The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Michigan State Housing Development Authority’s (Authority) Section 8 Project-Based Voucher program (program). The audit was part of the activities in our fiscal year 2009 annual audit plan. We selected the Authority’s program based upon our internal audit survey of HUD’s oversight of the program and our analysis of risk factors relating to the housing agencies in Region V’s jurisdiction. Our objectives were to determine whether (1) the Authority effectively administered its program in accordance with HUD’s and its own requirements and (2) the Authority’s project-based unit inspections were sufficient to detect housing quality standards violations and provide decent, safe, and sanitary housing to its residents. This is the first of two planned audit reports of the Authority’s program.

The Authority lacked documentation to support its selection and approval of program projects. As a result, it could not support that any of the five projects it had approved since January 1, 2007, were eligible for more than $1 million in program assistance and nearly $85,000 in program administrative fees received by the Authority were appropriate. We estimate that over the next 12 months, the Authority will receive more than $70,000 in program funds for improper administrative fees.

The Authority’s program units generally met HUD’s housing quality standards. Of the 60 program units selected for inspection, 23 did not meet minimum housing quality standards, and four (7 percent) materially failed due to 24-hour exigent health and safety hazards that predated the Authority’s previous inspections. As a result, more than $5,700 in program funds was spent on units that were not decent, safe, and sanitary.

We informed the Agency’s executive director and the Acting Director of HUD’s Detroit Office of Public Housing of a minor deficiency through a memorandum, dated September 29, 2009.

We recommend that the Acting Director of HUD’s Detroit Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $85,000 in program funds, provide documentation or reimburse its program more than $1 million from nonfederal funds for the unsupported payments cited in this audit report, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $93,000 in program funds from not being used over the next year to house needy families.