3) conduct interim reexaminations for zero-income households. The
weaknesses occurred because the Commission lacked a sufficient understanding of HUD’s
requirements and failed to implement an adequate quality control process. As a result, it
overpaid nearly $25,000 and underpaid more than $3,000 in housing assistance. In addition, the
Commission was unable to support more than $89,000 in payments of housing assistance. Based
on our statistical sample, we estimate that over the next year, the Commission will overpay
nearly $344,000 and underpay nearly $17,000 in housing assistance.
The Commission Miscalculated Housing Assistance Payments
We reviewed 85 statistically selected2 certifications for 83 of the Commission’s program
household files to determine whether the Commission correctly calculated housing assistance
payments for the period July 2012 through October 2014. Our review was limited to the
information maintained by the Commission in its household files.
For the 85 certifications, 54 (64 percent) had incorrectly calculated housing assistance. The 54
certifications contained 1 or more of the following deficiencies:

          32 certifications had incorrect payment standards,
          14 certifications had incorrect utility allowances,
          12 certifications had incorrect income calculations,
          5 certifications had medical expenses incorrectly calculated, and
          4 certifications had incorrect dependent allowances.

In addition, of the 85 certifications reviewed, 38 contained errors that had no impact on the
housing assistance calculations. The errors included incorrect utility allowances, payment
standards, asset calculations, income calculations, and medical expenses.

The Commission did not properly use program funds when it failed to correctly calculate
housing assistance payments for the 54 household files in accordance with HUD’s requirements
and its administrative plan. The errors resulted in $19,629 in overpayments and $2,183 in




2
    Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit report.




                                                            4
underpayments of housing assistance. In addition, the Commission had unsupported
calculations, which resulted in $10,278 ($9,462 + $816) in unsupported payments of housing
assistance.

Because the housing assistance was incorrectly calculated, the Commission inappropriately
received $12,826 in administrative fees. If the Commission does not correct its certification
process, we estimate that it could overpay $343,876 and underpay $16,660 in housing assistance
over the next year.3
Additionally, for the 85 certifications maintained for the 83 households, we compared the
housing assistance and utility allowance payments from the Commission’s housing assistance
payments register to the amounts calculated on the households’ annual and interim certifications.
The Commission disbursed housing assistance and utility allowance payments that did not agree
with one or more of the certifications and related housing assistance payments contracts for 12 of
the 83 households. As a result, it overpaid housing assistance by $2,399 and utility allowances
by $307 for six households, underpaid housing assistance by $659 and utility allowances by
$293 for six households, and failed to support that $1,728 was paid to the appropriate landlord
for one household from July 1, 2012, through October 31, 2014.
The Commission Did Not Perform Interim Reexaminations for Zero-Income Households
Contrary to its administrative plan,4 the Commission did not conduct interim reexaminations
every 3 months for households that had zero income. We reviewed 5 of the Commission’s 107
households that reported zero income as of February 3, 2015. Two of the five households had
income that they did not report to the Commission in a timely manner. Had the Commission
performed interim reexaminations, it would have identified that these households had income.
As a result of this noncompliance, the households’ housing assistance was overpaid by $2,293,
and the Commission inappropriately received $529 in administrative fees.
The Commission Lacked Documentation To Support Households’ Eligibility
We reviewed 83 of the Commissions’ household files to determine whether it maintained the
required documentation5 to support the households’ eligibility for the program. Of the 83
household files reviewed, 28 (34 percent) were missing 1 or more documents needed to
determine household eligibility. The 28 household files were missing the following eligibility
documentation:

       17 files were missing requests for tenancy approval,
       11 files were missing lead-based paint certifications,
       7 files were missing copies of the original household applications,




3
  Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.
4
  Chapter 11, section 11-II.C, of the Commission’s 2012, 2013, and 2014 program administrative plans state that if
the family has reported zero income, the Commission will conduct an interim reexamination every 3 months as long
as the family continues to report that it has no income.
5
  See appendix C for criteria.



                                                         5
      6 files were missing support showing that housing assistance payments contracts were
       executed in a timely manner,
      5 files were missing support showing that criminal background checks were performed,
      3 files were missing verification of a Social Security number,
      2 files were missing executed leases,
      1 file was missing full support for household members,
      1 file was missing a rent reasonableness determination, and
      1 file was missing a housing assistance payments contract.

During the audit, the Commission was able to provide copies of unsupported eligibility
documentation. However, 20 of the 28 household files were still missing 1 or more required
eligibility documents as of July 23, 2015. For each household file reviewed, the table below
shows the number of documents originally unsupported, documents provided during the audit,
and documents that remained unsupported.


                                               Originally    Provided       Remaining
                       Document               unsupported   during audit   unsupported
            Requests for tenancy approval        17             6             11
            Lead-based paint certifications     11             3              8
            Original applications                7             1              6
            Timely execution of housing
            assistance payments contracts        6             1              5
            Criminal background checks           5             2              3
            Social Security numbers              3             3              0
            Executed leases                      2             0              2
            Full support for household
            members                              1             1              0
            Rent reasonableness
            determinations                       1             0              1
            Housing assistance payments
            contract                             1             0              1

                          Totals                54            17             37


Because the 20 household files were missing required eligibility documentation, HUD and the
Commission lacked assurance that the households were eligible for the program. As a result,
$77,133 in housing assistance was unsupported. In addition, because there was no support
showing that the Commission ensured that the household members were eligible for the program
in accordance with HUD’s requirements, $3,843 in administrative fees received by the
Commission was unsupported.



                                                     6
The Commission Did Not Always Maintain Documentation To Support That Its Rent
Reasonableness Determinations Were Appropriate
We reviewed a sample of 10 of the 1,965 households on the Commission’s Housing Choice
Voucher program during the audit period, July 1, 2012, through October 31, 2014, to determine
whether the Commission conducted these determinations in accordance with HUD’s and its own
requirements. For all 10 households, the Commission did not (1) maintain documentation
supporting the data used to determine comparable units and (2) always adequately account for
the utility allowances specific to the comparable units. Further, according to the Commission’s
program coordinator, in performing rent reasonableness determinations, the Commission did not
consider the size of the comparable units and automatically upgraded them to good quality. In
addition, it considered only whether the rent of the assisted unit was less than the highest of the
comparable units in its database.
The Commission Lacked an Understanding of HUD’s Requirements
The Commission lacked a sufficient understanding of HUD’s requirements. For example, the
Commission misinterpreted HUD’s fair market rents. According to the Commission, it believed
that HUD’s published fair market rents were set at 90 percent of the applicable limit, instead of
100 percent. Therefore, it increased household rents up to an additional 30 percent of HUD’s
fair market rents. HUD’s regulations6 state that the Commission may set its rents between 90
and 110 percent of the published fair market rents; however, the Commission must obtain
approval from the local HUD field office to set its rents above 110 percent and must obtain HUD
headquarters approval to set its rents above 120 percent. The Commission did not obtain HUD’s
approval for the increase.
The Commission also failed to implement an adequate quality control process. It did not have a
manager or supervisor to directly oversee its Section 8 program; therefore, the executive director
assumed the responsibility. However, she did not provide adequate oversight to ensure that (1)
housing assistance payments were correctly calculated and paid, (2) required eligibility
documentation was obtained and maintained, and (3) rent reasonableness determinations were
appropriately completed. Instead, she relied on her staff of program coordinators and specialists
to review each other’s work. Further, the Commission prematurely purged documents for
households that still participated in its program.
As a result of our audit, the Commission’s executive director said that the Commission had
updated its payment standards to within HUD’s basic range. The executive director provided an
email dated January 29, 2015, listing its updated payment standards. However, we were unable
to determine whether the Commission implemented the updated standards.




6
  Regulations at 24 CFR (Code of Federal Regulations) 982.503(b)(1)(i) state that the Commission may establish
the payment standard amount for a unit size at any level between 90 and 110 percent of the published fair market
rent for that unit size. HUD approval is not required to establish a payment standard amount in that range (“basic
range”). And 24 CFR 982.503(b)(2) states that the Commission must request HUD approval to establish a payment
standard amount that is higher or lower than the basic range.



                                                         7
Conclusion
The weaknesses described above occurred because the Commission lacked a sufficient
understanding of HUD’s requirements. It also lacked an adequate quality control process. As a
result, HUD lacked assurance that the Commission used its program funds efficiently and
effectively since it overpaid $21,922 ($19,629 + $2,293) and underpaid $2,183 in housing
assistance and utility allowances. In addition, the Commission incorrectly processed housing
assistance payments for 12 households, which resulted in overpayments of $2,706 ($2,399 +
$307) and underpayments of $952 ($659 + $293) in housing assistance and utility allowances.
Further, it had unsupported payments of $89,139 ($9,462 + $816 + 1,728 + $77,133) due to
unsupported housing assistance calculations, missing eligibility documentation, unsupported
utility allowance payments, and payments to an incorrect landlord.
In accordance with 24 CFR (Code of Federal Regulations) 982.152(d), HUD is permitted to
reduce or offset any program administrative fees paid to a public housing agency if it fails to
perform its administrative responsibilities correctly or adequately under the program. The
Commission received $17,198 ($12,826 + $3,843 + $529) in program administrative fees related
to the inappropriate and unsupported housing assistance payments for the 54 program households
with incorrectly calculated housing assistance, 12 program households with incorrectly
processed housing assistance and utility allowance payments, and 20 program households with
missing eligibility documentation.
If the Commission does not correct its certification process, we estimate that it could overpay
$343,876 and underpay $16,660 in housing assistance over the next year.7 These funds could be
put to better use if proper procedures and controls are put into place to ensure the accuracy of
housing assistance payments.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public and Indian Housing require
the Commission to
        1A. Reimburse its program $33,291 from non-Federal funds ($19,629 for housing
            assistance payments + $307 in overpaid utility allowances and $12,826 + $529 in
            associated administrative fees) for the overpayment of housing assistance and utility
            allowances cited in the finding.

         1B. Reimburse the appropriate households $2,476 ($2,183 in housing assistance
             underpayments + $293 in utility allowance underpayments) from program funds for
             the underpayment of housing assistance due to calculation errors and discrepancies in
             the housing assistance payments register.




7
    Our methodology for this estimate is explained in the Scope and Methodology section of this audit report.



                                                            8
      1C. Support or reimburse the appropriate households $816 from program funds for the
          unsupported payment of housing assistance due to incorrectly calculated housing
          assistance payments.

      1D. Support or reimburse $92,166 from non-Federal funds ($77,133 + $9,462 + $1,728 in
          housing assistance payments + $3,843 in associated administrative fees) for the
          missing eligibility documentation, unsupported housing assistance payment
          calculations, payments to an incorrect landlord, and discrepancies in the housing
          assistance payments register.

      1E. Pursue collection from the applicable households or reimburse its program $2,293
          from non-Federal funds for the overpayment of housing assistance due to unreported
          income.

      1F. Pursue collection from the applicable landlords or reimburse its program $2,399 from
          non-Federal funds for the overpayment of housing assistance due to discrepancies in
          the housing assistance payments register.

      1G. Reimburse the appropriate landlords $659 in housing assistance from program funds
          for the underpayment of housing assistance due to discrepancies in the housing
          assistance payments register.

      1H. Implement procedures and controls to ensure that housing assistance is correctly
          calculated and repayment agreements are created to recover overpaid housing
          assistance when unreported income is discovered during the examination process to
          ensure that $360,536 ($343,876 in overpayments + $16,660 in underpayments) in
          program funds is appropriately used for future payments.

      1I.   Obtain HUD approval for the payment standards that exceeded HUD’s basic range, or
            conduct special recertifications for the households with payment standards above the
            percentage determined to be reasonable and cost effective so that their payment
            standards can be reduced within 1 year.8

      1J.   Implement adequate procedures and controls to ensure that (1) required eligibility
            documentation is obtained and maintained, (2) payment standards are within HUD’s
            basic range or appropriate approvals are obtained from the HUD field office or HUD
            headquarters, and (3) rent reasonableness determinations are completed appropriately
            in accordance with HUD’s and its own policies and procedures.




8
 This recommendation does not apply to households with exception payment standards due to a reasonable
accommodation.



                                                       9
Finding 2: The Commission Did Not Always Comply With HUD’s
and Its Own Family Self-Sufficiency Program Requirements
The Commission did not ensure that it appropriately (1) maintained its Family Self-Sufficiency
program bank account and (2) extended participants’ contracts of participation. This condition
occurred because the Commission lacked adequate procedures and controls to ensure that it
complied with HUD’s requirements. As a result, the Commission (1) underfunded participants’
escrow accounts by more than $21,000 and (2) failed to forfeit more than $6,000 in escrow funds
for its terminated program participants. In addition, participants’ escrow balances totaling nearly
$13,000 were not properly supported.
The Commission Failed To Appropriately Maintain Its Program Bank Account
The Commission’s escrow activity records for our audit period totaled $35,918. However, the
total deposits into its program bank account totaled $14,559. This discrepancy resulted in a
difference of $21,359 in earned escrow funds that were not deposited into the Commission’s
program bank account. In addition, the Commission failed to transfer $6,002 in forfeited escrow
funds from its program account into its Housing Choice Voucher program account for one
participant that had been terminated from its program.
The Commission also did not ensure that its program bank account was appropriately reconciled
to its subsidiary ledger. The Commission’s bank statement, dated October 31, 2014, showed that
the program’s escrow account balance was $69,189. However, its ledger showed that the escrow
account balance for its participants as of October 31, 2014, was $85,278, a difference of $16,089.
The Commission Improperly Extended Participants’ Contracts of Participation
We reviewed five of the Commission’s active program participant files to determine whether the
Commission maintained required documentation in accordance with HUD’s requirements.
Contrary to 24 CFR 984.303(d), for three of the five participant files reviewed, the
Commission’s family self-sufficiency coordinator extended participants’ contracts of
participation without obtaining a written request from the participants. As a result of the
improperly extended contracts, participants’ escrow balances totaling nearly $13,000 were not
properly supported.
The Commission Lacked Adequate Procedures and Controls Over Its Program
The Commission could not explain why the balance on its program escrow account subsidiary
ledger as of October 2014 was higher than the ending balance on its October 2014 bank
statement. According to the Commission’s executive director and fee accountant, the
Commission’s former financial manager managed the program’s escrow account and sometimes
did not transfer funds from the Commission’s Housing Choice Voucher program into its program
account. In addition, although the Commission’s family self-sufficiency coordinator provided
the former financial manager a spreadsheet containing a list of the terminated participants for use
in processing escrow forfeitures, the financial manager did not always forfeit participants’
escrow account funds. Therefore, interest income continued to be prorated to these participants’
escrow accounts after their contracts had been terminated.




                                                 10
Further, the Commission’s family self-sufficiency coordinator said that she automatically
extended participants’ contracts for an additional 2 years when they were near the end of their 5-
year period. The Commission’s program action plan states that all requests for extensions must
be in writing; however, the coordinator disregarded this requirement. As a result of our audit,
the Commission revised its procedures for granting contract extensions. As of July 23, 2015,
participants must request an extension in writing, and the extensions must be approved by the
family self-sufficiency coordinator and the program supervisor. However, the Commission did
not provide documentation to support that the three participants’ contracts were appropriately
extended.
Conclusion
The Commission lacked adequate procedures and controls to ensure that it complied with HUD’s
and its own requirements. As a result, it (1) underfunded participants’ escrow accounts by more
than $21,000 and (2) failed to forfeit more than $6,000 in escrow funds for its terminated
program participants. In addition, participants’ escrow balances totaling nearly $13,000 were not
properly supported.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public and Indian Housing require
the Commission to
   2A. Transfer $21,359 from its Housing Choice Voucher program account to its Family Self-
       Sufficiency program account for the earned escrow credits that were not deposited into
       its Family Self-Sufficiency program bank account.

   2B. Ensure that the $6,002 in forfeitures is appropriately transferred from its Family Self-
       Sufficiency bank account to its Housing Choice Voucher program bank account.

   2C. Ensure that the subsidiary ledger and program bank account are reconciled
       appropriately and that excess funds are transferred to the appropriate Family Self-
       Sufficiency program bank account.

   2D. Support or reimburse its Housing Choice Voucher program $12,900 for the
       unsupported escrow balances cited in this finding.

   2E. Implement adequate procedures and controls to ensure that its staff properly maintains
       the Commission’s Family Self-Sufficiency program escrow account, including, but not
       limited, to reconciling the subsidiary ledger to the program bank account and required
       extension documentation for its participants.

   2F. Ensure that its staff, responsible for administering and monitoring the Family Self-
       Sufficiency program, is knowledgeable and complies with HUD’s and the
       Commission’s program action plan.




                                                 11
Scope and Methodology
We performed our onsite audit work between November 2014 and May 2015 at the
Commission’s main office located at 419 Cherry Street, Lansing, MI. The audit covered the
period July 1, 2012, through October 31, 2014, but was expanded as determined necessary.

To accomplish our review objective, we interviewed HUD program staff and the Commission’s
employees. In addition, we obtained and reviewed the following:
        Applicable laws; HUD’s regulations at 24 CFR Parts 5, 908, 982, and 984; Public and
         Indian Housing notices; and HUD’s Guidebook 7420.10G.

        The Commission’s program administrative plans for years 2012, 2013, and 2014; annual
         audited financial statements for 2011, 2012, and 2013; accounting records; bank
         statements; policies and procedures; board meeting minutes for July 2012 through
         October 2014; organizational chart; payment standards; household and landlord reports;
         and housing assistance payments register and HUD’s fair market rents.
Finding 1

We statistically selected a stratified random sample of 85 monthly housing assistance payments9
from the Commission’s 43,784 monthly disbursements to landlords from July 2012 through
October 2014 (28 months). Based on the 85 randomly selected housing assistance payments
from the audit universe of 43,784 housing assistance payments, we found that the overpayment
per household was an average of $33.10 Therefore, projecting this amount to the audit universe
of 43,784 housing assistance payments, the overpayments totaled more than $1.4 million.
Deducting for statistical variance to accommodate the uncertainties inherent in statistical
sampling, we can state, with a confidence interval of 95 percent, that at least $802,378 in housing
assistance in the universe was overpaid. Over the next year, this is equivalent to an additional
overpayment of $343,876 ($802,378 x 12 months / 28 months) in housing assistance.
In addition, based on the 85 randomly selected housing assistance payments, we found that the
underpayment per household was an average of $4.11 Therefore, projecting this amount to the
audit universe of 43,784 housing assistance payments, the underpayments totaled $185,105.
Deducting for statistical variance to accommodate the uncertainties inherent in statistical
sampling, we can state, with a confidence interval of 95 percent, that at least $38,873 in housing




9
  The 85 monthly housing assistance payments were from the 85 household certifications, which represented 83
households.
10
   This amount was rounded for reporting purposes.
11
   This amount was rounded for reporting purposes.



                                                        12
assistance in the universe was underpaid. Over the next year, this is equivalent to an additional
underpayment of $16,660 ($38,873 x 12 months / 28 months) in housing assistance.
The calculation of administrative fees was based on HUD’s administrative fee per household
month for the Commission. The fees were considered inappropriately received for each month
in which the housing assistance was incorrectly paid and household eligibility was
unsupported. We limited the inappropriate administrative fees to the amounts of housing
assistance payment calculation errors for the household files that had administrative fees
exceeding the housing assistance payment errors.
We selected a random sample of 5 of the Commission’s 107 households that had zero income as
of February 3, 2015. These five files were reviewed to determine whether the households had
unreported income and whether the Commission adequately managed its zero-income
households.
We performed a representative selection, using the nonstatistical sampling method and selected a
random sample of 10 households from the 1,965 households on the Commission’s Housing
Choice Voucher program during the audit period, July 1, 2012, through October 31, 2014. The
rent reasonableness determinations associated with the 10 housing assistance payments were
reviewed to determine whether the Commission conducted these determinations in accordance
with HUD’s and its own requirements.
Finding 2

We selected a random sample of 7 of the Commission’s 34 Family Self-Sufficiency program
participants (5 active participants, 1 graduated participant, and 1 participant that had been
terminated from the program), during the audit period, July 1, 2012, through October 31,
2014. These seven files were reviewed to determine whether the Commission (1) maintained
required documentation to support the participants’ eligibility for the Family Self-Sufficiency
program and (2) calculated the participants’ escrow activity in accordance with HUD’s and its
own requirements.
We relied in part on data maintained by the Commission. Although we did not perform a
detailed assessment of the reliability of the data, we performed a minimal level of testing and
found the data to be adequately reliable for our purposes. We provided our review results and
supporting schedules to the Director of HUD’s Detroit Office of Public and Indian Housing and
the Commission’s executive director during the audit.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                 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 objectives:

   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.
   Reliability of financial reporting – Policies and procedures that management has
    implemented to reasonably ensure that valid and reliable data are obtained, maintained, and
    fairly disclosed in reports.
   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resource use is consistent with laws and
    regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   The Commission lacked a sufficient understanding of HUD’s requirements and failed to
    implement an adequate quality control process to ensure that it complied with HUD’s and its
    own requirements for managing its Section 8 program household files (see finding 1).
   The Commission lacked adequate procedures and controls to ensure that it complied with
    HUD’s and its own Family Self-Sufficiency program requirements regarding (1) the


                                                  14
maintenance of its program bank account and (2) extending participants’ contracts of
participation (see finding 2).




                                            15
Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
     Recommendation                                                  Funds to be put
         number              Ineligible 1/      Unsupported 2/       to better use 3/
           1A                $33,291
             1B                                                          $2,476
             1C                                      $816
             1D                                     92,166
             1E                2,293
             1F                2,399
             1G                                                           659
             1H                                                         360,536
             2A                                                          21,359
             2C                                                          6,002
             2D                                     12,900

            Total             $37,983              $105,882            $391,032


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



                                              16
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 Commission implements our
recommendations, it will (1) ensure that funds are available to provide assistance to
eligible families and (2) stop incurring program costs for the overpayment and
underpayment of housing assistance and, instead, will spend those funds in accordance
with HUD’s requirements and the Commission’s program administrative plan. Once the
Commission improves its controls, this will be a recurring benefit. Our estimate reflects
only the initial year of this benefit.




                                        17
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               18
             Auditee Comments
Ref to OIG
Evaluation




Comment 2


Comment 2


Comment 3




Comment 4




                            19
             Auditee Comments
Ref to OIG
Evaluation




Comment 5




Comment 6




Comment 6




Comment 6




Comment 7




                            20
             Auditee Comments
Ref to OIG
Evaluation




Comments 7




Comment 8




Comment 7


Comments 2
and 3

Comment 7




                            21
Ref to OIG   Auditee Comments
Evaluation




Comment 9




Comment 10


Comment 11




Comment 12




Comment 13


Comment 10




                            22
             Auditee Comments
Ref to OIG
Evaluation




Comment 14




                            23
                         OIG Evaluation of Auditee Comments


Comment 1   The Commission contends that the statement that it did not comply with HUD’s
            or its own requirements for its Section 8 program household files was very broad
            and more egregious than the facts support. We acknowledge the Commission’s
            concern. The statement provides an overall caption for the issues that were
            identified during the audit. Further, finding 1 provides details of the specific
            areas of noncompliance in regard to the Commission’s household files such as (1)
            housing assistance payment calculations, (2) zero-income households
            recertification, (3) household eligibility documentation, and (4) rent
            reasonableness determinations. We do not believe that the language was
            egregious; therefore, the wording was not changed.
Comment 2   The Commission contends that the payment standard error was corrected
            immediately after we advised the Commission that its payment standards were
            miscalculated. We acknowledge the actions taken by the Commission to correct
            the payment standards. In email correspondence, the Commission indicated that
            it would correct the payment standards for annual recertifications as of March 1,
            2015 and new admissions as of January 23, 2015. However, the Commission did
            not indicate how the errors would be corrected for the previously affected
            households. The Commission should work with HUD to ensure the appropriate
            corrective actions are taken.
Comment 3   We commend the Commission for implementing additional procedures to ensure
            that its payment standards are calculated appropriately. The Commission’s
            updated procedures, once developed and implemented should improve its
            program. In addressing the recommendations, the Commission should provide
            copies of its actions and procedures to HUD.
Comment 4   The Commission contends that it is completing the required recertification for all
            zero income households. We commend the Commission for recertifying its zero
            income households to ensure compliance with its administrative plan. The
            Commission should work with HUD to ensure that the housing assistance
            payments overpaid for households with unreported income are appropriately
            repaid or recaptured.
Comment 5   The Commission contends that a significant portion of the eligibility
            documentation that was missing from its household files preceded the
            Commission’s current staff. We acknowledge that the Commission experienced
            staffing changes; however, without the required documentation, HUD and the
            Commission lacked assurance that the households were eligible for the program.
Comment 6   The Commission contends that it had additional information to submit for
            consideration before publication of the discussion draft audit report. We
            acknowledged the receipt of that additional supporting documentation on June 15,
            2015, July 22, 2015, and as attachments to the Commission’s written response to


                                             24
            the discussion draft audit report. We reviewed the documentation and updated the
            audit report and the appendix on page 6 of this report. Further, the unsupported
            costs were reduced from $101,490 to $77,133 and the associated administrative
            fees were reduced from $5,355 to $3,843 to reflect our acceptance of the provided
            documentation, as appropriate. We commend the Commission for providing the
            eligibility documentation that was not present in the household files. The
            Commission should work with HUD to ensure that the appropriate eligibility
            documentation is obtained and maintained in accordance with HUD’s
            requirements.
Comment 7   The Commission contends that its rent reasonableness criteria were established
            under the direction of HUD’s Detroit field office. However it had modified the
            way in which rent reasonableness was compiled, and appointed a housing choice
            voucher supervisor to ensure that (1) housing assistance payments were correctly
            calculated and paid, (2) required eligibility documentation was obtained and
            maintained, and (3) rent reasonableness documentation was appropriately
            completed. We commend the Commission for (1) modifying its procedures for
            the rent reasonableness determinations and (2) ensuring the accuracy of its
            housing assistance payments and the maintenance of household eligibility
            documentation. In addressing the recommendations, the Commission should
            provide copies of its actions and procedures to HUD.
Comment 8   In regard to recommendations 1A-1G, the Commission contends that once the
            final numbers are determined it would initiate a plan to address payment of any
            funds which may be owed. However, it expressed concern regarding the
            timeframe of some of the missing eligibility documentation and requested that (1)
            the affected households be deemed eligible and a (2) waiver for the questioned
            funds. We appreciate the Commission’s determination to initiate a plan to repay
            funds paid for the households that lacked required eligibility documents.
            However, without the required documentation, HUD and the Commission lacked
            assurance that the households were eligible for the program at the time of
            admission; thus preventing or delaying eligible households from receiving
            assistance. The Commission should work with HUD in addressing the
            recommendations and the determination of funds to be reimbursed to its program,
            households, or landlords. Further, the Commission’s request to waive any funds
            owed should be addressed to HUD.
Comment 9   The Commission requested that the language in the report for finding 2 be
            modified to more clearly reflect the nature of the information found during the
            audit and offered suggested wording changes. We acknowledge the
            Commission’s concern. The statement provides an overall caption for the issues
            that were identified during the audit. Finding 2 provides details of the specific
            areas of noncompliance that were identified during the audit in regard to the
            Commission’s program bank account and participants’ contracts of participation.
            Therefore, the language was not changed.




                                             25
Comment 10 The Commission identified corrective actions that it has taken in regard to its
           family self-sufficiency program bank account. The Commission provided the
           summary page for its family self-sufficiency program general ledger and bank
           account which identified that it had transferred $38,958 from its Section 8
           Housing Choice Voucher program bank account to its family self-sufficiency
           bank account on June 29, 2015. However, it did not provide adequate supporting
           documentation such as journal entries detailing how (1) the escrow account for
           each household was updated and (2) forfeited escrow account balances were
           returned to its Section 8 Housing Choice Voucher Program bank account.
           Therefore, we were unable to determine whether the amount transferred was
           appropriate and applied to the correct program participants’ escrow balances. We
           commend the Commission for the actions taken to address the findings cited in
           this audit report. The Commission should work with HUD to ensure that (1) the
           escrow balances are appropriately maintained, (2) funds are transferred
           appropriately between its family self-sufficiency and program bank accounts, and
           (3) appropriate entries are made in its accounting system.
Comment 11 The Commission contends that it had established procedures to fund its family
           self-sufficiency bank account on a monthly basis. We acknowledge that the
           Commission has established procedures to fund its family self-sufficiency bank
           account. These procedures should improve the Commission’s maintenance of the
           program bank account and the related households’ escrow account balances. In
           addressing the audit report’s recommendations, the Commission should provide
           copies of its newly created procedures to HUD to ensure that they fully address
           the issues cited in this audit report.
Comment 12 We commend the Commission for its action to immediately ensure that its family
           self-sufficiency households’ contracts of participation were extended if
           appropriate documentation was received. However, these corrective actions do
           not address the current contracts of participation that were inappropriately
           extended without the required documentation. In addressing the
           recommendations, the Commission should provide copies of its actions and
           procedures to HUD. In addition, the Commission should work with HUD to
           determine whether the current households’ contracts of participation were
           extended appropriately and the required actions to correct contracts of
           participation that were inappropriately extended.
Comment 13 The Commission indicated that it had appointed a program supervisor and was in
           the process of developing procedures and controls to ensure its family self-
           sufficiency program is operated within HUD’s and its own guidelines. We
           commend the Commission’s efforts to improve its policies and procedures for its
           family self-sufficiency program. In addressing the audit report’s
           recommendations, the Commission should provide copies of its newly created
           procedures and controls to HUD to ensure that they fully address the issues cited
           in this audit report.




                                              26
Comment 14 The Commission contends that under the direction of its executive director, it
           would develop procedures to ensure its family self-sufficiency escrow accounts
           are maintained. We commend the Commission for working to develop
           procedures to ensure that its family self-sufficiency program escrow accounts are
           maintained. In addressing the audit report’s recommendations, the Commission
           should provide copies of its newly created procedures to HUD to ensure that they
           fully address the issues cited in this audit report.




                                              27
Appendix C
                            Federal and Commission Requirements

Finding 1

Regulations at 24 CFR 5.210(a) state that applicants for and participants in covered HUD
programs are required to disclose and submit documentation to verify their Social Security
numbers.

Regulations at 24 CFR 5.240(c) state that the responsible entity must verify the accuracy of the
income information received from the family and change the amount of the total tenant payment,
tenant rent, or program housing assistance payment or terminate assistance, as appropriate, based
on such information.

Regulations at 24 CFR 5.603(b) state that medical expenses, including medical insurance
premiums, are anticipated expenses during the period for which annual income is computed and
that are not covered by insurance.

Regulations at 24 CFR 5.855(a) state that a public housing agency may prohibit admission of a
household to federally assisted housing under its standards if it determines that any household
member is engaging in or has engaged in during a reasonable time before the admission decision
(1) drug-related criminal activity; (2) violent criminal activity; (3) other criminal activity that
would threaten the health, safety, or right to peaceful enjoyment of the premises by other
residents; or (4) other criminal activity that would threaten the health or safety of the agency or
owner or any employee.

Regulations at 24 CFR 5.856 state that standards must be established to prohibit admission to
federally assisted housing if any member of the household is subject to a lifetime registration
requirement under a State sex offender registration program. In the screening of applicants,
necessary criminal history background checks must be performed in the State where the housing
is located and in other States where the household members are known to have resided.

Regulations at 24 CFR 908.101 state that applicable program entities must retain at a minimum,
the last three years of the form HUD-50058, and supporting documentation, during the term of
each assisted lease, and for a period of at least 3 years from the end of participation date, to
support billings to HUD and to permit an effective audit.
Regulations at 24 CFR 982.158(e) state that during the term of each assisted lease and for at least
3 years thereafter, the agency must keep (1) a copy of the executed lease, (2) the housing
assistance payments contract, and (3) the application from the family. Paragraph (f) states that
the agency must keep the following records for at least 3 years: lead-based paint records and
records to document the basis for the determination that the rent to the owner is a reasonable rent
(initially and during the term of a housing assistance payments contract).




                                                 28
Regulations at 24 CFR 982.302(c) state that the family must submit to the agency a request for
approval of the tenancy and a copy of the lease, including the HUD-prescribed tenancy
addendum.

Regulations at 24 CFR 982.305(c) state that the housing assistance payments contract must be
executed no later than 60 calendar days from the beginning of the lease term. Any contract
executed after the 60-day period is void, and the agency may not make any housing assistance
payments to the owner.

Regulations at 24 CFR 982.308(b) state that the tenant and the owner must enter a written lease
for the unit. The lease must be executed by the owner and the tenant.

Regulations at 24 CFR 982.451 state that the housing assistance payment contract must be in the
form required by HUD.

Regulations at 24 CFR 982.503(a)(2) state that the payment standard amounts on the agency
schedule are used to calculate the monthly housing assistance payment for a family.

Regulations at 24 CFR 982.505(c)(4) states that if the payment standard amount is increased
during the term of the housing assistance payment contract, the increased payment standard
amount shall be used to calculate the monthly housing assistance payment for the family
beginning at the effective date of the family’s first regular reexamination on or after the effective
date of the increase in the payment standard amount.

Regulations at 24 CFR 982.516(a) state that the agency must conduct a reexamination of family
income and composition at least annually. The agency must obtain and document in the tenant
file third party verification of the following factors, or must document in the tenant file why third
party verification was not available: reported family annual income, the value of assets,
expenses related to deductions from annual income, and other factors that affect the
determination of adjusted income. Paragraph (f) states that the agency must establish procedures
that are appropriate and necessary to assure that income data provided by applicant or participant
families is complete and accurate.

Regulations at 24 CFR 982.517(b)(2) states that an agency’s utility allowance schedule, and the
utility allowance for an individual family, must include the utilities and services that are
necessary in the locality to provide housing that complies with the housing quality standards.
Paragraph (d)(2) states that at reexamination, the agency must use the agency current utility
allowance schedule.

Public and Indian Housing notice 2012-33 states that the public housing agency must consider
requests for an exception to the established subsidy standards on a case-by-case basis and
provide an exception, where necessary, as a reasonable accommodation. The agency shall
document the justification for all granted exceptions.




                                                  29
Section 11.3 of HUD’s Housing Choice Voucher Guidebook, 7420.10G, states that the term of
the housing assistance payments contract must run concurrently with the term of the lease,
including any extensions of the lease term. Occasionally, families move into units prior to
housing assistance payments contract execution, and some owners require these families to sign
a lease prior to moving into the unit. In these situations the public housing agency must request
that the owner and the public housing agency execute a new lease once the housing assistance
payments contract is signed.

Section 11.4 of HUD’s Housing Choice Voucher Guidebook, 7420.10G, states that the most
important objectives of the public housing agency regarding the processing of housing assistance
payments are to issue checks to owners on time and for the correct amount.

Section 22.3 of HUD’s Housing Choice Voucher Guidebook, 7420.10G, states that quality
control should include a review of the housing assistance payments processing function to detect
and prevent recurring errors, omissions, fraud or abuse. The objective of this review is to first
determine whether the housing assistance payment to the owner is correct, based on the payment
standard and family contribution. Second, this review ensures that the payment being made to
the owner matches the amount shown on the agency’s housing assistance payment register.
Third, it also confirms that any change in rent resulting from a recertification or interim change
is properly reflected in the housing assistance payment to owner. Fourth, it protects against
payments being made on a housing assistance payment contract that has been terminated.
Finally, this review protects against payments for a unit that has failed HUD’s housing quality
standards and where the owner has yet to correct the deficiency.

Chapter 3, section 3-I.F, of the Commission’s 2012 program administrative plan states that
dependents that are subject to a joint custody arrangement are considered a member of the family
if they live with the applicant or participant family 51 percent or more of the time or are
otherwise designated by a joint parenting agreement to the parent who maintains primary
residence of the child or children. Individuals with joint custody arrangements entered into in a
State other than Michigan may be required to provide documentation of joint custody or
evidence of the primary residence of a child or the children.

Chapter 6, section 6-I.K of the Commission's 2013 administrative plan states that the
Commission will count all support received over an annualized one year period, unless it verifies
that: (1) the payments are not being made, and (2) the family has made reasonable efforts to
collect amounts due, including filing with courts or agencies responsible for enforcing
payments. Families must supply a 1 year child support printout for all annual reexaminations.

Chapter 11, section 11-II.C of the Commission’s 2012, 2013, and 2014 administrative plans state
that families are required to report all increases in come, including new employment, within 10
business days of the date the change takes effect.

Finding 2




                                                 30
Regulations at 24 CFR 984.303(d) state that the authority must, in writing, extend the term of the
contract of participation for a period not to exceed 2 years for any program participant that
requests, in writing, an extension of the contract if the authority finds that good cause exists for
granting the extension. The family’s written request for an extension must include a description
of the need for the extension. As used in this paragraph, “good cause” means circumstances
beyond the control of the program family as determined by the authority, such as a serious illness
or involuntary loss of employment. Extension of the contract of participation will allow the
program family to continue to have amounts credited to the family’s program account in
accordance with section 984.304.

Regulations at 24 CFR 984.305(a)(1) state that the public housing agency must deposit the
Family Self-Sufficiency account funds of all families participating in the program into a single
depository account.

Regulations at 24 CFR 984.305(a)(2)(i) state that all of the combined Family Self-Sufficiency
account funds will be supported in the public housing agency’s accounting records by a
subsidiary ledger showing the balance applicable to each participating family.

Regulations at 24 CFR 984.305(f)(2)(ii) state that Family Self-Sufficiency account funds
forfeited by the family will be treated as program receipts for payment of program expenses
under the agency budget for the applicable Section 8 program, and shall be used in accordance
with HUD requirements governing the use of program receipts.




                                                 31