The U.S. Department of Housing and Urban Development's (HUD) audited the Indianapolis Housing Agency's (Agency) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the Agency based upon our analysis of risk factors relating to the housing agencies in Region V's jurisdiction. Our objective was to determine whether the Agency administered its program in accordance with HUD's requirements. This is the second of two audit reports on the Agency's program.

The Agency's program administration regarding housing unit conditions, housing assistance payments calculations, and adequate documentation to support the calculation of households' housing assistance payments was inadequate. Of the 65 housing units statistically selected for inspection, 52 did not meet HUD's housing quality standards and the Health and Hospital Corporation of Marion County, Indiana's (Corporation) housing standards, and 38 had 402 violations that existed at the time of the Agency's previous inspections. The 38 units had between 2 and 29 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $5.2 million in housing assistance payments for units with material housing quality standards violations.

The Agency also failed to properly calculate housing assistance payments, ensure that its household files contained required documentation to support its payment of housing assistance, and consistently utilize HUD's Enterprise Income Verification system. Of the 67 files statistically selected for review, the Agency incorrectly calculated housing assistance payments for 63 (94 percent) and 59 (88 percent) did not contain the documentation required by HUD and/or the Agency's program administrative plan. From January 2005 through January 2007, the Agency overpaid more than $131,000 and underpaid more than $13,000 in housing assistance and utility allowances, and was unable to support more than $587,000 in housing assistance and utility allowance payments made. Based upon our statistical sample, we estimate that over the next year, the Agency will overpay nearly $4.7 million. Further, the Agency did not adequately use HUD's Enterprise Income Verification system to determine that its reported zero-income households had reported income resulting in more than $47,000 in improper housing assistance payments.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Agency to reimburse its program from nonfederal funds for the improper use of more than $291,000 in program funds, provide documentation or reimburse its program more than $587,000 from nonfederal funds for the unsupported housing assistance payments, and implement adequate procedures and controls to address the findings cited in this audit report to prevent nearly $10 million from being spent on units with material housing quality standards violations and excessive housing assistance and utility allowance payments over the next year.