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We reviewed the U.S. Department of Housing and Urban Development’s (HUD) approval of the Lexington-Fayette Urban County Housing Authority’s Moving to Work (MTW) Demonstration plan and capital funds drawdowns.  The review was performed based on risk indicators identified during audits of the Authority’s Rental Assistance Demonstration Program (RAD) conversion and its Section 8 Housing Choice Voucher Program.  The objective was to determine whether HUD properly approved the (1) Authority’s exemption from HUD’s third-party requirements for unit inspections in the Authority’s MTW plan for fiscal year 2017 and (2) capital funds drawdowns after the RAD conversion.

HUD improperly approved the (1) Authority’s exemption from HUD’s third-party requirements for unit inspections in the Authority’s MTW plan for fiscal year 2017 and (2) capital funds drawdowns after the Authority’s RAD conversion.  Specifically, HUD’s Office of Public Housing Investments’ approval of the Authority’s exemption resulted in the Authority’s failing to comply with HUD’s third-party requirements for an independent entity to conduct unit inspections on the Authority-owned units.  HUD’s Louisville, KY, PIH field office improperly approved a drawdown after the Authority’s RAD conversion, resulting in an inappropriate use of the Public Housing Capital Fund program.

We recommend that the Acting Deputy Assistant Secretary for Public Housing Investments to (1) ensure that more than $1.3 million used by the Authority is supported through a valid and retroactive exemption from HUD’s third-party requirements, (2) revise the standard MTW agreement for all existing 39 MTW housing agencies to clearly and specifically support which provision(s) waive the third-party inspection requirements, and (3) ensure that reviews of MTW annual plans are thorough by verifying that the MTW plan accurately identifies the appropriate exemptions as authorized in the MTW agreements.  In addition, we recommend that the General Deputy Assistant Secretary for Public and Indian Housing to (1) require the Authority to reimburse its Public Housing Capital Fund program $38,411 from nonproject funds for the inappropriate use of funds for the Section 8 Project-Based Voucher Program units and (2) ensure that the Louisville, KY, PIH field office sends to the Office of Recapitalization any requests it receives for approving capital funds expenditures after the RAD conversion is complete.