2022-001 The Housing Authority had inadequate internal controls for ensuring compliance with Housing Quality Standards inspection and enforcement requirements of its Housing Voucher Cluster program. "See Schedule of Findings and Questioned Costs for chart/table" Description of Condition During fiscal year 2022, the Housing Authority spent $48,320,689 under the Housing Voucher Cluster program, which includes the Section 8 Housing Choice Vouchers program (HCVP) and Mainstream Voucher program. The HCVP provides rental assistance to help families with very low incomes afford decent, safe and sanitary rental housing. The Mainstream Voucher program enables families, for whom the head, spouse, or co-head is a person with disabilities, to lease affordable private housing of their choice. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Housing Quality Standard Inspection The Coronavirus Aid, Relief, and Economic Security (CARES) Act (Public Law 116-136) provides the U.S. Department of Housing and Urban Development (HUD) with broad authority to waive or establish alternative requirements for numerous statutory and regulatory requirements for the Housing Voucher Cluster. In Notice PIH 2020-05, published on April 10, 2020, HUD exercised its authority under the CARES Act to establish waivers and administrative flexibilities to provide relief to Public Housing Agencies (PHAs) in response to the COVID-19 pandemic. Subsequent revisions PIH 2020-33 (issued in November 2020) and PIH 2021-14 (issued in May 2021) allowed PHAs to delay biennial inspections for both tenant-based and project-based voucher units. Instead, the waivers allowed PHAs to rely on owners? certifications that they have no reasonable basis to have knowledge that life-threatening conditions exist in their unit or any units in question. At minimum, PHAs must require this owner certification. Our audit found the Housing Authority did not establish effective internal controls to ensure compliance with the program?s HQS inspection requirements. Specifically, when the Housing Authority delayed biennial inspections, it did not obtain the required owner certifications. We consider this internal control deficiency to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Housing Quality Standard Enforcement The Housing Authority must inspect units leased to families at least every two years to determine if they meet federal HQS. For units under Housing Authority Payment (HAP) contract that fail to meet HQS, the Housing Authority must require owners to correct any cited life-threatening HQS deficiencies within 24 hours of inspections. Owners must correct non-life threatening HQS deficiencies within 30 calendar days of inspections or within a specified extension approved by the Housing Authority. The Housing Authority must keep documentation demonstrating compliance with HQS enforcement requirements. Our audit found the Housing Authority?s established internal controls were ineffective for ensuring compliance with the program?s HQS enforcement requirements. Specifically, the controls were ineffective for ensuring owners corrected cited life-threatening HQS deficiencies within 24 hours of inspections and non-life-threatening HQS deficiencies within 30 calendar days of inspections, as the program requires. We consider this internal control deficiency to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Housing Quality Standard Inspection Housing Authority employees received a notice from HUD with inspection waiver guidance that allowed for delaying biennial inspections but, at a minimum, an owner certification was required instead of conducting an initial inspection. However, HUD subsequently updated this guidance to remove the words ?instead of conducting an initial inspection.? Housing Authority employees assert they did not receive notification of this change. Housing Authority employees relied on the original guidance and the word ?initial,? and did not perform additional research or contact HUD to determine if this was correct. Therefore, management and staff did not know about this requirement and did not obtain owner certifications. Housing Quality Standard Enforcement The Housing Authority did not have a contracted inspector for part of the audit period, which delayed the inspection process. Although inspections resumed in November 2021, Housing Authority personnel responsible for overseeing HQS inspections did not follow procedures for ensuring owners and tenants corrected the cited life-threatening deficiencies within 24 hours of inspections and all other HQS deficiencies within 30 calendar days of inspections. Effect of Condition Housing Quality Standard Inspection Using statistical sampling, we tested 29 tenant files. Our testing found 12 tenants for which the Housing Authority delayed inspections, as allowed, but did not obtain the required owner certifications or perform the required inspections. Because the Housing Authority did not obtain owner certifications or perform inspections timely, it cannot demonstrate that the housing units met HQS inspection requirements. Housing Quality Standard Enforcement Using statistical sampling, we tested seven failed inspections. Our testing found one with cited life-threatening HQS deficiencies for which the Housing Authority did not have documentation showing it followed up on the inspections and required the owner to correct the deficiencies within 24 hours. It also did not comply with the requirement to stop HAP payments timely when the owner did not correct the deficiencies. Additionally, our testing found two inspections with cited non-life-threatening HQS deficiencies for which the Housing Authority did not have documentation demonstrating it followed up on the inspections and required the owners to correct the deficiencies within 30 days. As the Housing Authority did not follow up on HQS deficiencies within the required time frames, it cannot demonstrate that the housing units met HQS enforcement requirements. Recommendation We recommend the Housing Authority strengthen internal controls to ensure it complies with HQS inspection and enforcement requirements. Specifically, the Housing Authority should: ? At a minimum, obtain owner certifications for delayed biennial inspections, as the program requires ? Follow up on cited life-threatening and non-life-threatening HQS deficiencies and require owners to correct them within the allowable time frames, as the program requires Housing Authority?s Response The Everett Housing Authority acknowledges the above-referenced findings. Our audit found the Housing Authority did not establish effective internal controls to ensure compliance with the program?s HQS inspection requirements. Specifically, when the Housing Authority delayed biennial inspections, it did not obtain the required owner certifications. EHA acknowledges that it did not obtain the required owner certifications for the delayed biennial inspections as required by Notice PIH 2020-33 REV 2. On March 9, 2020, shortly after Governor Inslee declared of State of Emergency and issued stay-at-home orders to Washington residents, EHA?s Board of Commissioners held a special meeting to direct the Executive Director to develop emergency measures and contingency plans to protect clients, employees, and the greater community. This included suspending unit inspections and other face-to-face interactions with clients. Early in the pandemic, EHA established three principles that guided the agency?s decision-making throughout the pandemic: Keep staff safe, keep residents safe, and continue normal operations to the extent possible. On April 10, 2020, HUD issued Notice PIH 2020-05, COVID-19 Statutory and Regulatory Waivers for the Public Housing, Housing Choice Voucher, Indian Housing Block Grant and Indian Community Development Block Grant programs, Suspension of Public Housing Assessment System and Section Eight Management Assessment Program. That notice provided several regulatory waivers to allow PHAs to respond and adapt to the pandemic, including 11 waivers related to conducting Housing Quality Standards inspections. Waiver HQS-5 initially allowed PHAs to delay inspections beyond the typical biennial requirement, through October 31, 2020. HUD subsequently superseded that notice on July 2, 2020, with issuance of Notice PIH 2020-13, COVID-19 Statutory and Regulatory Waivers and Alternative Requirements?Revision 1. Most notably, that notice modified Waiver HQS-5 to provide that inspections should be reasonably performed as soon as possible, but no later than 1 year after the date it would have been required without the waiver, rather than by October 31, 2020. HUD further updated its COVID-19 waiver guidance on November 30, 2020, with issuance of Notice PIH 2020-33, COVID-19 Statutory and Regulatory Waivers and Alternative Requirements?Revision 2; That notice extended the availability period for the inspection delay waiver until June 30, 2021, and gave PHAs until December 31, 2021 to complete delayed biennial inspections. The revision also added one line to the notice that required PHAs who were using waiver HQS-5 to delay completion of biennial inspections to alternatively obtain an owner?s certification that ?the owner has no reasonable basis to have knowledge that life-threatening conditions exist in the unit or units in question.? HUD subsequently issued Notice PIH 2021-14, COVID-19 Statutory and Regulatory Waivers and Alternative Requirements?Revision 3, dated May 4, 2021, which clarified that PHAs must conduct all delayed biennial inspections from calendar year 2020 by June 30, 2022, and all delayed inspections from calendar year 2021 as soon as possible, but no later than December 31, 2022. EHA failed to note the change in the inspections delay waiver requiring the owner certification at the time Notice 2020-33 was published on November 30, 2020. EHA only became aware of this requirement in early October 2022 when other housing authority?s audits were published and those agencies received a findings based on noncompliance with the waiver requirement. Immediately upon becoming aware of the potential deficiency, EHA reviewed its internal practice and identified that the agency had not implemented the owner certification requirement that was added in the second revision of PIH 2020-33. EHA staff developed an action plan and reported the potential deficiency to SAO staff in January 2023. The action plan included contacting every landlord participating in the Housing Choice Voucher program during the time period from November 30, 2020, to January 2023, requesting that they complete the required certification. Our audit found the Housing Authority?s established internal controls were ineffective for ensuring compliance with the program?s HQS enforcement requirements. Specifically, the controls were ineffective for ensuring owners corrected cited life-threatening HQS deficiencies within 24 hours of inspections and non-life-threatening HQS deficiencies within 30 calendar days of inspections, as the program requires. EHA acknowledges that it did not ensure compliance with HQS enforcement requirements for certain HQS inspections that were completed during the time period covered by the audit. During a review of agency internal documentation, it was discovered that personnel responsible for conducting the HQS inspections did not follow procedures for ensuring owners corrected the cited life-threatening deficiencies within 24 hours of inspections and all other HQS deficiencies within 30 calendar days of inspections. In some cases, even though the time frames were met, staff did not document that personnel had followed up with some owners who were cited for deficiencies to ensure they corrected them timely. As discussed in the response to the prior finding, as a response to the COVID-19 pandemic, EHA suspended biennial HQS inspections in March 2020 and did not resume them until November 2021 when it was deemed safe to do so based on State and local public health guidelines, current COVID-19 transmission rates, and the impending availability of a COVID-19 vaccine. EHA conducts required initial and periodic HQS inspections through a combination of a dedicated staff person in the agency and contracted inspection firms. Additional staff are also trained and certified in HQS to provide additional backup and supervisory inspection capacity. EHA hired American Housing Consultants (AHC) as its contract inspector to complete biennial HQS inspections starting in November 2021 and instructed AHC to prioritize inspecting units that had gone the longest without a periodic HQS inspection. However, it took some time for AHC to fully mobilize and it was not realistic to assume that EHA and AHC could quickly work through nearly two years of delayed inspections that accrued during the pandemic, while also keeping up with inspections that newly became due. Multiple factors, which have since been resolved, resulted in a lack of compliance with required time frames for reinspecting units that failed HQS inspection as the agency resumed normal inspections while emerging from COVID-19 safety restrictions: "See Schedule of Findings and Questioned Costs for chart/table" Auditor?s Remarks We appreciate the Housing Authority?s commitment to resolve this finding and thank the Housing Authority for its cooperation and assistance during the audit. We will review corrective action taken during the next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Notice PIH 2020-33(HA), REV-2, COVID-19 Statutory and Regulatory Waivers and Alternative Requirements for the Public Housing, Housing Choice Voucher (including Mainstream and Mod Rehab), Indian Housing Block Grant and Indian Community Development Block Grant programs, Suspension of Public Housing Assessment System and Section Eight Management Assessment Program, Revision 2. Notice PIH2021-14(HA), COVID-19 Statutory and Regulatory Waivers and Alternative Requirements for the Public Housing, Housing Choice Voucher (including Mainstream and Mod Rehab), Indian Housing Block Grant and Indian Community Development Block Grant programs, Suspension of Public Housing Assessment System and Section Eight Management Assessment Program, Revision 3. Title 24 CFR Part 982, Section 8 Tenant-Based Assistance: Housing Choice Voucher Program, section 404, Maintenance: Owner and family responsibility; PHA remedies, establishes enforcement requirements for housing quality standards. Title 24 CFR Part 982, Section 8 Tenant-Based Assistance: Housing Choice Voucher Program, section 405, PHA initial and periodic unit inspection, establishes inspection requirements for housing quality standards.