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We audited the Cuyahoga Metropolitan Housing Authority’s Section 8 Housing Choice Voucher program. The audit was part of the activities in our fiscal year 2012 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 in accordance with applicable U.S. Department of Housing and Urban Development (HUD) requirements and the Authority’s program administrative plan to include determining whether the Authority (1) correctly analyzed households’ income and performed subsidy determinations in accordance with Federal and its requirements, (2) appropriately followed HUD’s and its conflict-of-interest requirements, and (3) administered its program waiting list in accordance with Federal and its requirements. This is the second of two planned audit reports on the Authority’s program.

The Authority did not comply with HUD’s requirements and its program administrative plan when issuing housing assistance and utility allowance payments. It failed to consistently compute payments accurately and maintain documentation to support all payments to program owners and households. The Authority incorrectly calculated housing assistance and utility allowances for 47 (58.8 percent) households in one or more certifications. Of the 80 household files statistically selected for review, 35 files (43.8 percent) were missing or contained incomplete or late documents. Based upon our statistical sample, we estimate that over the next year, the Authority will overpay more than $1.4 million in housing assistance and utility allowances.

The Authority did not follow HUD’s and its requirements and the Ohio Revised Code regarding conflict-of-interest provisions. The Authority’s employees failed to identify conflicts of interest with themselves, relatives, business associates, and close friends who were participants in the Authority’s Housing Choice Voucher program as landlords or tenants. Also, the Authority failed to ensure that a third-party inspector performed inspections of Authority-owned units.

The Authority did not follow HUD’s requirements regarding its waiting list. It inappropriately added applicants to a closed waiting list. The Authority failed to appropriately comply with the voluntary compliance agreement made between HUD’s Fair Housing and Equal Opportunity Division and the Authority. Also, its internal controls for access to the waiting list did not ensure that the waiting list was reasonably safeguarded against unauthorized use.

We recommend that the Director of HUD’s Cleveland Office of Public Housing require the Authority to (1) reimburse its program from non-Federal funds for the improper use of more than $274,000 in program funds, (2) provide documentation or reimburse its program more than $390,000 from non-Federal funds for the unsupported housing assistance payments, and (3) implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $1.4 million in program funds from being spent on excessive housing assistance payments over the next year.

We also recommend that the Director of HUD’s Columbus Office of Fair Housing and Equal Opportunity review the Authority’s household selections to ensure that the Authority complies with HUD’s requirements. If the Authority fails to comply with HUD’s requirements, the Director should take appropriate action against the Authority and its employee(s). We further recommend that the Director (1) conduct a compliance and technical assistance review for the voluntary compliance agreement to ensure that HUD and the Authority understand the expectations of the agreement and appropriately comply with it and (2) require the Authority to submit a status update of its Money Follows the Person Rebalancing Initiative and 5-year mainstream housing choice vouchers.