Finding 2024-001 E. Eligibility, L. Reporting (Form HUD-50058 MTW), and N. Special Tests and Provisions – N1. Waiting List, N2. Reasonable Rent, N3. Utility Allowance Schedule, N6. Housing Assistance Payment Identification of the federal program: Federal Agency: U.S. Department of Housing and Urban Development (HUD) Federal Assistance Listing Number: 14.881 Federal Program Name: Moving to Work (MTW) Demonstration Program Public and Indian Housing (Public Housing) Program Year: January 1, 2024 through December 31, 2024 Program No.: IL002-01-00024D Section 8 – Housing Choice Vouchers (HCV) and Rental Assistance Demonstration (RAD) Program Year: January 1, 2024 through December 31, 2024 Program No.: Multiple Criteria or specific requirement (including statutory, regulatory or other citation): 2 CFR section 200.303 of the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states the following regarding internal control: “The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).” Eligibility – Most Public Housing Authorities (PHAs) devise their own application forms that are filled out by the PHA staff during an interview with the tenant. The head of the household signs: (1) one or more release forms to allow the PHA to obtain information from third parties; (2) a federally prescribed general release form for employment information; and (3) a privacy notice. Under some circumstances, other members of the family are required to sign these forms (24 CFR sections 5.212, 5.230, and 5.601 through 5.615). The PHA must: • As a condition of admission or continued occupancy, require the tenant and other family members to provide necessary information, documentation, and releases for the PHA to verify income eligibility (24 CFR sections 5.230, 5.609, 960.259, and 982.516). • For both family income examinations and reexaminations, obtain and document in the family file third-party verification of: (1) reported family annual income; (2) the value of assets; (3) expenses related to deductions from annual income; and (4) other factors that affect the determination of adjusted income or income-based rent (24 CFR section 960.259 and 982.516). • Determine income eligibility and calculate the tenant’s rent payment using the documentation from third-party verification in accordance with 24 CFR part 5 subpart F (24 CFR sections 5.601 et seq.) (24 CFR sections 960.253, 960.255, 960.259, 982.201, 982.515, and 982.516). • Select tenants from the waiting list (24 CFR sections 960.206 through 960.208 and 982.202 through 982.207). • Reexamine family income and composition at least once every 12 months (Public Housing program) or 24 months (HCV program) and adjust the tenant rent and housing assistance payment as necessary using the documentation from third-party verification (24 CFR sections 960.253, 960.257, 960.259, and 982.516). In addition, the Chicago Housing Authority (the Authority) is participating in HUD’s Moving to Work (MTW) Demonstration Program. The Authority’s initial MTW Agreement was signed by the Authority and HUD on February 6, 2000, at which time HUD allowed the Authority to implement its Plan for Transformation. On June 26, 2008, the Authority and HUD signed the Amended and Restated MTW Agreement that extended the Authority’s participation in the MTW program through December 31, 2018. On April 4, 2016, the MTW Agreement was further modified and extended through December 31, 2028. Through this agreement, HUD waived selected statutory and regulatory requirements to allow the Authority flexibility in achieving the stated objectives of the MTW Demonstration Program. As such, per the Authority’s HCV Administrative Plan, reexamination of family income and composition under the HCV program is performed biennially or triennially. Reporting (Form HUD-50058 MTW) – Per 24 CFR part 908 and 24 CFR section 982.158, the PHA is required to submit the Form HUD-50058 MTW, Family Report, each time the PHA completes an admission, annual reexamination, interim reexamination, portability move-in, or other change of unit for a family. The PHA must also submit the Form HUD-50058 when a family ends participation in the program or moves out of the PHA’s jurisdiction under portability. The following line items on Form HUD-50058 MTW contain critical information: (1) Line 1c – Program (2) Line 2a – Type of Action (3) Line 2b – Effective Date of Action (4) Line 2k – FSS Participation Now or in the Last Year (5) Line 3b, 3c – Last Name, First Name (6) Line 3e – Date of Birth (7) Line 3n – Social Security Numbers (8) Line 5a – Unit Address (9) Line 5h – Date Unit Last Passed HQS Inspection (10) Line 5i – Date of Last Annual Inspection (11) Line 7i – Total Annual Income (12) Line 13h – Contract Rent to Owner (13) Line 13k – Tenant Rent (14) Line 13x – Mixed Family Tenant Rent (15) Line 17a – Participation in Special Programs – Participation in the Family Self Sufficiency (FSS) Program (16) Line 17k(2) – FSS Account Information – Balance Condition: Eighty tenants and participants were selected for testing internal controls over compliance with the eligibility and Form HUD-50058 MTW reporting requirements for the program. These same tenants and participants were tested for compliance with Form HUD-50058 MTW reporting requirements. For the 80 tenants and participants selected, 40 were Public Housing and RAD tenants (23 Public Housing and 17 RAD) and 40 were Housing Choice Voucher (HCV) participants. There were five Public Housing tenants, two RAD tenants, and four HCV participants for which control deviations were noted over eligibility and Form HUD-50058 reporting requirements (13.8% overall MTW deviation rate). There was one Public Housing tenant and one RAD tenant for which compliance exceptions were noted over Form HUD-50058 MTW reporting requirements (2.5% overall MTW exception rate). The nature of the control deviations and compliance exceptions identified are as follows: Control: • In the case that a certification and/or recertification was to be performed in 2024, relevant forms were signed after the effective date and submittal to HUD (Low Rent—three instances and RAD—one instance). • In the case that a certification and/or recertification was to be performed in 2024, it was not retained on file (Low Rent—one instance). • In the case that a recertification was to be performed in 2024, the examination/re-examination checklist was initialed by the certification specialist (CS), but forms were missing and/or not signed by tenant and recertification clerk (Low Rent—one instance). • In the case that a change in unit was to be performed in 2024, previous re-examination was not retained on file and HUD Key Line items could not be agreed (RAD—one instance). • In the case that a certification and/or recertification was to be conducted in 2024, relevant forms were not signed before HUD 50058 effective date (HCV—two instances). • In the case that a certification and/or recertification was to be conducted in 2024, recertification was not conducted (HCV—one instance). • In the case that a certification and/or recertification was to be conducted in 2024, the Form HUD 50058, Family Report, was not sent (i.e., no MTCS sent date was visible in Yardi) (HCV—one instance). Compliance: • In the case that a certification and/or recertification was to be performed in 2024, it was not retained on file and HUD Key Line items could not be agreed (Low Rent—one instance). • In the case that a change in unit was to be performed in 2024, previous re-examination was not retained on file and HUD Key Line items could not be agreed (RAD—one instance). In addition, 80 tenants and participants were selected for testing of compliance with eligibility requirements for the program. For the 80 tenants and participants selected, 40 were Public Housing and RAD tenants (23 Public Housing and 17 RAD) and 40 were HCV participants. In our testing, there were six Public Housing tenants, two RAD tenants, and one HCV participant with compliance exceptions (11.3% overall MTW exception rate). The nature of the compliance exceptions identified is as follows: • In the case that a certification and/or recertification was to be performed, relevant forms were not signed (Low Rent—one instance). • In the case that a certification and/or recertification was to be performed, annual income was not properly calculated. Therefore, rent was not properly calculated (Low Rent—one instance). • In the case that a certification and/or recertification was to be performed, relevant forms were not signed and annual income support was not provided. Therefore, EY could not determine whether annual income and rent were properly calculated (Low Rent—one instance). • In the case that a certification and/or recertification was to be performed, annual income support was not provided. Therefore, EY could not determine whether annual income and rent were properly calculated (Low Rent—one instance). • In the case that a certification and/or recertification was to be performed, relevant forms were signed after the effective date and submittal to HUD (Low Rent—two instances and RAD—one instance). • In the case that a certification and/or recertification was to be conducted in 2024, recertification was not conducted (RAD—one instance). • In the case that a certification and/or recertification was to be conducted in 2024, recertification was not conducted (HCV—one instance). Furthermore, for Public Housing, RAD, and HCV, the quality review specialists perform a quality review of a sample of tenant/participant recertification files to ensure compliance with eligibility and reporting (Form HUD-50058 MTW) requirements. For Public Housing and RAD, management did not maintain evidence of documentation of completeness and accuracy regarding populations utilized in selecting samples for the quality control reviews performed for the entirety of FY24. In addition, management did not design an internal control to ensure findings identified in the quality control review are resolved. Also, for HCV, a control was tested in FY23 but found to be ineffective due to control design deficiency: The Authority was not consistently documenting follow-up activities on identified findings from the quality control reviews in a timely manner. Corrective action was not implemented until late 2024, however, as a substantial portion of the audit year was not subject to the revised control. Cause: Management has not designed an internal control to ensure that the compliance requirements are met. Effect or Potential Effect: Ineligible tenants or participants may be inappropriately allowed to participate in federal programs, and information reported to HUD could be inaccurate or incomplete. Questioned Costs: None. Context: The Public Housing programs had 12,417 (Low Rent) and 5,706 (RAD) tenants on its rent rolls, respectively, as of December 31, 2024. The Low Rent and RAD programs reviewed 6,630 and 4,923 tenants, respectively, during 2024. The HCV program had 51,403 participants as of December 31, 2024, and 33,545 participants who were reviewed for eligibility during 2024. All active tenants and participants have a Form HUD-50058 MTW, which is filed annually (Public Housing and RAD), biennially (HCV), or triennially (HCV). Identification as a Repeat Finding, if Applicable: This finding is a repeat of finding 2023-001 from the prior year. Recommendation: The Authority should design sufficiently precise policies, procedures, and internal controls to ensure ineligible tenants or participants are not inappropriately allowed to participate in federal programs and reporting to HUD is complete and accurate. Views of Responsible Officials: Management concurs with the finding and has developed a plan to correct the finding.