We audited the Lexington-Fayette Urban County Housing Authority’s Rental Assistance Demonstration Program (RAD) conversion to the Section 8 Project-Based Voucher program and compliance with requirements after the conversion.  We selected the Authority for review in accordance with our annual audit plan.  Our audit objective was to determine whether the Authority complied with the U.S. Department of Housing and Urban Development’s (HUD) program requirements for conducting unit inspections and rent reasonableness determinations after RAD conversion.

After its RAD conversion, the Authority did not fully comply with HUD’s program requirements for conducting unit inspections and rent reasonableness determinations.  Specifically, the Authority did not obtain the services of a HUD-approved independent entity for conducting unit inspections in compliance with HUD’s housing quality standards and rent reasonableness determinations for units it owned.  This condition occurred because the Authority initially did not realize that the independent entity inspections for housing quality standards and rent reasonableness determinations requirements remained applicable after the RAD conversion although the rents were set by HUD and the units were substantially rehabilitated.  As a result, the Authority inappropriately paid more than $394,000 in housing assistance payments and received more than $49,000 in administrative fees.  In addition, HUD and the Authority lacked assurance that the unit inspections and rent reasonableness determinations were properly conducted.

We recommend that the Director of HUD’s Louisville, KY, Office of Public and Indian Housing require the Authority to (1) reimburse its appropriate programs more than $443,000 from nonproject funds for inappropriately conducting unit inspections and rent reasonableness determinations on units it owned and (2) coordinate with HUD and provide adequate training to its staff to ensure compliance with HUD’s requirements.