The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Indianapolis Housing Agency's (Agency) Section 8 Housing Choice Voucher program. The audit was part of the activities in our fiscal year 2008 annual audit plan. We selected the Agency's program based upon our prior audits of the Agency's program and recent press coverage regarding conditions at two of the Agency's Section 8 Project-Based Voucher program apartment complexes. Our objectives were to determine whether the Agency effectively administered its program and followed HUD's requirements. This is the third of three audit reports on the Agency's program.

The Agency failed to administer its Section 8 Housing Choice Voucher program according to HUD's requirements. Further, its administration regarding the utilization of available program funding, selection and approval of project-based units, and housing conditions for its Section 8 Project-Based Voucher program units was inadequate. The Agency's failure to meet HUD's lease-up thresholds resulted in approximately 1,569 households not being housed in fiscal year 2008 and more than $8.7 million in program funds not being used to provide decent, safe, and sanitary housing for eligible households. By implementing adequate procedures and controls regarding its program utilization, we estimate that nearly $9 million in excess program funds could be put to better use over the next year.

The Agency lacked documentation to support its selection and approval of Section 8 Project-Based Voucher program projects because it lacked adequate procedures and controls to ensure that HUD's requirements were appropriately followed. As a result, it could not support that any of the 11 projects was eligible for more than $2 million in project-based assistance and nearly $212,000 in program administrative fees received by the Agency were appropriate. We estimate that over the next 12 months, the Agency will spend more than $127,000 in program funds for improper administrative fees.

Of the 18 Section 8 Project-Based Voucher program units selected for inspection, 17 did not meet minimum housing quality standards, and 11 had material violations that existed before the Agency's previous inspections. As a result, more than $24,000 in program funds was spent on units that were not decent, safe, and sanitary. We estimate that over the next year, HUD will pay more than $72,000 in housing assistance on units with material housing quality standards violations.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Agency to reimburse its Section 8 Housing Choice Voucher program from nonfederal funds for the improper use of nearly $236,000 in program funds, provide documentation or reimburse its program more than $2 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 nearly $9 million in program funds from not being used over the next year to house needy families. We also recommend that the Director require the Agency to implement a detailed comprehensive written action plan to improve its procedures and controls to ensure that the Agency operates its program in accordance with HUD's and its own requirements.