We audited the Philadelphia Housing Authority’s (Authority) administration of its housing quality standards inspection program for its Section 8 Housing Choice Voucher program as part of our fiscal year 2010 audit plan. The audit objective addressed in this report was to determine whether the Authority ensured that its program units met the U.S. Department of Housing and Urban Development’s (HUD) housing quality standards. The Authority did not ensure that its program units met housing quality standards as required. Of 67 program units statistically selected for inspection, 62 did not meet HUD’s housing quality standards. Moreover, 29 of the 62 units were in material noncompliance with housing quality standards. The Authority spent $68,900 in program funds and received $2,100 in administrative fees for these 29 units. We estimate that over the next year if the Authority does not implement adequate procedures and controls to ensure that its program units meet housing quality standards, HUD will pay more than $18.6 million in housing assistance on units that materially fail to meet HUD’s housing quality standards. We recommend that HUD require the Authority to ensure that housing units inspected during the audit are repaired to meet HUD’s housing quality standards, reimburse its program from non-Federal funds for the improper use of $71,000 in program and administrative funds for units that materially failed to meet HUD’s housing quality standards, and implement adequate procedures and controls to ensure that in the future, program units meet housing quality standards to prevent an estimated $18.6 million from being spent annually on units that materially fail to meet HUD’s housing quality standards.