What We Audited and Why

In response to a hotline complaint that the Housing Authority of the City of Passaic (Authority) was being mismanaged, we audited the Authority's Section 8 and Public Housing Capital Fund programs. We also audited controls over disbursements and costs allocated to different programs. The objective of the audit was to determine whether the allegations of hotline complaint were valid. We also determined if Section 8 units complied with housing quality standards.

What We Found

Some complaint allegations were valid, and others could not be substantiated. The Authority did not adequately manage its Section 8 program from 2002 through 2005. Contrary to federal regulations, the Authority made ineligible transfers of program funds by transferring Section 8 administrative fee reserves to the low-rent housing program without U.S. Department of Housing and Urban Development (HUD) approval and capital funds to the Section 8 program.

Section 8 administrative fee reserves were transferred to prevent HUD from reducing the fee reserves, and capital funds were transferred to cover shortfalls in the Section 8 program. As a result, the Section 8 administrative fee reserves were understated by $1 million, and $590,042 was not available for recapture by HUD, while the capital fund was understated by $401,046. While the Authority's financial management system generally safeguarded funds, weaknesses in its controls need to be addressed. Contrary to federal regulations, the Authority did not maintain adequate documentation to support (1) rental payments charged to the Section 8 program, (2) employee benefit charges allocated to the Section 8 program, and (3) payments to the City of Passaic for police services. As a result, the Authority has no assurance that $883,813 charged to the Section 8 program and $521,000 in payments to the City of Passaic are reasonable and necessary. Further, Section 8 administrative fee reserves may need to be recaptured.

Furthermore, The Authority's Section 8 units did not always meet housing quality standards. Of 65 units statistically selected for inspection, 44 failed due to material noncompliance with housing quality standards. Based on the result of our statistical sample, at least 823 units may have been in material noncompliance. As a result, tenants lived in units that were not decent, safe, and sanitary, and the Authority made housing assistance payments for units that did not meet standards. The complete results of our evaluation of the individual allegations are contained in appendix C of this report.

What We Recommend

We recommend that the director, New Jersey Office of Public Housing, instruct the Authority to (1) reimburse the Section 8 administrative fee reserve for the $1 million transferred to the low-rent housing program and recapture or reduce Section 8 administrative fees by $590,042, (2) reimburse the capital fund $401,046 from the Section 8 program, (3) provide additional supporting documentation for rent expenses, employee benefits costs, and payments for police services and repay any unsupported costs determined to be ineligible, and (4) develop and implement procedures to ensure that units meet housing quality standards.

For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit.