Audit Report on the Department of Housing Preservation and Development’s Administration of Its Family Self-Sufficiency Escrow Account

Introduction

The Family Self Sufficiency Program (FSS) is funded by the federal government through the Department of Housing and Urban Development (HUD) and is designed to assist families in obtaining employment that will allow them to become economically independent and reduce their reliance on Section 8 subsidies received through the Department of Housing Preservation and Development (HPD).¹ Families enrolled in the program execute a five-year contract and work with an HPD case manager to develop a plan that outlines the goals and responsibilities of both parties. By increasing earned income and paying a higher portion of rent, a participant reduces reliance on Section 8 payments. However, the amount of Section 8 payments, also known as Housing Assistance Payments (HAP), requisitioned for the participant does not change. The HAP funds not used by HPD, due to the increased earnings of the participant, are deposited into an interest-bearing subaccount on behalf of the participant. Participants who complete their goals receive the balance in their subaccount upon graduating from the program.²

In August 2009, the New York City Department of Finance approved HPD’s request to replace its existing FSS checking account with a new interest-bearing account within the same institution. The new savings account included the aforementioned subaccounts which allowed HPD to track each program participant. According to HPD records, as of October 2010, the FSS account had a balance of $2.1 million. In February 2012, HPD closed the FSS bank account and transferred the $2.9 million balance to a new bank because the former was no longer on the City’s designated bank list.

Audit Findings and Conclusion

HPD processed disbursements in accordance with its bank account procedures and performed the requisite bank reconciliations in a timely manner. However, HPD does not ensure that subaccounts are established and maintained for program participants. Furthermore, HPD does not properly track deposits to ensure that those subaccounts reflect accurate and up-to-date totals. As a result, HPD requisitioned funds for participants who were no longer in the program, which contributed to the excessive and unnecessary accumulation of funds in the account. For example, on June 18, 2010, HPD had to transfer $4.3 million in excess funds from the FSS account to its HAP fiduciary account. Funds that are improperly requisitioned and held in escrow could affect HPD’s program renewal needs and could possibly lead to the misuse of program funds.

Audit Recommendations

HPD should:

• Review all subaccounts to determine whether the participants are still in the program and make any necessary adjustments.
• Transfer all funds unassigned, held in reserve, or forfeited to the HAP fiduciary account in accordance with HUD guidelines.
• Update its bank account procedures to reflect the change in banking institutions.
• Comply with HPD procedures by reviewing deposits on a monthly basis to ensure that funds were applied in the correct amount to the correct subaccounts.

Department Response

In its response, HPD did not dispute the audit’s findings and agreed with all four recommendations.