Finding 1229824 (2025-002)

Finding 2025-002 Subject: Section 8 Housing Choice Voucher Program – Failure to Implement Small Area Fair Market Rent Payment Standards Federal Agency: Department of Housing and Urban Development Federal Program: Section 8 Housing Choice Vouchers Assistance Listing Number: 14.871 Federal Award Number and Year (or Other Identifying Number): CY 2025 Pass-Through Entity: Not applicable Compliance Requirement: Special Tests and Provisions Audit Finding: Material Weakness Condition and Context: The Ferndale Housing Commission operates its Housing Choice Voucher program within the Detroit- Warren-Livonia, Michigan HUD Metro Fair Market Rent Area, which HUD designated as an area subject to mandatory use of Small Area Fair Market Rents (“SAFMR”). HUD required public housing agencies in the newly designated areas to implement SAFMR based payment standards no later than January 1, 2025. However, the Housing Commission continued to use metropolitan area payment standards rather than ZIP code based SAFMR payment standards when calculating housing assistance payments for certain participant families during 2025. Of the 40 participant files selected for testing, all files contained a recertification or other action that did not apply the applicable ZIP code based payment standard. Instead, the Housing Commission used its former metropolitan area payment standard. Criteria: HUD Notice PIH 2023-32 identifies the Detroit-Warren-Livonia, Michigan HUD Metro FMR Area as a mandatory SAFMR area. The notice established an implementation date of October 1, 2024, and provided PHAs until January 1, 2025, to implement SAFMR payment standards. 24 CFR section 982.503 states: (a)(1) “Annually, HUD publishes fair market rents (FMRs) for U.S. Postal Service ZIP code areas, metropolitan areas, and nonmetropolitan counties (see 24 CFR 888.113). The HUD-published Small Area FMR for any metropolitan area designated as a Small Area FMR area by HUD in accordance with 24 CFR 888.113(c)(1).” Additionally, 24 CFR § 982.503(b) requires the PHA to establish a payment standard amount for each unit size within each payment standard area. The payment standard amounts must generally fall within the applicable basic range established by the regulation. HUD requires PHAs to perform annual reviews of the adequacy of payment standard scheduled and to amend them as needed. Cause: Management did not update its payment standard schedule and housing software timely to incorporate ZIP code based SAFMR payment standards. The Housing Commission also did not establish an effective review control to verify that the proper payment standards were used when processing applicable certifications and recertifications. Effect: Because the Housing Commission used metropolitan area wide payment standards instead of the applicable ZIP code based SAFMR payment standards, housing assistance payments to owners and family rent amounts may have been incorrectly calculated. The error may have resulted in:  Overpayments or underpayments of housing assistance  Incorrect family rent burdens  Amounts owed to or by participating families or owners and  Noncompliance with HUD’s SAFMR requirements The full financial effect could not be determined from the files originally selected for testing because the Housing Commission had not performed a review of the affected participant population. Questioned Cost: Known and projected misstatement cannot be determined due to incomplete information. Recommendation: We recommend the Housing Commission perform the following: Adopt and maintain a ZIP code based SAFMR payment standard schedule consistent with HUD requirements  Update its housing software to apply the appropriate payment standard based on the assisted unit’s ZIP code, bedroom size, and applicable effective date  Establish a supervisory review control to verify that payment standards are properly updated and applied  Review all participant transactions affected by the SAFMR implementation to identify HAP and family rent calculation errors  Correct prospective payments and resolve prior overpayments or underpayments in accordance with HUD requirements  Provide appropriate SAFMR implementation and calculation training to employees responsible for eligibility and HAP calculations