Finding 1219674 (2025-004)

Finding Number: 2025-004 Finding Title: Internal Controls Over Participants Reexaminations Compliance Requirement(s): Eligibility, Special Tests – HAP Payment Classification: Significant Deficiency Programs: Section 8 Housing Choice Vouchers 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 24 CFR 985.1 Purpose and applicability. PHA's quality control sample means an annual sample of files or records drawn in an unbiased manner and reviewed by an PHA supervisor (or by another qualified person other than the person who performed the original work) to determine if the work documented in the files or records conforms to program requirements. The minimum size of the PHA's quality control sample is as follows: Universe Minimum number of files or records to be sampled 50 or less 5. 51-600 5 plus 1 for each 50 (or part of 50) over 50. 601-2000 16 plus 1 for each 100 (or part of 100) over 600. Over 2000 30 plus 1 for each 200 (or part of 200) over 2000. Where the universe is: the number of admissions in the last year for each of the two quality control samples under the SEMAP indicator at § 985.3(a) Selection from the Waiting List; the number of families assisted for the SEMAP indicators at § 985.3(b) Reasonable Rent, and 985.3(c) Determination of Adjusted Income; the number of units under HAP contract during the last completed PHA fiscal year for the SEMAP indicator at § 985.3(e) HQS Quality Control Inspections; and the number of failed HQS inspections in the last year for the SEMAP indicator at § 985.3(f) HQS Enforcement. § 985.3 Indicators, HUD verification methods and ratings (b) Reasonable rent. (1) This indicator shows whether the PHA has and implements a reasonable written method to determine and document for each unit leased that the rent to owner is reasonable based on current rents for comparable unassisted units: At the time of initial leasing; if there is any increase in the rent to owner; at the HAP contract anniversary if there is a 10 percent decrease in the published fair market rent (FMR) in effect 60 days before the HAP contract anniversary. The PHA's method must take into consideration the location, size, type, quality and age of the units, and the amenities, housing services, and maintenance and utilities provided by the owners in determining comparability and the reasonable rent. (24 CFR 982.4, 24 CFR 982.54(d)(15), 982.158(f)(7), 982.507, and 983.303) (2) HUD verification method: The IA annual audit report covering the PHA fiscal year entered on the SEMAP certification and on-site confirmatory review if performed. (3) Rating: (i) The PHA's SEMAP certification states that: (A) The PHA has a reasonable written method to determine reasonable rent which considers location, size, type, quality and age of the units and the amenities, housing services, and maintenance and utilities provided by the owners; and (B) Based on the PHA's quality control sample of tenant files, the PHA follows its written method to determine reasonable rent and has documented its determination that the rent to owner is reasonable in accordance with §§ 982.507 and 983.303 of this chapter, as applicable for at least 98 percent of units sampled at the time of initial leasing, if there is any increase in the rent to owner, and at the HAP contract anniversary if there is a 10 percent decrease in the published FMR in effect 60 days before the HAP contract anniversary. 20 points. (ii) The PHA's SEMAP certification includes the statements in paragraph (b)(3)(i) of this section, except that the PHA documents its determination of reasonable rent for only 80 to 97 percent of units sampled at initial leasing, if there is any increase in the rent to owner, and at the HAP contract anniversary if there is a 10 percent decrease in the published FMR in effect 60 days before the HAP contract anniversary. 15 points. (iii) The PHA's SEMAP certification does not support the statements in either paragraph (b)(3)(i) or (b)(3)(ii) of this section. 0 points. (c) Determination of adjusted income. (1) This indicator shows whether, at the time of admission and annual reexamination, the PHA verifies and correctly determines adjusted annual income for each assisted family and, where the family is responsible for utilities under the lease, the PHA uses the appropriate utility allowances for the unit leased in determining the gross rent. (24 CFR part 5, subpart F and 24 CFR 982.516) (2) HUD verification method: The IA annual audit report covering the PHA fiscal year entered on the SEMAP certification and on-site confirmatory review if performed. (3) Rating: (i) The PHA's SEMAP certification states that, based on the PHA's quality control sample of tenant files, for at least 90 percent of families: (A) The PHA obtains third party verification, as appropriate, of reported family annual income, the value of assets, expenses related to deductions from annual income, and other factors that affect the determination of adjusted income, and uses the verified information in determining adjusted income, and/or documents tenant files to show why third party verification was not available; (B) The PHA properly attributes and calculates allowances for any medical, child care, and/or disability assistance expenses; and (C) The PHA uses the appropriate utility allowances to determine gross rent for the unit leased. 20 points. (ii) The PHA's SEMAP certification includes the statements in paragraph (c)(3)(i) of this section, except that the PHA obtains and uses independent verification of income, properly attributes allowances, and uses the appropriate utility allowances for only 80 to 89 percent of families. 15 points. (iii) The PHA's SEMAP certification does not support the statements in either paragraph (c)(3)(i) or (c)(3)(ii) of this section. 0 points. 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 HACLB utilizes quality control samples from their SEMAP certification process over files documenting selections from the waiting list and income determinations to ensure compliance with requirements for HAP payments. HUD sets requirements for the minimum number of samples required for these indicators with instructions on the universe (population) to sample from and minimum samples based on that universe. HACLB utilized an incorrect universe for their sampling of the universe for determinations of adjusted income. As a result, quality control samples did not meet minimum requirements set by HUD for SEMAP. Cause HACLB calculated the minimum required quality control sample size for SEMAP Indicator 3 using the universe of rent reasonableness determinations, rather than the number of families assisted, which is the relevant population under SEMAP guidelines. Consequently, the sample-size calculation did not reflect the appropriate population. Effect or potential effect Insufficient controls over the reexamination process could lead to ineligible participants in the program, housing assistance payments that are either incorrect or to ineligible participants, and inaccurate reporting to HUD. Questioned costs None Context It was noted that HACLB calculated the minimum required quality control sample size for SEMAP Indicator 3 based on the universe of rent reasonableness determinations, rather than utilizing the number of families assisted as specified by SEMAP guidelines. As a result, the sample-size calculation did not accurately reflect the appropriate population. During the audit period, HACLB provided assistance to 7,309 families. According to SEMAP quality control sample size requirements, the minimum sample size for Indicator 3 should have been 57 files. However, HACLB used a universe of 2,665 rent reasonableness determinations and subsequently selected 34 files for review. Despite employing an incorrect population for the sample-size calculation, the files reviewed were ultimately drawn from the correct population of assisted families. Identification as a repeat finding if applicable 2024-007 Recommendation We recommend HACLB update policies and procedures to align the selection of quality control samples with federal requirements accordance with federal requirements. Views of responsible officials and planned corrective actions HACLB acknowledges the finding regarding the methodology used to calculate the SEMAP Indicator 3 sample size. To address this finding, HACLB reviewed HUD's SEMAP sampling requirements and will update its sample size worksheet to ensure future quality control sample sizes are calculated using the appropriate population in accordance with federal requirements. Staff responsible for SEMAP reporting and quality control reviews will receive additional guidance, training, and stay updated with regulations to ensure compliance.