Audit 323958

Department of Housing and Urban Development - Section 8 Housing Assistance Payment Program ALN # 14.195 – Section 8 Project-Based Cluster Significant Deficiency and Material Instance of Noncompliance – Eligibility 2023-001 - Determination of Contract Rents and Maintenance of Tenant Files Criteria: OMB Uniform Guidance Compliance Supplement for the Section 8 Housing Assistance Program requires that for all family income examinations and reexaminations, the Housing Authority must obtain and document third-party verification of (1) reported family income, (2) the value of assets, (3) expenses related to deductions, and (4) other factors that affect the determination of adjusted income or income-based rent at least once every 12 months. The program also includes other non-financial eligibility requirements, including required unit inspections on an annual basis. Condition: • We noted 8 files out of 40 tested did not contain sufficient income verification documentation. • We noted rental charges for 20 tenants out of 40 tested did not match the amount per the recertification and tenant file due to the recertification not being performed within the 12 month period. Cause: Policies and procedures with respect to the determination of eligibility and maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of the Subsidized Multifamily Housing Programs were not consistently followed. Effect: The procedures for determining eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Tenant rental charges are determined based on 30% of their adjusted income total. Improper verification of income allows for misreporting of income and potential errors in the rent subsidies paid by HUD. Questioned Costs: Undetermined. Recommendation: We recommend that Housing Authority work to immediately perform proper recertifications for all tenants for which have been done incorrectly or not performed at all. Views of Responsible Officials and Planned Corrective Action: The Housing Authority believes they have all files up to date and with sufficient supporting documentation into 2024. The Housing Authority staff also plans to take continuing education courses on the management of the RAD program.

Significant Deficiency and Material Instance of Noncompliance - Special Tests & Provisions 2023-002 - Reserve Funds for Replacement Criteria: In accordance with its Housing Assistance Payment contract/RAD Conversion Commitment (RCC), the Housing Authority is required to establish and maintain a replacement reserve in an interest-bearing account to aid in funding extraordinary maintenance and repair and replacement of capital items in accordance with the RCC. Condition: As a result of our audit procedures we determined that while the replacement reserve accounts had been established, the HUD-approved required deposits were not made in accordance with the RCC. Cause: Management failed to follow required procedures for making the required deposits. Effect: Because the required deposits to the replacement reserve were not made and maintained, the Projects did not adequately escrow balances for the replacement reserve accounts. Questioned Costs: Undetermined. Recommendation: Management should establish internal controls and procedures to ensure that required monthly deposits are made in accordance with the RCC. Views of Responsible Officials and Planned Corrective Action: Management will make the monthly required deposits for the reserve in accordance with grant program requirements and their established procedures.

Department of Housing and Urban Development - Section 8 Housing Assistance Payment Program ALN # 14.195 – Section 8 Project-Based Cluster Significant Deficiency and Material Instance of Noncompliance – Eligibility 2023-001 - Determination of Contract Rents and Maintenance of Tenant Files Criteria: OMB Uniform Guidance Compliance Supplement for the Section 8 Housing Assistance Program requires that for all family income examinations and reexaminations, the Housing Authority must obtain and document third-party verification of (1) reported family income, (2) the value of assets, (3) expenses related to deductions, and (4) other factors that affect the determination of adjusted income or income-based rent at least once every 12 months. The program also includes other non-financial eligibility requirements, including required unit inspections on an annual basis. Condition: • We noted 8 files out of 40 tested did not contain sufficient income verification documentation. • We noted rental charges for 20 tenants out of 40 tested did not match the amount per the recertification and tenant file due to the recertification not being performed within the 12 month period. Cause: Policies and procedures with respect to the determination of eligibility and maintenance of tenant lease files in accordance with HUD Handbook 4350.3, Occupancy Requirements of the Subsidized Multifamily Housing Programs were not consistently followed. Effect: The procedures for determining eligibility and maintaining tenant lease files were not consistently applied in accordance with HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs. Tenant rental charges are determined based on 30% of their adjusted income total. Improper verification of income allows for misreporting of income and potential errors in the rent subsidies paid by HUD. Questioned Costs: Undetermined. Recommendation: We recommend that Housing Authority work to immediately perform proper recertifications for all tenants for which have been done incorrectly or not performed at all. Views of Responsible Officials and Planned Corrective Action: The Housing Authority believes they have all files up to date and with sufficient supporting documentation into 2024. The Housing Authority staff also plans to take continuing education courses on the management of the RAD program.

Significant Deficiency and Material Instance of Noncompliance - Special Tests & Provisions 2023-002 - Reserve Funds for Replacement Criteria: In accordance with its Housing Assistance Payment contract/RAD Conversion Commitment (RCC), the Housing Authority is required to establish and maintain a replacement reserve in an interest-bearing account to aid in funding extraordinary maintenance and repair and replacement of capital items in accordance with the RCC. Condition: As a result of our audit procedures we determined that while the replacement reserve accounts had been established, the HUD-approved required deposits were not made in accordance with the RCC. Cause: Management failed to follow required procedures for making the required deposits. Effect: Because the required deposits to the replacement reserve were not made and maintained, the Projects did not adequately escrow balances for the replacement reserve accounts. Questioned Costs: Undetermined. Recommendation: Management should establish internal controls and procedures to ensure that required monthly deposits are made in accordance with the RCC. Views of Responsible Officials and Planned Corrective Action: Management will make the monthly required deposits for the reserve in accordance with grant program requirements and their established procedures.