oversight

The Greensboro Housing Authority, Greensboro, NC, Generally Administered Its Rental Assistance Demonstration Conversion in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-05-10.

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

         Greensboro Housing Authority,
               Greensboro, NC
            Rental Assistance Demonstration Program




Office of Audit, Region 4        Audit Report Number: 2018-AT-1004
Atlanta, GA                                            May 10, 2018
To:            Thomas R. Davis, Director, Office of Recapitalization, HTR

                   //Signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Greensboro Housing Authority, Greensboro, NC, Generally Administered Its
               Rental Assistance Demonstration Conversion in Accordance With HUD
               Requirements


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of our review of the Greensboro Housing Authority’s
Rental Assistance Demonstration Program conversion.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
404-331-3369.
                   Audit Report Number: 2018-AT-1004
                   Date: May 10, 2018

                   The Greensboro Housing Authority, Greensboro NC, Generally
                   Administered Its Rental Assistance Demonstration Conversion in Accordance
                   With HUD Requirements


Highlights

What We Audited and Why
We audited the Greensboro Housing Authority’s Rental Assistance Demonstration Program
(RAD) conversion. We selected the Authority for review in keeping with the goals of our annual
audit plan. Our objective was to determine whether the Authority administered its RAD
conversion in accordance with U.S. Department of Housing and Urban Development (HUD)
requirements. Specifically, we wanted to determine whether the Authority (1) executed
appropriate written agreements, (2) ensured that project financing sources were secured, (3)
maintained separate books and records for the RAD conversion, (4) spent HUD funds for eligible
and reasonable purposes, (5) followed occupancy requirements, (6) calculated proper contract
rents, and (7) obtained a physical conditions assessment.

What We Found
The Authority generally administered its RAD conversion in accordance with HUD’s
requirements. It executed proper written agreements, secured project financing sources, and
maintained separate books and records. In addition, it spent HUD funds for eligible and
reasonable purposes, followed occupancy requirements, properly calculated contract rents, and
renovated its properties consistent with the physical conditions assessments it obtained.

What We Recommend
This report contains no recommendations.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Generally Administered Its RAD Conversion in
         Accordance With HUD Requirements ............................................................................ 4

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

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

Appendixes ..............................................................................................................12
         A. Schedule of RAD Properties .................................................................................... 12

         B. Auditee Comments .................................................................................................... 13




                                                                2
Background and Objectives
The Greensboro Housing Authority was established in July 1941 in accordance with State of
North Carolina and Federal law. The Authority provides affordable housing to more than 10,000
individuals through its public housing program and its project-based Housing Choice Voucher
and Rental Assistance Demonstration Programs (RAD). The Authority is classified as a quasi-
governmental entity governed by a seven-member board of commissioners appointed by the
mayor of Greensboro.
RAD was authorized in fiscal year 2012 to preserve and improve public housing properties and
address a $26 billion nationwide backlog of deferred maintenance. RAD’s purpose is to provide
an opportunity to test the conversion of public housing and other U.S. Department of Housing
and Urban Development (HUD)-assisted properties to long-term, project-based Section 8 rental
assistance properties to achieve certain goals, including preserving and improving these
properties by enabling public housing agencies to use private debt and equity to address
immediate and long-term capital needs. RAD has two components. The first component allows
the conversion of public housing and moderate rehabilitation properties to properties with long-
term project-based Section 8 rental assistance contracts. The second component allows rent
supplement, rehabilitation assistance, and moderate rehabilitation properties to convert tenant
protection vouchers to project-based assistance at the end of the contract.
The Authority received its RAD award and commitments to enter into housing assistance
payments contracts from December 2013 to July 2015 and began converting more than 1,800
public housing units, located at 19 community properties scattered throughout Greensboro, NC,
to project-based voucher RAD units. As of July 31, 2017, the Authority had converted more
than 1,100 public housing units to RAD units and executed housing assistance payments
contracts with HUD at 9 of the 19 community properties. HUD authorized the Authority more
than $9.2 million in annual gross rents each year. Renovations were completed or close to
completion at seven of those nine properties.
The Authority became the new owner as a limited liability corporation when it converted its
public housing properties to RAD properties. The Authority established the Greensboro Housing
Management Corporation in June 2012. Its purpose was to engage or assist in the development
or operation of public housing and non-public housing in North Carolina and to administer the
project-based Section 8 housing assistance payments contracts assigned by HUD under the terms
of its annual contributions contract in North Carolina.
Our audit objective was to determine whether the Authority administered its RAD conversion in
accordance with HUD requirements. Specifically, we wanted to determine whether the
Authority (1) executed appropriate written agreements, (2) ensured that project financing sources
were secured, (3) maintained separate books and records for the RAD conversion, (4) spent HUD
funds for eligible and reasonable purposes, (5) followed occupancy requirements, (6) calculated
proper contract rents, and (7) obtained physical conditions assessments.


                                                3
Results of Audit

Finding 1: The Authority Generally Administered Its RAD
Conversion in Accordance With HUD Requirements
The Authority generally administered its RAD conversion in accordance with HUD’s
requirements. Specifically, the Authority ensured that it (1) executed proper written agreements,
(2) secured project financing sources, (3) maintained separate books and records, (4) spent HUD
funds for eligible and reasonable purposes, (5) followed occupancy requirements, (6) calculated
proper contract rents, and (7) renovated properties consistent with physical conditions
assessments.
The Authority was authorized to convert more than 1,800 public housing units, located at 19
community properties, to project-based voucher RAD units. As of July 31, 2017, the Authority
had converted 9 of the 19 properties (see appendix A) to RAD project-based voucher assistance
properties. We reviewed the nine properties that had been converted to RAD properties.

Written Agreements Were Properly Executed
We reviewed the RAD use agreements outlining the terms of the conversions, the ground lease
agreements, and the housing assistance payments contracts for the nine RAD converted
properties.

    •   Office of Public and Indian Housing (PIH) Notice PIH-2012-32, REV-2, part 1.6(B)(4),
        provides that the RAD use agreement is to ensure that the managing entity has a
        superior position in all liens on the property, that all tenants have incomes below 80
        percent of the area median income, and compliance with all applicable fair housing and
        civil requirements.

    •   Notice PIH-201-32, REV-2, part 1.4(A)(11), provides that HUD requires that
        ownership and control of the covered project be maintained. Ownership control
        requirements may be satisfied if the public housing agency has the direct or indirect
        legal authority (via contract, partnership share or agreement of an equity partnership,
        voting rights, or otherwise) to direct the financial and legal interests of the project
        owner, which the Authority did when it executed ground lease agreements.

    •   Notice PIH-2012-32, REV-2, part 1.6(B)(1), requires that the housing assistance
        payments contract be for a term of at least 15 years and that the number of assisted
        units not decrease without HUD approval.




                                                 4
These written agreements were completed within the established timeline and in the proper order
and contained the appropriate information as required by HUD. The Authority executed RAD
use agreements for the properties. Ground leases were established to ensure ownership and
control of the covered project was maintained. The Authority executed housing assistance
payment contracts with required terms for the properties.
Financing Sources Were Secured
The Authority secured sources of funding for the nine RAD converted properties as required by
Notice PIH-2012-32, REV-1. 1 The Authority funded the nine RAD property conversions using
one of three types of funding sources. Of the nine properties, four properties were funded with
Federal Housing Administration loans, one property was funded with low-income tax credits, and
the Authority’s internal funding was used for the others. We reviewed the Authority’s financing
letters, source of funds, and plans for the uses of funds and determined that the financing sources
were properly secured.

Separate Books and Records Were Maintained
The Authority maintained its books and records separate from those of the RAD owner as
required in the Public and Indian Housing Real Estate Assessment Center Accounting Brief 22. 2
We reviewed the books of record of the Authority and the new owners and determined that the
Authority properly established and maintained separate general ledgers and bank accounts for
each of the nine properties.

HUD Funds Were Used for Eligible and Reasonable Purposes
The Authority spent funds for eligible and reasonable purposes for the nine properties converted
to RAD properties as required in Notice PIH-2012-32, REV-1. 3 We reviewed the Authority’s
movement of funds into the separate general ledgers and determined that the funds were properly
transferred. We further determined that the funds were placed into separate accounts and used
for eligible and reasonable purposes.




1
  Notice PIH-2012-32, part 1.9.A, states that the public housing agency must sufficiently consider the long-term
preservation needs of the property and the means by which those will be financed.
2
  Public and Indian Housing Real Estate Assessment Center Accounting Brief 22 states that the owner of the project,
after issuance of a housing assistance payments contract, may not be the public housing agency. Instead, the owner
of the project may be a separate legal entity, which can be referred to by different titles, such as wholly owned
affiliate, single-asset entity, nonprofit, etc. How or whether the project will continue to be reported on the financial
data schedule after the issuance of the housing assistance payments contract depends on what entity legally owns the
project (the Authority or another separate legal entity) and how much control or dependence the Authority retains if
the project is owned by a separate legal entity. The Brief also states if the units are discretely presented, the financial
information of the units is reported in conjunction with the Authority; however, it is not included in the actual data
totals of the Authority.
3
  Notice PIH-2012-32, part 1.5(A), states that public housing agencies are permitted to use available public housing
funds as an additional source of capital in the development budget to support conversion, whether for rehabilitation
or new construction. Eligible conversion-related uses for these funds include predevelopment, development, or
rehabilitation costs and the establishment of a capital replacement reserve or operating reserve.
                                                             5
HUD Occupancy Requirements Were Followed
The Authority followed the occupancy requirements for conducting resident meetings with
tenants to discuss the RAD conversion, transition of the tenant waiting lists, and tenant
replacement after the RAD conversion.

     •    The Authority held the required resident meetings discussing the RAD conversion.
          Notice PIH-2012-32, REV-2, requires the Authority to notify residents and conduct
          at least two meetings with residents of projects proposed for RAD conversion. 4
          The Authority notified residents of its intent to convert to RAD and conducted 12
          resident meetings. We observed documentation from each meeting, which
          included tenant sign-in sheets, resident questions, comments, and the Authority’s
          responses supporting that the Authority conducted the 12 resident meetings
          between September 9 and September 20, 2013.

     •    The Authority properly revised its administrative plan to include procedures for
          waiting list administration. The Authority’s administrative plan included a description
          of how the Authority would establish project-based voucher contract waiting lists, how
          applicants on the public housing waiting list would be transitioned to the project-based
          voucher waiting list, and how applicants would be selected for admission.

     •    Tenants were not rescreened or involuntarily displaced as a result of the conversion.
          Notice PIH-2012-32, REV-2, provides that households will not be rescreened 5 and that
          permanent involuntary displacement of residents, as a result of the RAD conversion,
          may not occur. 6 Our analyses of the rent rolls before and after the RAD conversion and
          the move- out reports determined that 88 tenants moved out after the RAD conversion.
          The review of the move our reports the 88 tenants determined that none of the tenants
          moved out because of the RAD conversion. As further verification, we randomly
          selected a sample of 11 tenant files from the 88 tenants that moved out. The review of
          the tenant files determined that none of these 11 tenants were involuntarily moved
          because of the RAD conversion.




4
  Notice PIH-2012-32, REV-2, part 2.8.3(A), states that an owner is required to notify residents in writing of its
intent to participate in the demonstration and to hold two meeting with residents. The owner must conduct two
resident meetings with all affected residents and provide the residents with an opportunity to comment on the
conversion.
5
  Notice PIH-2012-32, REV-2, part1.6(C)(1), states that under the RAD statute, at conversion, current households
are not subject to rescreening, income eligibility, or income targeting. Therefore, current households will be
grandfathered for conditions that occurred before conversion but will be subject to any ongoing eligibility
requirements for actions that occur after conversion.
6
  Notice PIH-2012-32, REV-2, part 1.4(A)(5)(ii), states that any resident who may need to temporarily be relocated
to facilitate rehabilitation or construction has a right to return to an assisted unit at the covered project once
rehabilitation or construction is completed. Permanent involuntary displacement of residents may not occur as a
result of a project’s conversion of assistance.

                                                         6
Rents Were Calculated Properly
The Authority’s tenant rent calculations, tenant monthly rents, rehabilitation assistance payments,
and reasonable rents generally complied with HUD requirements.

      •   The Authority followed HUD requirements by not increasing monthly tenant rents as a
          result of the RAD conversion. Notice PIH-2012-32, REV 2, part 1.6(C)(4), provides
          that tenant monthly rents cannot increase by the greater of 10 percent or $25 as a result
          of the RAD conversion. We reviewed the housing assistance payment registers before
          and after the RAD conversion of the converted nine properties. From the housing
          assistance payment registers, we randomly selected a sample of 25 tenant files from a
          universe of 957 tenants. The review of the 25 files determined that tenant monthly
          rents did not increase as a result of the RAD conversion.

      •   Notice PIH-2012-32, REV-2, provides for rehabilitation assistance payments
          beginning when properties convert to RAD and must end when construction is
          complete. 7 We reviewed the Authority’s housing assistance payment registers for the
          nine converted properties and 100 percent of the tenants to determine when
          rehabilitation assistance payments were paid. We identified one exception when
          rehabilitation assistance payments improperly continued for 18 days after construction
          was complete on one unit. As a result, the RAD owner was overpaid $296. No other
          rehabilitation assistance payment discrepancies were noted. We discussed the $296
          overcharge with the Authority during the audit. The Authority responded during the
          audit and corrected the overcharge. No further action is warranted because of this
          isolated overpayment, which was corrected during the audit.

      •   The Authority is required to use the services of a third party to determine the
          reasonable rents for its units. 8 We reviewed documentation showing that the Authority
          used a third- party independent vendor approved by HUD to perform a rent
          reasonableness determination study. As further verification, we reviewed the selected
          sample of 25 tenant files. The review of tenant files verified that the Authority had
          properly determined rents by using the lessor of the reasonable rent determinations or
          HUD’s locality-based rents for the units at each of the nine properties.

Physical Conditions Assessments Were Obtained, and Properties Were Renovated
The Authority renovated its properties consistent with the physical conditions assessments.
Notice PIH-2012-32, REV-1, part 1.4(A)(1), requires public housing agencies to obtain a
physical conditions assessment before RAD conversion to determine both short-term
rehabilitation and long-term capital needs. The Authority properly obtained the assessments for
all 19 properties it was converting to RAD. Construction was complete or nearly complete at 7
of the 19 properties (see appendix A), allowing us to observe the work. We selected 116 of 135

7
  Notice PIH-2012-32, REV-2, part 1.6(B)(8), states that following the earlier of the end of the construction period
identified in the HUD-approved financing plan or actual construction, the Authority will no longer be eligible to
receive RAD rehabilitation assistance payments.
8
  Regulations at 24 CFR (Code of Federal Regulations) 983.303(F)(1) states that for public housing agency-owned
 units, the amount of the reasonable rent must be determined by an independent agency approved by HUD.
                                                           7
renovations line items (for example, playgrounds, landscaping, exterior lighting, sidewalks, and
fencing) at the 7 properties to observe. From the 7 properties, we selected 26 units for site visits
to verify renovations. Site visits at the seven properties determined that the renovations were
completed consistently with the physical conditions assessments.
Conclusion
The Authority generally ensured that its RAD conversion complied with applicable HUD
requirements. For the nine RAD properties reviewed, the Authority executed proper written
agreements, secured project financing sources, and maintained separate books and records. In
addition, it spent HUD funds for eligible and reasonable purposes, followed occupancy
requirements, properly calculated contract rents, and renovated its properties consistent with the
physical conditions assessments it obtained.

Recommendations
The report contains no recommendations.




                                                  8
Scope and Methodology
We performed our onsite audit work between August 2017 and March 2018 at the Authority’s
office located at 450 North Church Street and at our offices in Greensboro, NC, and Atlanta, GA.
Our review covered the period January 1, 2013, through July 31, 2017.
To accomplish our objective, we

    •   Interviewed HUD officials and Authority staff to obtain an understanding of the
        controls significant to the audit objective and assist in our review.
    •   Reviewed relevant background information.
    •   Reviewed applicable laws, regulations, and relevant HUD program requirements
        for RAD conversions that included public law, Federal Register notices, and PIH
        notices.
    •   Reviewed organizational charts for the Authority, board minutes, administrative
        plans, housing assistance payments registers, housing assistance payment invoices,
        move-out reports, rent rolls, and tenant files.
    •   Performed site visits to seven RAD converted properties to observe renovations.
    •   Reviewed the projects’ general ledgers, invoices, and bank statements to verify that
        all paid expenses were for eligible activities.
    •   Reviewed housing assistance payments contracts, RAD use agreements, ground
        lease agreements, and physical conditions assessments.
    •   Reviewed the RAD applications, financing plans, financing letters, and loan
        closing documents.
    •   Reviewed HUD’s and the Authority’s financial records and files and interviewed
        individuals responsible for RAD compliance.
Our audit focused on the execution of proper agreements to protect HUD’s interest, financial
sources and transactions, the separation of records, the eligible use of funds, occupancy
compliance with a RAD project-based voucher transition, the proper calculation of tenant rents,
and renovations to the units.
    •   The nine properties that had converted to RAD were the focus or our reviews of written
        agreements, financing sources, the separation of books and records, eligible uses of
        funds, occupancy requirements, and rent calculations. We reviewed housing assistance
        payment registers, invoices, rent rolls, bank statements, general ledgers, loan closing
        documents, and tenant files to determine whether the Authority had properly
        administered its RAD conversion in accordance with HUD requirements. We also used
        a random number generator to select a nonstatistical random sample of 25 residents,
        from a universe of 957, from the 9 converted properties to use in our tests of the

                                                9
        occupancy requirements and rent calculations. Further, we used a random number
        generator to select a nonstatistical random sample of 11 residents from a universe of 88,
        from the 9 converted properties, to use in our test for tenants displaced as a result of the
        RAD conversion, We designed the selection methodologies for these samples to yield a
        proportionally representative and stratified selection of tenant files from all of the nine
        properties. Therefore, results from these samples cannot be projected. Also, we
        reviewed 100 percent of the tenants to verify the rehabilitation assistance payments.
    •   We focused on the seven properties that had completed or nearly complete renovations
        to evaluate the physical conditions assessments and renovations to properties and units.
        We selected nearly all of the renovation line items (116 of 135 renovations) at these 7
        properties to verify the renovations. We omitted 19 renovations that were beyond our
        expertise or ability to observe. We also selected a nonrandom sample of 26 units to
        verify renovations inside the units. We did not use statistical sampling. Instead, we
        selected units to ensure that all renovation types were covered at each property.
        Therefore, results from this sample cannot be projected.
To achieve our audit objective, we relied in part on computer-processed data. We used the data
to assess changes to tenant rents, identify tenants that had moved, and select units to observe for
completed renovations. 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 adequate for our
purposes.
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 objectives:

•   Effectiveness and efficiency of operations - Policies and procedures that management
    has implemented to reasonably ensure that a program meets its objectives.
•   Compliance with laws and regulations - Policies and procedures that management has
    implemented to provide reasonable assurance that program implementation is in accordance
    with laws, regulations, and provisions of contracts or grant agreements.
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.
We evaluated internal controls related to the audit objective in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding the effectiveness of the internal control structure as a whole.
Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal
control.




                                                  11
Appendixes

Appendix A


                             Schedule of RAD Properties
 Project   Properties converting   Converted to RAD Construction complete
 number          to RAD              as of July 2017    or nearly complete

   1         Hampton Homes              Yes                   Yes
   2         Claremont Court            Yes                   Yes
   3           Hall Towers              Yes                   Yes
   4          Gateway Plaza             Yes                   Yes
   5           Lakespring               Yes                   Yes
   6           Abby Courts              Yes                   Yes
   7           North Pointe             Yes                   Yes
   8          Hickory Trails            Yes                   No
   9        Woodland Village            Yes                   No
  10        Ray Warren Homes            No                    No
  11        Woodberry, Baylor           No                    No
  12            Stoneridge              No                    No
  13           Applewood                No                    No
  14            Pear Leaf               No                    No
  15           Silver Briar             No                    No
  16           Laurel Oaks              No                    No
  17           River Birch              No                    No
  18            Foxworth                No                    No
  19          Smith Homes               No                    No
 Totals             19                   9                     7




                                        12
Appendix B
                    Auditee Comments




             Auditee Comments




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