Audit Report on Oversight of the Housing Lottery by the Department of Housing Preservation and Development

Audit Report In Brief

The New York City Department of Housing Preservation and Development (HPD) works with private, public, and community partners to strengthen neighborhoods and enable more New Yorkers to become homeowners or to rent well-maintained, affordable housing. To accomplish this goal, HPD enters into agreements with developers who are required to construct or rehabilitate residential buildings. In return for obtaining these properties at a fraction of the cost, the developers are required to sell or rent to the public a certain number of units within the dwelling complex at an affordable. Because demand for the units exceeds supply, the lottery system was seen as the preeminent method for resolving issues of accessibility, transparency, and fairness in the selection of tenants or owners applying for affordable housing.

According to HPD’s marketing report, a total of 21 projects were completed with application deadlines for Fiscal Year 2011. These 21 projects consisted of 686 available units, of which 681 units were designated as rentals and five units were designated for sale¹ This audit determined whether HPD adequately monitors the housing lottery process.

Audit Findings and Conclusions

Our review found that HPD needs to improve controls over its housing lottery process to ensure that only eligible applicants are selected for housing. Specifically, HPD has not implemented the recommendations made in a previous audit report pertaining to the creation of a system that allows for the automated filing and selection of applications so as to prevent certain applicants from receiving preferential treatment. We also found that HPD does not ensure that Project Managers (PMs) are properly monitoring the developers for assurance that applicants are provided housing based on eligibility. Furthermore, HPD does not ensure that its PMs consistently conduct required audits and site visits to verify that the applicant selection process is fair and equitable. Moreover, HPD’s Marketing Unit has not established policies and procedures to ensure that its complaint resolution process pertaining to the housing lottery is fully documented and has no assurance that all such complaints are resolved.

On a positive note, we found that the developers maintained key documents concerning the lottery process.²We also found that the developers verified whether applicants’ incomes were within the established income thresholds and that the developers submitted the completed Applicant Information Forms (AIF) to HPD following the applicant interviews. However, these positive aspects are mitigated by HPD’s inadequate controls over the applicant selection process.

We did not find instances where unqualified applicants were awarded affordable units and we did not uncover instances of actual fraud. However, the weak controls create an environment where there is an increased risk that errors or fraud may occur and remain undetected. This can occur at the expense of eligible applicants who may lose out on the opportunity to receive affordable housing.

Audit Recommendations

To address these issues, we make seven recommendations, including that HPD should:

• Continue with its quest for an automated process so as to allow applications for housing to be filed online as well as by mail.
• Assume the responsibility for selection of applications for the affordable units by developing an automated process for listing and randomly selecting applicants and incorporating appropriate segregation of duties and supervisory oversight into this process.
• Ensure that PMs adhere to its guidelines and conduct the required audits and site visits of the developers’ selection procedures.
• Develop formal written operating procedures governing the handling of complaints.
• Ensure that all complaints and all fields in its spreadsheet are consistently updated with essential information to allow for tracking and following up of complaints.

Agency Response

HPD officials agreed to implement five of the seven recommendations cited in the report. While it appears that HPD officials intend to implement the other two recommendations, they did not directly address all aspects of those recommendations (incorporation of appropriate segregation of duties and supervisory oversight into the automated lottery process as well as ensuring that PMs adhere to guidelines regarding the conduct of audits). In addition, HPD’s response included objections to some of our findings. After carefully reviewing the arguments in the response, however, we see no reason to alter our findings.

¹ As of October 2011, 566 of the units had been rented and four units had been sold.

² The key documents maintained by the developers are as follows: Notice of Intent, marketing meeting notes, sign-in sheet for the marketing meeting, project advertisement, lottery log, lottery sign-in sheet, applicant information forms, spreadsheets containing applicant information, and various e-mails to HPD concerning the projects.