Finding 2025-001 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 Programs: 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, 2025 through December 31, 2025 Program No.: IL002-01-00025D Section 8 – Housing Choice Vouchers (HCV) and Rental Assistance Demonstration (RAD) Program Year: January 1, 2025 through December 31, 2025 Program No.: Multiple Federal Assistance Listing Numbers: 14.871 and 14.879 Federal Program Name: Housing Voucher Cluster Section 8 – Housing Choice Vouchers (HCV) – Veterans Affairs Supporting Housing (VASH) and Emergency Housing Vouchers (EHV) Mainstream Vouchers Program Year: January 1, 2025 through December 31, 2025 Program No.: Multiple Federal Assistance Listing Number: 14.856 Federal Program Name: Section 8 Project Based Cluster Lower Income Housing Assistance Program – Section 8 Moderate Rehabilitation (MOD) Program Year: January 1, 2025 through December 31, 2025 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 recipient and subrecipient must: (a) Establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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).” MTW Demonstration Program and Housing Voucher Cluster 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: (a) a certification that the information provided to the PHA is correct; (b) one or more release forms to allow the PHA to obtain information from third parties; (c) a federally prescribed general release form for employment information; and (d) 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 sections 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 section 5.601 et seq.) (24 CFR sections 960.253, 960.255, 960.259, 982.201, 982.515, and 982.516). • Use the Enterprise Income Verification (EIV) system in its entirety to verify tenant employment and income information during mandatory reexaminations of family composition and income in accordance with 24 CFR 5.233; and reduce administrative and subsidy payment errors in accordance with 24 CFR 5.236 and other administrative guidance issued by HUD. • 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 or CHA) 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. Section 8 Project-Based Cluster Eligibility – The PHA or owner, as applicable, must: • Verify the eligibility of applicants by (a) obtaining signed applications that contain the information needed to determine eligibility (including designation as elderly, disabled, or homeless, if applicable), income, rent, and order of selection; (b) conducting verifications of family income and other pertinent information (such as assets, full time student and immigration status, and unusual medical expenses) through third parties the PHA or owner must use HUD’s Enterprise Income Verification (EIV) system in its entirety: (i) as a third-party source to verify tenant employment and income information during annual and streamlined reexaminations of family composition and income, and to reduce administrative and subsidy payment errors 24 CFR 5.233; (c) documenting inspections and tenant certifications, as appropriate; and, (d) determining that tenant income did not exceed the maximum limit set by HUD for the PHA’s jurisdiction, as shown in HUD’s published notice transmitting the Limits for Low-Income and Very Low-Income Families Under the Housing Act of 1937. For the Mod Rehab SRO program, eligible individuals must be homeless upon entry into the program (24 CFR sections 880.603, 881.601, 882.514, 882.808, 833.701, 884.214, 886.119, and 886.318). • Determine the total tenant rent payment in accordance with 24 CFR section 5.628. • Select participants from the waiting list in accordance with the admission policies in its administrative plan and maintain documentation which shows that, at the time of admission, the family actually met the preference criteria that determined the family’s place on the waiting list. For the Mod Rehab SRO program, eligible individuals may be referred to the PHA for eligibility determination as a result of the owner’s/sponsor’s outreach or through the PHA waiting list (24 CFR sections 880.603, 881.601, 882.514, 882.808(b)(2), 883.701, 884.214, and 886 subparts A and C). • Reexamine family income and composition at least once every 12 months and adjust the total rent payment and housing assistance payment, as necessary (24 CFR sections 5.657, 880.603, 881.601, 882.515, 883.701, 884.218, 886.124, and 886.324). The PHA or owner may elect to apply a streamlined income determination to families receiving fixed income as described in 24 CFR 5.657 (d)(3). MTW Demonstration Program and Housing Voucher Cluster 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 Section 8 Project-Based Cluster Reporting (Form HUD-50058) – The PHA is required to submit this form electronically to HUD 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 Family Report 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 contain critical information: (1) Line 2a – Type of Action (2) Line 2b – Effective Date of Action (3) Line 3b, 3c – Names (4) Line 3e – Date of Birth (5) Line 3n – Social Security Numbers (6) Line 5a – Unit Address (7) Line 5h, 5i – Unit Inspection Dates (8) Line 7i – Total Annual Income (9) Line 13h – Contract Rent to Owner (10) Line 13k or 13x – Tenant Rent Condition: MTW Demonstration Program – 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 11 Public Housing tenants, four RAD tenants, and 10 HCV participants for which control deviations were noted over eligibility (31.25% overall MTW deviation rate). • There were four Public Housing tenants and one HCV participant for which control deviations and compliance exceptions were noted over Form HUD-50058 reporting requirements (6.25% overall MTW deviation/exception rate). In addition, 80 tenants and participants were selected to test compliance with eligibility requirements for the program. For the 80 tenants and participants selected, 40 were Public Housing and RAD tenants (27 Public Housing and 13 RAD) and 40 were HCV participants. • There were 10 Public Housing tenants, three RAD tenants, and 18 HCV participants for which compliance exceptions were noted over eligibility requirements (38.75% overall MTW exception rate). The nature of the control deviations and compliance exceptions identified are as follows (some tenants/participants could have multiple issues): Control In the case that a certification and/or recertification was to be performed in 2025: • The examination/reexamination checklist was initialed by the certification specialist (CS), but forms were missing and/or not signed by tenant and recertification clerk (Public Housing – nine instances, RAD – four instances). • Relevant forms were not retained on file (Public Housing – three instances, RAD – four instances). • Annual income was not properly calculated; therefore, rent was not properly calculated (Public Housing – four instances, HCV – one instance). • Relevant forms were signed after the effective date (Public Housing – four instances, RAD – one instance). • Relevant forms were not signed (Public Housing – two instances). • Recertification was not conducted (Public Housing – one instance). In the case that a certification and/or recertification was to be performed in 2025 or in a prior year: • The recertification was not conducted within the required period (HCV – nine instances). Compliance In the case that a certification and/or recertification was to be performed: • Relevant forms were signed after effective date (Public Housing – four instances and RAD – one instance). • Relevant forms were not retained on file (Public Housing – two instances). • Annual income was not properly calculated; therefore, rent was not properly calculated (Public Housing – four instances, RAD – two instances). • Relevant forms were not updated or revised as required (Public Housing – one instance). • Recertification was not conducted (Public Housing – one instance, HCV – five instances). • Recertification was not conducted within the required period (RAD – one instance, HCV – thirteen instances). Housing Voucher Cluster – Forty participants were selected for testing internal controls over compliance with the eligibility and Form HUD-50058 reporting requirements for the program. These same participants were tested for compliance with Form HUD-50058 reporting requirements. There were two participants for which control deviations were noted over eligibility (5% deviation rate). Specifically, in the case that a certification and/or recertification was to be performed, the recertification was not conducted within the required period. In addition, 40 participants were selected for testing of compliance with eligibility requirements for the program. There were seven participants for which compliance exceptions were noted over eligibility requirements (17.50% exception rate). Specifically, in the case that a certification and/or recertification was to be performed in 2025: • The recertification was not conducted (one instance). • The recertification was not conducted within the required period (six instances). Section 8 Project-Based Cluster – Forty tenants were selected for testing internal controls over compliance with the eligibility and Form HUD-50058 reporting requirements for the program. These same tenants were tested for compliance with Form HUD-50058 reporting requirements. There were five tenants for which control deviations were noted over eligibility (12.50% deviation rate). Specifically, the reexamination performed in 2025 was not within the required twelve-month period. In addition, 40 participants were selected for testing of compliance with eligibility requirements for the program. There were 10 tenants for which compliance exceptions were noted over eligibility requirements (25% exception rate). The nature of the compliance exceptions was as follows: • Income calculated and in Form HUD-50058 did not agree to third-party income documentation (one instance). • In the case that a reexamination was to be conducted in 2025, the reexamination was not conducted in a timely manner (seven instances). • In the case that a reexamination was to be conducted in 2025, the reexamination was not conducted (two instances). MTW Demonstration Program, Housing Voucher Cluster and Section 8 Project-Based Cluster – Furthermore, the Authority’s quality review specialists perform a quality review of a sample of tenant/participant recertification files for all programs to ensure compliance with eligibility and reporting (Form HUD-50058 MTW) requirements and various special tests and provisions requirements. Forty tenants and participants were selected to test the quality control review. For the 40 tenants and participants selected, eight were Public Housing tenants, four were RAD tenants, 10 were HCV participants, 13 were Housing Voucher Cluster participants (five VASH, five EHV, and three Mainstream Vouchers) and five were MOD tenants. • There were 18 of 40 (45% deviation rate) quality control reviews sampled (five Public Housing tenants, one RAD tenant, two HCV participants, one VASH participant, four EHV participants, two Mainstream Vouchers participants, and three MOD tenants) for which control deviations were identified. The nature of the control deviations is as follows: o For eight of the 18, findings from the quality control review were not corrected in a timely manner (HCV – one instance, EHV – two instances, VASH – one instance, Mainstream Vouchers – one instance, and MOD – three instances). o For 11 of the 18, findings from the quality control review were not corrected (Public Housing – five instances, RAD – one instance, HCV – one instance, EHV – two instances, and Mainstream Vouchers – two instances). o For 15 of the 18, the Authority did not consistently monitor the file (i.e., follow-ups were not consistently documented to ensure corrections were made or made timely, or that proposed corrections were formally accepted or denied) (Public Housing – five instances, RAD – one instance, HCV – one instance, EHV three instances, Mainstream Vouchers – two instances, and MOD – three instances). Cause: MTW Demonstration Program, Housing Voucher Cluster and Section 8 Project-Based Cluster – Internal controls were not operating effectively during fiscal year 2025. In addition, the Authority redesigned its quality control review of tenant/participant files during fiscal year 2025 to include a more robust process related to the follow-up on identified findings and related corrections. However, the design of the internal control did not define what the Authority considers timely. Effect or Potential Effect: MTW Demonstration Program, Housing Voucher Cluster and Section 8 Project-Based Cluster – 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: MTW Demonstration Program, Section 8 Project-Based Cluster – Unknown. Housing Voucher Cluster – None. Context: MTW Demonstration Program – The Public Housing and RAD programs had 14,677 and 6,701 tenants on their rent rolls, respectively, during fiscal year 2025. The Public Housing and RAD programs reviewed 6,955 and 4,066 tenants for eligibility, respectively, during 2025. The HCV program had 44,590 participants during fiscal year 2025, and 32,748 participants that were reviewed for eligibility during 2025. All active tenants and participants have a Form HUD-50058 MTW, which is filed annually, biennially, or triennially. Housing Voucher Cluster – The program had 2,380 participants during fiscal year 2025 and 1,985 participants that were reviewed for eligibility during 2025. All active tenants and participants have a Form HUD-50058, which is filed annually, biennially, or triennially. Section 8 Project-Based Cluster – The program had 442 tenants during fiscal year 2025 and 424 tenants that were reviewed for eligibility during 2025. All active tenants and participants have a Form HUD-50058, which is filed annually. MTW Demonstration Program, Housing Voucher Cluster and Section 8 Project-Based Cluster – The Authority conducted 3,044 quality control reviews during fiscal year 2025. Identification as a Repeat Finding, if Applicable: MTW Demonstration Program – This finding is a repeat of finding 2024-001 from the prior year. Housing Voucher Cluster and Section 8 Project-Based Cluster – This finding is not a repeat finding from the prior year. Recommendation: MTW Demonstration Program, Housing Voucher Cluster and Section 8 Project-Based Cluster – The Authority should strengthen 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: CHA Management is in general agreement with the HCV findings, noting no ineligible HCV recipients were identified in the audit and significant process improvements had been implemented since the prior year audit. The CHA agrees with the Public Housing and RAD findings. Overall, the CHA will strengthen controls over eligibility, documentation, recertification, and HUD-50058 reporting through enhanced quality control reviews, a full tenant file audit, updated procedures, and improved tracking and training.