Housing Authority of Snohomish CountyLocal Government

The Housing Authority did not have adequate controls in place to ensure compliance with federal program requirements. See Schedule of Audit Findings and Questioned Costs for chart/table Background The Housing Choice Voucher Program (HCVP) provides rental assistance to help very low-income families afford decent, safe, and sanitary rental housing. The Department of Housing and Urban Development (HUD) enters into Annual Contributions Contracts (ACCs) with the Housing Authority, in which HUD provides funds to administer the program locally. The Housing Authority spent $49.9 million for the HCVP in fiscal year 2019. The Housing Authority is responsible for designing and implementing internal controls that provide reasonable assurance for compliance with federal program requirements. Specifically, these controls must ensure the Housing Authority calculates the Housing Assistance Payments (HAP) based on all income earned by the participant. The Housing Authority pays property owners a portion of rent on behalf of the participant based on family income. Description of Condition Housing program managers are responsible for performing tenant audits to ensure the Authority?s housing specialists calculate HAP correctly based on supporting income records. Although the program managers performed regular tenant audits, we identified three instances when the annual income calculation did not include all forms of income, such as tips earned or a participant?s utility allowance. Additionally, we found one instance when medical expenses were not included in the calculation to lower the annual income. Housing program managers did not consistently review income calculations for all participants. The control weaknesses that led to noncompliance are considered a material weakness. The issue was not reported as a finding in the prior audit. Cause of Condition The income verification process is a manual, labor-intensive process that varies for each eligible family. Although the Authority has developed a control process that includes obtaining the required documents and supervisory review of some income calculations, clerical errors in calculating family income occurred and were not detected and corrected. The Authority had turnover in several housing specialist positions that might have contributed to these errors in addition to the lack of consistent reviews. Effect of Condition and Questioned Costs The Housing Authority?s HAP calculation errors resulted in three overpayments totaling $4,141 for the year, which we are reporting as known questioned costs. Based on our sample, we estimate questioned costs from overpayments to be $594,448. Further, we noted one instance when the Housing Authority did not calculate the correct utility allowance, resulting in an underpayment of $96. Statistical sampling information Our sampling methodology meets statistical sampling criteria under generally accepted auditing standards in AU-C ?530.05. It is important to note that the sampling technique we used is intended to support our audit conclusions by determining whether expenditures were made in compliance with program requirements in all material respects. Accordingly, we used an acceptance sampling formula designed to provide a high level of assurance (95 percent confidence) of whether exceptions were above our materiality threshold, which would affect our opinion. However, the estimated overpayment is a point estimate and should only be understood to represent our ?best estimate of total questioned costs? as required by 2 CFR 200.516(3). Our testing and results are summarized in the table below: See Schedule of Audit Findings and Questioned Costs for chart/table Recommendation We recommend the Housing Authority perform reviews of all income calculations completed by housing specialists to ensure HAP payments are accurately calculated and supported. Housing Authority?s Response HASCO acknowledges the questioned costs identified in this finding and will continue its efforts in establishing adequate internal controls to ensure compliance with all federal requirements for the Housing Choice Voucher Program to include allowable costs. HASCO procedures include monthly file audits by a designated staff member of randomly selected files from each housing specialist, and we plan to increase the number of file audits in the next three months. Our internal auditor works closely with management to review and recommend changes in policies/procedures, forms and documentation requirements in accordance with review findings and applicable federal, state, local and agency regulations, rules, laws, and procedures. HASCO is also implementing annual group re-training on calculations to ensure a common understanding and compliance, to be scheduled this Fall. All questionable costs identified in our routine audit program and this formal audit have been reviewed by program management staff and corrections have been made. Auditor?s Remarks We appreciate the steps the Housing Authority is taking to solve this issue. We will review the condition during our 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, establishes requirements for management of Federal awards to non-Federal entities. 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. Title 24, Code of Federal Regulations, Section 5.653 - Section 8 project-based assistance programs: Admission?Income eligibility and income-targeting. Title 24, Code of Federal Regulations, Section 982.516 - Family Income and Composition: Annual and interim examinations.