Audit Report On The New York City Department Of Housing Preservation And Development’s Disbursement Of Family Self-Sufficiency Program Funds

AUDIT REPORT IN BRIEF

The Department of Housing Preservation and Development (HPD) administers Housing Choice, or Section 8, vouchers for approximately 29,000 low-income families in the City. Rent subsidies (vouchers) allow families to pay a share of their income toward rent, while Section 8, within specific limits, pays the difference. Generally, HPD Section 8 vouchers are limited to narrowly-defined populations, such as formerly homeless families and families living in buildings renovated by HPD. Currently, approximately 1,600 families receiving HPD Section 8 vouchers also participate in the Family Self-Sufficiency (FSS) Program.

FSS is a federally funded program that provides an incentive for Section 8 tenants to achieve self-sufficiency.  To enroll in the program, HPD and the participating family (participant) execute a five-year contract that specifies the rights and responsibilities of both parties.  This contract of participation specifies the goals and services for each family member. Generally, the goal is for the participant to seek and maintain employment, but there can be other goals, such as purchasing a home for the family. Family members are required to fulfill all requirements in order to obtain full benefits.

As the program participant earns more income during their time in the program, the rent subsidy the family receives from HPD is lowered. However, HPD deposits the difference between the family’s older, lower monthly rent payment and newer, higher monthly rent payment into an interest-bearing escrow account. After five years, if the participant meets the goals outlined in the contract, the participant receives the funds in the escrow account (graduation). The participant can also receive “interim” disbursements before the end of the contract to complete intermediate goals, such as paying educational costs to enhance job skills or purchasing a vehicle to increase job prospects.

The objective of this audit was to determine whether HPD processes disbursements in accordance with FSS guidelines.

Audit Findings and Conclusion

HPD does not consistently adhere to FSS guidelines for participant disbursements.  By not consistently following program guidelines, it appears HPD has made questionable payments. In 25 of the 60 (42 percent) participants’ files reviewed, HPD either did not process disbursements according to FSS program guidelines or made questionable decisions during and prior to processing disbursements. Consequently, up to $140,915 out of the $366,726 in payments reviewed appear problematic.

According to documentation in HPD’s files, two participants were ineligible to graduate but received $17,387—one of those participants may have received another graduation payment totaling $9,334 in 2006. In addition, HPD paid in excess of $19,379 in interim payments on behalf of another three participants for vehicles, but HPD did not have adequate documentation on file supporting the sales. Furthermore, records indicate that one of the participants did not purchase a car and did not even have a license to drive. Another participant never acquired title to the car and had a suspended license at the time HPD processed payment. For 13 additional participants, HPD used income certifications outside of the required timeframe to establish the initial amount for the participants’ escrow payments. As a result, these participants may have accumulated and received funds they were not entitled to, but due to a lack of documentation, this amount remains unknown. Consequently, we question the payments to those 13 participants, totaling $61,133.¹  Six more participants who received $40,016 did not have contracts or valid contracts on file. Finally, HPD processed an interim disbursement in the amount of $3,000 on behalf of a participant to pay private school tuition.

HPD does not always utilize the available resources to ensure that it is disbursing funds in accordance with FSS program guidelines. HPD can enhance its controls by independently verifying with New York State’s Welfare Management System (WMS) whether a graduate was off welfare cash assistance before issuing a graduation payment.

Further, it appears two participants may have defrauded HPD in excess of $330,000 by not reporting ownership in multiple family dwellings while receiving FSS payments and Section 8 subsidies.  At the exit conference, HPD officials stated that the matter was referred to the Department of Investigation.

Audit Recommendations

HPD should:

• HPD should obtain detailed supporting documentation from participants, if available, before awarding interim disbursements. If supporting documentation is not available from the participant before awarding interim disbursements, HPD should ensure the participant subsequently provides all necessary documents.
• HPD should perform initial escrow calculations for FSS program participants as specified by HUD within 120 days of the participant’s contract start date.
• HPD should utilize its access to WMS to ensure that participants who are scheduled to receive graduation disbursements have not received cash assistance in the last 12 months of their contract.

Agency Response

In its response, HPD strongly disagreed with the majority of the findings, but agreed to implement the report’s recommendations. After carefully reviewing HPD’s response, we stand by the findings in the report.