oversight

The Housing Authority of the City of Rock Island, Rock Island, IL, Did Not Always Comply With HUD's Requirements Regarding the Administration of Its Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-28.

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

        Housing Authority of the City of
         Rock Island, Rock Island, IL
                  Housing Choice Voucher Program




Office of Audit, Region 5                      Audit Report Number: 2016-CH-1007
                                          2
Chicago, IL                                                    September 28, 2016
                            DISCUSSION DRAFT AUDIT REPORT
                            SUBJECT TO REVIEW AND REVISION
                              FOR OFFICIAL COMMENT ONLY
To:            Dana M. Kitchen, Acting Director of Public Housing Hub, 5APH
               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA
Subject:       The Housing Authority of the City of Rock Island, Rock Island, IL, Did Not
               Always Comply With HUD’s 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 Rock Island’s
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-1007
                    Date: September 28, 2016

                    The Housing Authority of the City of Rock Island, Rock Island, IL, Did Not
                    Always Comply With HUD’s 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 Rock Island, IL’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 the U.S.
Department of Housing and Urban Development’s (HUD) requirements.

What We Found
The Authority did not always administer its program in accordance with HUD’s requirements.
Specifically, it did not comply with HUD’s conflict-of-interest requirements when it did not
obtain the services of an independent third party to perform housing quality standards
inspections and rent reasonableness determinations for units it substantially controlled. As a
result, the Authority inappropriately (1) paid nearly $454,000 in housing assistance to the entities
and (2) earned nearly $44,000 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 appropriately manage its Family Self-Sufficiency program
when it did not ensure that (1) required documentation to determine participants’ admission to
and continued participation in the program was obtained and maintained and (2) program
participants were connected to resources and supportive services. It also did not ensure that
participants’ (1) escrow accounts were correctly calculated and recorded and (2) escrow account
disbursements were fully supported. As a result, HUD and the Authority lacked assurance that
(1) program participants benefited from the program or had made progress toward self-
sufficiency and (2) more than $141,000 in program funds was used appropriately.

What We Recommend
We recommend that the Acting Director of HUD’s Chicago Office of Public Housing require the
Authority to (1) reimburse its program more than $507,000 from non-Federal funds for the
ineligible housing assistance paid to the entities and the inappropriate escrow disbursements, (2)
support or reimburse its program more than $130,000 from non-Federal funds for the
unsupported coordinator grant funds and escrow payments, (3) transfer more than $2,100 to or
from its program account for the underfunded and overfunded escrows, 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 Appropriately Manage Its Family Self-
         Sufficiency Program ......................................................................................................... 6

Scope and Methodology ...........................................................................................9

Internal Controls ....................................................................................................11

Appendixes ..............................................................................................................12
         A. Schedule of Questioned Costs Funds To Be Put to Better Use ............................. 12

         B. Auditee Comments and OIG’s Evaluation ............................................................. 13

         C. Federal Requirements .............................................................................................. 24
Background and Objective
The Housing Authority of the City of Rock Island was established under the laws of the State of
Illinois to provide decent, safe, and sanitary housing. The Authority is governed by a seven-
member board of commissioners appointed by the mayor. The board’s responsibilities include
ensuring that the bylaws and policies passed or amended by the board are followed. According
to the bylaws, the executive director is appointed by the board and is responsible for supervising
and managing the Authority’s staff and handling all business affairs.

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 July 2016,
the Authority had 415 vouchers and received nearly $1.2 million in program funds for fiscal year
2016.

The Family Self-Sufficiency program enables HUD-assisted families to increase their earned
income and reduce their dependency on welfare assistance and rental subsidies. Each year, HUD
makes funding for program coordinator salaries available through a competitive process. The
program coordinators work in collaboration with a program coordinating committee to secure
commitments of public and private resources for the operation of the program. Eligible families
execute contracts of participation, which specify their rights and responsibilities. The contracts
incorporate individual training and services plans, which record the intermediate and long-term
goals and the steps the families need to take to achieve those goals, including the services and
resources they may need to access. As of May 2016, the Authority had 24 active Family Self-
Sufficiency program participants from the Housing Choice Voucher program.

The objective of our audit was to determine whether the Authority administered its program in
accordance with HUD’s requirements. Specifically, we wanted to determine whether the
Authority (1) complied with HUD’s conflict-of-interest regulations and (2) appropriately
managed its Family Self-Sufficiency program.




                                                 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 nearly $454,000 in housing assistance to the entities and (2) earned
nearly $44,000 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
The Authority’s nonprofit instrumentality, Community Housing Services, Inc.,1 owned a
controlling interest in the Lynden Lane project, Douglas Park Place, a limited liability
corporation, and Express Housing 1, a limited partnership. From January 1, 2014, through May
30, 2016, households residing in 56 units at these projects received housing assistance.
The Authority failed to obtain the services of an independent third party2 to perform housing
quality standards inspections and rent reasonableness determinations for units owned by entities
it substantially controlled. Instead, the Authority’s program inspectors conducted the initial
move-in, annual, and any other necessary housing quality standards inspections for the units. In
addition, the Authority’s program staff used its program rent reasonableness software to perform
the rent reasonableness determinations. Therefore, the Authority inappropriately (1) paid the
entities $453,995 in housing assistance and (2) received $43,673 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
when it allowed its program staff to perform the housing quality standards inspections and
complete rent reasonableness determinations for the units. According to the Authority’s
executive director, it had started to draft requests for proposals to solicit the services of
independent third parties to conduct housing quality standards inspections and rent



1
  Community Housing Services, Inc., is the sole owner of Douglas Park Place, L.L.C., and the Lynden Lane project.
It also has 51 percent ownership in Express Housing 1, L.P. The Authority’s executive director is the president of
Express Housing 1.
2
  24 CFR (Code of Federal Regulations) 982.352(b)(1)(iv)(A) (See appendix C.)



                                                         4
reasonableness determinations for the units; however, the developer for the properties said that
proposals were not necessary.
As a result of our audit, in April and May 2016, the Authority entered into agreements with
independent third parties to perform housing quality standards inspections and rent
reasonableness determinations, respectively. On June 22, 2016, the two agreements were
approved by HUD. As of August 2016, the independent third parties had inspected and passed
34 of the 56 total units and completed 53 rent reasonableness determinations.

Conclusion
The weakness described above occurred because the Authority lacked a sufficient understanding
of HUD’s regulations regarding conflicts of interest. As a result, the Authority inappropriately
paid $453,995 in housing assistance to the entities it substantially controlled. Further, HUD and
the Authority lacked assurance that the Authority acted on behalf of the best interests of its
program 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 $43,673 in program administrative fees related to the inappropriate housing
assistance payments for the 56 units owned by entities substantially controlled by the Authority.
Recommendations
We recommend that the Acting Director of HUD’s Chicago Office of Public Housing require the
Authority to
 1A. Reimburse its program $497,668 ($453,995 in housing assistance payments + $43,673 in
     associated administrative fees) from non-Federal funds for the inappropriate payments
     cited in this finding.

 1B.   Ensure that the independent third parties complete the remaining housing quality
       standards inspections and rent reasonableness determinations and continue to perform
       housing quality standards inspections and rent reasonableness determinations for the units
       owned by entities that the Authority substantially controls.




                                                 5
Finding 2: The Authority Did Not Appropriately Manage Its
Family Self-Sufficiency Program
The Authority did not appropriately manage its Family Self-Sufficiency program. Specifically, it
did not ensure that (1) required documentation to determine participants’ admission to and
continued participation in the program was obtained and maintained and (2) program participants
were connected to resources and supportive services. It also did not ensure that participants’ (1)
escrow accounts were correctly calculated and recorded and (2) escrow account disbursements
were fully supported. The weaknesses described above occurred because the Authority failed to
exercise proper supervision and oversight of its program. As a result, (1) HUD lacked assurance
that more than $128,000 in coordinator grant funds received by the Authority was used
effectively, (2) escrow accounts were overfunded by more than $2,000 and underfunded by $11,
(3) the Authority incorrectly made escrow account disbursements totaling more than $9,000, and
(4) escrow account disbursements totaling nearly $2,000 were unsupported. Further, HUD and
the Authority lacked assurance that the program participants benefited from the program or had
made progress toward self-sufficiency.
The Authority Did Not Maintain Required Documentation
We reviewed the files for all 64 households that participated in the Authority’s Family Self-
Sufficiency program from January 2014 through December 2015. The 64 participant files were
reviewed to determine whether the Authority maintained documentation to support participants’
admission to and continued participation in the program. Our review was limited to the
information maintained in the program participant files.
For the 64 participant files, 63 (98 percent) had incorrect or incomplete documentation. The 63
program participant files contained 1 or more of the following deficiencies:

              30 participants’ contracts of participation and individual training and services
               plans had not been executed,
              29 participants had incorrect or incomplete training and service plans, and
              26 participants had incorrect contracts of participation.
In addition, there was no support in the files showing that 62 of the participants received annual
reports of their escrow account balances. Further, there was limited documentation in the files to
support that participants received opportunities for education, job training, counseling, and social
service assistance to reach their goals and become self-sufficient.
From January 2014 through December 2015, HUD awarded the Authority two grants totaling
$128,228 under its Housing Choice Voucher Family Self-Sufficiency Coordinator program.
Because the Authority failed to maintain an effective program and there was limited support
showing that services were provided to assist the program participants in reaching their goals,
HUD lacked assurance that the Authority used its coordinator grant funds effectively.
The Authority Did Not Correctly Calculate Participants’ Escrow Accounts and Lacked
Documentation To Support Escrow Account Disbursements
Of the 64 participants reviewed, 20 had incorrect escrow accounts. Of the 20 participants, (1) 11
had overfunded escrow accounts totaling $30,842 and (2) 3 had escrow accounts that were


                                                 6
underfunded by $261. In addition, four participants inappropriately received $9,506 in escrow
account disbursements and two participants’ escrow disbursements totaling $1,812 were
unsupported. Further, two program graduates lacked documentation to support that they
completed their goals; therefore, the graduation escrow account disbursements were
unsupported.
During the audit, the Authority made adjustments to the escrow balances for 10 of the 14
participants with overfunded or underfunded escrow account balances. As of August 2016, the
escrow accounts for the remaining four participants were still inaccurate. Two participants’
escrow accounts were overfunded by $2,098, and two were underfunded by $11.
Further, the escrow balances maintained in the Authority’s system for its program participants
did not always agree with the amounts recorded in its program escrow bank account. There were
13 interest deposits recorded in the escrow account; however, only 1 interest deposit was
allocated to the participants’ escrow account balances maintained in the system.
The Authority Failed To Exercise Proper Supervision and Oversight of Its Program
The Authority failed to exercise proper supervision and oversight of its Family Self-Sufficiency
program. The executive director was aware that the previous program coordinators had not
properly managed the program. According to the executive director, the former family self-
sufficiency manager failed to properly oversee the former program coordinator.
In June and December 2015, the Authority hired a new family self-sufficiency manager and
program coordinator, respectively. According to the Authority’s director of operations, the new
program coordinator had been working closely with him to develop procedures and controls to
ensure that the program would be managed in accordance with HUD’s and its own newly
developed requirements. As a result of our audit, the Authority has begun making corrections to
it program participants’ escrow accounts.
Conclusion
The weaknesses described above occurred because the Authority failed to exercise proper
supervision and oversight of its program. As a result, (1) HUD lacked assurance that $128,228
in coordinator grant funds received by the Authority was used effectively, (2) escrow accounts
were overfunded by $2,098 and underfunded by $11, (3) the Authority incorrectly made escrow
account disbursements totaling $9,506, and (4) escrow account disbursements totaling $1,812
were unsupported. Further, HUD and the Authority lacked assurance that the program
participants benefited from the program or had made progress toward self-sufficiency.
Recommendations
We recommend that the Acting Director of HUD’s Chicago Office of Public Housing require the
Authority to
 2A. Determine the amount of the $128,228 in coordinator grant funds that was earned by the
     Authority for meeting program requirements. The funds that are determined to be
     unearned should be reimbursed to HUD from non-Federal funds.




                                                7
2B. Transfer $30,842 (of which $2,098 remains to be transferred) from its Family Self-
    Sufficiency program account to its Housing Choice Voucher program account for the
    overfunded escrows cited in this finding.

2C. Transfer $261 (of which $11 remains to be transferred) from its Housing Choice Voucher
    program account to its Family Self-Sufficiency program account for the underfunded
    escrows cited in this finding.

2D. Reimburse its program $9,506 from non-Federal funds for the incorrect escrow account
    disbursements.

2E. Support or reimburse its program $1,812 from non-Federal funds for the unsupported
    escrow account disbursements.

2F. Implement the procedures and controls it developed to ensure that (1) documentation
    required by HUD is correctly completed and maintained, (2) escrow account balances are
    correctly calculated and recorded, and (3) escrow account disbursements are fully
    supported.




                                            8
Scope and Methodology
We performed our onsite audit work between February and June 2016 at the Authority’s main
office located at 227 21st Street, Rock Island, IL. The audit covered the period January 1, 2014,
through December 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, 982, and 984; and HUD’s
        Guidebook 7420.10G.

       The Authority’s accounting records, bank statements, general ledger, policies and
        procedures, board meeting minutes for January 2014 through December 2015,
        organizational chart, housing quality standards inspection reports, independent audit
        reports for fiscal years 2013 through 2015, housing assistance payments register, and
        Family Self-Sufficiency program participant files. We also reviewed the incorporating
        documents for the three entities the Authority substantially controlled.


Finding 1

We reviewed the independent audit reports, incorporating documents, and board meeting
minutes to determine whether the Authority owned or substantially controlled units that received
housing assistance payments from January 2014 through December 2015.

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. When applicable, we limited the
inappropriate administrative fees to the amounts of housing assistance paid.
Finding 2

We reviewed the participant files and escrow reports for all 64 households that participated in the
Authority’s Family Self-Sufficiency program from January 2014 through December 2015 to
determine whether the Authority obtained and maintained the required documentation and
correctly calculated, recorded, and disbursed escrow funds. We reviewed 100 percent of the
Authority’s participant files for the households; therefore, no projection of our results was
necessary.




                                                 9
Data, Review Results, and Generally Accepted Government Auditing Standards

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 Acting Director of HUD’s
Chicago 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.




                                                 10
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 adequate procedures and controls to ensure that it understood and
    complied with HUD’s regulations regarding conflicts of interest (finding 1).
   The Authority failed to exercise proper supervision and oversight of its Family Self-
    Sufficiency program (finding 2).



                                                  11
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                  $497,668
             2A                                      $128,228
             2B                                                              $2,098
             2C                                                                  11
             2D                     9,506
             2E                                          1,812


                  Total          507,174              130,040                 2,109


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) funds are available to provide assistance to
     eligible families and (2) program participants’ escrow account balances are correctly
     calculated, recorded, and available to the families to help achieve self-sufficiency.


                                              12
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               13
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




Comment 3


Comment 4
Comment 5


Comment 6




                               14
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 7




Comment 8




Comment 9




Comment 10


Comment 11




                               15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 11




Comment 12




Comment 13




Comment 14




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 14




Comment 15


Comment 16




Comment 17


Comment 18




                               17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 19


Comment 20




                               18
                         OIG Evaluation of Auditee Comments


Comment 1   The Authority acknowledged that it had failed to obtain the services of
            independent third parties to conduct housing quality standards inspections and
            rent reasonableness determinations for the units owned by entities it substantially
            controlled. However, the Authority did not agree that it should be required to
            reimburse its Housing Choice Voucher program account. The Authority should
            work with HUD to resolve this recommendation.
Comment 2   The Authority contends that as of August 2016, nearly all of the units owned by
            entities it substantially controlled passed housing quality standards inspections
            and had rent reasonableness determinations. Additionally, it contends that
            repayment would be devastating to the Authority’s ability to provide services to
            its residents and other programs. As stated in finding 1, as of August 2016,
            independent third parties had inspected and passed 34 of the 56 units (60%) and
            completed 53 rent reasonableness determinations. The Authority did not provide
            documentation showing that additional units had (1) been inspected and passed a
            housing quality standards inspection or (2) rent reasonableness determinations. In
            addition, the audit report recommends repayment from non-Federal funds;
            therefore, the Authority’s program households would not be affected. Further,
            Section 11a of the Authority’s annual contributions contract, states that program
            receipts may only be used to pay program expenditures. Therefore, the Authority
            should not be using program funds for its other programs. The Authority should
            work with HUD to resolve the recommendations regarding the units.

Comment 3   The Authority asserts that the units owned by entities it substantially controlled
            had been inspected by HUD and the City of Rock Island, IL. In addition, the
            Authority contends that the inspections were as stringent as HUD’s housing
            quality standards inspections. The Authority did not provide documentation to
            support its assertions. Therefore, it should work with HUD to resolve the
            recommendations.
Comment 4   The Authority contends that the report’s recommendation was not designed to
            rectify a shortcoming, but to sensationalize a minor finding that has been
            corrected. Further, it contends that repayment of funds by the Authority would
            adversely affect its residents. We disagree. Our calculation of questioned costs
            associated with this finding were for housing assistance payments and
            administrative fees for the units from January 2014 through May 2016. On June
            22, 2016, the Authority received approval from HUD to enter into contracts with
            the third party entities to complete inspections and rent reasonableness
            determinations. However, the Authority contracted with an independent third
            party and started completing inspections during April 2016, before receiving
            HUD’s approval. No inspections were completed in May 2016. The rent
            reasonableness determinations were started by another independent third party
            during June and July 2016. Additionally, the Authority did not provide


                                              19
            documentation to support that all of the units cited in finding 1 had been
            independently inspected or that all of the rent reasonableness determinations had
            been completed, as of the date of this audit report. HUD’s regulations at 24 CFR
            982.352(b)(1) state that a unit owned by the public housing agency that
            administers the assistance under the annual contributions contract (including units
            owned by an entity substantially controlled by the Authority), may only be
            assisted if all of the following conditions are met, including obtaining an
            independent third party to (1) determine rent reasonableness, (2) assist the family
            in negotiating the rent to owner, and (3) inspect the unit for compliance with
            HUD’s housing quality standards. The costs questioned in this audit report were
            for the period of time during the audit scope, in which the Authority was not in
            compliance with HUD’s conflict of interest requirements. Additionally, the report
            recommends repayment from non-Federal funds; therefore, the Authority’s
            program households would not be affected.
Comment 5   The Authority contends that recommendations 1A and 1B should be removed.
            We disagree. We acknowledge the actions taken by the Authority to correct the
            deficiencies cited in this report. The Authority should work with HUD to resolve
            the recommendations.
Comment 6   The Authority contends that the audit report confirmed the success of its Family
            Self-Sufficiency program and that there were no material issues or problems
            found within its program. We disagree. The audit report stated that the Authority
            did not appropriately manage its Family Self-Sufficiency program. Specifically,
            63 of the 64 participant files (98%) reviewed had deficiencies. Further, due to the
            limited documentation maintained in the Authority’s files, the Authority was
            unable to support that the participants received opportunities for education, job
            training, counseling, and social service assistance to reach their goals and become
            self-sufficient.
Comment 7   The Authority contends that the audit report questioned only a de minimus
            amount of $13,427. We disagree. For instance, of the 64 participant files
            reviewed during the audit, 24 active program participants had escrow account
            balances totaling $36,535 as of May 2015. Of the 24 active program participants,
            14 had miscalculated escrow balances totaling $31,103. Therefore, in comparison
            to the total amount of funds that were in the Authority’s active program
            participants’ escrow accounts ($36,535), the amount questioned in the report
            ($31,103) represented 85 percent. The report acknowledges that the Authority
            had made corrections to 10 participants’ escrow accounts during the audit.
Comment 8   The Authority contends that it had implemented recommendations 2B and 2C;
            therefore, they should be removed from the report. The Authority did not provide
            documentation to support its assertion. It should work with HUD to resolve the
            recommendations in regards to the participants with overfunded and underfunded
            escrow accounts.




                                             20
Comment 9     The Authority stated that it disagrees with our determination that there were
              unsupported and incorrect payouts to six program participants’ escrow accounts.
              As detailed in the audit report, the Authority failed to properly (1) calculate
              program participants’ escrow accounts and (2) support program participants’
              escrow disbursements. These errors resulted in incorrect and unsupported escrow
              disbursements, respectively.
Comment 10 The Authority contends that participant number 12 had graduated from its
           program because her income equaled or exceeded the published existing housing
           fair market rent. We agree that the participant’s income warranted graduation
           from the program. However, the Authority inappropriately back dated the
           participant’s contract and used incorrect baseline numbers for the calculation of
           the participant’s escrow balance. Therefore, the amount of the participant’s
           graduation escrow disbursement was not correctly calculated. As recommended
           in the audit report, the Authority should reimburse its program account from non-
           Federal funds for the inappropriate disbursement.

Comment 11 The Authority contends that participant number 30 graduated from its program by
           completing all of her goals. It also contends that the auditor substituted her
           opinion over that of the Authority’s trained staff. We disagree. One of the
           participant’s goals was to make payments on credit cards. Based on our review of
           HUD’s requirements and the Authority’s own action plan, we determined that the
           goal was not appropriate. Additionally on June 9, 2016, we discussed the goal
           with HUD’s Chicago Office of Public Housing. HUD agreed that (1) the goal
           was not appropriate and (2) any escrow funds disbursed to support the goal should
           be repaid to the program from non-Federal funds. Further, the Authority
           inappropriately back dated the participant’s contract and used incorrect baseline
           numbers for the participant’s escrow calculation. Therefore, the amount of the
           participant’s graduation escrow disbursement was not accurate. As recommended
           in the audit report, the Authority should reimburse its program account from non-
           Federal funds for the inappropriate disbursement.

Comment 12 The Authority contends that participant number 44 completed all of the interim
           goals but failed to find full-time employment. Further, it asserted that the goal of
           full-time employment was a standard boilerplate provision that was not tailored to
           the participant’s circumstances. HUD’s instructions for executing the contract of
           participation state that the final goal listed on the individual training and services
           plan of the head of the family must include getting and maintaining suitable
           employment specific to that individual’s skills, education, job training, and the
           available job opportunities in the area. Therefore, we assert that the individual
           training and services plan should have been tailored to the program participants’
           specific needs to ensure that their goals can be achieved. In this instance, the
           participant’s final goal was to find full-time employment. Based on our review of
           the information in HUD’s Public and Indian Housing Information Center system,
           the participant received unemployment benefits shortly after graduating from the



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              program. Amendments to participants’ final and interim goals are permitted both
              by HUD and the Authority’s own program action plan. Therefore, if the
              participant was unable to achieve a goal, the participant’s contract could have
              been amended. The Authority should have followed its own policies to ensure
              that the participant’s goals were properly reflected in her training and service
              plan. In addition, the Authority used incorrect baseline figures which resulted in
              the participant’s escrow account being incorrect.

Comment 13 The Authority stated that going forward it was committed to ensuring that all of
           the goals listed in its program participants’ individual training and services plan
           are individualized to the participants’ needs. We commend the Authority for
           working to improve its program. The Authority should work with HUD to
           resolve the recommendations regarding its program.

Comment 14 The Authority contends that the interim escrow disbursement for household
           number 45 was appropriate. The report did not state that the participant’s interim
           escrow disbursement was inappropriate. However, it did state that the
           participant’s escrow account was not accurate. Therefore, the participant’s
           household did not have sufficient escrow funds available. The participant’s
           contract was executed on May 13, 2015, and effective on June 1, 2016. The
           Authority inappropriately back dated the contract’s effective date to May 1, 2012.
           Because the Authority used incorrect dates on the contract, the baseline figures
           were also incorrect. Based on our calculation, the participant did not have
           sufficient funds in her escrow account to cover the escrow disbursement.
           Therefore, the report recommends that the Authority reimburse its program
           account from non-Federal funds for the inappropriate disbursement.

Comment 15 The Authority stated that it relied on a previous version of its program action plan
           to determine whether an interim disbursement was appropriate for participant
           number 45. However, it failed to provide documentation to support its assertion.
           The Authority should work with HUD to resolve the recommendations regarding
           its program.

Comment 16 The Authority contends that participant number 58’s contract for the period of
           September 1, 2007, through September 1, 2014, was found, and provided after the
           audit was completed. We disagree. The contract that was in the participant’s file
           during our review and the contract provided later by the Authority was the same
           document. The contract was executed in September 1, 2014; therefore, the
           contract would have been effective on October 1, 2014. The Authority back dated
           the contract to be effective on September 1, 2007. In addition, the program
           coordinator completed a new individual training and services plan on September
           1, 2014, based on the participant’s statements of what her goals were and that all
           of the goals had been completed. Therefore, as recommended in the report, the
           Authority should reimburse its program account from non-Federal funds for the
           inappropriate disbursement.



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Comment 17 The Authority stated that it agreed that there was no documentation to support the
           interim escrow disbursement to participant number 27. The Authority also stated
           that it had reimbursed its program account for the unsupported disbursement. The
           Authority did not provide documentation to support its assertion. Therefore, it
           should work with HUD to resolve the recommendations regarding its program.

Comment 18 The Authority contends that recommendations 2D and 2E should be removed
           from the report. We disagree. For recommendation 2D, $9,506 remains
           ineligible and for recommendation 2E, $1,812 remains to be supported. The
           Authority should work with HUD to resolve the recommendations regarding
           ineligible and unsupported program escrow disbursements.

Comment 19 The Authority contends that it had completed the recommended actions for
           recommendation 2F before the audit; therefore, the recommendation should be
           removed. Further, the Authority stated that it had (1) identified areas for
           improvement and (2) implemented new procedures. The Authority did not
           provide documentation to support its assertions. Therefore, it should work with
           HUD to resolve the audit recommendations.

Comment 20 The Authority contends that recommendation 2A was unwarranted because the
           items noted in finding 2 were immaterial, and that most if not all of the
           deficiencies had been corrected. For the period reviewed, the Authority’s
           program coordinators did not effectively administer its program. Therefore, the
           Authority should work with HUD to determine the amount of coordinator grant
           funds that were appropriately earned by the Authority for meeting program
           requirements. The funds that are determined to be unearned should be reimbursed
           to HUD from non-Federal funds.




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Appendix C
                                      Federal Requirements

Finding 1

HUD’s 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 should 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 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 should communicate the results of each such inspection to the
       family and the public housing agency.

HUD’s 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

HUD’s regulations at 24 CFR 984.303(a)(1) state that each family that is selected to participate
in a Family Self-Sufficiency program must enter into a contract of participation with the public
housing agency that operates the Family Self-Sufficiency program in which the family will
participate.
HUD’s regulations at 24 CFR 984.303(b)(1) state that the contract of participation must be in the
form prescribed by HUD.
HUD’s regulations at 24 CFR 984.303(b)(2) state that the individual training and services plan,
incorporated into the contract of participation, must establish specific interim and final goals by
which the public housing agency and the family may measure the family’s progress toward
fulfilling its obligations under the contract of participation and becoming self-sufficient.
HUD’s regulations at 24 CFR 984.303(g)(1) state that the contract of participation is considered
to be completed and a family’s participation in the Family Self-Sufficiency program is
considered to be concluded when the Family Self-Sufficiency family has fulfilled all of its
obligations under the contract of participation on or before the expiration of the contract term,
including any extension of the contract.
HUD’s regulations at 24 CFR 984.305(a)(2)(i) state that the total of the combined Family Self-
Sufficiency account funds will be supported in the public housing agency’s accounting records



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by a subsidiary ledger showing the balance applicable to each Family Self-Sufficiency family.
During the term of the contract of participation, the agency should credit periodically but not less
than annually to each family’s Family Self-Sufficiency account.
HUD’s regulations at 24 CFR 984.305(a)(3) state that each public housing agency will be
required to make a report, at least once annually, to each Family Self-Sufficiency family on the
status of the family’s Family Self-Sufficiency account.
HUD’s Housing Choice Voucher Guidebook 7420.10G, section 23.4, states that the contract is
effective the first of the month after execution of the contract of participation.
HUD’s Housing Choice Voucher Guidebook 7420.10G, section 23.4, states that every Family
Self-Sufficiency contract must include a training and service plan for the head of the family that
commits the family head to seek and maintain suitable employment. The training plan should
include clearly stated goals with specific deadlines.
HUD’s form HUD-52650, Family Self-Sufficiency Program Contract of Participation, Individual
Training and Plans, states that the resources and supportive services to be provided to each
family member must be listed in the individual training and services plans, which are
attachments to the contract of participation. It further states that interim goals must be specified,
along with the activities and services needed to achieve them.




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