Finding 2025-002: Housing Voucher Cluster- Section 8 Housing Choice Vouchers Criteria: The Uniform Guidance requires that local entities receiving federal awards establish and maintain internal control designed to reasonably ensure compliance with laws, regulations, and program compliance requiremen...
Finding 2025-002: Housing Voucher Cluster- Section 8 Housing Choice Vouchers Criteria: The Uniform Guidance requires that local entities receiving federal awards establish and maintain internal control designed to reasonably ensure compliance with laws, regulations, and program compliance requirements. The Uniform Guidance further requires auditors to obtain an understanding of the local entity's internal control over federal programs. To minimize the risk of errors, internal controls should be in place for all program compliance requirements, including the review and approval of participant eligibility. Condition/Context: After completing an internal investigation and an extensive analysis of payments under the program, the City determined there was $16,424 in housing assistance payments paid to ineligible participants in 2025. In a sample of 60 benefit payments, excluding the aforementioned payments, no additional instances of payments to ineligible participants were found during the audit. Our sample was not statistically valid. Cause: Payments to ineligible participants were due to City employees' falsification of records, undisclosed conflict of interest, and collusion. Questioned Costs: All known questioned costs related to 2025 were identified by the City and are included in the condition/context section above. There were no questioned costs identified that exceed the required reporting threshold. Effect: Payments were made to ineligible participants. Recommendation: We recommend the City implement internal controls in order to prevent ineligible beneficiary payments. Corrective Action Planned: The City of Janesville has internal controls that ensure that Section 8 Housing Choice Vouchers clients are eligible to be served by the program. Employees receive training on program eligibility guidelines. Employees are subject to background checks prior to employment. Employees also are provided with, and acknowledge the City's conflict of interest policy. Conflicts of interest are to be reported to the supervisor so conflicts can be avoided by providing the subject participant to another case manager. Additionally, all conflict of interest applications are reviewed by a supervisor. Applicants are required to complete an application and provide documentation proving income and other eligibility requirements for the program are met. The case manager reviews this documentation and makes an initial determination as to eligibility. Annually, the City performs quality control checks on client files to review eligibility, income calculations, and inspection requirements. The quality control checks are done by a supervisor. Each payment batch also goes through a review process before being paid. In this instance, the two employees that initiated the files for eligibility, respectively, colluded to circumvent the system of controls in place. The two employees falsified eligibility documents, failed to disclose the conflict of interest, and deemed related parties (families and friends) to be eligible for benefits, The employees then approved the payments for each other's clients to avoid detection of the ineligible payments. This collusion allowed for the employees to provide benefits to ineligible related parties. When another employee was asked to initiate an inspection, she recognized that the inspection was with a related party and reported it to a supervisor. This led to the supervisor doing a review, and at that time, it was discovered that the employees appeared to be approving benefits to ineligible, related parties, in violation of both City and Housing and Urban Develop (HUD) policies. Once discovered, the City immediately did a thorough and complete investigation and referred the matter to the Police Department for investigation into possible criminal charges. Both employees were placed on Administrative Leave of Absence and subsequently resigned their positions. Formal felony criminal charges were referred to, and filed by, the District Attorney. Those cases are pending. The internal controls in place do not contemplate the ability to prevent collusion from circumventing the controls. To implement such controls would be financially prohibitive. The City's detection controls identified fraud prior to the fraud exceeding the required reporting threshold. However, the City self-reported the fraud to both our independent auditors and HUD. Given the unique nature of two employees colluding to circumvent the City's internal controls, the fact that detection controls stopped the fraud before it materially impacted the program, and the City's response to seek criminal charges, the City believes this matter is a unique event and will not occur again in the future. Furthermore, the City believes that it would be cost-prohibitive to hire the additional staff necessary to prevent internal controls being circumvented by collusion. Planned Completion Date for the Corrective Action Plan: Completed. Contact Persons Responsible for the Corrective Action Plan: The following Finance Office staff members are responsible for items outlined above in the Corrective Action Plan: • David Godek, Finance Director • Jennifer Petruzzello, Neighborhood and Community Services Director • Kelly Bedessem. Housing and Emergency Management Director