Manager Didn't Follow Section 8 Program Requirements

HUD audited the Section 8 program administered by an owner in Tulsa, Okla., after being informed that the site’s management agent may have received Section 8 subsidies for vacant units. HUD controls the property, which has 191 units, through a housing assistance payments (HAP) contract that was renewed with the owner on Sept. 23, 2007, for 20 years. The agreement summarized the terms and conditions for the Section 8 housing assistance payment amounts, including establishing the initial contract rents. The agreement also provided that housing assistance payments would be made only for decent, safe, and sanitary units occupied by eligible families.

The Oklahoma Housing Finance Agency was the contract administrator of the site’s Section 8 program. However, due to litigation between HUD and other parties, HUD amended the latest contract on Oct. 1, 2011. The amended contract didn’t allow the agency to monitor the site. As a result, the agency hadn’t performed an on-site monitoring review of the site since June 6, 2011. As contract administrator, the agency reviewed and approved the HAP vouchers before sending them to HUD for payment. The vouchers contained information on the subsidies requested for the occupied units.

Between Aug. 1, 2011, and July 31, 2013, the site received more than $2.3 million in Section 8 subsidies. According to program rules, HUD expected residents to contribute to their rent and utility payments. The lease agreements required residents to maintain their own utility accounts. As part of the HAP calculation, HUD included a utility allowance, which the site was to pass through to the resident.

What Auditors Found

The auditors found that the management agent didn’t administer the site’s Section 8 program in accordance with requirements for the following reasons:

Site received Section 8 subsidies for vacant or substandard units. Contrary to HUD regulations, the manager improperly submitted HAP vouchers to HUD for 17 substandard units that didn’t have electricity or were vacant. As a result, HUD paid $70,497 in ineligible housing assistance. Sixteen of the units didn’t have electricity, and one unit’s electricity account was in the site’s name. The improper payments occurred because the manager ignored HUD requirements for managing its Section 8 housing.

Further, the site’s controls didn’t always follow requirements, and management officials didn't keep accurate or complete records. They failed to establish controls to determine when residents moved out or didn’t have electricity. The owner benefited from these conditions because it received more Section 8 subsidies than allowed.

According to HUD requirements, the site was required to bill only for occupied units that were decent, safe, and sanitary. Of the 30 unit utility records reviewed, auditors found that the site incorrectly reported occupancy for 17 units (57 percent) that either didn’t have electricity or the electricity was in the site’s name during periods when occupancy was claimed. Three units didn’t have electricity during the entire time that the site claimed they were occupied.

The manager should have known that four of the 30 units were vacant because it maintained the electric utility accounts for these units when it claimed they were occupied. According to management officials, the site didn’t maintain the utility accounts for its units unless the units were vacant.

Site maintained substandard records. Management officials should have known that the site’s units didn’t have electricity or were vacant. They asserted that they walked the property daily and looked for tagged electric meters. But if they did so, they failed to either identify units without electricity, confirm whether the units were occupied, or remove the units from the site’s HAP vouchers because they were either vacant or not in decent, safe, and sanitary condition. As a result, the owner collected improper rent subsidies and utility allowances for ineligible units.

The improper payments occurred because the site didn’t have adequate controls and didn’t follow requirements. For example:

• The site didn’t have controls in place to follow up on tenants when they didn’t pick up their utility allowance checks. Thus, management officials took an average of 257 days to void unclaimed utility checks.
• The site didn’t comply with HUD requirements. When the units didn’t have electricity or when residents vacated units, management officials continued billing HUD and receiving housing assistance payments for the units. Contrary to the site’s practice, HUD required that the site stop billing for units that didn’t have electricity or when vacancies were discovered.
• Oklahoma state law required the owner to store residents’ abandoned property in a place of safekeeping. But the HAP contract didn’t authorize the owner to charge HUD for vacant units, and instead of moving the residents’ abandoned property to a storage unit, the owner elected to keep the abandoned property in the units and inappropriately billed HUD for the subsidies.

Residents were placed into units that were larger than authorized. HUD required the owner to establish proper occupancy standards to identify whether a unit was the appropriate size. Further, the owner was to certify annually that each household was in the proper unit, maintain a transfer list for households that requested or needed a move, and give families currently living in units that were not of the appropriate size priority to transfer into appropriate-size units before renting units to households that didn’t live at the site.

Management officials may have inappropriately placed households into units that were larger than they were authorized to occupy. This condition occurred because the site’s agent didn’t follow occupancy standards or HUD requirements for housing residents. Specifically, it didn’t:

• Keep its records updated;
• Maintain appropriate transfer lists;
• Document annual recertifications;
• Follow appropriate procedures; and
• Implement proper controls to ensure residents were living in proper size housing.

As a result, the site may have collected $96,249 in improper subsidies for units that exceeded its and HUD’s occupancy requirements. Generally, the site’s written occupancy standards didn’t allow one person to have two or three bedrooms. If the site placed the household into a unit that was larger than defined in the occupancy standards, the lease agreement required the household to move to a smaller unit when one became available.

Based on a review of tenant files for 25 units, the site housed residents in five HUD-subsidized units that were larger than allowed by its occupancy plan and HUD requirements. For these five units, management officials ignored the forms HUD-50059 that listed the family members, didn’t follow up on expected changes in family size, and didn’t follow up on questionable custodies.

Auditors' Recommendations

The site received more than $81,000 in Section 8 rental subsidies for units with questionable occupancy and that didn’t meet HUD requirements. In addition, HUD may have paid more than $96,000 for over-subsidized units. These conditions occurred because the management agent didn’t establish effective control systems for its site manager, who didn’t keep accurate or complete records. As a result, the owner didn’t effectively and efficiently operate its Section 8 program and incurred questioned costs totaling more than $177,000. The owner benefited from these conditions because it may have received more Section 8 subsidies than allowed.

HUD auditors recommended that the director of the Fort Worth Office of Multifamily Housing Programs require the owner to either support or repay HUD more than $177,000 spent on vacant, substandard, or over-subsidized units. Further, the management agent should implement controls to prevent future questionable payments.

• Summit Bradford Apartments: HUD Audit Report N. 2014-FW-1001, April 2014