oversight

The Lexington-Fayette Urban County Housing Authority, Lexington, KY, Did Not Always Comply With HUD's and Its Own Section 8 Housing Choice Voucher Program Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-07-13.

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

      Lexington-Fayette Urban County
     Housing Authority, Lexington, KY
          Section 8 Housing Choice Voucher Program




Office of Audit, Region 4       Audit Report Number: 2018-AT-1006
Atlanta, GA                                           July 13, 2018
To:            Carol C. Spencer, Director, Public and Indian Housing, Louisville, KY,
               Field Office, 41PH

                   //Signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Lexington-Fayette Urban County Housing Authority, Lexington, KY, Did
               Not Always Comply With HUD’s and Its Own Section 8 Housing Choice
               Voucher Program 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 the Lexington-Fayette Urban County Housing
Authority’s Section 8 Housing Choice Voucher program.

HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG website. 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-1006
                     Date: July 13, 2018

                     The Lexington-Fayette Urban County Housing Authority, Lexington, KY,
                     Did Not Always Comply With HUD’s and Its Own Section 8 Housing Choice
                     Voucher Program Requirements


Highlights

What We Audited and Why
We audited the Lexington-Fayette Urban County Housing Authority’s Section 8 Housing Choice
Voucher program based on our risk assessment of all Kentucky public housing agencies and as
part of the activities in our annual audit plan. Our audit objective was to determine whether the
Authority administered its program units in accordance with the U.S. Department of Housing and
Urban Development’s (HUD) and its own requirements.

What We Found
The Authority did not always administer its program units in accordance with HUD’s and its
own requirements. Specifically, it did not always comply with (1) HUD’s third-party
requirements for conducting inspections and rent reasonableness determinations for Authority-
owned units, (2) its requirements for conducting unit inspections in a timely manner, and (3)
HUD’s housing quality standards for the program units. These conditions occurred because the
Authority did not follow HUD’s requirements for performing unit inspections and was not
familiar with the requirements for rent reasonableness determinations, the Authority’s inspection
software was inadequate for scheduling inspections, and the Authority did not perform the
required quality control inspections. As a result, HUD and the Authority lacked assurance that
the unit inspections and rent reasonableness determinations were properly conducted and units
were eligible to be on the program, and some tenants lived in inadequately maintained units. In
addition, the Authority inappropriately paid nearly $147,000 in housing assistance payments and
received more than $20,000 in administrative fees for the units cited in this report.

What We Recommend
We recommend that the Director of HUD’s Louisville, KY, Office of Public and Indian Housing
require the Authority to (1) reimburse its program more than $167,000 from non-Federal funds,
(2) coordinate with HUD and provide adequate training to its staff to ensure compliance with
HUD’s requirements, (3) upgrade its inspection software system or develop and implement an
alternative method for timeliness of unit inspections, (4) perform all housing quality standards
quality control inspections as required, and (5) ensure that all violations cited for units failing to
meet housing quality requirements have been corrected and certify that the units meet program
requirements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Always Comply With HUD’s Third-Party
         Requirements for Authority-Owned Units on the Program ......................................... 4
         Finding 2: The Authority Did Not Always Inspect Its Program Units in a Timely
         Manner ............................................................................................................................... 7
         Finding 3: The Authority Did Not Always Ensure That Program Units Met HUD’s
         Housing Quality Standards ............................................................................................ 10

Scope and Methodology .........................................................................................17

Internal Controls ....................................................................................................20

Appendixes ..............................................................................................................22
         A. Schedule of Questioned Costs .................................................................................. 22
         B. Auditee Comments and OIG’s Evaluation ............................................................. 23
         C. Schedule of OIG Housing Quality Standards Inspection Results ........................ 29




                                                                      2
Background and Objective
Established under the State of Kentucky’s Municipal Housing Commission Act of 1934, the
Lexington-Fayette Urban County Housing Authority came into its current form after a merger
between the City of Lexington and Fayette Urban County in April 1970 and a name change in
March 1974. The Authority is governed by a five-member board of commissioners and an
executive director. The Authority’s mission is to provide safe and desirable housing to low- and
moderate-income individuals and families while partnering with other agencies to enhance its
community involvement and self-sufficiency and a higher quality of life for its residents.

The Housing Choice Voucher program assists very low-income families, the elderly, and the
disabled in affording decent, safe, and sanitary housing in the private market. The program
regulations include basic housing quality standards, which all units must meet before assistance
can be paid on behalf of a family throughout the term of the assisted tenancy. The U.S.
Department of Housing and Urban Development’s (HUD) housing quality standards establish the
minimum criteria for the health and safety of program participants. The Authority administered
more than 2,400 tenant-based housing choice vouchers and disbursed more than $17.7 million in
program funding for fiscal year 2017.

In addition, the Authority has participated in HUD’s Moving to Work (MTW) demonstration
since November 2011. MTW agencies are provided the opportunity to design and test
innovative, locally designed strategies that use Federal dollars more efficiently, help residents
find employment and become self-sufficient, and increase housing choices for low-income
families. Further, MTW allows more flexibility to public housing agencies via exemptions from
existing public housing and voucher rules. This flexibility is authorized via exemptions of
program requirements approved by HUD’s Secretary that are identified in the public housing
agencies’ MTW agreement. To use an exemption, the public housing agencies identify the
specific authorized exemption in any of their annual MTW plans. However, the Authority’s
participation in the MTW demonstration program did not exempt it from complying with HUD’s
(1) minimal housing quality standards under HUD’s Housing Choice Voucher program and (2)
third-party requirements for conducting inspections and rent reasonableness determinations for
Authority-owned units prior to August 5, 2015.

Our objective was to determine whether the Authority administered its Section 8 Housing Choice
Voucher program units in accordance with HUD’s and its own requirements. Specifically, we
wanted to determine whether the Authority complied with (1) HUD’s third-party requirements
for Authority-owned units, (2) its requirements for conducting timely unit inspections, and (3)
HUD’s housing quality standards for its program units.




                                                3
Results of Audit

Finding 1: The Authority Did Not Always Comply With HUD’s
Third-Party Requirements for Authority-Owned Units on the
Program
The Authority did not always comply with HUD’s third-party requirements for Authority-owned
units on the program. Specifically, for 35 tenants residing in Authority-owned units, the
Authority did not obtain the services of a HUD-approved independent third party to conduct (1)
unit inspections for 27 (77 percent) tenants and (2) rent reasonableness determinations for all 35
tenants. This condition occurred because the Authority did not follow HUD’s requirements for
performing unit inspections and was not familiar with the requirements for conducting rent
reasonableness determinations. As a result, it inappropriately paid more than $108,000 in
housing assistance payments and received more than $15,000 in administrative fees. Further,
HUD and the Authority lacked assurance that the unit inspections and rent reasonableness
determinations were properly conducted and HUD’s and the tenant’s interest was protected.

Unit Inspections Not Always Performed by an Independent Entity
We reviewed inspection reports for 35 tenants associated with all 33 Authority-owned units on
the Section 8 Housing Choice Voucher program for the period July 1, 2015, through August 5,
2016.1 HUD required at 24 CFR (Code of Federal Regulation) 982.352(b)(1)(iv)(A)(3) that the
Authority-owned units be inspected by an independent agency. However, the Authority failed to
comply with the requirement when it inappropriately conducted unit inspections on some
Authority-owned units, instead of having an indepenent entity do them.

Although, it obtained the services of an independent entity2 to perform unit inspections, the
Authority conducted additional inspections without seeking further services of the independent
entity. The list below provides a breakdown of the 35 tenants’ unit inspections by the Authroity
and the independent entity.

       Inspections on eight units were performed by only the Authority.
       Inspections on 16 units were performed by the independent entity, resulting in a fail
        outcome. However, the Authority performed the reinspections of these failed units.
       Inspections on three units were performed by the independent entity, resulting in a pass
        outcome. However, the Authority performed the later inspections on these units.
       Inspections on four units were performed by the independent entity, resulting in a pass
        outcome. However, a later inspection was not due at the time of our review.
1
    The number of tenants was greater than the number of units due to tenants moving in and moving out during the
    review period
2
    The City of Richmond Section 8 Housing Program, Richmond, KY, staff performed unit inspections as an
    independent entity for the Authority. In addition, HUD had approved the City of Richmond Section 8 Housing
    Program to perform unit inspections of the Authority-owned units.



                                                        4
      Inspections on four units were not due during the period July 1, 2015, through August 5,
       2016.

Rent Reasonableness Determinations Not Conducted by an Independent Entity
Our review considered all 33 units owned by the Authority on the Section 8 Housing Choice
Voucher program associated with 35 tenants during the period July 1, 2015, through October 31,
2017. According to 24 CFR 982.352(b)(1)(iv)(A)(1) Authority-owned units’ rent reasonableness
determinations must be performed by an independent entity. However, the Authority failed to
obtain the services of an independent entity to conduct the rent reasonableness determinations for
all 33 Authority-owned units. However, the Authority obtained the services of a HUD-approved
independent entity during our review and provided documentation to support that the rents it
previously approved were within the range of reasonable rents at the time of approval.

Noncompliance With Third-Party Requirements
The Authority did not follow HUD’s requirements for conducting inspections on Authority-
owned units because it expected HUD to exempt it from the requirements. Specifically, the
Authority included an exemption in its fiscal year 2017 MTW plan regarding third-party
inspections, which HUD approved on August 5, 2016. Therefore, the Authority was required to
comply with the requirements up to that date. However, in anticipation of HUD’s approval, the
Authority did not obtain the services of an independent entity to perform unit inspections
between July 1, 2015, and August 5, 2016.

In addition, the Authority staff incorrectly believed that if an Authority-owned program unit was
inspected by an independent entity, the Authority could perform all later unit inspections,
including reinspections. However, HUD’s requirements did not differentiate between the types
of inspections but rather required inspections of Authority-owned units to be performed by an
independent entity. Further, the Authority’s staff mistakenly believed that its fiscal year 2017
MTW plan, which included an exemption of third-party requirements for unit inspections, also
provided an exemption of third-party requirements for rent reasonableness determinations.

Conclusion
In anticipation of a HUD approval, the Authority did not follow program requirements for
having an independent entity perform unit inspections and conduct rent reasonableness
determinations for Authority-owned units. In addition, the Authority was not familiar with
program requirements that all inspections, including reinspections, be conducted by an
independent entity and that its MTW plan did not include an exemption of rent reasonableness
requirements for Authority-owned units. As a result, the Authority inappropriately paid
$108,687 in housing assistance payments and received $15,388 in associated administrative fees
for 32 Authority-owned units between July 1, 2015, and August 5, 2016. Further, HUD and the
Authority lacked assurance that the unit inspections and rent reasonableness determinations were
properly conducted and HUD’s and the tenant’s interest was protected.




                                                 5
Recommendations
We recommend that the Director of HUD’s Louisville, KY, Office of Public and Indian Housing
require the Authority to

       1A.    Reimburse its Section 8 Housing Choice Voucher program $124,075 ($108,687 in
              housing assistance payments and $15,388 in associated administrative fees) from
              non-Federal funds for the payments related to the Authority-owned units’
              inspections not conducted by an independent entity.

       1B.    Ensure that HUD-approved independent third parties complete unit inspections
              and determine the rent reasonableness determinations for units it owns or seek an
              appropriate exemption of program requirements from the HUD Secretary.

       1C.    Provide adequate training to its staff to ensure compliance with Section 8 Housing
              Choice Voucher program requirements for unit inspections and rent
              reasonableness determinations.




                                               6
Finding 2: The Authority Did Not Always Inspect Its Program
Units in a Timely Manner
The Authority did not always perform recurring inspections of its program units in a timely
manner. Of the 62 unit inspections reviewed, 46 (74 percent) inspections were performed
outside the required inspection intervals, with 16 (35 percent) late inspections having a monetary
impact. This condition occurred because the Authority’s inspection software was not adequate
for scheduling timely unit inspections and the Authority did not develop and implement an
adequate alternate method to compensate for its software deficiency. As a result, HUD and the
Authority lacked assurance that units were eligible to be on the program during the time when
inspections were not conducted, and the Authority inappropriately paid more than $33,000 in
housing assistance payments and received more than $4,400 in administrative fees for the 16
units.

Untimely Unit Inspections
HUD required that program units be inspected at least biannually.3 However, under the
Authority’s HUD-approved MTW and Section 8 Housing Choice Voucher program
administrative plans, the Authority was authorized to conduct unit inspections based on different
intervals. Specifically, the Authority developed and implemented a five-star landlord rating
system, which defined when recurring inspections of program units where due.4 Each landlord’s
star rating and resulting inspection interval was based on several factors, including (1) inspection
scores from past inspections, (2) results of driveby inspections,5 (3) the proportion of units that
had been abated in the past, and (4) past complaints reported by voucher holders. For example,
if a landlord had a four-star rating, all units on the program owned by that landlord were required
to be inspected every 36 months, or three 3 years. The table below details the Authority’s five-
star rating system and associated inspection intervals.

                                                Frequency of                  Frequency of
                      Star rating
                                            inspections (months)           inspections (years)
                                                      12                            1.0
                                                     24                            2.0
                                                    30                            2.5
                                                   36                            3.0
                                                  42                            3.5

We reviewed a sample of 62 statistically selected units from a universe of 728 inspections from
October 1, 2016, through September 30, 2017. We reviewed the sampled items to determine

3
    Regulations at 24 CFR 982.405 required unit inspections to be performed at least annually. However,
    beginning in April 2016, the interval was extended to at least biannual performance.
4
    According to the fiscal year 2016 MTW plan, page 20 of 53, the Authority had begun implementing its star-
    rating system for performing unit inspections. In addition, appendix C (pages 246 through 251 of 260) of the
    Authority’s administrative plan detailed the frequency with which the recurring inspections must occur.
5
    To consider performing a special inspection, the Authority’s inspectors drive by a program unit(s) in their
    assigned neighborhood at the time of their inspection of another unit in the same geographic area.



                                                         7
whether the units’ recurring inspections were performed in compliance with the Authority’s
HUD-approved MTW and administrative plans. Of the 62 units, 46 (74 percent) units’ recurring
inspections were performed outside the required inspection intervals. The late inspections
ranged from 2 days to about 20 months past the required inspection interval period. Further, of
the 46 late inspections, 16 (35 percent) units’ inspections had a failed outcome, which resulted in
a monetary impact. For these 16 units, the Authority inappropriately paid more than $33,000 in
housing assistance and inappropriately received more than $4,400 in administrative fees.6

According to 24 CFR 982.401(a)(3), all program units were required to comply with HUD’s
housing quality standards, both at commencement of assisted occupancy and throughout the
assisted tenancy. Based on our review results,7 we estimate that of the 728 unit inspections
performed from October 1, 2016, through September 30, 2017, at least 475 (65 percent)
inspections were not conducted in a timely manner, at least 187 (26 percent) inspections were not
conducted in a timely manner and resulted in a failed inspection, and at least 122 (17 percent)
inspections were not conducted in a timely manner and failed an inspection with a monetary
impact.

Inadequate Inspection Scheduling System
The Authority’s inspection software was not adequate to ensure that its program units were
inspected in a timely manner. At the time of our review, the Authority was aware of the
deficiency with its untimely scheduling of unit inspections and was working with its software
vendor to address the issue. Specifically, the Authority’s Section 8 director explained that the
software system went live in June 2014 and the Authority requested a fix from its vendor in late
2014 and early 2015 but the vendor was slow in addressing the issue. As of January 31, 2018,
the Authority was working with the vendor for resolution. However, the Authority had not
developed an adequate alternate method to ensure that unit inspections were performed in a
timely manner in accordance with its star-rating intervals.

Conclusion
The Authority’s inspection software scheduling was not adequate to ensure that its program units
were inspected in a timely manner. In addition, the Authority did not have adequate oversight of
the timeliness of unit inspections when it did not use an alternate method to compensate for the
software deficiency. As a result, HUD and the Authority lacked assurance that 46 of the units
reviewed were eligible to be on the program during the time when these units’ inspections were
not conducted and inappropriately paid $33,085 in housing assistance payments and received
$4,423 in administrative fees for 16 units that failed an inspection performed outside the required
inspection interval.




6
    See the Scope and Methodology section of this report for details on how the monetary impact was determined.
7
    See the Scope and Methodology section of this report for details of the projection methodology.



                                                        8
Recommendations
We recommend that the Director of HUD’s Louisville, KY, Office of Public and Indian Housing
require the Authority to

       2A.    Reimburse its program $37,508 ($33,085 in housing assistance payments and
              $4,423 in associated administrative fees) from non-Federal funds for failing to
              perform unit inspections in a timely manner.

       2B.    Develop and implement procedures, including but not limited to software
              upgrades, and staff training to ensure that unit inspections are conducted in a
              timely manner.

       2C.    Develop and implement adequate oversight to ensure that unit inspections are
              conducted in a timely manner.




                                                9
Finding 3: The Authority Did Not Always Ensure That Program
Units Met HUD’s Housing Quality Standards
The Authority did not always ensure that program units met HUD’s housing quality standards.
For the 30 program units inspected, 26 (87 percent) units failed to meet the minimum housing
quality requirements, and 4 (15 percent) of the failing units were in material noncompliance with
HUD’s housing quality requirements. The violations occurred because the Authority did not
follow the program requirement for performing quality control housing quality standards
inspections, which lead to missed violations during unit inspections. As a result, some tenants
lived in units that did not meet HUD’s housing quality standards, and the Authority
inappropriately paid more than $5,500 in housing assistance and received more than $500 in
administrative fees for the four units in material noncompliance with housing quality standards.

Housing Quality Requirements Not Met
To determine whether the Authority ensured that the program units complied with HUD’s
housing quality standards, we statistically selected 67 units for inspection from a universe of 220
program units that had recently passed an inspection by the Authority and inspected 30 units
during the week of November 27, 2017.8 Of the 30 units inspected, 26 (87 percent) failed to
meet minimum housing quality requirements and had a total of 198 housing quality requirement
violations, 106 of which existed before the Authority’s latest inspection. The following table
lists the top 5 most frequently occurring violations for the 30 units.

                             Violation category           Number of Number of
                           for noted deficiencies         violations  units
                           Security                             31               17
                           Electrical                           22               14
                           Wall                                 20               11
                           Other interior                       18                9
                           Floor                                15                9

Additionally, 4 of 26 (15 percent) failed units were in material noncompliance with housing
quality requirements. We considered these units to be in material noncompliance based on the
severity of the violations and the period when the deficiency existed. Violations were
determined to be preexisting if they existed before the Authority’s latest inspection. In addition,
we determined a unit to be in material noncompliance based on a combination of less severe
violations if the violations caused a risk of danger or injury to the family. Appendix C provides
the number of violations for the 26 units failing to meet HUD’s housing quality requirements.

Further, of the four units that materially failed the inspection, one was found to have a life-
threatening item requiring correction within 24 hours, which existed at the time of the

8
    We did not inspect all 67 units because the percentage of materially failing units in the 30 units we inspected
    did not reach the threshold for projecting the results to the universe from which the statistical sample was
    drawn. Our methodology for the sample selection is explained in the Scope and Methodology section of this
    audit report.



                                                           10
Authority’s latest inspection. HUD regulations at 24 CFR 982.404 require that owners correct
life-threatening defects within 24 hours of the inspection. Throughout the inspection process, we
kept the Authority’s staff aware of the life-threatening 24-hour violations, and the Authority
immediately required the landlords make the 24-hour repairs.

Types of Deficiencies
The following photographs illustrate some of the violations noted during our housing quality
inspections of the 26 units that failed to meet requirements. The most prevalent deficiencies
were security, electrical, wall, other interior, and floor violations.

Security
A total of 31 security violations were found in 17 units that failed to meet program requirements.




The picture above shows a passage lock striker plate that was not secured, and the door did not
latch when closed, posing a risk to the tenant’s security.




                                                 11
Electrical
A total of 22 electrical violations were found in 14 units that failed to meet program
requirements.




The picture above shows that the cover of the electric meter disconnect was not secured,
exposing electrical contacts.




                                                 12
Wall
A total of 20 wall violations were found in 11 units that failed to meet program requirements.




The picture above shows soft drywall from a water leak.




                                                 13
Other Interior
A total of 18 other interior violations were found in 9 units that failed to meet program
requirements.




The picture above shows a broken vanity top, causing a severe cutting hazard.




                                                  14
Floor
A total of 15 floor violations were found in 9 units that failed to meet program requirements.




The picture above shows a broken tread cover on the basement stairs, causing a tripping hazard.

HUD regulations at 24 CFR 982.401(a)(3) required that all program housing meet housing
quality standards, both at beginning of assistance and throughout the assisted tenancy. In
addition, in accordance with 24 CFR 982.152(d), HUD is permitted to reduce or offset program
administrative fees paid to a public housing agency if it fails to correctly or adequately meet its
administrative responsibilities, such as enforcing housing quality standards. The Authority
disbursed more than $5,500 in housing assistance payments and received more than $500 in
administrative fees for the 4 units that materially failed to meet HUD’s housing quality
standards.

Quality Control Inspections Program Not Adequate
At 24 CFR 982.405(a), HUD required quality control housing quality standards inspections of
the program units based on the number of program units administered by the Authority annually.
However, the Authority required9 additional quality control inspections. Specifically, beginning
in fiscal year 2015, the Authority required 50 quality control inspections per fiscal year,
regardless of the number of program units administered. However, the Authority did not
perform any quality control inspections in fiscal years 2015, 2016, or 2017, covering the period
July 1, 2014, through June 30, 2017, when a total of 150 quality control inspections were

9
    Activity 5, page 42 of 170, of the Authority’s fiscal year 2014 MTW plan



                                                        15
required to be performed in accordance with its own requirements. The Authority’s staff
explained that it did not have time to conduct the required supervisory quality control housing
quality standards inspections because the Authority was participating in HUD’s rent reform
study and the staff was learning a new software system. However, the Authority began
performing housing quality standards quality control inspections for fiscal year 2018 in
September 2017.

Conclusion
The Authority did not follow the program requirement for performing quality control housing
quality standards inspections; therefore, its inspection staff lacked adequate oversight, leading to
missed violations during unit inspections. As a result, the Authority inappropriately paid $5,553
in program housing assistance payments and received $531 in program administration fees for
four units that materially failed to meet housing quality requirements.

Recommendations
We recommend that the Director of HUD’s Louisville, KY, Office of Public and Indian Housing
require the Authority to

       3A.     Reimburse its program $6,084 ($5,553 in housing assistance payments and $531
               in associated administrative fees) from non-Federal funds for the units that
               materially failed to meet HUD’s housing quality standards.

       3B.     Certify, along with the owners of the 26 units cited in the finding, that the
               applicable housing quality standards violations have been corrected.

       3C.     Perform all required quality control housing quality standards inspections in
               compliance with its HUD-approved MTW plan, thus helping to ensure that its
               inspectors perform housing quality standards inspections in accordance with
               HUD’s requirements.




                                                  16
Scope and Methodology
We performed our onsite audit work between October 2017 and February 2018 at the Authority’s
office located at 300 West New Circle Road, Lexington, KY. The audit period was July 1, 2015,
through September 30, 2017. We expanded the audit period to October 31, 2017, to accomplish
our objective.

To accomplish our audit objective, we interviewed the Authority’s employees and tenants and
the City of Richmond Section 8 Housing Program staff. In addition, we obtained and reviewed
the following:

        Applicable laws, HUD’s regulations at 24 CFR Parts 5 and 982, HUD’s Guidebook
         7420.10G, and HUD’s housing inspection manual.

        The Authority’s MTW and program administrative plans; policies and procedures;
         organizational chart; annual audited financial statements for fiscal years 2014, 2015, and
         2016; board meeting minutes for July 2015 through September 2017; program tenant
         files; and housing assistance payments registers and the Authority’s and independent
         entity’s inspection reports.

We also conducted housing quality standards inspections of 30 program units.

Finding 1

We reviewed inspection reports for 35 tenants associated with all 33 Authority-owned program
units during the period July 1, 2015, through August 5, 2016, to determine whether the Authority
ensured that a HUD-approved independent entity performed unit inspections and rent
reasonableness determinations for program units that the Authority owned. We limited the
questioned costs to August 5, 2016, because a there was HUD approval on that date through
which the Authority expected it to waive third-party requirements for unit inspections and rent
reasonableness determinations under its MTW status.10

The calculation of administrative fees was based on the Authority’s average administrative fee
per unit per month for the Authority’s respective fiscal years. The fees were considered
inappropriately received for the same time period when the Authority performed inspections of
program units it owned. If the questioned period was less than a full month, we limited the
questioned administrative fee to a daily rate, based on the number of days during which the unit
was inappropriately inspected in-house by the Authority.



10
     Questioned costs included both inappropriately paid housing assistance and administrative fees received for
     inspections performed by the Authority of units it owned from July 1, 2015, through August 5, 2016.



                                                          17
Finding 2

To evaluate the Authority’s compliance with performing recurring program unit inspections in a
timely manner, we selected a statistical sample of 62 tenant files for review. We reviewed all 62
statistically selected files from a total of 728 unit inspections performed during the most recent
year, October 1, 2016, through September 30, 2017, to determine whether the Authority
inspected its program units in compliance with its HUD-approved MTW and administrative
plans. We determined the questioned cost of $37,508 for the failed inspections that were
performed outside the required interval by allowing a 1-month grace period for the owners to
make repairs from when the inspection was required to be performed through the date when the
inspection was performed and failed.

Based on the results of the 62 sampled items, we projected the results to the universe of 728
inspections using a one-sided confidence interval of 95 percent and an average percentage of
error or deficiency identified in our review. Specifically, our review of the 62 sampled units
identified deficiencies in 46 units inspected late, 22 units failing the late inspection, and 16 units
with a failed inspection that was performed late having a monetary impact after accounting for a
1-month grace period as discussed above. Therefore, after adjusting for a statistical margin of
error, we can say with a one-sided confidence interval of 95 percent that (1) at least 475
inspections were not performed in a timely manner; (2) at least 187 inspections were not
performed in a timely manner and failed an inspection; and (3) at least 122 inspections were not
performed in a timely manner and failed an inspection, resulting in a monetary impact.

Our sampling methodology was not designed to project a monetary impact to the universe of
inspections from which the sample was selected but, rather, to only project the number of late
inspections that resulted in a monetary impact. Thus, the monetary impact of $37,508 cited
above is limited to only the 62 sample items reviewed and deficiencies identified.

The calculation of administrative fees was based on the Authority’s average administrative fee
per unit per month for the Authority’s respective fiscal years. The fees were considered
inappropriately received for the same time period that the units were not inspected in a timely
manner as required, allowing for a 1-month grace period for owners to make needed repairs. If
the questioned period was less than a full month, we limited the questioned administrative fee to
a daily rate, based on the number of days during which the unit was not inspected timely as
required.

Finding 3

During the week of November 27, 2017, we inspected 30 of the 67 statistically selected units
from a universe of 220 program units that had passed an inspection between July 15 and October
15, 2017, performed by the Authority. We inspected the units to assess the physical conditions
of the Authority’s units. After our inspections, we determined whether each unit passed, failed,
or materially failed. Materially failed units were based on the severity of the violation and the
period when the deficiency existed. Violations were determined to be preexisting if they existed
before the Authority’s latest inspection for the unit. In addition, we determined a unit to be in



                                                   18
material noncompliance based on a combination of less severe violations if the violations caused
a risk of danger to the family. We also noted whether a violation existed at the Authority’s last
inspection by considering tenant statements, and using our inspection expertise and experience
and the context surrounding the violation. We did not cite a violation as preexisting if there was
reasonable doubt as to whether the violation existed previously.

We found that 26 (87 percent) inspections failed to meet the housing quality requirements and 4
(15 percent) of the failing units were in material noncompliance with HUD’s housing quality
requirements. We selected a statistical sample to project the results of the unit inspections to the
universe from which it was drawn. However, during the audit survey we found the percentage of
materially failing units did not reach the threshold for projecting the results to the universe from
which the statistical sample was drawn; therefore, we did not perform inspections of the
remaining 37 statistically selected units. Therefore, the results of the inspections discussed apply
only to the 30 units inspected.

The calculation of administrative fees was based on the Authority’s average administrative fee
per unit per month for the Authority’s respective fiscal years. The fees were considered
inappropriately received for the same time period that the unit was in material noncompliance
with the housing quality standards. If the questioned period was less than a full month, we
limited the questioned administrative fee to a daily rate, based on the number of days during
which the unit did not materially comply with HUD’s requirements.

Other Information

We relied in part on computer-processed data contained in the Authority’s system to achieve our
audit objective. 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. The tests for reliability included but were not limited to comparing computer-
processed data to housing assistance payments, information in the sample tenant files, and other
supporting documentation.

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.




                                                  19
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.

   Relevance and reliability of information – Policies and procedures that management has
    implemented to reasonably ensure that operational and financial information used for
    decision making and reporting externally is relevant, reliable, and fairly disclosed in reports.

   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation 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 (1) did not follow HUD’s third-party requirements for performing unit
    inspections and conducting rent reasonableness determinations for Authority-owned units;
    (2) was not familiar with HUD’s requirement that all unit inspections, regardless of the type,
    be performed by an independent entity on Authority-owned units; and (3) did not realize that



                                                  20
    its fiscal year 2017 MTW plan did not include an exemption of third-party requirements for
    rent reasonableness determinations (finding 1).

   The Authority’s inspection software was not sufficient for scheduling, and the Authority did
    not develop and implement an alternate method for performing unit inspections in a timely
    manner as required by its MTW and program administrative plans (finding 2).

   The Authority did not follow the program requirement for performing quality control housing
    quality standards inspections to ensure that its program participants lived in units that
    complied with HUD’s housing quality requirements (finding 3).




                                                21
Appendixes

Appendix A


                              Schedule of Questioned Costs
                        Recommendation
                                                     Ineligible 1/
                            number
                                1A                    $124,075
                                2A                      37,508
                                3A                       6,084
                              Totals                   167,667

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.




                                             22
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1

Comment 2



Comment 3




Comment 4




                               23
Ref to OIG
Evaluation   Auditee Comments




Comment 3

Comment 1




Comment 5
and 1



Comment 6




Comment 7




                            24
Ref to OIG   Auditee Comments
Evaluation




Comment 8




Comment 9

Comment 10


Comment 11




                            25
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority objected to reimbursing its program per recommendation 1A for
            inspections conducted by the Authority rather than an independent entity on
            Authority-owned units where there was no indication of any failure to meet
            housing quality standards, representing that program participants received full
            benefit of quality housing.

            As stated in Finding 1, per 24 CFR 982.982.352(b)(1)(iv)(A)(3), the Authority
            was required to obtain the services of an independent entity to perform all
            inspections, including reinspections, on Authority-owned units. The Authority’s
            failure to comply with this requirement resulted in HUD and the Authority
            lacking assurance that some inspections were properly conducted and that HUD’s
            and the program participants’ interests were protected. Therefore, the Authority
            should work with HUD during the audit resolution process to fully implement
            recommendation 1A.

Comment 2   The Authority agreed to reimburse its program per recommendations 2A and 3A
            for delayed inspections and items possibly missed by the Authority in inspections
            that we determined as units failing to meet the housing quality standards.

            We appreciate the Authority’s willingness to reimburse its program for the
            deficiencies cited in Findings 2 and 3. The Authority should work with HUD to
            ensure that the repayments are properly completed during the audit resolution
            process.

Comment 3   The Authority stated that the statements of condition in the Highlights and
            Finding 1 sections of the report are too broad and need to be narrowed.

            The Highlights and Finding 1 sections provide an overall description of the
            identified conditions, followed by an overall description of the identified cause of
            the deficiencies; however, specifics on the statements of condition are provided
            within Finding 1.

Comment 4   The Authority acknowledged the deficiency cited for not having a third party
            entity perform rent reasonableness determinations of program units it owned.
            However, the Authority stated that the cause for the deficiency should be revised
            because the rent reasonableness requirements were later waived by HUD for the
            Authority under its Moving-to-Work (MTW) demonstration.

            We appreciate the Authority’s acknowledging its deficiencies relating to HUD’s
            third party rent reasonableness determination requirements. However, the
            Authority’s assertion that it received a waiver on rent reasonableness



                                              26
            requirements is incorrect. The Authority’s fiscal year 2017 MTW plan included a
            waiver for only third party inspections of Authority-owned units, not third party
            rent reasonableness determinations.

Comment 5   The Authority stated that its ability to undertake affordable housing initiatives
            would be hampered by having to repay its program for not requiring an
            independent party to conduct inspections on units that it owned.

            The Authority should work with HUD during the audit resolution process on
            available options for reimbursing its program. However, once repaid into the
            program, the funds will further help the Authority’s affordable housing initiatives.

Comment 6   The Authority disagreed with recommendations 1B and 1C for obtaining the
            services of an independent entity for performing inspections and rent
            reasonableness determinations on Authority-owned units or seeking an
            appropriate exemption from the HUD Secretary of the third party requirements,
            and training its staff on the same, because it has already obtained a waiver as part
            of its MTW demonstration participation.

            As stated in Comment 4, the Authority did not receive an approval to waive the
            third party rent reasonableness determinations requirements. Therefore, the
            Authority should work with HUD during the audit resolution process to seek an
            appropriate exemption for both rent reasonableness determinations and inspection
            requirements in order to fully implement recommendation 1B, and provide
            adequate training to its staff to ensure compliance with Section 8 program
            requirements for unit inspections and rent reasonableness determinations for
            implementing recommendation 1C.

Comment 7   The Authority agreed to reimburse its program, per recommendation 2A. The
            Authority also stated that it has taken steps to address recommendations 2B and
            2C to develop and implement procedures, including but not limited to software
            upgrades, and staff training to ensure that unit inspections are conducted in a
            timely manner.

            We appreciate the Authority’s willingness to reimburse its program for the units
            cited in Findings 2, and taking steps to address recommendations 2B and 2C. The
            Authority should work with HUD during the audit resolution process to ensure
            that the recommendations are fully implemented.

Comment 8   The Authority summarized that we inspected 30 units and found one to have an
            item requiring correction within 24 hours and that three others were in material
            noncompliance with housing quality standards.

            The Authority incorrectly summarized the inspection results by exclusively
            identifying one unit as having an item requiring correction with 24 hours. It was



                                               27
              one unit within the four units that materially failed that required correction within
              24 hours. However, in the 30 units inspected, 27 violations requiring correction
              within 24 hours were noted in 14 units.

Comment 9     The Authority stated that whether violations existed before the Authority’s last
              inspection is hard to substantiate and that we did not provide an explanation.

              We added an explanation of our approach for citing a violation as preexisting in
              the Scope and Methodology section of the report.

Comment 10 The Authority stated that we did not share our individual inspection results in a
           timely fashion until the Authority’s request at the exit conference; therefore, the
           Authority could not check the accuracy of these inspections.

              We provided the inspection results after the exit conference. Nonetheless, the
              Authority staff was present at all of the inspections, took notes during the
              inspections, and we discussed the results at the conclusion of each inspection.
              Furthermore, we believe the Authority had ample time to review and verify our
              individual inspection results before providing its written response. The Authority
              should work with HUD during the audit resolution process to sufficiently review
              and fully address the cited findings.

Comment 11 The Authority acknowledged that it concentrated on other priorities and had not
           performed supervisory quality control inspections for several fiscal years; and
           therefore, per recommendations 3A, 3B, and 3C it will (1) reimburse the voucher
           program $6,084 for units that we found to materially fail the housing quality
           standards, (2) reinspect the 26 failing units cited and certify along with the owners
           that the housing quality standards violations have been corrected, and (3) perform
           the required quality control housing quality standards inspections in compliance
           with its HUD-approved MTW Plan.

              We appreciate the Authority’s commitment to implement recommendations 3A,
              3B, and 3C. The Authority should work with the HUD during the audit resolution
              process to ensure that the findings are appropriately addressed and
              recommendations are fully implemented.




                                                 28
Appendix C


             Schedule of OIG Housing Quality Standards Inspection Results
                                                  Total       Total number      Total
Identification Materially Failed Passed       violations for    of housing   number of
   number       failed unit  unit    unit       materially        quality    preexisting
                                               failed units     violations    violations
      1              X        X                     17              17            10
      2              X        X                      8               8             5
      3                       X                                      9             7
      4                       X                                      1             0
      5                       X                                     14             9
      6                       X                                      9             7
      7                       X                                      8             2
      8                       X                                     17             6
      9                       X                                      8             3
     10                       X                                      9             3
     11                       X                                      4             2
     12                       X                                      5             5
     13                       X                                      7             5
     14              X        X                     18              18            12
     15                       X                                      4             4
     16                       X                                      6             4
     17                               X                              0             0
     18                       X                                      3             0
     19                       X                                     13             7
     20                       X                                      4             2
     21                               X                              0             0
     22              X        X                     18              18             6
     23                               X                              0             0
     24                       X                                      2             1
     25                       X                                      4             1
     26                       X                                      5             3
     27                       X                                      3             1
     28                       X                                      1             0
     29                       X                                      1             1
     30                               X                              0             0
   Total           4         26       4           61             198            106




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