The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Portage Metropolitan Housing Authority's (Authority) Section 8 Housing Choice Voucher program (program) under its Moving to Work Demonstration program. The audit was part of the activities in our fiscal year 2008 annual audit plan. We selected the Authority based upon our analysis of risk factors relating to the housing agencies in Region V's jurisdiction. Our objective was to determine whether the Authority administered its program according to HUD's requirements. This is the second of two audit reports on the Authority's program.

The Authority inappropriately administered its program. Its administration of its Project-Based Voucher program and its controls over program unit housing inspections were inadequate. It failed to properly select owners, approve program units, execute contracts, and monitor the operations of its Project-Based Voucher program. As a result, it paid nearly $349,000 in improper housing and utility assistance, was unable to support nearly $300,000 in housing and utility assistance, and received more than $65,000 in improper Section 8 administrative fees. We estimate that over the next 12 months, the Authority will spend more than $200,000 in program funds for inappropriate housing assistance and utility allowance payments and Section 8 administrative fees.

Of the 58 program units selected for inspection, 42 did not meet minimum housing quality standards, and 32 had material violations that existed before the Authority's previous inspections. The violations existed because the Authority lacked adequate controls to ensure that the inspections performed by its contractor, Housing Authority Services, were adequate. As a result, more than $38,000 in program funds was spent on units that were not decent, safe, and sanitary. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $1 million in housing assistance on units with material housing quality standards violations.

We informed the Authority's executive director and the Director of HUD's Cleveland Office of Public Housing of minor deficiencies through a memorandum, dated January 27, 2009.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $450,000 in program funds; provide documentation or reimburse its program nearly $300,000 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 $1.2 million from being spent on housing that is not eligible for program assistance or decent, safe, and sanitary.