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We audited the Housing Authority of the City of Evansville’s Rental Assistance Demonstration Program (RAD) conversion based on the activities included in our 2018 annual audit plan and our analysis of the housing agencies participating in RAD in Region 5’s jurisdiction (States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin).  Our audit objective was to determine whether the Authority complied with the U.S. Department of Housing and Urban Development’s (HUD) and its own requirements for the units converted under the program.

The Authority did not follow HUD’s and its own requirements for the units converted under RAD.  Specifically, it (1) did not ensure that units complied with HUD’s housing quality standards before it entered into a housing assistance payments contract, (2) failed to obtain the services of a HUD-approved independent third party to perform housing quality standards inspections for units owned by entities it substantially controlled, and (3) did not apply the correct contract rents for the converted units.  As a result, the Authority could not support the eligibility of more than $1 million in housing assistance payments to the entities and more than $10,000 in program funds paid to a contractor for housing quality standards inspection services.  Further, the application of incorrect rents led to the underpayment of housing assistance payments to the entities, so these funds were not available for the administration of the Authority’s Project-Based Voucher program.

We recommend that the Director of HUD’s Indianapolis Office of Public Housing require the Authority to (1) support that units met HUD’s housing quality standards or reimburse its program more than $1 million for the initial inspections of converted units that did not ensure compliance with the standards, (2) seek retroactive approval or reimburse its program more than $10,000 in program funds paid to contractors for unsupported housing quality standards inspection services completed by contractors that were not approved by HUD, and (3) implement adequate procedures and controls to address the findings cited in this audit report.