oversight

The Housing Authority of the City of Anderson, Anderson, IN, Did Not Always Comply With HUD's and Its Own Requirements Regarding the Administration of Its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-07-28.

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

        Housing Authority of the City of
           Anderson, Anderson, IN
                  Housing Choice Voucher Program




Office of Audit, Region 5                      Audit Report Number: 2016-CH-1004
                                          2
Chicago, IL                                                          July 28, 2016
                            DISCUSSION DRAFT AUDIT REPORT
                            SUBJECT TO REVIEW AND REVISION
                              FOR OFFICIAL COMMENT ONLY
To:            Patricia Tyus, Director of Public Housing Hub, 5HPH
               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The Housing Authority of the City of Anderson, Anderson, IN, Did Not Always
               Comply With HUD’s and Its Own Requirements Regarding the Administration of
               Its 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 Housing Authority of the City of Anderson’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-1004
                    Date: July 28, 2016

                    The Housing Authority of the City of Anderson, Anderson, IN, Did Not
                    Always Comply With HUD’s and Its Own Requirements Regarding the
                    Administration of Its Housing Choice Voucher Program



Highlights

What We Audited and Why
We audited the Housing Authority of the City of Anderson’s Housing Choice Voucher program
based on the activities included in our 2016 annual audit plan and our analysis of risk factors
related to the public housing agencies in Region 5’s jurisdiction. 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 always administer its program in accordance with HUD’s and its own
requirements. Specifically, it did not comply with HUD’s conflict-of-interest requirements when
it failed to obtain the services of an independent third party to perform housing quality standards
inspections and rent reasonableness determinations for units owned by entities it substantially
controlled. As a result, the Authority inappropriately (1) paid more than $645,000 in housing
assistance to the entities and (2) earned nearly $62,000 in administrative fees. Further, HUD
lacked assurance that the Authority acted in the best interests of its program households.
In addition, the Authority did not always ensure that (1) required eligibility documentation was
obtained and maintained, (2) housing assistance was appropriately supported and paid, and (3)
program funds were properly supported and used for eligible expenditures. It also did not ensure
that (1) utility reimbursements were provided to program households, (2) program households
and landlords were not charged for administrative services related to the normal costs of
business, (3) households were properly admitted from its waiting list, and (4) exigent housing
quality standards deficiencies were corrected within 24 hours. As a result, HUD lacked
assurance that the Authority properly managed its program.

What We Recommend
We recommend that the Director of HUD’s Indianapolis Office of Public Housing require the
Authority to (1) reimburse its program more than $700,000 from non-Federal funds for the
ineligible housing assistance paid to the entities and the inappropriate program expenditures, (2)
support or reimburse its program more than $9,000 from non-Federal funds for the unsupported
payments, (3) reimburse the appropriate households and landlords nearly $8,000 for the
underpayment of utility reimbursements and inappropriate administrative service fees, and (4)
implement adequate procedures and controls to address the findings cited in this audit report.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Comply With HUD’s Conflict-of-Interest
         Requirements..................................................................................................................... 4

         Finding 2: The Authority Did Not Always Comply With HUD’s and Its Own
         Program Requirements .................................................................................................... 7


Scope and Methodology .........................................................................................14

Internal Controls ....................................................................................................16

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

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

         C. Federal and Authority Requirements ..................................................................... 22
Background and Objective
The Housing Authority of the City of Anderson is a public housing agency created in 1970 by
the State of Indiana to provide safe and sanitary dwelling accommodations for persons of low
income. The Authority is governed by a seven-member1 board of commissioners appointed by
elected officials. The board’s responsibilities include performing duties and functions as
required by the Authority’s bylaws or its rules and regulations. The executive director has
supervision over the administration of the Authority and management over the housing projects
of the Authority.

The Authority administers the Housing Choice Voucher program funded by the U.S. Department of
Housing and Urban Development (HUD). The program allows very low-income families to choose
and lease or purchase safe, decent, and affordable privately owned rental housing. As of February
2016, the Authority had 1,227 vouchers and received more than $5.6 million in program funds
for fiscal year 2016.

The objective of our audit was to determine whether the Authority administered its program in
accordance with HUD’s and its own requirements. Specifically, we wanted to determine
whether the Authority appropriately (1) complied with HUD’s conflict-of-interest regulations,
(2) maintained the required documentation to support household eligibility, (3) calculated and
paid housing assistance, (4) used program funds for eligible expenditures, (5) refunded utility
reimbursements to program households, (6) charged program households and landlords for
administrative services, (7) admitted households from its waiting list, and (8) ensured that
exigent housing quality standards deficiencies were corrected within 24 hours.




1
    As of June 2016, the resident board member position was vacant; therefore, there were six members on the board.



                                                           3
Results of Audit

Finding 1: The Authority Did Not Comply With HUD’s Conflict-of-
Interest Requirements
The Authority did not comply with HUD’s conflict-of-interest requirements. Specifically, it
failed to obtain the services of an independent third party to perform housing quality standards
inspections and rent reasonableness determinations for units owned by entities it substantially
controlled. The weakness described above occurred because the Authority lacked a sufficient
understanding of HUD’s regulations regarding conflicts of interest. As a result, it
inappropriately (1) paid more than $645,000 in housing assistance to the entities and (2) earned
nearly $62,000 in administrative fees. Further, HUD and the Authority lacked assurance that the
Authority acted in the best interests of its program households.
The Authority Performed Inspections and Rent Reasonableness Determinations for Units
It Substantially Controlled
Anderson Housing, Inc., a nonprofit entity, and Westwood Estates Limited Partnership, a for-
profit entity, were created in 1995 and 1996, respectively. The Authority is the registered agent
and has a controlling interest2 in both entities. It is also the management agent for Westwood
Estates. Anderson Housing and Westwood Estates consist of 149 single-family properties,
collectively. From November 1, 2013, through March 1, 2016, 75 households received housing
assistance at the Anderson Housing and Westwood Estates properties.
Contrary to HUD’s requirements,3 the Authority’s program inspector conducted the initial move-
in, annual, and any other necessary housing quality standards inspections for the entities. In
addition, the Authority’s staff used its program rent reasonableness software to perform the rent
reasonableness determinations. Therefore, the Authority inappropriately (1) paid the entities
$645,509 in housing assistance and (2) received $61,582 in administrative fees by performing
the inspections and rent reasonableness determinations for units owned by entities it substantially
controlled.
The Authority Lacked an Understanding of HUD’s Conflict-of-Interest Requirements
The Authority lacked a sufficient understanding of HUD’s conflict-of-interest requirements. It
misunderstood HUD’s requirement that an independent third party perform housing quality
standards inspections for the units owned by the entities it substantially controlled. The
Authority allowed its program inspector to perform the housing quality standards inspections.
Further, it contracted with a company that performs annual inspections of its public housing



2
  The general partner of Westwood Estates, L.P., is Westwood Estates, Inc., a wholly owned subsidiary of Anderson
Housing, Inc. Anderson Housing, Inc.’s board consists of two of the Authority’s previous executive directors and
six current board members.
3
  24 CFR (Code of Federal Regulations) 982.352(b)(1)(iv)(A) (See appendix C.)



                                                        4
properties to perform quality control inspections for the Anderson Housing and Westwood
Estates properties. These inspections took place once a year, and the program units were
reviewed to meet public housing uniform physical conditions standards, not housing quality
standards. In addition, the Authority’s staff used its program rent reasonableness software to
complete the rent reasonableness determinations for both entities.
According to HUD’s portfolio management specialist, the quality control reviews were not
sufficient to meet the requirements for an independent third-party inspection. In addition, the use
of the Authority’s system to complete rent reasonableness determinations was not sufficient to
meet the requirement for an independent third-party rent reasonableness determination.
The Authority’s current executive director said the quality control inspections were implemented
by the previous executive director. When he became the executive director in October 2015, he
did not know that (1) the Authority’s program inspector could not inspect the units and (2) the
quality control inspections performed by an independent third-party company were not
sufficient. Further, regarding the rent reasonableness determinations, since the Authority used a
computer system to perform the rent reasonableness determinations, he believed that the
Authority complied with HUD’s requirements.
On May 25, 2016, as a result of our audit, the executive director provided a copy of the contract,
dated February 19, 2016, showing that the Authority entered into a contract with a former
employee to perform housing quality inspections for the units. However, the Authority did not
provide documentation showing that this contract was approved by HUD.4

Conclusion
The weakness described above occurred because the Authority lacked a sufficient understanding
of HUD’s regulations regarding conflicts of interest. As a result, it inappropriately (1) paid more
than $645,509 in housing assistance to the entity and (2) earned nearly $61,582 in administrative
fees. Further, HUD and the Authority lacked assurance that the Authority acted on behalf of the
best interests of its households.
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
Authority received $61,582 in program administrative fees related to the inappropriate housing
assistance payments for the 75 program households that resided in units owned by an entity
substantially controlled by the Authority.
Recommendations
We recommend that the Director of HUD’s Indianapolis Office of Public Housing require the
Authority to




4
    24 CFR 982.352(b)(1)(iv)(B) (See appendix C.)



                                                    5
 1A. Reimburse its program $707,091 from non-Federal funds ($645,509 in housing assistance
     payments and $61,582 in associated administrative fees) for the inappropriate payments
     cited in this finding.

 1B. Ensure that the contract to perform housing quality standards inspections for the program
     units owned by entities substantially controlled by the Authority is with an independent
     entity approved by HUD.

 1C. Procure an independent third party to perform rent reasonableness determinations for the
     program households that reside in units owned by entities substantially controlled by the
     Authority.

 1D. Implement adequate procedures and controls to ensure that the Authority complies with
     HUD’s requirements for program conflicts of interest.

We also recommend that the Director of HUD’s Indianapolis Office of Public Housing
 1E. Work with the Authority to ensure that (1) additional funds are not inappropriately paid
     for program units, (2) rent reasonableness determinations are appropriate, and (3) the
     program units met HUD’s housing quality standards for the units cited in this finding.




                                               6
Finding 2: The Authority Did Not Always Comply With HUD’s and
Its Own Program Requirements
The Authority did not always ensure that (1) required eligibility documentation was obtained and
maintained, (2) housing assistance was appropriately supported and paid, and (3) program funds
were properly supported and used for eligible expenditures. It also did not ensure that (1) utility
reimbursements were provided to program households, (2) program households and landlords
were not charged for administrative services related to the normal costs of business, (3)
households were admitted from its waiting list appropriately, and (4) exigent housing quality
standards deficiencies were corrected within 24 hours. These weaknesses occurred because the
Authority lacked adequate procedures and controls and a sufficient understanding of HUD’s and
its own requirements. As a result, HUD lacked assurance that the Authority properly managed
its program because the Authority (1) was unable to support $8,677 in housing assistance and
program expenditures, (2) overpaid $1,112 in housing assistance, (3) used $2,360 for ineligible
expenditures, (4) underpaid $5,506 in utility reimbursements to households, and (5)
inappropriately charged $2,252 to its program landlords and households for administrative
services. Further, (1) housing assistance may have been unjustly denied or delayed for
households on its waiting list, and (2) program households were subjected to housing units that
were not decent, safe, and sanitary.
The Authority Lacked Documentation To Support Household Eligibility
We reviewed 145 of the Authority’s household files to determine whether it maintained the
required documentation6 to support households’ eligibility for the program. Of the 14 household
files reviewed, 12 (85.7 percent) were missing 1 or more documents needed to determine
household eligibility. The 12 household files were missing the following eligibility
documentation:

                   9 were missing proof of landlord ownership of the assisted units,
                   4 were missing a rent reasonableness determination,
                   3 were missing a lead-based paint certification,
                   3 were missing support showing that criminal background checks were
                    performed,
                   2 were missing copies of the original household applications,
                   2 were missing citizenship declaration forms,
                   2 were missing authorization for the release of information forms, and
                   1 was missing a request for tenancy approval.




5
    Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit report.
6
    See appendix C for criteria.



                                                            7
In addition, the Authority executed one housing assistance payments contract more than 60 days
after the lease was executed.7
During the audit, the Authority was able to provide copies of eligibility documentation that was
initially missing from 10 of the 12 household files. The remaining two household files were still
missing proof of landlord ownership as of May 25, 2016.
Because the two household files were missing required eligibility documentation,8 HUD and the
Authority lacked assurance that the households were eligible for the program. As a result,
$8,216 in housing assistance provided for the households and $614 in administrative fees
received by the Authority were unsupported.
The Authority Miscalculated Housing Assistance Payments
We reviewed 14 statistically selected9 certifications to determine whether the Authority correctly
calculated housing assistance payments for the period November 2013 through October 2015.
Our review was limited to the information maintained by the Authority in its household files.
For the 14 household files reviewed, 2 (14.3 percent) had unsupported calculations of housing
assistance. The two certifications contained the following deficiencies:

                 One lacked support for the utility allowance calculation, and
                 One lacked support for a dependent allowance deduction.

In addition, housing assistance was overpaid for one household due to the household’s not
reporting an increase in income.10 The calculation errors identified above resulted in
unsupported housing assistance payments totaling $276. Because the housing assistance was
unsupported, $276 in administrative fees received by the Authority was also unsupported.11 In
addition, the Authority overpaid housing assistance totaling $1,112 for one household with
unreported income.
The Authority Used Its Program Funds for Ineligible Expenditures
We reviewed the Authority’s program disbursement report from November 1, 2013, through
October 31, 2015, to determine whether the Authority used its program funds for eligible
expenditures. The Authority used $2,360 in program funds for 22 ineligible expenditures.12 The
ineligible expenditures included meals for board members, personal travel, and credit card
interest expenses. In addition, the Authority was unable to support seven expenditures totaling
$185. These unsupported expenditures included meals and board meeting costs. As a result of
the ineligible expenditures, $2,360 was not available for eligible program use. In addition, HUD
and the Authority lacked assurance that $185 in program funds was used appropriately.




7
  24 CFR 982.305(c)(4) (See appendix C.)
8
  See appendix C for criteria.
9
  Our methodology for the statistical sample is explained in the Scope and Methodology section of this audit report.
10
   Chapter 12, section 12-G, of the Authority’s administrative plan (See appendix C.)
11
   See the Scope and Methodology section of this report for our calculation of administrative fees
12
   24 CFR 982.152(a)(3) (See appendix C.)



                                                          8
The Authority Did Not Refund Utility Reimbursements
The Authority issued utility assistance payments directly to the utility companies for its program
households.13 According to the Authority’s occupancy specialist, when a credit balance would
occur in a program household’s utility account,14 the utility company would contact the
Authority. The Authority would then transfer the household’s utility assistance payments to
another company as applicable. The utility company would then issue a refund for the credit
balance to the Authority. The Authority deposited these funds into its program account. The
Authority’s account manager confirmed this process by stating that when the Authority received
a refund from a utility company, it would deposit the money into its utility reimbursement
payment program account rather than providing the funds to another utility company or to the
household to pay for other utilities.
For the period January 2013 through October 2015, the Authority received refunds for 11
households totaling $9,970 from utility companies. The Authority deposited the refunds into its
program account rather than distributing the funds to the program households to pay other
utilities. As a result of our audit, the Authority began providing the refunds of the utility
reimbursements to the applicable households. As of February 26, 2016, the Authority had
reimbursed 4 of the 11 households $4,464.15
Because the Authority failed to reimburse the remaining seven (11 - 4) households when utility
payments exceeded utility charges, the Authority underpaid utility reimbursements by $5,506
($9,970 - $4,464).
The Authority Inappropriately Charged Its Program Households and Landlords for
Administrative Services
In November 2013, the Authority’s board of commissioners approved a board resolution, which
allowed the Authority to charge administrative service fees to its program landlords for items
such as change-of-ownership processing. At the June 2014 board meeting, the Authority’s
former executive director said that a HUD financial analyst informed her that the Authority’s
administrative service fee schedule included charges for the normal cost of doing business,
which were not appropriate. We reviewed the Authority’s (1) other income/ tenant/
miscellaneous account ledger and (2) its other income account ledger for the period December
1, 2013, through November 30, 2014, and identified 23 charges to landlords, of which 22 were
for changes of ownership, totaling $1,650. According to HUD, change of ownership is a normal
cost of doing business, and it is not appropriate to charge administrative service fees to the
landlords for this process.
In addition, the Authority’s account manager said that the Authority charged its program
households to notarize household eligibility documentation, such as zero-income certifications,



13
   24 CFR 982.514(b) (See appendix C.)
14
   When the utility reimbursement payments exceed the actual utility costs for a household, a credit balance results.
15
   The remaining seven households are no longer on the program, and the Authority had been unable to locate them
as of May 25, 2016. The Authority said it planned to transfer the remaining utility reimbursement funds totaling
$5,506 to the Indiana Attorney General to be included on the unclaimed property Web site.



                                                           9
decrease in household composition forms, letters of intent to move, and self-employment
certifications. The Authority provided notary services to the households for these forms at a cost
of up to $1 per notarization. We reviewed the Authority’s account manager’s notary ledgers for
the period October 1, 2014, through January 31, 2016, and the assistant book keeper’s notary
ledgers from November 1, 2013, through January 31, 2016, and determined that there were 669
entries. Of the 669 entries, 664 were notary charges for its program households. Therefore, the
Authority inappropriately charged notary fees totaling $565 to its program households.  
The Authority’s director of housing programs also said that the Authority required applicants to
pay the Anderson Police Department to obtain the criminal background checks that were
required for admission to the program.16 For 7 of the 14 household files reviewed, the
households inappropriately paid the Anderson Police Department between $3 and $7 dollars
each, for a total of $37 for the criminal background checks.
As a result of the above deficiencies, the Authority improperly charged its program landlords and
households a total of $2,252 ($1,650 + $565+$37) in administrative service fees for the normal
costs of doing business.
The Authority Did Not Properly Administer Its Waiting List
For the period of January 1, 2013, through December 31, 2015, the Authority did not admit zero
income households onto its program. According to an ad-hoc report from HUD’s Public and
Indian Housing Information Center system, we determined that the only zero income households
admitted onto its program were port-in households. The Authority’s director of housing
programs confirmed that the Authority had not admitted any zero income households from its
waiting list onto its program.
In addition, the Authority’s waiting list preference for working families was too restrictive
requiring households to work more than 25 hours per week at no less than minimum wage to
claim the preference. HUD’s regulations17 allow the Authority to adopt a preference for working
families. However, HUD’s regulations do not require the family to work a certain number of
hours or earn a certain wage.
The Authority Did Not Enforce Timely Correction of Exigent Health and Safety
Deficiencies
While completing program unit observations, we identified exigent health and safety violations,
such as a missing smoke detector and windows being nailed shut, blocking the second egress
from the room. During a discussion with the Authority’s inspector, we asked how the exigent
health and safety violations were corrected. The inspector said that the Authority allowed 30
days to correct all deficiencies regardless of the type of deficiency. The inspector provided a
copy of the inspection letters sent to the program landlords and households, which confirmed
that the Authority allowed 30 days to correct the exigent health and safety violations. Therefore,




16
     24 CFR 982.553(d)(3) (See appendix C.)
17
     24 CFR 982.207(b)(2) (See appendix C.)



                                                 10
the Authority did not require exigent health and safety violations to be corrected within 24
hours.18
Because the Authority allowed 30 days to correct the 24-hour exigent health and safety
violations noted during its inspections, it did not always ensure that households resided in decent,
safe, and sanitary housing.19
The Authority Lacked Adequate Procedures and Controls and a Sufficient Understanding
of HUD’s Requirements
The Authority lacked adequate procedures and controls to ensure that its household files
contained required eligibility documentation and households’ housing assistance payments were
correctly calculated. The Authority’s director of housing programs said that the former
compliance specialist performed the last quality control review of the program files in May
2015. The Authority did not have a system in place for performing quality control inspections
from May 2015 until it hired a new compliance specialist in December 2015.

The Authority also lacked a sufficient understanding of HUD’s requirements. The Authority’s
executive director said that he believed the Authority was permitted to use program funds to
provide lunches to the board of commissioners because the commissioners elected to receive a
monthly per diem of $25 instead of $50 per month. However, Indiana Code, title 36, article 7,
chapter 18, section 8, states that commissioners of a housing authority are entitled to
compensation limited to (1) a per diem allowance of $25 for attending a meeting of the authority
and (2) reimbursement for necessary expenses, including traveling expenses incurred in the
discharge of the commissioner’s duties.
Regarding the utility reimbursements, according to the Authority’s account manager, the
previous executive director said that any refunds received from utility companies should go back
into the Authority’s utility reimbursement account. Although the account manager disagreed
with this practice, she was directed to deposit the refunds into the utility reimbursement account.
Further, on January 13, 2016, HUD’s portfolio management specialist provided a copy of a letter
from HUD’s Indianapolis Office of Public Housing to the Authority, dated July 1, 2014. The
letter detailed the Federal requirements regarding the charging of administrative service fees to
program households and landlords. The letter stated that current HUD regulations at 24 CFR
Parts 982 and 983, respectively, do not allow authorities to charge applicants, tenants, or owners
for public housing agency administrative functions related to the program. The letter further
stated that the statutory framework regarding administrative fees does not allow public housing
agencies to pass the normal costs of doing business to other parties because it establishes a
comprehensive scheme for compensating public housing agencies for those costs. The
Authority’s current executive director said that he was not aware of HUD’s letter and believed
that the former executive director did not provide the letter to the Authority’s staff.




18
     24 CFR 982.404(a)(3) (See appendix C.)
19
     24 CFR 982.1(a)(1) (See appendix C.)



                                                 11
On January 13, 2016, as a result of our audit, the Authority’s director of housing programs
informed the program staff that the Authority would no longer charge program households for
notary fees for program documents.
The Authority’s executive director said that the Authority admitted zero-income applicants. He
also said that applicants who were not initially admitted to the program due to reporting zero
income, or not meeting the local working preference were moved further down on the waiting
list due to incorrect preference selections by the applicant. However, the Authority did not
provide documentation to support its assertion. In addition, the Authority’s executive director
said that when the waiting list reopened on March 22, 2016, the Authority did not include the
local preference for households that worked 25 hours or more per week at no less than minimum
wage for new applicants.
The Authority’s executive director and its housing quality standards inspector said that they were
not aware of HUD’s requirements or the citation in its own administrative plan requiring life-
threatening deficiencies (24-hour exigent health and safety violations) to be corrected within no
more than 24 hours.
Conclusion
The weaknesses described above occurred because the Authority lacked (1) adequate procedures
and controls and (2) a sufficient understanding of HUD’s and its own requirements. As a result,
HUD lacked assurance that the Authority’s program was administered properly because the
Authority (1) was unable to support $8,677 ($8,216 + $276+185) in housing assistance and
expenditures, (2) overpaid $1,112 in housing assistance, (3) used $2,360 for ineligible
expenditures, (4) underpaid $5,506 in utility reimbursements to households, and (5)
inappropriately earned $2,252 ($1,650 + $565+$37) for administrative service fees charged to
landlords and households and criminal background checks. Further, (1) housing assistance may
have been unjustly denied or delayed for households on its waiting list, and (2) program
households were subjected to housing units that were not decent, safe, and sanitary.
In accordance with 24 CFR 982.152(d), HUD is permitted to reduce or offset any program
administrative fees paid to a public housing agency if it fails to perform its administrative
responsibilities correctly or adequately under the program. The Authority received $890 ($614 +
$276) in program administrative fees related to the two program households with missing
eligibility documentation and two households with unsupported housing assistance.
Recommendations
We recommend that the Director of HUD’s Indianapolis Office of Public Housing require the
Authority to
 2A. Support or reimburse its program $9,382 from non-Federal funds ($8,216 + $276 in
     unsupported housing assistance payments + $614 + $276 in associated unsupported
     administrative fees + $185 in unsupported expenditures) for the missing eligibility
     documentation, unsupported payments of housing assistance, and unsupported program
     expenditures cited in this finding.




                                                12
 2B. Pursue collection from the applicable household or reimburse its program $1,112 from
     non-Federal funds for the overpayment of housing assistance due to unreported income.

 2C. Reimburse its program $2,360 from non-Federal funds for the ineligible expenditures.

 2D. Reimburse the 11 households $9,970 (of which $5,506 remains outstanding for seven
     households) from program funds for the underpayment of utility reimbursements.

 2E. Reimburse the appropriate landlords and households $2,252 ($1,650 + $565+$37) from
     program funds for inappropriate charges of administrative service fees.

 2F. Implement adequate procedures and controls to ensure that (1) required eligibility
     documentation is obtained and maintained; (2) housing assistance payments contracts are
     executed in a timely manner; and (3) housing assistance payments are appropriately
     calculated, supported, and paid.

 2G. Implement adequate procedures and controls to ensure that (1) program funds are used
     for eligible expenditures and (2) documentation to support its expenditures is maintained.

 2H. Implement adequate procedures and controls to ensure that utility reimbursements are
     appropriately refunded to program households when the utility reimbursement payments
     to utility companies exceed the actual utility costs.

 2I.   Implement adequate procedures and controls to ensure that administrative service charges
       for functions related to the Housing Choice Voucher program are not passed to the
       landlords and household for the normal costs of doing Authority business.

 2J.   Ensure staff is trained and familiar with HUD’s regulations and the Authority’s own
       requirements including, but not limited to appropriately (1) managing its program waiting
       list, (2) applying local preferences, and (3) ensuring 24-hour exigent health-and safety-
       related violations are corrected within 24 hours, or appropriate extensions are
       documented.

We also recommend that the Director of HUD’s Indianapolis Office of Public Housing
 2K. Work with the Authority to determine whether program households are admitted in
     accordance with HUD’s program requirements and if not, consider a referral to HUD’s
     Office of Fair Housing and Equal Opportunity.

 2L. Work with the Authority to determine whether it is appropriate to require households to
     obtain and pay for criminal background checks. If it is determined to not be appropriate,
     the Director should ensure that the Authority (1) provides background checks for all
     future applicants, (2) determines the number of households affected, and (3) reimburses
     the affected households as appropriate from program funds.




                                               13
Scope and Methodology
We performed our onsite audit work between November 2015 and March 2016 at the Authority’s
main office located at 528 West 11th Street, Anderson, IN. The audit covered the period
November 1, 2013, through October 31, 2015, but was expanded as determined necessary.

To accomplish our audit objective, we interviewed HUD program staff and the Authority’s
employees. In addition, we obtained and reviewed the following:
        Applicable laws, HUD’s regulations at 24 CFR Parts 5 and 982, Public and Indian
         Housing Notice 2012-15, and HUD’s Guidebook 7420.10G.

        The Authority’s accounting records, bank statements, general ledger, policies and
         procedures, board meeting minutes for November 2013 through October 2015,
         organizational chart, payment standards, housing assistance payments register,
         incorporating documents, business entity reports, and partnership agreements.
Finding 1

We reviewed the incorporating documents, business entity reports, partnership agreements,
LexisNexis Accurint20 business reports, and general ledgers to determine whether the Authority
owned or substantially controlled units that received housing assistance payments from
November 1, 2013, through March 1, 2016.

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. We limited the inappropriate
administrative fees to the amounts of housing assistance paid.
Finding 2

We statistically selected a stratified random sample of 90 monthly housing assistance payments21
from the Authority’s 25,284 monthly disbursements to landlords from November 2013 through
October 2015 (24 months). We reviewed the first 14 statistically selected housing assistance




20
   LexisNexis® Accurint ® for Government is a point-of-need investigative solution that enables government
agencies to locate people, detect fraud, uncover assets, verify identity, perform due diligence, and visualize complex
relationships. It helps enforce laws and regulations; fight fraud, waste, and abuse; and provide essential citizens’
services.
21
   The 90 monthly housing assistance payments were from the 90 household certifications, which represented 89
households.



                                                           14
payments for 14 households to determine whether the Authority correctly calculated housing
assistance and utility allowance payments and maintained the required documentation to support
the households’ admission to the program and continued occupancy. The number of errors (14.3
percent) was low and was the result of missing documentation for one household’s utility
allowance calculation and one household’s dependent deduction. Therefore, we discontinued
our review of the Authority’s housing assistance payments calculations. Because we
discontinued our review, we are unable to project our results to the universe of the 25,284
monthly disbursements to landlords from November 2013 through October 2015 (24 months).
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. 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 reviewed the Authority’s program disbursement report for expenditures made with program
funds from November 1, 2013, through October 31, 2015, and disregarded $33,957 expenditures
for housing assistance payments, utility reimbursement payments, and payroll. From the
remaining 647 transactions we judgmentally selected and reviewed invoices and other supporting
documentation to determine whether the Authority disbursed its program funds for eligible
expenditures. Because we judgmentally selected 44 transactions, we are unable to project our
results to the universe of 647 transactions.
We reviewed 100 percent of the Authority’s notary journals and account ledger reports for the
(1) other income/ tenant/ miscellaneous account ledger and (2) its other income account ledger to
determine whether the Authority charged its program applicants, households, and landlords fees
for administrative services. We reviewed 100 percent of the transactions; therefore, no
projection on our results is necessary.
We relied in part on data maintained by the Authority in its systems. 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 Indianapolis Office of Public Housing
and the Authority’s executive director during the audit.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                15
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

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

   The Authority lacked an understanding of HUD’s regulations regarding conflicts of interest
    to ensure that it acted in the best interest of the program households (finding 1).
   The Authority lacked adequate quality control procedures and a sufficient understanding of
    HUD’s and its own requirements to ensure that its program was administered properly
    (finding 2).


                                                  16
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                  $707,091
             2A                                         $9,382
             2B                     1,112
             2C                     2,360
             2D                                                              $5,506
             2E                                                               2,252
                  Total          710,563                 9,382                7,758


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 ensure that (1) utility reimbursements are properly spent or
     returned to the program households and (2) landlords and households are not charged
     administrative service fees for the normal costs of doing Authority business.




                                              17
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1
Comment 2


Comment 3




Comments 1
and 3




                               18
Ref to OIG
Evaluation   Auditee Comments




Comment 4


Comment 5


Comment 6




Comment 7
Comment 8




                            19
                          OIG Evaluation of Auditee Comments


Comment 1   The Authority contends that it had hired a third party inspector to inspect its units
            and the inspections were conducted using uniform physical conditions standards,
            a higher standard protocol. It also contends that HUD had already started testing
            the use of uniform physical conditions standards in place of housing quality
            standards throughout the country. Therefore, the inspection protocol used the
            Authority was adequate. We disagree. According to HUD’s regulations at 24
            CFR 982.401, the Authority’s program units were required to meet housing
            quality standards. The Authority did not provide support (1) for its assertions that
            HUD deemed uniform physical conditions standards as satisfactory for its
            program units or (2) to show that it was part of HUD’s testing group.
Comment 2   The Authority contends that its inspector failed 10 percent of the Westwood
            Estate Homes; thus proving that the inspector was under no pressure to pass the
            units. The Authority did not provide support (1) for this assertion and (2) that it
            obtained approval from HUD to use its own program inspector to perform the
            inspections. In accordance with 24 CFR 982.352, a public housing agency must
            obtain the services of an independent entity to perform housing quality standards
            inspections. The Authority should work with HUD to resolve the
            recommendations regarding its housing quality standards inspections.
Comment 3   The Authority contends that it contracted with GoSection8 to perform its rent
            reasonableness determinations. This is a software program that the Authority’s
            staff uses to complete rent reasonableness determinations. As cited in the report,
            and according to HUD, the use of the Authority’s system to complete rent
            reasonableness determinations was not sufficient to meet the requirement for an
            independent third-party rent reasonableness determination. The Authority should
            work with HUD to resolve the recommendations regarding its rent reasonableness
            determinations.
Comment 4   The Authority contends that it had already contracted with a third party inspector
            to do initial and annual inspections of the units in which it holds an interest, and if
            necessary the Authority would submit information about its third-party vendors
            for approval. According to HUD’s regulations, at 24 CFR 982.352, the
            independent entity used to perform the rent reasonableness and housing quality
            standards inspections must be approved by HUD. Therefore, the Authority
            needs to submit the contract to HUD and work with HUD to ensure the contract is
            appropriate.

Comment 5   The Authority contends that it (1) had provided us with some documents to
            reduce its claim for finding 2 and (2) would work with HUD regarding the
            remaining items. For finding 2, the report acknowledges that the Authority
            provided household eligibility documentation that was initially missing from the
            selected household files, during the audit. The Authority did not provide any



                                               20
            additional documentation to reduce the errors along with its comments to the
            report. Therefore, the initial number of missing items had been reduced to reflect
            the receipt of the documents, as cited in this report. In addition, we commend the
            Authority on its willingness to work with HUD to resolve the issues cited in the
            finding.
Comment 6   The Authority contends that we had 7 months to prepare its findings; however, the
            Authority was only given 10 days to research and make comments. We
            acknowledge that the audit took several months to complete; however, the
            Authority was provided ample time during the audit to resolve the deficient items
            and sufficient time to comment on the draft report. For instance, the audit team
            periodically met with the Authority from January through July 2016, and provided
            supporting documentation for all the deficient items identified throughout the
            audit. In addition, on May 3, 2016, the audit team provided the Authority with
            draft finding outlines, which mimicked the eventual draft audit report. The draft
            report was issued on June 30, 2016. Therefore, the Authority was made aware of
            our findings nearly two months before being presented with a draft report. The
            Authority was provided an additional two weeks to respond upon receiving the
            draft report. The Authority’s comments were due and received on July 15, 2016.
Comment 7   The Authority contends that it will work with the local HUD office to ensure the
            deficiencies are corrected. We commend the Authority on its willingness to work
            with HUD to resolve the issues cited in this report, in a way that does not
            negatively impact the Authority or its’ households.
Comment 8   The Authority contends that there appeared to be a calculation mistake on our
            spreadsheet. During the audit, the audit team provided the Authority with many
            spreadsheets to help it resolve the identified deficiencies. However, since the
            Authority did not identify the particular spreadsheet in question, we cannot
            comment on whether a spreadsheet contained a mistake.




                                             21
Appendix C
                             Federal and Authority Requirements

Finding 1

Regulations at 24 CFR 982.152(d) states that 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.

Regulations at 24 CFR 982.352(b)(1)(iv)(A) state that the public housing agency must obtain the
services of an independent entity to perform the following functions as required under the
program rule:
    (1) To determine rent reasonableness in accordance with 24 CFR 982.507. The independent
        agency must communicate the rent reasonableness determinations to the family and the
        agency.
    (2) To assist the family to negotiate the rent to owner in accordance with 24 CFR 982.506.
    (3) To inspect the unit for compliance with the housing quality standards in accordance with
        24 CFR 982.305 and 24 CFR 982.405 (except that 24 CFR 982.405(e) is not applicable).
        The independent agency must communicate the results of each such inspection to the
        family and the public housing agency.

Regulations at 24 CFR 982.352(b)(1)(iv)(B) state that the independent agency used to perform
the rent reasonableness, negotiation of rent, and housing quality standards inspections must be
approved by HUD.
Finding 2

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 982.1(a)(1) state that in the HUD Housing Choice Voucher program,
HUD pays rental subsidies so eligible families can afford decent, safe, and sanitary housing.

Regulations at 24 CFR 982.152(a)(3) state that public housing agency administrative fees may be
used to cover only the costs incurred to perform the agency’s responsibilities for the program in
accordance with HUD regulations and requirements.

Regulations at 24 CFR 982.152(d) states that 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.




                                                22
Regulations at 24 CFR 982.207(b)(2) state that the public housing agency may adopt a
preference for admission of working families (families in which the head spouse or sole member
is employed). However, an applicant must be given the benefit of the working family preference
if the head and spouse or sole member is age 62 or older or is a person with disabilities.
Regulations at 24 CFR 982.207(d) state that the public housing agency must not select families
for admission to the program in an order different from the order on the waiting list for the
purpose of selecting higher income families for admission to the program.
Regulations at 24 CFR 982.302(c) state that the family must submit to the public housing agency
a request for approval of the tenancy and a copy of the lease, including the HUD-prescribed
tenancy addendum. The request must be submitted during the term of the voucher.


Regulations at 24 CFR 982.305(c)(4) state that any housing assistance payments contract that is
executed after 60 calendar days from the beginning of the lease term is void and no payments
may be paid to the owner.

Regulations at 24 CFR 982.404(a)(3) state that the public housing agency must not make any
housing assistance payments for a dwelling unit that fails to meet the housing quality standards,
unless the owner corrects the defect within the period specified by the agency and the agency
verifies the correction. If a defect is life threatening, the owner must correct the defect within no
more than 24 hours.

Regulations at 24 CFR 982.514(b) state that if the housing assistance payment exceeds the rent
to owner, the public housing agency may pay the balance of the housing assistance payment
(“utility reimbursement”) either to the family or directly to the utility supplier to pay the utility
bill on behalf of the family. If the agency elects to pay the utility supplier directly, the agency
must notify the family of the amount paid to the utility supplier.

Regulations at 24 CFR 982.553(d)(3) state that the public housing agency may not pass along to
the tenant the costs of a criminal records check.

HUD’s Housing Choice Voucher Guidebook 7420.10G, chapter 5.3, states that a dependent is a
family member who is under 18 years of age, is disabled, or is a full-time student. It further
states that although full-time students 18 years of age or older are technically identified as
dependents, a small amount of their earned income will be counted, up to a maximum of $480
per year.

HUD’s Housing Choice Voucher Guidebook 7420.10G, chapter 5.5, states that a full-time
student is one carrying a full-time subject load (as defined by the institution) in an institution
with a with a degree or certificate program.

HUD’s Housing Choice Voucher Guidebook 7420.10G, chapter 22.3, states that public housing
agencies must independently verify all factors affecting a family’s eligibility and payment,




                                                   23
including factors that affect the determination of adjusted income, such as full-time student
status.

HUD’s Public and Indian Housing Notice 2012-15, part 2, states that administrative fees must be
used only for program expenses. These include but are not limited to (1) waiting list
management and updates; (2) preference verifications; (3) eligibility determinations; (4) intake
and briefings; (5) voucher issuances; (6) owner outreach efforts; (7) unit inspections; (8) rent
negotiations and reasonableness determinations; (9) annual and interim income reexaminations;
(10) tenant fraud investigations and hearings; (11) processing subsequent moves, including
portability moves outside the public housing agency’s jurisdiction; (12) the costs associated with
making housing assistance payments to owners; and (13) monthly reporting in HUD systems.

Chapter 10, section 10-C, of the Authority’s administrative plan states that emergency items that
endanger the family’s health or safety must be corrected by the owner within 24 hours of
notification.

Chapter 12, section 12-G, of the Authority’s administrative plan states that the Authority requires
that families report interim changes to the Authority within 30 days after the change occurs and
that if the change is not reported within the required period or if the family fails to provide
documentation or signatures, it will be considered untimely reporting. Further, it states that the
family will be liable for any overpaid housing assistance and may be required to sign a
repayment agreement or reviewed for termination for zero-income household members that do
not report the changes in a timely manner.

Chapter 14, section 14-D, of the Authority’s administrative plan states that the Authority will
only enter into a contractual relationship with the legal owner of a qualified unit.




                                                 24