oversight

The Town of Amherst, NY, Did Not Ensure That Its Housing Choice Voucher Program Units Met Housing Quality Standards

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-12-14.

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

                   Town of Amherst, NY
                 Housing Choice Voucher Program




Office of Audit, Region 2         Audit Report Number: 2017-NY-1003
New York, New Jersey                               December 14, 2016
To:            Lisa Pugliese, Director, Office of Public Housing, Buffalo, NY, 2PH

               //SIGNED//
From:          Kimberly Greene, Regional Inspector General for Audit, 2AGA

Subject:       The Town of Amherst, NY, Did Not Ensure That Its Housing Choice Voucher
               Program Units Met Housing Quality Standards


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Town of Amherst, NY’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
(212) 264-4174.
                    Audit Report Number: 2017-NY-1003
                    Date: December 14, 2016

                    The Town of Amherst, NY, Did Not Ensure That Its Housing Choice Voucher
                    Program Units Met Housing Quality Standards




Highlights

What We Audited and Why
We audited the Town of Amherst’s Housing Choice Voucher program administered through a
contractor, Belmont Housing Resources for Western New York, to address our audit plan
priority to ensure that the U.S. Department of Housing and Urban Development’s (HUD) public
and Indian housing programs are sufficiently administered by public housing agencies (PHA).
We selected this auditee based on a risk analysis of PHAs administered by the HUD Buffalo
field office. The audit objective was to determine whether officials established and implemented
adequate controls over the Town’s Housing Choice Voucher program to ensure compliance with
HUD regulations.

What We Found
The Town and its contractor generally established and implemented adequate controls over the
Town’s Housing Choice Voucher program for admission, initial application, recertification, and
rental assistance payment and unit size determinations; however, they did not ensure that units
met housing quality standards. Specifically, of 70 units inspected, 63 failed to meet housing
quality standards, and 41 were materially noncompliant. Additionally, the Town and its contractor
did not conduct adequate housing quality standards quality control inspections and did not address
tenant complaints related to the condition of program units adequately and in a timely manner. If
the Town and its contractor do not improve the housing quality standards inspection process for
the Town’s Housing Choice Voucher program, the Town could spend more than $9.3 million on
units that fail to meet HUD’s minimum housing standards in the next year.

What We Recommend
We recommend that HUD instruct Town officials to (1) reimburse the program from non-Federal
funds $118,060 spent on ineligible costs related to housing assistance payments disbursed and
administrative fees received for units that materially failed to meet HUD’s housing quality
standards and overpayments of housing assistance due to recertification errors; (2) certify that the
identified deficiencies have been corrected for the units cited; and (3) implement procedures to
ensure that the Town’s Housing Choice Voucher program units meet housing quality standards,
housing quality standards quality control inspections are adequately conducted, and tenant
complaints related to the condition of program units are resolved adequately and in a timely
manner, which will result in more than $9.3 million in future program funds being spent for units
that are decent, safe, and sanitary.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Town and Its Contractor Did Not Ensure That Housing Choice
         Voucher Program Units Met Housing Quality Standards ............................................ 4
         Finding 2: The Town and Its Contractor Had Adequate Procedures but Errors in
         Recertification Occurred ................................................................................................ 13

Scope and Methodology .........................................................................................15

Internal Controls ....................................................................................................18

Appendixes ..............................................................................................................20
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 20
         B. Auditee Comments and OIG’s Evaluation ............................................................. 21
         C. Schedule of Sample Housing Quality Standards Inspections ............................... 29




                                                                 2
Background and Objective
The United States Housing Act of 1937 established the Federal framework for government-owned
affordable housing and was amended by the Quality Housing and Work Responsibility Act of 1998.
The U.S. Department of Housing and Urban Development (HUD) provides funding for rent
subsidies for tenants eligible for the Housing Choice Voucher program under Section 8 of the
Housing Act. The Housing Choice Voucher program is the Federal Government’s major program
for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and
sanitary housing in the private market. Since housing assistance is provided on behalf of the family
or individual, participants are able to find their own housing, including single-family homes,
townhouses, and apartments.

The Erie County PHA (public housing agency) Consortium was established in 1976 when
individual municipalities established local PHAs and entered into a cooperative arrangement for
participation in the Section 8 rental assistance program. The Town of Amherst, NY, volunteered
to meet the HUD requirement that one municipality act as “applicant PHA.” The Town has
contracted on behalf of the Consortium with Belmont Housing Resources for Western New York
to act as the administering agency since 1977. All of the program administration and day-to-day
operations, including intake, certification, orientation, unit search, landlord negotiations, and
inspections, are performed by Belmont. Belmont’s Finance and Administration unit, under the
supervision of the chief financial officer, handles all accounting, financial, and computer
functions associated with the program, including housing assistance payments, budgets,
requisitions, audits, and reporting to HUD. The Consortium includes 41 member communities
and is responsible for making major policy decisions for program operation, participating in
periodic review of the program, providing space in municipal buildings as needed, and being
generally helpful to the administering agency. Ultimate program policy responsibility rests with
the Consortium, but ultimate legal responsibility rests with the applicant PHA.

The Town received more than $24.1 million and $21.8 million in Housing Choice Voucher program
funds in fiscal years 2015 and 2014, respectively, to administer more than 5,630 Section 8 units,
which is the second largest of any of the 86 PHAs receiving Section 8 funds administered by the
Buffalo field office.

The objective of the audit was to determine whether officials established and implemented adequate
controls over the Town’s Housing Choice Voucher program to ensure compliance with HUD
regulations. Specifically, we reviewed the Town’s (1) compliance with housing quality standards,
(2) admission policies, (3) initial application and recertification procedures, and (4) rental assistance
payment and unit size determinations.




                                                    3
Results of Audit

Finding 1: The Town and Its Contractor Did Not Ensure That
Housing Choice Voucher Program Units Met Housing Quality
Standards
The Town and its contractor did not (1) ensure that the Town’s Housing Choice Voucher program
units met HUD’s housing quality standards, (2) conduct adequate housing quality standards quality
control inspections and followup, and (3) ensure that tenant complaints related to the condition of
program units were addressed adequately and in a timely manner. We attributed these deficiencies
to inadequate oversight and training of housing inspectors and the contractor’s lack of formal
written policies and procedures for the intake, recording, and resolution of tenant complaints. As
a result, 63 of the 70 (90 percent) units inspected failed to meet HUD’s housing quality standards,
and 41 (58.6 percent) of the units were materially noncompliant. The Town disbursed $98,8991 in
housing assistance payments and received $13,968 in administrative fees for the 41 units that
materially failed to meet HUD’s housing quality standards. Unless, the Town and its contractor
implement improved controls to ensure that all units meet housing quality standards, we estimate
that it will spend more than $9.3 million in housing assistance for units that materially fail to meet
HUD’s standards over the next year.

Housing Units Did Not Meet HUD’s Housing Quality Standards
We selected a statistical sample of 70 of the Town’s program units to inspect from a universe of
3,696 program units that passed a contractor-administered housing quality standards inspection
between January 1 and March 31, 2016. We inspected the selected units between May 11 and
August 26, 2016, to determine whether the Town’s program units met HUD’s housing quality
standards.

The 70 units inspected included 63 (90 percent) units containing 517 housing quality standards
violations determined to be preexisting and not correctly identified by the contractor’s
inspectors. Further, 41 of the 70 (58.6 percent) units were determined to be in material
noncompliance with housing quality standards, based both on the number of preexisting
deficiencies identified and the impact of these deficiencies on the family members living in the
units. These 41 units included 460 violations that were determined to be preexisting at the time
of the contractor’s last inspection and created living conditions that were not decent, safe, and
sanitary for tenants. According to regulations at 24 CFR (Code of Federal Regulations)
982.401(a)(3), all program housing must meet the housing quality standards performance
requirements both at commencement of assisted occupancy and throughout the assisted tenancy.
The Town disbursed $98,899 in housing assistance payments and received $13,968 in


1
    The total questioned amount for each housing unit is based on months between the Authority’s inspection and
    our inspection, multiplied by the monthly housing assistance payment. See appendix C and the Scope and
    Methodology section for the detailed calculations of the $98,899 and $9.3 million, respectively.



                                                         4
administrative fees for these 41 units that materially failed to meet HUD’s housing quality
standards. The following table categorizes the 517 preexisting housing quality standards
violations identified in the 63 program units inspected.

                                                       Number of         Number Percentage
                    Deficiency type
                                                       violations        of units of units
    Electrical hazards                                     175             55       78.57%
    Windows & exterior doors                                78             40       57.14
    Exterior, foundation & site conditions                  55             36       51.43
    Interior walls, ceilings, floors & doors                69             36       51.43
    Bathroom plumbing & hazards                             27             22       31.43
    Stair & handrail hazards                                34             19       27.14
    Smoke detectors                                         18             15       21.43
    Heating, ventilation & air conditioning hazards         15             14       20.00
    Kitchen plumbing, appliances & hazards                  14             13       18.57
    Tripping hazards                                        16             13       18.57
    Leaks & flooding                                         9              8       11.43
    Other hazards                                            4              4        5.71
    Evidence of infestation                                  3              3        4.29
                          Totals                           517

We provided our inspection results to the contractor during the audit.

The following photographs illustrate some of the violations noted during inspections of the 41
units that materially failed to meet HUD’s housing quality standards.




The photo above shows a junction box on a basement wall that is missing a secure cover,
resulting in exposed electrical contacts being accessible to the tenants.


                                                 5
The photo above shows spliced wires on a basement ceiling without the use of a junction box,
resulting in exposed electrical contacts being accessible to the tenants.




The photo above shows one of three light fixtures hanging from electrical wire on a unit’s attic
ceiling, resulting in exposed electrical contacts being accessible to the tenants.




                                                 6
The photo above shows possible mold that had developed on a bedroom ceiling likely due to a
leak in the deteriorated roof.




The photo above shows water and possible mold on a basement floor and walls due to leaks in
the foundation.



                                              7
The photo above shows missing plaster and chipping paint on a bedroom wall. This unit was
built before 1978 and was occupied by a tenant with a child under 6 years of age. Therefore,
potential lead-based paint hazards should have been identified. Also, the holes in the plaster
were down to the lathe and could have caused drafts and allowed vermin to enter the room.




The photo above shows a bathroom window that was made inoperable by filling in all of the
edges with foam insulation.




                                                8
The photo above shows the remnants of an infestation in the corner of a unit’s bedroom.




The photo above shows a rusting and leaking water pipe on a unit’s water heater that could fail
and cause the basement floor to flood.




                                                9
The Quality Control Process Was Inadequate
The contractor’s housing quality standards quality control process was inadequate. Regulations at
24 CFR 982.405(b) require that the PHA conduct supervisory quality control housing quality
standards inspections. The contractor’s procedures required each full-time inspector to have three
of his or her inspected units selected for quality control monthly, which would result in 12 quality
control inspections per month. However, contractor officials completed an average of only 5
inspections per month during the 18-month period reviewed from January 2015 through June
2016. Further, there were 5 months during the 18-month period when no quality control
inspections were performed, including 3 consecutive months from August through October 2015.
The chart below presents the number of quality control inspections performed by contractor
officials during the 18-month period.

         16
         14
         12
         10
          8
          6
                                                                                         Pass
          4
                                                                                         Fail
          2
          0




As can be seen in the chart above, nearly half of the overall units inspected for quality control
during the 18-month period received failing grades. Specifically, 44 of 93 (47.3 percent) units
failed their quality control inspections. Although nearly half of the units had received failing
grades before our review, the contractor had not effectively followed up with its inspectors and
taken appropriate and impactful action. We attributed these deficiencies to inadequate oversight
and training of housing inspectors. Therefore, the quality control process implemented by
contractor officials was ineffective and did not ensure the quality of work performed by its
inspectors. Also, the contractor’s housing inspectors were each assigned geographical regions,
resulting in program units continually being inspected by the same official. However,
throughout our review, contractor officials were responsive to the issues identified and improved
procedures, removed one poorly performing inspector, and started a new training program for all
its inspectors.

Tenant Complaints Were Not Always Documented Sufficiently and Resolved in a Timely
Manner
The contractor’s housing specialists informally tracked tenant complaints in their housing
software but did not maintain sufficient documentation to allow adequate tracking and resolution


                                                 10
of all tenant complaints. Contractor officials performed inspections for 634 complaints from 509
different tenants related to the condition of program units in the 18-month period reviewed.
However, during that period, 225 tenant complaints did not have final resolutions until more than
30 days after they were submitted. Although this delay could have been affected by several
outside factors, it included 26 tenant complaints that were not resolved until more than 90 days
after they were submitted. Additionally, contractor officials documented the receipt of 17
complaints related to 11 of the program units included in our 70 sample housing quality
standards inspections; however, the results of our inspections included housing quality standards
violations similar to those noted in 10 of the complaints for 5 of the sample program units.
Regulations at 24 CFR 982.404(a)(3) state that if a defect is life threatening, the owner must
correct it within no more than 24 hours and for other defects, the owner must correct them within
no more than 30 calendar days. Therefore, contractor officials did not always resolve tenant
complaints related to the condition of program units adequately and in a timely manner. These
deficiencies were attributed to the contractor’s lack of formal written policies and procedures for
the intake, recording, and resolution of tenant complaints related to the condition of program
units. Without formal procedures for tracking the intake, recording, and resolution of tenant
complaints, there was no assurance that complaints were adequately received and addressed.

Conclusion
The Town and its contractor did not ensure that program units met HUD’s housing quality
standards, did not conduct adequate housing quality standards quality control inspections, and did
not address tenant complaints related to the condition of program units adequately and in a timely
manner. We attributed these deficiencies to the inadequate oversight and training of housing
inspectors and the contractor’s lack of formal written policies and procedures for the intake,
recording, and resolution of tenant complaints. As a result, program participants were subjected
to housing quality standards violations that created unsafe living conditions. The Town disbursed
$98,899 in housing assistance payments and received $13,968 in administrative fees for the 41 units
that materially failed to meet HUD’s housing quality standards. If the Town and its contractor
implement improved controls to ensure that all units meet housing quality standards, we estimate
that more than $9.3 million in future housing assistance payments will be spent for units that are
decent, safe, and sanitary.

Recommendations
We recommend that the Director of HUD’s Buffalo Office of Public Housing instruct Town
officials to
       1A.     Reimburse the program from non-Federal funds $112,867 ($98,899 + $13,968)
               disbursed for the 41 Housing Choice Voucher program units that materially failed
               to meet HUD’s housing quality standards.
       1B.     Ensure that the housing quality standards violations have been corrected for the
               63 failed units cited in this finding and certify that the units meet HUD standards.
       1C.     Develop and implement procedures and controls to ensure that program units
               meet housing quality standards, thereby ensuring that an estimated $9,351,175 in
               future program funds is spent for units that are decent, safe, and sanitary. These


                                                 11
      procedures should include but not be limited to regular, updated training for the
      contractor’s housing inspectors to ensure that they are familiar with all relevant
      regulations and rotating its contractor’s housing inspectors to prevent units from
      always being inspected by the same official.
1D.   Implement procedures to ensure that housing quality standards quality control
      inspections are adequately performed by its contractor. Specifically, they should
      ensure that a sufficient number of inspections are performed by a qualified official
      and results are followed up on appropriately.
1E.   Develop and implement procedures to ensure adequate and timely resolution and
      sufficient documentation of all Housing Choice Voucher tenant complaints
      related to the condition of program units.




                                        12
Finding 2: The Town and Its Contractor Had Adequate Procedures
but Errors in Recertification Occurred
The Town and its contractor had established adequate procedures for the Town’s Housing
Choice Voucher program admission, initial application, recertification, rental assistance payment
calculations, and unit size determinations, but contractor officials made a few errors related to
verification and documentation. Specifically, our review of 14 sample tenant files found that
officials made errors related to 3 tenants and 1 tenant provided incorrect information upon
recertification. Additionally, we found that Housing Choice Voucher program funds were
incorrectly used for a different program. We attributed these deficiencies to human error. As a
result, the Town had $5,193 in ineligible costs.

The Town Had Adequate Procedures
The Town’s and its contractor’s procedures for admission, initial application, recertification,
rental assistance payment calculations, and unit size determinations in the Housing Choice
Voucher program were adequate. Specifically, there were detailed written procedures in place
that identified the steps taken for these processes. The contractor used a secure Web site
monitored by its housing software program, which enabled applicants to view their status and
position on the waiting list. Contractor officials did not conduct a regularly scheduled purging of
the waiting list but, instead, removed unresponsive applicants from the list as they were selected
for admission into the program. Applications had not been taken since August 2011 as the
waiting list period was approximately 10 years at that point. The applicants were ranked in order
of when the application was received, and once an applicant reached the front of the waiting list
and had been selected, the applicant was assigned to a housing specialist to have the application
reviewed for eligibility. Program tenants were notified of a pending recertification 60 days
before its effective date. Contractor officials requested the necessary verification documentation
from tenants and followed up until the recertification was complete.

Four Tenant Files Had Recertification Errors
A review of 14 sample tenant files found that contractor officials made errors related to 3 tenants
and 1 tenant provided incorrect information upon recertification. Specifically,

      Contractor officials made errors when verifying income and allowances for two tenants,
       resulting in overpayments of rental subsidies totaling $1,028 ($556 + $472). The errors
       made in verifying the two Housing Choice Voucher program tenants’ incomes and
       allowances included an overstatement in the calculation of one tenant’s medical expenses
       and an understatement in income for another tenant based on the lack of updated income
       verification documentation during recertification.

      Contractor officials did not maintain sufficient documentation for one tenant file when
       recertification documentation was prematurely purged. Contrary to regulations, this
       tenant file was purged before 3 years from the date of recertification. Contractor officials
       explained that this file was prematurely purged in error due to a change in the annual
       recertification date once the tenant moved to a new unit.



                                                 13
      We identified one tenant who did not report the incarceration of a household member,
       which resulted in the use of a higher payment standard and an overpayment of the rental
       subsidy. The household member was incarcerated for weapons-related criminal activity,
       and contractor officials were not made aware of this incarceration during recertification.
       Upon identifying this matter, contractor officials immediately met with the tenant to enter
       into a repayment agreement for $3,393 for the rental subsidy overpayment.

Housing Choice Voucher Program Funds Were Used for a Different Program
Housing Choice Voucher program funds were incorrectly used for a different program.
Specifically, a Housing Choice Voucher program tenant had previously been a participant under
the Moderate Rehabilitation program, and a damage and vacancy claim of $772 was mistakenly
paid to the landlord with Housing Choice Voucher program funds instead of Moderate
Rehabilitation program funds. As a result of our review, contractor officials corrected this error
with a June 9, 2016, bank transfer returning the funds.

Conclusion
The Town’s and its contractor’s procedures for admission, application, and recertification in the
Town’s Housing Choice Voucher program were adequate and in accordance with HUD
requirements, but contractor officials made errors, and one tenant provided incorrect information
upon recertification. We attributed these deficiencies to human error. As a result, the Town had
$5,193 in ineligible costs.

Recommendations
We recommend that the Director of HUD’s Buffalo Office of Public Housing instruct Town
officials to
       2A.     Reimburse the program from non-Federal funds $1,028 ($556 + $472) spent on
               ineligible costs pertaining to overpayments in rental subsidies.
       2B.     Continue collection efforts from the tenant on the repayment agreement for
               $3,393 in ineligible costs for the overpayment of the rental subsidy.
       2C.     Reimburse the program from non-Federal funds $772 spent on ineligible costs
               pertaining to program funds disbursed for the expenses of a different program.
               Repayment of $772 to the program for these ineligible costs has been verified;
               thus, this recommendation will be closed upon issuance of the report.




                                                 14
Scope and Methodology
We performed onsite audit work at Belmont Housing Resources for Western New York’s offices
located in Buffalo, NY, between March and September 2016. The audit scope covered the period
January 1, 2014, through February 29, 2016, and was extended as necessary. We relied on
computer-processed data for selecting our statistical samples. We performed an assessment of the
reliability of computer-processed data and determined that the data used significant to any
findings, conclusions, or recommendations were reliable based on interviews, research, and our
reconciliation of the electronic and hardcopy sample data reviewed. To accomplish our objective,
we

      Reviewed relevant HUD regulations, guidebooks, and files.

      Interviewed HUD officials to obtain an understanding of and identify HUD’s concerns with
       the Town’s operations if any.

      Reviewed HUD’s central files for the Town’s Housing Choice Voucher program,
       including general correspondence, monitoring, Section Eight Management Assessment
       Program, administrative plan, and audit files.

      Reviewed the Town’s and contractor’s policies, procedures, and practices.

      Interviewed key personnel responsible for the administration of the Town’s Housing Choice
       Voucher program.

      Reviewed the documentation related to the Town’s procurement of the contract with
       Belmont to act as the administering agency for its Housing Choice Voucher program.

      Reviewed the contractor’s calculation and verification of housing assistance payments
       documented in the Housing Choice Voucher tenant files to ensure accuracy. Specifically,
       we selected a statistical sample of 87 single-month subsidy payments to housing
       assistance payment recipients from the audit universe of 92,544 monthly housing
       assistance payments to program participants during the period January 2014 through
       February 2016 totaling more than $35.6 million. This universe was compiled from
       monthly payment data provided by contractor officials. After our survey review of 14
       payments, we determined that the observed deficiencies did not rise to the level of
       materiality needed to justify reviewing the complete audit sample of 87 tenant files.
       Therefore, the results of our review of this sample were not projected to the universe.

      Inspected Housing Choice Voucher program-assisted units to determine the adequacy of
       the contractor’s inspection process and whether the Town ensured that housing quality
       standards were met. Specifically, we selected a statistical sample of 70 housing quality



                                                15
       standards inspections on occupied program rental units administered by the Town that
       passed a housing quality standards inspection conducted by contractor officials from
       January through March 2016 from the audit universe of 3,696 monthly occupied Housing
       Choice Voucher rental units administered by the Town as of March 2016. The results of
       our review of this sample were projected to the universe, which is detailed below.

      Reviewed the housing quality standards quality control process used by contractor
       officials to ensure its adequacy. Specifically, we selected a sample of all housing quality
       standards quality control inspections performed from January 2015 through June 2016.
       This sample period consisted of quality control inspections of 93 Housing Choice
       Voucher program-assisted units. The results of our review of this sample were not
       projected to the universe as it was not a statistical sample.

      Reviewed the housing quality standards tenant complaint process used by contractor
       officials to ensure its adequacy. Specifically, we selected a sample of all Housing Choice
       Voucher program tenant complaints related to potential housing quality standards
       deficiencies received from January 2015 through June 2016. This sample period
       consisted of 634 complaints from 509 different tenants, resulting in 1,317 corresponding
       scheduled inspections. The results of our review of this sample were not projected to the
       universe as it was not a statistical sample.

As mentioned above, we selected a statistical sample of 70 of the Town’s program units to
inspect from a universe of 3,696 program units that passed a contractor-administered housing
quality standards inspection between January 1 and March 31, 2016. We inspected the selected
units between May 11 and August 26, 2016, to determine whether the Town’s program units met
HUD’s housing quality standards. We were accompanied on these inspections by a contractor
official.

The results of our inspections identified any preexisting deficiencies not on the prior inspection
reports, preexisting deficiencies on the prior inspection reports but still unresolved, deficiencies
based on the appraiser’s opinion and expertise, deficiencies based on a tenant’s statement,
health- and safety-related deficiencies, and exigent health and safety deficiencies requiring 24-
hour resolution. Using these results, we ranked all of the units based on a thoughtful assessment,
considering the preexisting deficiencies identified and the impact on the family members living
in the units. The number of deficiencies was considered and used as a starting point but was not
the basis for determining the level of noncompliance in each unit. Specifically, we counted the
number of preexisting deficiencies for each unit and considered those with five or more
preexisting deficiencies as potentially materially noncompliant. Then, we reviewed the details of
all units with less than 10 preexisting deficiencies to determine whether any of them should be
lowered below or raised above the level of materiality based on the type of deficiencies
identified. Using our ranking, we determined a level of significance and considered all units
above this level to be materially noncompliant. Any housing assistance payments disbursed to
owners between Belmont’s prior inspection and our inspection were considered ineligible.




                                                 16
We determined that 41 of the 70 statistically selected units were materially noncompliant during
the audit inspections, although they had recently passed an inspection by the contractor.
Therefore, the Town paid a weighted average of $251 in Housing Choice Voucher subsidy per
unit per month on substandard housing. After deducting a statistical margin of error to
accommodate for the uncertainties inherent in statistical sampling, we can still say, with a one-
sided confidence interval of 95 percent, that this amounted to at least $210 per unit in a given
month. Extending this amount to the monthly count of 3,696 occupied Housing Choice Voucher
program units as of March 2016 yielded at least $779,264 in monthly Housing Choice Voucher
program subsidies paid on substandard housing. After annualizing this result, the Town would
pay at least $9.3 million in program subsidies on substandard housing over the next year. The
calculations are shown below.

Per unit monthly calculation:        $251.35 – 1.67 ⨉ $24.26 ≈ $210.84
Total monthly projection:            3,696 units ⨉ $210.84 ≈ $779,264.64
Projection forward 1 year:           $779,264.64 ⨉ 12 months ≈ $9,351,175.68

The calculation of administrative fees was based on HUD’s administrative fee per household
month for the Town. The fees were considered inappropriately received for each month in which
the housing assistance was incorrectly paid for units that materially failed to meet HUD’s
minimum housing quality standards.

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.




                                                17
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:

   Program operations – Policies and procedures that management has implemented to reasonably
    ensure that a program meets its objectives.
   Reliability of data – Policies and procedures that management has implemented to reasonably
    ensure that valid and reliable data are obtained, maintained, and fairly disclosed in reports.
   Laws and regulations – Policies and procedures that management has implemented to
    reasonably ensure that resource use is consistent with laws and regulations.
   Safeguarding of resources – Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.

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 Town did not have adequate controls over the effectiveness and efficiency of program
    operations when it did not ensure that program units met housing quality standards (finding 1).



                                                  18
   The Town did not have adequate controls over compliance with laws and regulations as it did
    not ensure that its Housing Choice Voucher program units met housing quality standards
    (finding 1).
   The Town did not have adequate controls to ensure that Housing Choice Voucher program
    resources were safeguarded when rent subsidy payments were provided for units that did not
    meet housing quality standards (finding 1).




                                                19
Appendixes

Appendix A


           Schedule of Questioned Costs and Funds To Be Put to Better Use
                Recommendation                     Funds to be put
                                    Ineligible 1/
                     number                        to better use 2/
                         1A               $112,867
                          1B                               $9,351,175
                         2A                1,028
                          2B                772
                          2C               3,393

                        Totals            118,060           9,351,175



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this case, if the Town implements our recommendation
     to improve procedures related to its housing quality standards inspection process, it will
     be assured that $9.3 million in future program funds will be spent for units that are
     decent, safe, and sanitary.




                                              20
Appendix B
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               21
Ref to OIG   Auditee Comments
Evaluation




Comment 1




Comment 1




Comment 2




                            22
Ref to OIG   Auditee Comments
Evaluation




Comment 3




Comment 4




                            23
Ref to OIG   Auditee Comments
Evaluation




Comment 5


Comment 6




Comment 7




                            24
Ref to OIG   Auditee Comments
Evaluation




Comment 8



Comment 5


Comment 4




                            25
Ref to OIG   Auditee Comments
Evaluation




Comment 4




Comment 9




                            26
                         OIG Evaluation of Auditee Comments


Comment 1   Contractor officials stated that some of the violations noted were over and above
            housing quality standards and tenant preference related to certain housing
            conditions should be considered; however, they agree that an unacceptable
            number of surveyed units did not meet housing quality standards upon re-
            inspection. Town officials have directed their contractor to implement corrective
            actions related to the housing quality standards inspection process. During the
            audit resolution process, Town officials will need to work with HUD to ensure
            that $112,867 is reimbursed to the program for the 41 units that materially failed
            to meet housing quality standards and certify to HUD that the 63 failed units meet
            HUD standards.
Comment 2   Town officials stated that the housing quality standards quality control process
            should have been adequate based on its design, but it was not aggressively
            implemented causing the unsatisfactory results identified during our review.
            Contractor officials have begun implementing changes to its quality control
            process to improve its performance in this area. These actions are responsive to
            our recommendation, however, the Town will need to provide these changes in
            the quality control process to HUD during the audit resolution process.
Comment 3   Town officials stated that its contractor is committed to improving its
            performance related to intake, recording and resolution of tenant complaints and
            is currently developing more detailed procedures for tenant priority inspections
            and adding an administrative assistant to address this deficiency. These actions
            are responsive to our recommendation; however, the Town will need to provide
            these procedures to HUD during the audit resolution process.
Comment 4   Town officials agree that its contractor made errors related to three tenant files
            and that one tenant misreported household information on the recertification
            application submitted. We agree that the Town and its contractor have taken
            corrective actions related to these four tenants; however, Town officials will need
            to work with HUD during the audit resolution process to ensure that the $1,028 is
            repaid to the program (see recommendation 2A) and that the tenant continues to
            make repayments of the $3,393 in overpaid rental subsidy (see recommendation
            2B).
Comment 5   Town officials agree that there was an accounting error discovered by the
            Housing Choice Voucher Senior Program Manager while providing us with tenant
            records in response to our audit. As stated in our recommendations, repayment of
            $772 to the program for these ineligible costs has been verified and this
            recommendation will be closed upon issuance of the report (see recommendation
            2C).




                                              27
Comment 6   Contractor officials agree that the errors occurred; however, they disagree with
            the cause identified in the draft report and we have revised the final report to
            attribute these deficiencies to human error.
Comment 7   Town officials agree that their contractor’s housing quality standards quality
            control process was inadequately performed and its contractor is developing more
            comprehensive and detailed procedures. This is responsive to our
            recommendation, and the Town will need to provide these procedures to HUD
            during the audit resolution process.
Comment 8   We agree that contractor officials have been proactive in addressing the
            deficiencies identified during our inspections; however, Town officials will need
            to provide documentation to HUD during the audit resolution process certifying
            that the failed units meet HUD standards.
Comment 9   Town officials state that they will increase oversight of its contractor by
            implementing several procedures including regularly submitted reports and
            scheduled meetings between the two parties. These actions are responsive to our
            recommendations, and Town officials will need to provide these procedures to
            HUD during the audit resolution process.




                                              28
 Appendix C
                 Schedule of Sample Housing Quality Standards Inspections



                                                      Materially   Materially   Materially
                        Pre-               Monthly
Sample   Total                    Pass-               noncom-      noncom-      noncom-
                      existing              rental
 unit  violations                  fail                pliant        pliant       pliant
                     violations            subsidy
                                                       months       subsidy     admin fee

   1        36           36        Fail      $390         6         $2,340       $359.70
   2        22           20        Fail       659         7          4,613        419.65
   3         8            8        Fail       617         2          1,234        119.90
   4        18           16        Fail       290         2            580        119.90
   5        14           12        Fail       941         3          2,823        179.85
   6        12           12        Fail       102         7            714        419.65
   7        17           12        Fail       324         7          2,268        419.65
   8        21           17        Fail       157         5            785        299.75
   9        18           16        Fail       567         5          2,835        299.75
  10        15           15        Fail       374         5          1,870        299.75
  11        15           15        Fail       231         6          1,386        359.70
  12        17           14        Fail       340         5          1,700        299.75
  13        16           14        Fail       379         5          1,895        299.75
  14        16           14        Fail       538         7          3,766        419.65
  15        16           13        Fail       525         7          3,675        419.65
  16        14           13        Fail       254         7          1,778        419.65
  17        13           12        Fail       413         5          2,065        299.75
  18        12           12        Fail       351         6          2,106        359.70
  19        13           11        Fail       385         7          2,695        419.65
  20        13           11        Fail       462         6          2,772        359.70
  21        13           11        Fail       291         7          2,037        419.65
  22        12           11        Fail       331         6          1,986        359.70
  23        12           11        Fail       310         7          2,170        419.65
  24        21           10        Fail       490         7          3,430        419.65
  25        13           10        Fail       409         6          2,454        359.70
  26        13           10        Fail       491         7          3,437        419.65
  27        10           10        Fail       600         7          4,200        419.65
  28        11            8        Fail       560         7          3,920        419.65
  29        10            8        Fail       414         7          2,898        419.65
  30        10            8        Fail       428         5          2,140        299.75




                                            29
                                                   Materially   Materially   Materially
                       Pre-              Monthly
Sample   Total                   Pass-             noncom-      noncom-      noncom-
                     existing             rental
 unit  violations                 fail              pliant        pliant       pliant
                    violations           subsidy
                                                    months       subsidy     admin fee

  31         8          8        Fail     $236         7         $1,652       $419.65
  32         8          8        Fail      370         3          1,110        179.85
  33        10          8        Fail      837         4          3,348        239.80
  34        11          7        Fail      771         5          3,855        299.75
  35         7          7        Fail      249         6          1,494        359.70
  36        13          6        Fail      688         5          3,440        299.75
  37         8          6        Fail      566         6          3,396        359.70
  38         6          5        Fail      414         6          2,484        359.70
  39         5          5        Fail      284         6          1,704        359.70
  40         5          5        Fail      470         7          3,290        419.65
  41         5          5        Fail      277         2            554        119.90
  42         7          4        Fail      307         0              0          0.00
  43         6          4        Fail      322         0              0          0.00
  44         6          4        Fail      437         0              0          0.00
  45         4          4        Fail      380         0              0          0.00
  46         4          4        Fail      408         0              0          0.00
  47         4          4        Fail      148         0              0          0.00
  48         4          4        Fail      165         0              0          0.00
  49         6          4        Fail      348         0              0          0.00
  50         7          3        Fail      219         0              0          0.00
  51         4          3        Fail      600         0              0          0.00
  52         4          3        Fail      327         0              0          0.00
  53         3          3        Fail      388         0              0          0.00
  54         5          2        Fail      413         0              0          0.00
  55         3          2        Fail      429         0              0          0.00
  56         2          2        Fail       25         0              0          0.00
  57         3          1        Fail      346         0              0          0.00
  58         3          1        Fail      358         0              0          0.00
  59         2          1        Fail      168         0              0          0.00
  60         1          1        Fail      381         0              0          0.00
  61         1          1        Fail      366         0              0          0.00
  62         1          1        Fail      417         0              0          0.00
  63         1          1        Fail      607         0              0          0.00
  64         2          0        Fail      517         0              0          0.00
  65         1          0        Fail      372         0              0          0.00




                                          30
                                                   Materially   Materially   Materially
                       Pre-              Monthly
Sample   Total                   Pass-             noncom-      noncom-      noncom-
                     existing             rental
 unit  violations                 fail              pliant        pliant       pliant
                    violations           subsidy
                                                    months       subsidy     admin fee

 66         1           0        Fail     $108         0              $0         $0.00
 67         0           0        Pass      407         0               0          0.00
 68         0           0        Pass      439         0               0          0.00
 69         0           0        Pass      598         0               0          0.00
 70         0           0        Pass      462         0               0          0.00
Totals     622         517               28,247       233         98,899     13,968.35




                                          31