Finding Number: 2025-002 Finding Title: Internal Controls and Compliance over the Timeliness of Housing Choice Voucher Participant Re-examination and Recertification Compliance Requirement(s): Eligibility, Special Tests – Housing Assistance Payment, Reporting, Allowed and Unallowed Costs Classification: Material Weakness Programs: Section 8 Housing Choice Vouchers (HCV) ALN #: 14.871 Pass-through entity: N/A – Direct Award Federal Agency: Department of Housing and Urban Development (HUD) Federal Award Numbers: Multiple – City receives incremental funding throughout the year Federal Award Year: 2025 Criteria or specific requirement (including statutory, regulatory, or other citation) Allowable Costs Principles ; Activities Allowed and Unallowed; Eligibility (§ 982.201 Eligibility and targeting) (1) The annual income (gross income) of an applicant family is used both for determination of income-eligibility under paragraph (b)(1) of this section and for targeting under paragraph (b)(2)(i) of this section. In determining annual income of an applicant family that includes a person with disabilities, the determination must include the disallowance of increase in annual income as provided in 24 CFR 5.617, if applicable. (2) The applicable income limit for issuance of a voucher when a family is selected for the program is the highest income limit (for the family size) for areas in the PHA jurisdiction. The applicable income limit for admission to the program is the income limit for the area where the family is initially assisted in the program. At admission, the family may only use the voucher to rent a unit in an area where the family is income eligible. The PHA must examine family income and composition at least once every 12 months and adjust the tenant rent and housing assistance payment as necessary using the documentation. The Department of Housing and Urban Development (HUD) has provided a grace period of 2 months before they are reported as late. § 5.657 Section 8 project-based assistance programs: Reexamination of family income and composition. (a) Applicability. This section states requirements for reexamination of family income and composition in the Section 8 project-based assistance programs, except for the moderate rehabilitation and the project based voucher programs. (b) Regular reexamination. The owner must conduct a reexamination and redetermination of family income and composition at least annually. (c) Interim reexaminations. (1) Generally. A family may request an interim reexamination of family income because of any changes since the last examination. The owner must conduct any interim reexamination within a reasonable time after the family request or when the owner becomes aware of an increase in family adjusted income under paragraph (c)(3) of this section. What qualifies as a “reasonable time” may vary based on the amount of time it takes to verify information, but such time generally should not exceed 30 days from the date a family reports changes in income to an owner. (2) Decreases in the family's annual adjusted income. The owner may decline to conduct an interim reexamination of family income if the owner estimates that the family's adjusted income will decrease by an amount that is less than ten percent of the family's annual adjusted income (or a lower amount established by HUD through notice), or such lower threshold established by the owner. (3) Increases in the family's annual adjusted income. The owner must conduct an interim reexamination of family income when the owner becomes aware that the family's adjusted income (as defined in § 5.611) has changed by an amount that the owner estimates will result in an increase of ten percent or more in annual adjusted income or such other amount established by HUD through notice, except. (i) The owner may not consider any increase in the earned income of the family when estimating or calculating whether the family's adjusted income has increased, unless the family has previously received an interim reduction under paragraph (c)(1) of this section during the certification period; and(ii) The owner may choose not to conduct an interim reexamination in the last three months of a certification period. (4) Policies on reporting changes in family income or composition. The owner must adopt policies consistent with this paragraph (c), prescribing when and under what conditions the family must report a change in family income or composition. (5) Effective date of rent changes. (i) If the family has reported a change in family income or composition in a timely manner according to the owner's policies, the owner must provide the family with 30 days advance notice of any rent increase, and such rent increase will be effective the first day of the month beginning after the end of that 30-day notice period. Rent decreases will be effective on the first day of the first month after the date of the actual change leading to the interim reexamination of family income. (ii) If the family has failed to report a change in family income or composition in a timely manner according to the owner's policies, owners must implement any resulting rent increases retroactively to the first of the month following the date of the change leading to the interim reexamination of family income. Any resulting rent decrease must be implemented no later than the first rent period following completion of the reexamination. However, rent decreases may be applied retroactively at the discretion of the owner, in accordance with the owner's conditions as established in written policy, and subject to paragraph (c)(5)(iii) of this section. (iii) A retroactive rent decrease may not be applied by the owner prior to the later of the first of the month following: (A) The date of the change leading to the interim reexamination of family income; or (B) The effective date of the family's most recent previous interim or annual reexamination (or initial examination if that was the family's last examination). Housing Authority of the City of Long Beach HCV Admin Plan Failure to Provide Consent [24 CFR §982.552(b)(3)] PHAs must terminate assistance if any family member fails to sign and submit any consent form that is required for a reexamination. See Chapter 7 for a complete discussion of consent requirements. 12-II.F. TERMINATION NOTICE HUD regulations require PHAs to provide written notice of termination of assistance to a family only when the family is entitled to an Informal Hearing. However, since the family’s HAP Contract and lease will also terminate when the family’s assistance terminates, it is a good business practice to provide written notification to both owner and family any time assistance will terminate, whether voluntarily or involuntarily. PHA Policy Whenever a family’s assistance will be terminated, the PHA will send a written notice of termination to the family and to the owner. The PHA will also send a form HUD-5382 and form HUD-5380 to the family with the termination notice. The notice will state the date on which the termination will become effective. This date generally will be at least 30 calendar days following the date of the termination notice, but exceptions will be made whenever HUD rules, other PHA policies, or the circumstances surrounding the termination require. Housing Assistance Payments (e) Effective date of reexamination. (1) The PHA must adopt policies consistent with this section prescribing how to determine the effective date of a change in the housing assistance payment resulting from an interim redetermination. (2) At the effective date of a regular or interim reexamination, the PHA must make appropriate adjustments in the housing assistance payment in accordance with § 982.505. (f) Accuracy of family income data. The PHA must establish procedures that are appropriate and necessary to assure that income data provided by applicant or participant families is complete and accurate. The PHA will not be considered out of compliance with the requirements in this section solely due to de minimis errors in calculating family income but is still obligated to correct errors once the PHA becomes aware of the errors. A de minimis error is an error where the PHA determination of family income deviates from the correct income determination by no more than $30 per month in monthly adjusted income ($360 in annual adjusted income). § 982.552 PHA denial or termination of assistance for family. (b) Requirement to deny admission or terminate assistance. (3) The PHA must deny admission to the program for an applicant, or terminate program assistance for a participant, if any member of the family fails to sign and submit consent forms for obtaining information in accordance with part 5, subparts B and F of this title. Reporting (24CFR982.516(d)) Family reporting of change. The PHA must adopt policies consistent with this section prescribing when and under what conditions the family must report a change in family income or composition.. 24 CFR Part 908 and 24 CFR section 982.158 The HUD-50058, Family Report (OMB No. 2577- 0083) is required to be submitted by the PHA electronically to HUD each time the PHA completes an issuance, admission, annual reexamination, interim reexamination, portability move-in, expiration, or other change of unit for a family. The PHA must also submit the Family Report when a family ends participation in the program or moves out of the PHA’s jurisdiction under portability. 2 CFR 200 SUBPART D – POST FEDERAL AWARD REQUIREMENTS 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal controls designated to reasonably ensure compliance with Federal laws, regulations and program compliance requirements. Effective internal controls should include procedures to ensure eligibility criteria are met and documented. Condition For 35 of 60 participants tested, the annual re-examination of eligible participants or redetermine family income on an annual basis (12 months). Of these 35 eligible participants noted as not completed in the annual period, 4 were completed within the 2-month grace period, before HUD considers the re-examination late for its purposes. The remaining 31 participants were not subject to reexamination until after 14 months. For one additional participant, the documentation needed to complete the income reexamination was not received by the established deadline. HACLB notified the participant in November 2024 of a March 2025 due date, and on April 22, 2025 issued a request for additional documentation, indicating the information was needed by May 9, 2025. After the documentation was not received, there was an extended gap before further follow-up occurred, and HACLB issued a notice regarding the participant's assistance in March 2026. As a result, the annual reexamination was not completed within the required period. Cause The cause of the late reexaminations was due to the volume of participants within the HCV program in relation to the resources available at HACLB to administer the program. Effect or potential effect Failure to review participant eligibility annually may result in noncompliance with HUD regulations. Furthermore, this lapse can allocate program resources to ineligible participants, leading to unallowable costs. When delays occur in the re-examination process and subsequent adjustments require decreased payments, the housing authority may inadvertently make overpayments during the intervening period. Questioned costs Known questioned costs of $29,566; likely questioned costs of $1,128,681. Questioned costs were determined from a sample of 60 participants during fiscal year 2025. For each sampled participant whose reexamination was completed after its required date and who required a HAP (Housing Assistance Payment) reduction upon reexamination, the difference between the two payment amounts, with applicable program safe harbors incorporated, was multiplied by the number of months the reexamination extended beyond its required date, aggregating to known questioned costs of $29,566. The population used in the projection was then bifurcated, isolating late reexaminations resulting in 1,363 of the 7,226 reexaminations due during the year (18.86%) being identified as completed after their required date. Total HAP payments for the year were multiplied by the percentage of late re-examinations and then by the error rate found in late re-examinations during our testing to project likely questioned costs of approximately $1,128,681, an effective error rate of 0.86% for the programs total HAP. Context HACLB has 75 employees who are responsible for the administration of the programs over 7,800 participants, or over 100 re-examinations per employee. Identification as a repeat finding if applicable 2024-003 Recommendation We recommend the City continue with its plan to address delays in the recertification processes through steps taken to address resource constraints. Views of responsible officials and planned corrective actions The Housing Authority of the City of Long Beach (HACLB) acknowledges the finding regarding the untimely completion of annual reexaminations and recognizes the importance of completing annual recertifications within HUD-required timeframes to ensure program compliance and the accurate administration of housing assistance. The delays identified during the audit period occurred while HACLB was addressing a significant backlog of overdue annual reexaminations that had accumulated over several years due to extended vacancies in critical Housing Specialist positions. Recruitment and hiring efforts took longer than anticipated, resulting in staffing levels that were insufficient to address both ongoing workload demands and the existing backlog. HACLB agrees that certain annual reexaminations were completed beyond HUD’s timeliness requirements and has implemented corrective actions to address the backlog and strengthen compliance. To strengthen program operations, HACLB has hired and trained additional Housing Specialists, implemented the MRI housing management system to improve workflow tracking and case management, enhanced supervisory oversight of overdue annual reexaminations, and continued utilizing contracted support services to assist with processing pending cases. HACLB is also developing a Request for Proposals (RFP) to procure additional specialized support services to further reduce the remaining backlog and help ensure ongoing compliance with HUD timeliness requirements. As a result of these efforts, HACLB has made substantial progress in reducing the backlog, improving operational efficiency, and strengthening internal controls over the tracking and completion of annual reexaminations. Historically, findings related to untimely annual reexaminations have generally been addressed as compliance and performance deficiencies rather than as questioned costs. While the audit identified $29,596 in known questioned costs within the sample, the extrapolated questioned costs are not equivalent to actual overpayments during the year. The sampled questioned costs represent only those delayed annual reexaminations that resulted in a reduction in HAP assistance. Delayed annual reexaminations may also result in no change in assistance, an increase in assistance, or adjustments that are mitigated by applicable HUD requirements. The extrapolation assumes that all delayed annual reexaminations produce overpayments at the same rate observed in the sample, which may not accurately represent program-wide experience. Furthermore, the projection assumes that the reduced HAP amount determined during the eventual annual reexamination would have applied throughout the entire period of delay. However, participant income and household composition frequently change over time. The annual reexamination reflects eligibility at a specific point in time and does not necessarily establish that the same reduced subsidy would have been applicable during each month of the delayed period. HACLB recognizes the importance of timely annual reexaminations and remains committed to maintaining full compliance with HUD requirements.