Public Housing: New Assessment System Holds Potential for	 
Evaluating Performance (15-MAR-02, GAO-02-282). 		 
                                                                 
The Department of Housing and Urban Development (HUD) spends $7  
billion annually to provide decent, safe, and sanitary housing	 
for low-income households in about 14,000 rental properties	 
nationwide. Yet, many public housing properties have been unsafe 
and unsanitary for several decades. To identify and correct these
problems, HUD began a Public Housing Assessment System (PHAS) to 
evaluate the performance of public housing authorities. Although 
HUD is still testing and revising PHAS, it has begun to designate
certain housing authorities as troubled and to assign them to	 
recovery centers, where they receive technical and other	 
assistance. HUD also created the Public and Indian Housing	 
Information Center (PIC) database to collect information on	 
funding, compliance, and other problems that fall outside the	 
scope of PHAS. PHAS includes four performance indicators: (1) the
physical condition of the properties, (2) the financial condition
of the housing authority, (3) the authority's management	 
operations, and (4) residents' satisfaction with their living	 
conditions. HUD develops a score for each indicator and, starting
in this fiscal year, plans to use the scores for all four	 
indicators to determine whether housing authorities are troubled.
So far, HUD has used only the management operations score to	 
designate housing authorities as troubled. The PIC risk 	 
assessment uses the total PHAS score and information about	 
funding and compliance issues to classify troubled and		 
nontroubled housing authorities as high, moderate, or low risk.  
According to HUD, the field offices focus their monitoring	 
resources on the nontroubled high-risk authorities in an effort  
to correct their problems before the authorities are designated  
as troubled. GAO found inconsistencies between the PHAS and PIC  
assessment. The five public housing authorities GAO visited,	 
which had not been designated as troubled under PHAS but had been
classified as moderate to high risk under PIC, had various	 
problems. However, even under the same authority, some		 
developments were well or adequately maintained, while others had
cosmetic, structural, or health and safety problems. HUD may	 
provide technical assistance at a housing authority through	 
either a field office team or a troubled agency recovery center. 
HUD may also impose sanctions on a housing authority or intervene
in its operations to compel the authority to correct problems.	 
For more serious, long-standing problems, HUD may put a housing  
authority into receivership. In some instances, HUD may enter	 
into special agreements with housing authorities, giving them the
flexibility to address unique problems. Although these options	 
have the potential for solving problems at public housing	 
authorities, it is still to early to evaluate their		 
effectiveness. Moreover, in the past, the options have not always
fully addressed the problems or the housing authorities have not 
sustained the improvements.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-282 					        
    ACCNO:   A02852						        
  TITLE:     Public Housing: New Assessment System Holds Potential for
Evaluating Performance						 
     DATE:   03/15/2002 
  SUBJECT:   Evaluation criteria				 
	     Health hazards					 
	     Housing repairs					 
	     Low income housing 				 
	     Public housing					 
	     Rental housing					 
	     Safety standards					 
	     HUD 2020 Management Reform Plan			 
	     HUD Public and Indian Housing			 
	     Information Center System				 
                                                                 
	     HUD Public Housing Assessment System		 
	     HUD Public Housing Management Assessment		 
	     Program						 
                                                                 

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GAO-02-282

                                       A

Letter 1 Results in Brief 2 Background 7 PHAS and PIC Establish Criteria
for Identifying Performance Problems 9

At Some Nontroubled Housing Authorities, Unsatisfactory Living Conditions
Stemmed from Management Deficiencies 18 HUD Has Several Options for
Addressing Housing Authorities* Problems 31

Conclusions 38 Recommendation for Executive Action 38 Agency Comments 38
Scope and Methodology 39

Appendixes

Appendix I: Extent to Which Problems Occur at All Public Housing
Authorities 42 REAC*s Data for the End of Fiscal Year 2000 42 PIC Data for
the End of Fiscal Year 2001 47

Appendix II: Problems at Nontroubled High- Risk Public Housing Authorities
49

Appendix III: Camden Housing Authority 51 Historical Problems 51 HUD*s
Role and Corrective Actions 53 Current Status and Challenges 54

Appendix IV: Puerto Rico Public Housing Administration 57 Historical
Problems 57 HUD*s Role and Corrective Actions 60 Current Status and
Challenges 60

Appendix V: Housing Authority of New Orleans 62 Historical Problems 62
HUD*s Role and Corrective Actions 64 Current Status and Challenges 64

Appendix VI: Chicago Housing Authority 66 Historical Problems 66 HUD*s
Role and Corrective Actions 68 Current Status and Challenges 68

Appendix VII: San Francisco Housing Authority 70 Historical Problems 70
HUD*s Role and Corrective Actions 71 Current Status and Challenges 71

Appendix VIII: Contact and Staff Acknowledgments 72 GAO Contact 72
Acknowledgments 72

Tables Table 1: PHAS Designations for Fiscal Year 2001 under Partial and
Full Implementation 12

Table 2: Quality Factors Associated with Nontroubled High- Risk and
Nontroubled Low- Risk Housing Authorities 50

Figures Figure 1: Examples of Well- Maintained Public Housing Properties,
San Francisco Housing Authority and Camden Housing

Authority 5 Figure 2: Examples of Deteriorated Public Housing Properties,
San Francisco Housing Authority and Camden Housing Authority 6

Figure 3: Potential Increase in Recovery Centers* Workl oad Following Full
Implementation of PHAS 14 Figure 4: Risk Levels of Troubled and
Nontroubled Housing

Authorities, Fiscal Year 2001 17 Figure 5: Examples of Well- Maintained
Public Housing, Puerto

Rico Public Housing Administration 19 Figure 6: Examples of Deteriorated
Public Housing, Puerto Rico

Public Housing Administration 20 Figure 7: Examples of Health Hazards in
Public Housing, Puerto Rico Public Housing Administration 21

Figure 8: Examples of Safety Hazards, Puerto Rico Public Housing
Administration 22 Figure 9: Examples of Public Housing Problems, Housing

Authority of New Orleans 23 Figure 10: Examples of Public Housing
Problems, Housing

Authority of New Orleans 24 Figure 11: Examples of Public Housing
Problems, Housing

Authority of New Orleans 25 Figure 12: Examples of Public Housing
Problems, Chicago Housing Authority 26

Figure 13: Examples of Public Housing Problems, Chicago Housing Authority
27

Figure 14: Completed Modernization Project at the Camden Housing Authority
35 Figure 15: Modernization Project in Process at the Camden Housing
Authority 36

Figure 16: Percentages of Public Housing Authorities Receiving Scores of
Less than 60 Percent for PHAS Subindicators 44 Figure 17: Percentages of
Public Housing Authorities Receiving

Scores of Zero for PHAS Subindicators 46 Figure 18: Presence of Factors
Indicating Potential Problems with

the Quality of Housing Authorities* Management 48 Figure 19: Example of a
Deteriorated Public Housing Development at the Camden Housing Authority 53

Figure 20: Example of a Rehabilitated Public Housing Development at the
Camden Housing Authority 55 Figure 21: Example of a Deteriorated Public
Housing Development at the Housing Authority of New Orleans 63 Figure 22:
Examples of a Deteriorated Public Housing Development at the Chicago
Housing Authority 67

Abbreviations

HANO Housing Authority of New Orleans HUD Department of Housing and Urban
Development PHAS Public Housing Assessment System PHMAP Public Housing
Management Assessment Program PIC Public and Indian Housing Information
Center PRPHA Puerto Rico Public Housing Administration REAC Real Estate
Assessment Center SFHA San Francisco Housing Authority

Lett er

March 15, 2002 The Honorable Wayne Allard Ranking Minority Member,
Subcommittee on Housing

and Transportation Committee on Banking, Housing,

and Urban Affairs United States Senate

Dear Senator Allard: The Department of Housing and Urban Development (HUD)
spends nearly $7 billion annually to provide decent, safe, and sanitary
housing for lowincome households in about 14, 000 rental properties
administered by over 3,000 public housing authorities nationwide. Yet
despite expenditures of this magnitude, many public housing properties
have been unsafe and unsanitary for several decades. To identify and
correct these and other problems at public housing properties, HUD has
begun to implement a new tool* the Public Housing Assessment System
(PHAS)* for evaluating public housing authorities* performance. Although
HUD is still testing and

revising PHAS, it has begun to use the results of the PHAS analysis to
designate certain housing authorities as troubled and to assign them to
recovery centers, where they receive technical and other assistance to
correct their problems. In addition, HUD established the Public and Indian
Housing Information Center (PIC) database to collect information about
funding, compliance, and other problems that fall outside the scope of
PHAS. PIC generates a risk assessment for HUD field offices to use in
planning their monitoring strategies and targeting their monitoring

resources. Both PHAS and PIC collect data for all public housing
authorities, and these data are used for different but complementary
purposes.

Concerned about conditions at public housing authorities and how those
conditions are measured, you asked us to

 identify HUD*s criteria for designating housing authorities as troubled
under PHAS and for classifying them as high risk under PIC and determine
whether the results of the PHAS and PIC analyses are consistent;

 describe the kinds of problems found at housing authorities that have
not been designated as troubled under PHAS but have been classified as
high risk under PIC; and

 identify HUD*s options for addressing problems at housing authorities,
regardless of whether they have been designated as troubled, and examples
of the options HUD has used at nontroubled authorities that pose high
risks.

In addition, as requested by your office, we determined the extent to
which problems occur at all public housing authorities. The results of
this analysis, which were based on PHAS and PIC data, are discussed in

appendix I. To address these objectives, we analyzed PHAS and PIC data to
identify problems at troubled and nontroubled public housing authorities;
interviewed HUD headquarters and field staff; and reviewed public housing
laws, policies, and procedures. We visited four public housing authorities
that had not been designated as troubled but had been classified as high
risk at the time of our review* the Camden Housing Authority, the Chicago

Housing Authority, the Housing Authority of New Orleans, and the San
Francisco Housing Authority. In addition, because of serious problems that
have sparked intense congressional interest, we visited the Puerto Rico

Public Housing Administration. We provide background information on these
five housing authorities in appendixes III through VII* that is,
historical problems, HUD*s role and corrective actions, and current status

and challenges. Our scope and methodology are discussed in greater detail
at the end of this letter. This is one of several engagements we have
planned to assess problems in public housing and to evaluate the
corrective actions that HUD and public housing authorities have taken.

Results in Brief HUD uses PHAS and PIC to assess public housing
authorities* performance. PHAS includes four performance indicators: (1)
the physical condition of the properties, (2) the financial condition of
the housing authority, (3) the authority*s management operations, and (4)
residents* satisfaction with their living conditions. HUD develops a score
for each

indicator and, starting in fiscal year 2002, plans to use the scores for
all four indicators to determine whether housing authorities are troubled.
To date, HUD has used only the management operations score to designate
housing authorities as troubled. While the scores for the other indicators
are based on independent analyses, housing authorities self- certify the
data that HUD

uses to calculate the management operations score. After designating a
housing authority as troubled, HUD generally refers the authority to a
recovery center for rehabilitation, although a HUD field office may
sometimes continue to monitor a troubled authority. As of December 3,

2001, 21 of 3,167 authorities were designated as troubled and 20 of the
troubled authorities were assigned to a recovery center. When HUD fully
implements PHAS and uses the scores for all four indicators, it should
designate many more authorities as troubled. However, it is too early to
tell how effective PHAS will be in identifying and providing for the
correction of long- standing problems at public housing authorities. The
PIC risk assessment uses the total PHAS score and information about
funding and

compliance issues to classify troubled and nontroubled housing authorities
as high, moderate, or low risk. According to HUD, the field offices focus
their monitoring resources primarily on the nontroubled high- risk
authorities in an effort to correct their problems before the authorities
are designated as troubled. Our analysis revealed that the results of the
PHAS and PIC assessments were inconsistent. Specifically, 12 of the
troubled authorities were classified as low risk. Although 11 of the
troubled low- risk authorities were assigned to recovery centers for
rehabilitation, 1 remained under the field office*s supervision and was
scheduled to receive routine

monitoring* the lowest level of monitoring. Such monitoring may not be
sufficient to correct the problems of a troubled housing authority.
Accordingly, we are recommending that all troubled housing authorities be
classified as high risk to better ensure that they receive sufficient
monitoring. In commenting on a draft of this report, HUD agreed with our
recommendation and is planning to revise its risk assessment to
incorporate this change. HUD also provided technical comments, which

we incorporated in this report as appropriate. The five public housing
authorities we visited, which had not been designated as troubled under
PHAS but had been classified as moderate to high risk under PIC, had a
wide variety of problems. However, even under

the same authority, some developments were well or adequately maintained,
while others exhibited cosmetic, structural, or health and safety
problems. For example, new HOPE VI developments at the San Francisco
Housing Authority and some older properties at the Camden Housing
Authority were very well maintained, while other developments at these
authorities had problems ranging from broken windows to deteriorated
structures (see figs. 1 and 2). Some problems, including

broken windows and damaged roofs at the Housing Authority of New Orleans
and open fuse boxes, open electric meters, leaky sewer pipes, mold, and
termites at the Puerto Rico Public Housing Administration,

created safety and health hazards for residents. These problems stemmed
from a variety of management deficiencies. For example, poor procurement
practices at the San Francisco Housing Authority, fraud and

abuse at the Puerto Rico Public Housing Administration, and a lack of
capacity to manage maintenance and modernization efforts at the Housing
Authority of New Orleans diverted funds from their intended uses and
delayed the completion of scheduled repairs and capital improvements.
These management deficiencies, in turn, resulted from problems such as

weak internal controls, high staff turnover, and insufficient training.
Data were not readily available to determine whether the physical and
management problems we observed at the housing authorities we visited were
representative of nontroubled high- risk housing authorities nationwide.
However, according to information reported to PIC,

nontroubled high- risk authorities are more likely than nontroubled low-
risk authorities to have factors indicative of problems in management,
such as staff that lack skills needed to carry out their functions,
significant and repeated delays in submitting required information,
complaints from tenants, disagreements between the housing authority*s
board and

management that impede operations, and major audit findings relevant to
the authority*s operations (e. g., poor procurement practices, fraud and
abuse, and lack of capacity to manage modernization projects).

Figure 1: Examples of Well- Maintained Public Housing Properties, San
Francisco Housing Authority and Camden Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 2: Examples of Deteriorated Public Housing Properties, San
Francisco Housing Authority and Camden Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

HUD has several options for improving the performance of problem housing
authorities, regardless of whether they have been designated as troubled.
HUD*s choice of options varies with circumstances at the authorities and
the level of intervention needed. For example, HUD may

provide technical assistance at a housing authority through either a field
office team or a troubled agency recovery center. At the Puerto Rico
Public Housing Administration, headquarters and field office teams are
helping to resolve procurement weaknesses, and at the San Francisco
Housing

Authority, recovery center staff are developing a plan to address the
authority*s financial and procurement difficulties. HUD may also impose
sanctions on a housing authority or intervene in its operations to compel
the authority to correct problems. At the financially troubled San
Francisco Housing Authority, for example, HUD reviews staff salaries and

procurement contracts in excess of $50,000. For more serious, longstanding
problems, HUD may place a housing authority into receivership. At the
Camden Housing Authority, HUD imposed an administrative receivership,
taking over the authority*s decision- making authority and

sending in a recovery team to revamp the authority*s operations. Finally,
in some instances, HUD may enter into special agreements with housing
authorities, giving them the flexibility to address unique problems. For
example, HUD authorized the Chicago Housing Authority to consolidate its
funding sources in order to demolish its old high- rise developments;
relocate residents; and build mixed- income, low- rise developments. While
these options have the potential for solving problems at public housing
authorities, it is still to early to evaluate their effectiveness.
Moreover, in the past, the options have not always fully addressed the
problems or the housing authorities have not sustained the improvements.

Background HUD is required by law 1 to assess the performance of public
housing authorities so that the secretary of housing can evaluate the
authorities* performance in all major areas of management operations. In
response to this law, HUD introduced the Public Housing Management
Assessment Program (PHMAP) in 1992. Though designed to evaluate housing
authorities* performance, PHMAP was based on self- certification, and, by
1998, about two- thirds of the authorities had certified themselves as
high

performers. Furthermore, PHMAP did not provide for either an independent
physical inspection or input from the public housing residents 1 42 U. S.
C. 1437d( j), Cranston- Gonzalez National Affordable Housing Act of 1990,
as amended.

themselves. An authority could be classified as a standard or a high
performer even though its residents were living in conditions that HUD
considered unacceptable. 2

In 1997, as part of its 2020 Management Reform Plan, HUD instituted a new
approach for evaluating public housing authorities* overall performance
and for helping them improve their performance. The approach includes the
following components:

 PHAS is designed to obtain an independent evaluation of an authority*s
overall operations, including the physical condition of its housing, the
soundness of its financial operations, the effectiveness of its management
operations, and the extent to which residents are satisfied

with their services and living conditions.

 The Real Estate Assessment Center (REAC) collects and analyzes PHAS data
and provides for independent physical inspections of HUD*s 14,000 public
housing properties as well as for analyses of their financial condition
and surveys of residents* satisfaction. 3

 Two Troubled Agency Recovery Centers assist those authorities that fail
the PHAS evaluation and are designated as troubled or substandard as well
as those that voluntarily seek technical support from the centers.

 A statute 4 requires that a housing authority be placed into
receivership if it is unable to turn around failing management and escape
troubled status within 2 years. 5

2 U. S. General Accounting Office, Public Housing: HUD Should Improve the
Usefulness and Accuracy of Its Management Assessment Program, GAO/ RCED-
97- 27 (Washington, D. C.: Jan. 29, 1997). 3 U. S. General Accounting
Office, HUD Housing Portfolios: HUD Has Strengthened Physical Inspections
but Needs to Resolve Concerns About Their Reliability, GAO/ RCED00-

168 (Washington, D. C.: July 25, 2000) and HUD Inspections: Steps Needed
to Address Uncertainty in Inspection Scores, GAO- 01- 109 (Washington, D.
C.: Nov. 8, 2000). 4 42 U. S. C. 1437d( j).

5 The Quality Housing and Work Responsibility Act of 1998, enacted shortly
after HUD first issued regulations implementing PHAS, requires housing
authorities to be placed into receivership if they cannot emerge from
troubled status within 2 years.

HUD began collecting data for all four PHAS indicators in 1998, and for
fiscal year 1999, it computed, for each housing authority, a score for
each indicator as well as a total PHAS score. HUD used these scores to
test the system but not to classify housing authorities* performance. For
public housing authorities whose fiscal years ended on or after June 30,
2000, HUD planned to implement PHAS fully; however, the Congress directed
HUD to conduct further testing and to obtain an independent evaluation of
PHAS before using its scores as a basis for taking adverse actions against
public housing authorities. 6 Interpreting the term *adverse action* to
mean the designation of a housing authority as troubled on the basis of
its total PHAS score, HUD decided to use the score for the management
operations indicator alone to classify performance for fiscal year 2000.
This decision,

in effect, perpetuated PHMAP, since the management operations indicator
served as the sole criterion for classifying performance under PHMAP.

HUD*s Office of Public and Indian Housing, which administers the public
housing program, uses PIC, an Internet- based information system, to
generate a risk assessment for the nation*s 14, 000 public housing
properties. HUD*s 43 field offices can then use the results of this
assessment to plan their annual monitoring strategies. The field offices
are also responsible for approving the housing authorities* annual plans
and monitoring their compliance with their annual contributions contracts
7 as well as their progress in responding to the HUD Inspector General*s
conclusions and recommendations.

PHAS and PIC HUD uses PHAS and PIC to assess public housing authorities*
Establish Criteria for

performance. PHAS includes four performance indicators, which HUD scores
and plans to use for designating housing authorities as troubled. In
Identifying most cases, HUD then refers troubled authorities to a recovery
center for

Performance Problems rehabilitation. To date, HUD has only partially
implemented PHAS, using

the score for just one indicator to designate authorities as troubled.
Housing authorities self- certify the data for this indicator, whereas the
data for the other indicators are based on independent assessments. As of
December 3, 2001, 21 of 3, 167 authorities were designated as troubled.
Our 6 See the Conference Report (106- 988) for HUD*s fiscal year 2001
appropriations act (P. L. 106- 377, approved Oct. 27, 2000). 7 This annual
contract between HUD and a housing authority specifies what the authority
must do to receive funding from HUD during the contract year.

analysis indicates that when HUD fully implements PHAS, using the scores
for all four indicators as planned, it should designate many more
authorities as troubled. HUD is currently revising PHAS, attempting to
make it more responsive to the concerns of residents and the public
housing industry, before implementing it fully. In addition to PHAS, HUD

uses the PIC risk assessment to classify troubled and nontroubled housing
authorities as high, moderate, or low risk and to focus its monitoring
resources primarily on the nontroubled high- risk authorities to prevent
them from being designated as troubled. According to our analysis, 12 of
the troubled authorities were classified as low risk, and 1 of these

authorities, which was not referred to a recovery center, was scheduled to
receive only limited monitoring from the supervising field office. HUD
agreed that all troubled authorities should be classified as high risk to
better ensure that they receive sufficient monitoring.

PHAS Uses Four Indicators Each year, HUD measures the essential housing
operations of public housing authorities through PHAS* a system intended
to improve the delivery of services in public housing and to enhance trust
in the public housing system among public housing authorities, public
housing

residents, HUD, and the general public. PHAS scores determine (1) how HUD
designates a housing authority (troubled overall, troubled in one area,
standard performer, or high performer); (2) which HUD office will be
responsible for overseeing the housing authority; and (3) whether the

housing authority will be eligible for certain bonus funding. REAC is
responsible for assessing and scoring the performance of public housing
authorities. The four PHAS indicators measure different aspects of a
housing

authority*s performance. Each indicator receives a score that is based on
specific types of data.

 The physical condition indicator is used to determine whether the
housing authority is providing decent, safe, and sanitary housing to its
residents. Its score is based on an independent physical inspection of the
authority*s properties provided by REAC. The public housing industry has
expressed concerns about the reliability of these inspections.

 The financial condition indicator measures whether the housing authority
has sufficient financial resources and is capable of effectively

managing those resources. Its score is based on audited and unaudited
financial data that the authority is required to submit to HUD each year.

 The management operations indicator measures housing authorities*
management performance. Its score, like PHMAP*s, is based on selfcertified
data submitted by the public housing authorities. 8 As we previously
reported, 9 HUD cannot ensure the reliability of this indicator because it
does not have a systematic way to verify the authorities* selfcertified

data.

 The resident service and satisfaction indicator measures residents*
satisfaction with their living conditions. Its score is based on data
obtained through a survey of the residents and an evaluation of the extent
to which the public housing authority manages the process in accordance
with a methodology prescribed by HUD. Each of the four PHAS indicators is
scored individually. Public housing authorities can receive a maximum of
30 points each for the physical, financial, and management indicators and
a maximum of 10 points for the resident service and satisfaction
indicator, for a maximum total score of

100 points. HUD*s regulations classify housing authorities on the basis of
their scores as follows:

 Overall troubled: Less than 60 percent overall or less than 60 percent
of the points available under more than one of the three major (physical,
financial and management) indicators.  Troubled in one area: Less than 60
percent of the points available under

any one of the three major indicators:

 substandard physical,

 substandard financial, or

 substandard management. 8 The management operations indicator has six
subindicators* vacancy rate and unit turnaround, capital fund, rents
uncollected, work orders, annual inspection of dwelling units and systems,
and security and self- sufficiency. 9 U. S. General Accounting Office,
Public Housing: HUD Needs Better Information on Housing Agencies*
Management Performance, GAO- 01- 94 (Washington, D. C.: Nov. 9, 2000).

 Standard: At least 60 percent but less than 90 percent overall and at
least 60 percent of the points available under each of the three major
indicators.

 High: 90 percent or more overall and at least 60 percent of the points
available under each of the four indicators.

Full Implementation of For fiscal years 2000 and 2001, HUD used the scores
for the management PHAS Is Likely to Result in operations indicator alone
to designate housing authorities as troubled. More Troubled Designations

Thus, the authorities that were designated as troubled in these years
were, in fact, troubled in one area* management* rather than overall.
According to our analysis of the fiscal year 2001 scores for the
management indicator, 45 of 3, 167 authorities were troubled. Had HUD used
the scores for all four indicators to designate performance in fiscal year
2001, as it plans to do in fiscal year 2002, our analysis indicates that
it could have

designated as many as 90 public housing authorities as troubled overall
and 442 others as troubled in one area. Table 1 presents the results of
our analysis.

Table 1: PHAS Designations for Fiscal Year 2001 under Partial and Full
Implementation

Number of authorities Number of authorities designated under one

that could be designated PHAS designation

indicator under four indicators

Overall Troubled a 90 Troubled in one area a 442 * Substandard physical
169  Substandard financial 249  Substandard 45 24 management b Standard
performer 3, 122 1,808

High performer a 827

Total 3, 167 3,167

a HUD designated no high performers for fiscal year 2001. The only
troubled performers were those that were troubled in the management area.
b When performance is assessed using all four indicators, housing
authorities that are troubled in more

than one area become overall troubled. Some of the 45 housing authorities
that were troubled in the management area alone under one indicator moved
into the overall troubled category when their

physical and financial condition were also taken into account. As a
result, only 24 housing authorities remained troubled in the management
area alone under all four indicators.

Source: GAO analysis of HUD fiscal year 2001 PHAS scores.

The number of housing authorities designated as troubled changes over time
as housing authorities take corrective action and resolve their problems
or demonstrate to HUD through an appeals process that the

troubled designation is inappropriate. Thus, although our analysis
identified 45 housing authorities with troubled management as of September
30, 2001, this number declined as the authorities worked with the recovery
centers or field offices to correct their problems. As of December 3,
2001, 21 authorities were designated as troubled under the

management indicator. When HUD fully implements PHAS, the number of
troubled designations is likely to increase and the workload for the
recovery centers therefore could rise dramatically. According to HUD*s
regulations, housing authorities that are designated as either troubled
overall or troubled in one area shall be referred to a recovery center. In
practice, HUD field offices sometimes continue to oversee troubled housing
authorities, but most of those with troubled management have been referred
to the recovery centers. For fiscal year 2001, for example, 20 of the 21
troubled authorities were assigned to the recovery centers. Figure 3 shows
how the recovery

centers* workload could increase if all of the authorities that would be
designated under all four indicators as troubled overall or troubled in
one area in fiscal year 2001 were referred to the centers.

Figure 3: Potential Increase in Recovery Centers* Workload Following Full
Implementation of PHAS

Source: GAO analysis of HUD data.

HUD did not believe that such potentially large increases in workload
would be a problem for the recovery centers. According to HUD, each center
is staffed to monitor between 150 and 175 housing authorities, and not all
authorities would be referred to the centers at the same time. In
addition, HUD noted that the field offices can continue to monitor some

troubled housing authorities. HUD Is Revising PHAS

Before implementing PHAS fully, HUD is obtaining input from stakeholders
before Implementing It and revising the system in an effort to make it
more responsive to the Fully

stakeholders* concerns. In 2001, HUD met with representatives of housing
authorities, residents, housing advocacy groups, and other government
agencies to make interim modifications to PHAS. These stakeholders
recommended a number of changes that they believed would improve the
system. For example, they recommended that the physical inspection

score, which was based on five components, 10 be based on the two
components that have the greatest impact on residents* living conditions*
that is, building systems and dwelling units. The stakeholders also
recommended some changes for the management operations indicator and

suggested that the resident service and satisfaction indicator continue to
be worth 10 points and be counted in the total scores and performance
designations for public housing authorities.

HUD plans to move forward with the modifications to PHAS, using the
stakeholders* recommendations as guidelines, and to complete the
modifications in time to use the scores for all four indicators to
evaluate public housing authorities* performance in fiscal year 2002. HUD
intends to continue the 100- point scoring system and to maintain the
overall troubled designation for any housing authority that scores less
than 60 points. In addition, according to HUD, public housing authorities

designated as high performers (those scoring 90 points or more) will
receive regulatory relief and bonus points for funding competition.
Finally, HUD plans further improvements to PHAS over the long term that
could lead to an assessment system that, according to HUD officials, would
differ dramatically from the current system.

PIC Does Not Classify All HUD field offices use the PIC risk assessment to
identify housing Troubled Housing

authorities under their jurisdiction that are having serious problems and
to Authorities as High Risk devise monitoring strategies to address those
problems before the authorities are designated as troubled. The risk
assessment takes three factors into account and assigns different weights
to each of them. Specifically, the risk assessment considers

 the total PHAS score, weighted at 50 percent;

 funding issues that lie outside the scope of PHAS, including funds that
are available but not obligated and the number and complexity of active
programs, weighted at 30 percent; and

 compliance issues identified in audit reports, weighted at 20 percent.
10 The five components of the physical inspection score are the site,
building exteriors, building systems, common areas, and dwelling units.

In addition, PIC includes data on *qualitative factors* that HUD field
offices provide for housing authorities that they plan to visit. Such
factors include major audit findings, concerns raised by another group or
department about a housing authority, court actions or situations that
restrict a housing authority*s management, significant and repeated delays
in submitting required information, and claims by tenants that something
was done improperly. These factors provide additional context for the risk
assessments. The PIC risk assessment uses a 100- point scale to reflect
the housing authorities* PHAS scores, funding issues, and compliance
issues as weighted in the risk assessment:

 Low risk: 0 to 44 points

 Moderate risk: 45 to 64 points

 High risk: 65 to 100 points According to our analysis, the vast majority
of housing authorities, whether troubled or nontroubled, were classified
as low risk or high risk. Figure 4 shows the breakdown, by risk level, for
the 45 housing authorities that our analysis identified as troubled and
for the 3,121 housing authorities that were nontroubled as of September
30, 2001.

Figure 4: Risk Levels of Troubled and Nontroubled Housing Authorities,
Fiscal Year 2001

Note: Percentages may not add to 100 percent due to rounding. Source: GAO
analysis of HUD data.

The classification of any troubled housing authority as low risk is
inconsistent with the severity of the problems indicated by the troubled
designation. This inconsistency would probably not affect troubled
authorities assigned to recovery centers, since they would be compelled to
take corrective action, regardless of their risk level. However, troubled
authorities that are not assigned to recovery centers but remain under
field

office supervision might not receive sufficient monitoring attention if
they were classified as low risk because the field offices target their
monitoring resources according to risk level. The one troubled low- risk
authority we identified that was not assigned to a recovery center was
scheduled to receive routine monitoring* the lowest level of monitoring.
This housing authority may not receive the attention it needs from HUD to
correct the problems that led to its troubled designation. HUD officials
could not

explain the apparent anomaly, but, according to one official, all troubled
housing authorities should be considered high risk. HUD plans to address
this flaw in the risk assessment.

At Some Nontroubled The five public housing authorities we visited, which
have not been

designated as troubled under PHAS but have been classified as moderate to
Housing Authorities, high risk under PIC, 11 exhibited a wide range of
problems. However, many

Unsatisfactory Living developments at these authorities were well or
adequately maintained. The

Conditions Stemmed problems at other developments varied in their severity
and, in the worst

from Management cases, created unsafe and unsanitary living conditions for
residents. These problems are, in large part, the results of management
deficiencies,

Deficiencies including poor procurement practices, fraud and abuse, and
weak management of maintenance and modernization programs. Such
deficiencies* which can themselves be traced to frequent management and
staff turnover, insufficient training, and weak internal controls* divert

funds from their intended uses and create repair and capital improvement
backlogs. Comprehensive data are not readily available to determine
whether conditions at the housing authorities we visited are
representative

of conditions at nontroubled high- risk authorities nationwide. However,
our analysis of PIC data for fiscal year 2001 shows that factors
indicative of management problems* such as staff with insufficient skills,
disagreements between the housing board and management, and major audit
findings (including noncompliance with procurement requirements, fraud and
abuse, and ineffective management of modernization programs)* are more
likely to be found at nontroubled high- risk housing authorities than at
nontroubled low- risk housing authorities (see app. II).

Property and Living At the five public housing authorities we visited,
property and living

Conditions Vary, but conditions varied, often from one development to
another within the same Deterioration Creates authority. At the Puerto
Rico Public Housing Administration, for instance,

Health and Safety Hazards some developments were well- maintained, as
shown in figure 5, while others had deteriorated to varying degrees, as
shown in figure 6. Figures 7

for Residents of Some and 8 illustrate health (termites and mold and
mildew) and safety (exposed Properties wiring and open electric meters)
hazards. Figures 9 through 13 illustrate some of the problems we observed
at the other public housing authorities we visited.

11 The Camden Housing Authority would have been designated as troubled
under PHAS but was not because it was in administrative receivership;
however, according to HUD, the authority was briefly designated as
troubled while it was in receivership. The four other

nontroubled authorities we visited were the Chicago Housing Authority, the
Housing Authority of New Orleans, the Puerto Rico Public Housing
Administration, and the San Francisco Housing Authority.

Figure 5: Examples of Well- Maintained Public Housing, Puerto Rico Public
Housing Administration Source: GAO photographs taken during site visits to
five housing authorities.

Figure 6: Examples of Deteriorated Public Housing, Puerto Rico Public
Housing Administration

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 7: Examples of Health Hazards in Public Housing, Puerto Rico Public
Housing Administration

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 8: Examples of Safety Hazards, Puerto Rico Public Housing
Administration

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 9: Examples of Public Housing Problems, Housing Authority of New
Orleans

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 10: Examples of Public Housing Problems, Housing Authority of New
Orleans

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 11: Examples of Public Housing Problems, Housing Authority of New
Orleans

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 12: Examples of Public Housing Problems, Chicago Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 13: Examples of Public Housing Problems, Chicago Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

The physical problems we observed at the five housing authorities we
visited stemmed in large part from deficiencies in the quality of the
housing authorities* management. At the five authorities we visited,
problems such as poor procurement practices, fraud and abuse, and weak
administration of maintenance and modernization programs contributed to
the physical problems we observed at some developments.

Poor Procurement Practices Poor procurement practices have been a problem
at most of the housing

Waste Funds and Delay authorities we visited. Before being placed into
receivership, for example, Projects

the Camden Housing Authority failed to comply with its own procurement
policies and federal procurement regulations. 12 Noncompliance with
federal procurement practices was also found at the San Francisco

Housing Authority, 13 in March 2000 as well as at the Puerto Rico Public
Housing Administration, where the Inspector General classified as
ineligible about $21. 8 million of $39 million in procurements reviewed.
14 In addition, the Inspector General found that the Puerto Rico housing

authority did not effectively monitor the activities of its management
agents or maintain adequate property management and related procurement
documents. Sound procurement plans, policies, and procedures are crucial
for public housing authorities, particularly those that have largely
replaced their own staff with contractor staff. At the Chicago Housing
Authority, for example,

the staff has declined from about 2,600 to 500 employees, and, in Puerto
Rico, fewer than 100 of 4,500 housing authority employees remain. These
remaining staff are responsible for hiring and overseeing the contractors.
However, the authorities often lack adequate procurement plans, policies,
and procedures; continuity in management and staffing; and managers and
staff with the training needed to oversee and implement procurements
effectively.

At the Puerto Rico Public Housing Administration, a lack of adequate
procurement policies and procedures led to many of the housing

12 HUD*s Inspector General Audit Report (96- NY- 204- 1004, July 24,
1996). 13 San Francisco Housing Authority Low- Income and Section 8
Housing Programs, San Francisco, California (00- SF- 201- 1001, Mar. 31,
2000). 14 Puerto Rico Public Housing Administration Procurement
Management, San Juan, Puerto Rico (00- AT- 201- 1003, Mar. 6, 2000).

authority*s procurement problems. For example, the authority*s procurement
regulations, policies, and procedures did not comply with federal
requirements. As a result, the authority was not implementing

federal requirements for planning, soliciting, and awarding purchase
orders and contracts. As early as 1994, the Inspector General and HUD
program officials began recommending that the housing authority develop
and issue a procurement manual and improve its procurement records.

High turnover rates and other changes in roles and responsibilities also
contribute to procurement problems. At some of the housing authorities we
visited, frequent changes in managers and staff were among the causes of
uncertainty over who was in charge of awarding, reviewing, and

monitoring contracts. The Housing Authority of New Orleans, for example,
has had four different one- person housing boards of directors since 1997
and three executive directors in the past 6 years. In part because of
these many changes in leadership, it was not clear who was finally
responsible for approving contracts. Similarly, at the San Francisco
Housing Authority, there appeared to be confusion and some tension over
whether the board

of commissioners, the recovery center, the field office, or HUD
headquarters had the final word in approving and reviewing contracts.
According to the current acting executive director, the San Francisco
Housing Authority has had 10 different executive directors in the past 10

years. Insufficient training for managers and policymakers, as well as for
staff, is another cause of procurement problems. For example, the HUD
Inspector General found that the San Francisco Housing Authority*s
management and

board of commissioners did not follow federal procurement policies and
procedures and recommended that HUD sanction the executive director and
the board. Later, one of the HUD recovery centers provided

procurement training to the board and began reviewing all contracts over
$50,000. Similarly, the Inspector General found that procurement problems
in Puerto Rico existed because the housing authority*s management
disregarded federal requirements and therefore was incapable of
administering the procurement program. In October 2000, HUD headquarters
sent a team to Puerto Rico to oversee the procurement process and provide
technical assistance.

Fraud and Abuse Divert Fraud and abuse have contributed to deterioration
at the Puerto Rico Funds from Their Intended

Public Housing Administration, reducing the funds available for Uses

maintenance and modernization. In November 2001, for example, the
Inspector General reported that criminal investigations of fraud and abuse
had resulted in 26 indictments and 24 guilty pleas. In 1 case, a
consultant at the housing authority, who reviewed payment vouchers and
approved payments to management agents, conspired with employees of a
management company to embezzle over $1 million. The Inspector General
attributed this and other problems with fraud and abuse at the housing

authority to poor internal controls, noting as early as March 2000 that
the authority did not have effective management control systems to deter
waste, fraud, and abuse. In June, the Inspector General pointed out that
the parties who embezzled $1 million were able to commit this fraud
because the housing authority did not have internal controls in place to
prevent the consultant from solely approving unauthorized checks to the
management company.

Weak Management of Weak management of maintenance and modernization
programs was a

Maintenance and problem at several of the housing authorities we visited.
For instance, the

Modernization Programs Housing Authority of New Orleans failed to make
effective use of the funds

Creates Backlogs it received for maintenance and modernization. For years,
it made no

progress toward implementing plans to modernize its rapidly deteriorating
properties, and maintenance backlogs grew. The Puerto Rico housing
authority had difficulty monitoring contracts. As a result, the physical
condition of housing developments varied widely from one contracted
management agent to another. According to residents, some management
agents were adequately maintaining their developments and responding to
residents* concerns, while others were allowing their developments to
deteriorate. Even though the housing authority had a contractormonitoring

unit, a HUD official told us that the housing authority was not adequately
monitoring its contractors.

The problems in managing maintenance and modernization programs, like the
poor procurement practices, often stemmed from high turnover rates and
insufficient training. For example, HUD attributed many of the delays in
carrying out repair and modernization efforts at the New Orleans housing
authority to a lack of continuity in the authority*s management. In
addition, according to the current executive director, interference from
parties outside of the housing authority limited its ability to follow
through on many of its plans. Furthermore, in New Orleans and in Puerto
Rico

many housing authority staff were let go, and the in- house staff who
remained to hire and supervise contractor staff were not always trained in
monitoring and oversight. Factors Associated with

HUD does not maintain data on the types of problems found at public
Management Problems Are

housing authorities according to their PHAS designation and PIC risk Found
at Nontroubled HighRisk classification. Therefore, we cannot determine
whether the problems we

Housing Authorities observed at the five nontroubled high- risk housing
authorities we visited

are representative of problems at such housing authorities nationwide.
Nationwide

However, HUD field offices do report certain *qualitative factors* that,
in their view, may indicate problems with the quality of a housing
authority*s management. They use these factors, which are entered into
PIC, to target housing authorities for on- site monitoring. According to
PIC, these factors were more frequently reported for nontroubled high-
risk housing authorities than for nontroubled low- risk authorities. While
the

percentages of authorities where these factors were reported were
generally small for both groups (under 5 percent for all but two factors),
the percentages were consistently higher for the high- risk group. The
most frequently reported factors were insufficient staff skills;
significant and repeated delays in submitting required information;
reports of tenant complaints; the number, size, or complexity of new
programs; issues or disagreements between the board and management; and
major audit findings such as noncompliance with federal procurement
requirements,

theft, fraud, and abuse. (App. II lists all of the factors and the
percentages of housing authorities where the factors were reported.) HUD
Has Several

HUD has several options for improving a housing authority*s performance,
Options for Addressing from providing technical assistance, to imposing
sanctions, to taking over

the authority*s operations. In some instances, HUD may enter into special
Housing Authorities* agreements with housing authorities, giving them the
flexibility to address Problems

unique problems. Although implementing these options can bring about
positive changes at housing authorities, it may not completely or
permanently solve long- standing problems. For this review, we did not

evaluate the effectiveness of HUD*s efforts to resolve management problems
at public housing authorities, but we are planning future reviews.

HUD May Provide Technical HUD may provide technical assistance to address
chronic problems at Assistance to Address

housing authorities even when the authorities have not been designated as
Problems troubled under PHAS. The Quality Housing and Work Responsibility
Act of 1998 and regulations authorize HUD to provide technical assistance,
training, or both to authorities that are at risk of being designated as
troubled as well as to those that have not been so designated. 15 For
those

that have not been designated as troubled, this assistance is contingent
upon agreement or may even be requested by the housing authority.
Technical assistance may involve developing policies for the housing
authority, streamlining its operations, designing or improving its

organizational structure, or training its staff. HUD may provide this
assistance continuously, by stationing a team at the housing authority, or
periodically, by visiting the authority from time to time. HUD may also
hire a contractor to provide the assistance or make funding available for
the authority to hire technical assistance contractors. HUD tailors its
assistance to the problems at a housing authority, often attempting to
improve the authority*s ability to manage an aspect of its operations or
administer one of its programs. For example, HUD put

together a team led by its field office- based procurement specialist to
assist the Puerto Rico Public Housing Administration in developing
policies and procedures for its procurement office that will allow it to
comply with federal procurement regulations. Similarly, HUD provided grant
funding for the Chicago Housing Authority to contract with a local
university for assistance in streamlining its procurement processes. At
the financially troubled San Francisco Housing Authority, staff from the
Memphis recovery center are helping the authority find ways to reduce
expenses and

balance its budget. Recovery center staff are also helping the housing
authority address findings from an audit by HUD*s Inspector General. At
small housing authorities, HUD assists in building overall management
capacity, usually by sending a team to completely revamp an authority*s
policies and procedures.

15 Before the introduction of PHMAP, HUD field offices evaluated the
performance of public housing authorities and determined whether they were
troubled according to criteria in HUD*s monitoring handbook. However, this
determination was not systematic and was not

necessarily done each year. Not until PHMAP took effect in fiscal year
1992 was the troubled designation based on a systematic yearly assessment
of housing authorities* operations.

HUD May Apply Sanctions When HUD is unable to address the problems at a
housing authority

or Intervene in a Housing cooperatively, it has the authority to intervene
or apply several different

Authority*s Operations to sanctions at varying levels of severity as
follows:

Correct Problems

 HUD may review a housing authority*s expenditures and place restrictions
and conditions on them. For example, at the financially troubled San
Francisco Housing Authority, HUD recovery center

officials review all staff salaries and procurement contracts in excess of
$50,000.

 HUD can remove housing authority officials through a suspension,
debarment, or limited denial of participation if the authority*s poor
performance is directly related to the actions of these officials.

 A suspension disqualifies an individual from participation in HUD
programs for a time because of evidence of crime, fraud, or serious
improper conduct.

 A debarment excludes an individual from participation in HUD programs
for criminal offenses or other violations.

 A limited denial of participation prevents an individual from
participating in the HUD program under which the cause arose for up to 12
months. HUD can apply this sanction even if no criminal activity is
suspected if it determines that an individual*s removal is in the best
interest of the government.  HUD may impose an alternative management
arrangement when it finds ongoing management weaknesses in some or all of
a housing authority*s

operations. The alternative management can be provided by a private
management company, a resident management corporation, a management team
from another housing authority, or some other arrangement for effecting
change at the housing authority. For example, at the Housing Authority of
New Orleans, the secretary of HUD and the mayor of New Orleans entered
into a cooperative endeavor agreement. This agreement established the role
of an executive monitor, a HUD

appointee and representative who would oversee the operations of the
housing authority. The agreement also replaced the board of commissioners
with a contractor.

 HUD may declare a housing authority in substantial default or in breach
of its annual contributions contract with HUD. According to HUD*s

guidance, this measure should be considered only when (1) the housing
authority*s performance problems are severe, pervasive, and systemic; (2)
the authority consistently and vigorously resists problem- solving
efforts; and (3) other remedies have been exhausted or are determined
inappropriate because of the urgent need to take action. Under these
circumstances, HUD can arrange for an alternative form of management,
including the designation of a receiver, to remedy the housing authority*s
problems.

HUD May Name a Receiver When problems are long- standing, severe, or both,
HUD may seek a to Take Over a Housing receivership if a housing authority
is in substantial default of its contractual Authority*s Operations

obligations to HUD. For a housing authority that has been designated as
troubled on the basis of its PHAS scores, HUD must seek an administrative
or a judicial receivership if the authority has not substantially improved
its performance within 2 years. Under an administrative receivership, HUD

appoints either a contractor or a HUD employee to take over the housing
authority*s management. Under a judicial receivership, a judge makes the
appointment. According to HUD officials, a receivership is a good option

when a housing authority is very poorly run and is under local political
pressure that is impeding HUD*s efforts to bring about the authority*s
recovery. The Camden Housing Authority had long- standing problems, an
inability to provide decent, safe, and sanitary housing; numerous
instances of noncompliance with federal regulations; poor internal
controls; or political influence, that were preventing improvements at the
authority. Consequently, HUD determined that the housing authority had
breached its

annual contributions contract and acted to take over the housing
authority*s operations. HUD and the mayor of Camden agreed in August 1997
on an administrative receivership, under which HUD assumed

responsibility for the housing authority*s management. HUD hired
consultants to administer the housing authority*s financial management and
modernization programs, focused on improving properties* maintenance and
reducing the vacancy rate, and established a security partnership with
local police and set up a housing authority security force

to reduce crime. Although the housing authority is still under
administrative receivership, HUD has reduced the consultants* role and an
administrator currently manages the authority. Although there is no
requirement for HUD and a housing authority to focus

corrective actions on raising the authority*s PHAS scores, the Camden

Housing Authority*s administrator has done so with positive results,
according to HUD officials. From fiscal years 1999 to 2000, the management
operations indicator rose from a troubled level of 16 to a standard level
of 23, and the financial operations indicator rose from a

failing score of 15 to a passing score of 19. In addition, several
modernization projects have been completed (see fig. 14) or are under way
(see fig. 15); crime rates have declined; and, according to the residents,
maintenance has vastly improved.

Figure 14: Completed Modernization Project at the Camden Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

Figure 15: Modernization Project in Process at the Camden Housing
Authority

Source: GAO photographs taken during site visits to five housing
authorities.

HUD May Enter into Special HUD has given some housing authorities the
flexibility to address unusual

Agreements to Address challenges. At the Chicago Housing Authority, for
example, HUD waived

Unique Problems at Housing some of its regulations for 10 years and
allowed the authority to Authorities

consolidate its capital and operating funding into a single block grant.
HUD approved these steps in February 2000 under the housing authority*s
Plan for Transformation* a plan to completely revamp Chicago public
housing. The plan was designed to address the poor physical condition of
the housing stock; the poor design of the developments, which encouraged
crime; and the high concentration of extremely poor families. The

authority plans to solve these problems by developing low- rise public
housing structures in mixed- income communities. In part, the plan
responds to a mandate from HUD calling for the housing authority to

demolish distressed public housing units and either provide the residents
with tenant- based assistance or relocate them to other pubic housing
developments. The plan calls for the demolition of 18,000 units and the
redevelopment and rehabilitation of 25,000 units. HUD approved the Chicago
Housing Authority's plan under its Moving to Work Program. The program was
designed to give housing authorities the flexibility to design and test
cost- effective approaches for providing housing assistance, to assist
public housing residents in obtaining employment and becoming
selfsufficient,

and to increase housing choices for low- income families. The flexibility
that HUD has given this housing authority has allowed it to undertake a
large- scale redevelopment project. HUD has entered into similar
agreements at 22 other housing authorities and has entered into
negotiations with 5 other authorities.

Effectiveness and Despite the variety of actions available to improve
public housing Sustainability of HUD*s authorities* performance, these
actions have not always fully resolved

Interventions Are Uncertain problems or precluded their recurrence. For
example, HUD sanctioned the

Puerto Rico Public Housing Administration in 1991, freezing its
unobligated funds, because of serious financial, administrative, and
project maintenance problems. A decade later, the HUD Inspector General
found similar problems at the housing authority, including a lack of
management controls, inadequate procurement and contract management
procedures, and an inability to administer the authority*s HOPE VI
project. HUD*s actions also have not resolved problems at the Housing
Authority of New Orleans. A designated HUD representative has been
monitoring the progress of the housing authority since 1996, yet many of
the authority*s past problems persist, including the poor physical
condition of the housing stock and delays in the completion of
modernization work. The San Francisco Housing Authority is also struggling
with problems even after extensive HUD assistance. Despite the work of a
HUD recovery team between 1996 and 1997 and ongoing monitoring by the
recovery center, the housing authority still has significant financial
difficulties. Lastly, while HUD officials agree that the Camden Housing
Authority has improved significantly and has addressed many of its past
deficiencies by targeting corrective actions to problems identified
through PHAS, both HUD and the

authority*s current administration are concerned about the ability of the
housing authority to sustain its current level of performance when it

reverts to local control. We are planning to review the nature and
outcomes of housing authorities* corrective actions.

Conclusions Because HUD has not yet fully implemented PHAS, it is too
early to tell how effective the new system will be in identifying and
providing for the correction of long- standing problems at public housing
authorities. But when HUD fully implements PHAS, it should have a broader
and more reliable basis for evaluating housing authorities* performance.
As a result,

full implementation should increase the potential for PHAS to identify the
authorities* problems. It would be consistent for public housing
authorities that are designated as troubled overall or troubled in one
area to be classified as high risk to ensure that they receive sufficient
monitoring attention from HUD. While most troubled housing authorities are
assigned to troubled agency recovery centers where they receive close
monitoring regardless of their risk classification, those troubled
authorities that remain under field office supervision and are classified
as low risk may not be scheduled for sufficient monitoring. When HUD fully
implements PHAS and designates

many more authorities as troubled, this problem could become more
widespread. Recommendation for

To help ensure that troubled public housing authorities receive sufficient
Executive Action

monitoring, we recommend that the secretary of housing and urban
development revise the PIC risk assessment to automatically classify all
troubled housing authorities as high risk so that they receive the correct

level of HUD monitoring. Agency Comments We provided a draft of this
report to HUD for its review and comment. In emails dated January 31,
February 1, and February 4, 2002, incorporating

comments from the deputy assistant secretary for the Office of Troubled
Agency Recovery, the deputy assistant secretary for the Office of
Administration and Budget, and the acting director of field operations,

Office of Public and Indian Housing, and a REAC official, HUD provided
background information on the PIC risk assessment process and indicated
that it planned to revise the PIC rating scheme to ensure that all
troubled public housing authorities are designated as high risk. In
addition, HUD

provided technical comments, which we incorporated in this report as
appropriate. Scope and To accomplish our objectives, we conducted case
studies of five public Methodology

housing authorities: (1) the Camden Housing Authority, (2) the Chicago
Housing Authority, (3) the Housing Authority of New Orleans, (4) the
Puerto Rico Public Housing Administration, and (5) the San Francisco

Housing Authority. With the exception of the Puerto Rico Public Housing
Administration, we selected these housing authorities because they were
known to pose high risks but had not been designated as troubled at the
time of our review and they were geographically diverse. We selected the
Puerto Rico Public Housing Administration because its history of
significant problems had generated congressional interest although HUD
only considered it to be of moderate risk.

To identify HUD*s criteria for designating housing authorities as troubled
under PHAS and for classifying them as high risk under PIC, we reviewed
HUD*s guidance on public housing assessment criteria. This included our
review of PHAS and the status of its implementation. We also received a
briefing on PIC from HUD officials.

To identify the kinds of problems found at housing authorities that have
not been designated as troubled under PHAS but have been classified as
high risk under PIC, we interviewed HUD officials, representatives of the
public housing authorities, and tenant representatives at our five case
study authorities. In addition, we visited public housing developments at
these authorities and took photographs to document the kinds of problems
we observed. The developments we visited were of different types, had
different PHAS scores, and varied in the severity of their problems.

To identify HUD*s options for addressing problems at housing authorities,
regardless of whether they have been designated as troubled, we examined
the corrective actions taken at each of our case study authorities. We
discussed these options with HUD officials at headquarters and at the hub

offices near the five authorities. In addition, we obtained HUD*s
guidelines for these options, relevant correspondence between HUD and the
housing authorities, and status reports sent by the housing authorities to
HUD. We used PHAS data, obtained from REAC, and PHAS and PIC data,
obtained from HUD*s Office of Public and Indian Housing, to examine the
kinds of problems found at nontroubled high- risk public housing

authorities and at public housing authorities in general. The data in both
PHAS and PIC are collected for each public housing authority once a year
on a rolling basis, by quarter. Thus, at any point in time, the data are
the most current that have been collected, but conditions may have changed
at

some public housing authorities since the data were collected. We assessed
the reliability of HUD*s REAC and PIC data by (1) reviewing existing
information about the REAC and PIC systems and data, (2) interviewing
agency officials knowledgeable about the data, and (3) performing
electronic testing of the data elements used in this report. We determined
that the data were reliable enough for the purposes of this report.

The data we obtained from REAC were for the end of fiscal year 2000 and
contained the total PHAS scores and the scores for each of the four PHAS
indicators and their subindicators. The data we obtained from PIC were for
the end of fiscal year 2001. These data included both the PHAS scores (the
total scores and the scores for the four indicators) for fiscal year 2001
that PIC received from REAC and the PIC risk assessment scores. At the
time that we received the PIC data, HUD was updating its method of

calculating risk; thus, the risk assessment scores used in our analysis
are derived according to the method HUD told us it is most likely to use
in calculating future scores.

Using the PHAS scores for fiscal year 2001 and HUD*s scoring system, we
determined how many public housing authorities should be designated as
troubled under both HUD*s current and planned approaches. Under the
current approach, we used the score for the management operations
indicator alone, as HUD has done to date, and classified housing
authorities as troubled if they scored less than 18 out of 30 possible
points (60 percent). Under the approach HUD plans to use in fiscal year
2002, we used the total PHAS score and the scores for all four indicators,
classifying housing authorities as troubled if they scored less than 60
percent overall or less than 60 percent on more than one of the major
indicators (physical condition, financial condition, and management
operations). We based our

calculations for both approaches on rounded scores, following HUD*s
example. Our analysis did not exclude scores of zero for any indicator,
even though a zero may indicate that a housing authority was late in
submitting the applicable data, never submitted the data, or in rare

instances was not required to submit the data. Additionally, PHAS scores
may not always be updated immediately in PIC.

We used the results of the PIC risk assessment and HUD*s scoring system to
determine whether housing authorities posed low (0- 44 points), moderate
(45- 64 points), or high (65- 100 points) risks. Then we grouped the

authorities according to their status (troubled or nontroubled) and risk
level (low, moderate, or high) and determined what quality factors were
present at authorities in each of the six resulting groups. To identify
the kinds of problems found at nontroubled high- risk authorities, we paid
particular attention to the quality factors present at authorities in this
group, comparing them with the quality factors present at nontroubled
lowrisk authorities. See appendix II for the results of our analyses. We
used REAC data for fiscal year 2000 and PIC data for fiscal year 2001 to
identify the kinds of problems found at all public housing authorities.
See appendix I for the results of our analyses of PHAS subindicators and
PIC

quality factors. We conducted our work from January 2001 through January
2002 in accordance with generally accepted government auditing standards.

As agreed with your office, we are sending copies of this report to the
chairman and ranking minority member, Senate Committee on Banking,
Housing, and Urban Affairs; the chairman, Subcommittee on Housing and
Transportation, Senate Committee on Banking, Housing, and Urban Affairs;
the chairman and ranking minority member, House Committee on Financial
Services; and the chairwoman and ranking minority member,

Subcommittee on Housing and Community Opportunity, House Committee on
Financial Services. We will also send copies to the secretary of housing
and urban development and the director of the Office of Management and
Budget. Please contact me at (202) 512- 6520 if you have any questions
about this report. Key contacts and contributors to this assignment are

listed in appendix VIII. Sincerely yours,

Stanley J. Czerwinski Director, Physical Infrastructure Issues

Appendi xes Extent to Which Problems Occur at All Public

Appendi x I

Housing Authorities To determine the extent to which problems occur at all
public housing authorities, we analyzed the most recent data available for
these authorities from the Department of Housing and Urban Development
(HUD). HUD maintains these data in two databases. The data from one
database, managed by HUD*s Real Estate Assessment Center (REAC), were for
the end of fiscal year 2000. The data from the other database, HUD*s

Public and Indian Housing Information Center (PIC), were for the end of
fiscal year 2001. For both of these databases, information is collected
for each public housing authority once a year on a rolling basis, by
quarter. Thus, at any point in time, the data are the most current that
have been collected, but conditions may have changed at some housing
authorities since the data were collected.

REAC*s Data for the REAC maintains the data used to assess the performance
of public housing

End of Fiscal Year 2000 authorities under HUD*s new assessment system, the
Public Housing

Assessment System (PHAS). From these data, REAC generates a total PHAS
score for each housing authority. This total score is made up of scores
for four indicators of performance* physical condition, financial
condition, management operations, and resident service and satisfaction.
The score for the physical condition indicator reflects the results of all
physical inspections performed at the housing authority. The score for
each of the other three indicators is made up of scores for several
subindicators. For example, the score for the resident service and

satisfaction indicator is the sum of the scores for subindicators that
measure residents* satisfaction as gauged by their responses to a survey,
housing authorities* completion of a plan for implementing the survey, and
housing authorities* development of a follow- up plan to address issues
arising from the survey.

We examined the scores for each subindicator for 3,166 public housing
authorities to identify any widespread problems with their performance. 16
For several of the subindicators for which data had been collected for the
entire fiscal year, 17 the scores were low, indicating possible problems.

16 The data we received from REAC did not include the PHAS scores for 1 of
the 3, 167 housing authorities. 17 Although we received some data for
management operations subindicators measuring vacant units, unit
turnaround, rent uncollected, security, and economic self- sufficiency, we
did not include these measures in our analysis because they were not used
consistently for the entire fiscal year.

However, we could not determine from information in the database whether
the low scores indicated problems with the housing authorities*
performance or problems with their filing the required data with HUD. 18
Because PHAS considers a score of less than 60 percent as failing, we
examined the extent to which housing authorities received scores below 60
percent for each subindicator. Since the maximum scores for the
subindicators ranged from 2 to 9, the failing percentages varied from 0 to
56 percent. The scores were particularly low for the annual inspections
and work orders subindicators under the management operations indicator.
The results of our analysis are shown in figure 16.

18 Not filing the required data is in itself a management problem.

Figure 16: Percentages of Public Housing Authorities Receiving Scores of
Less than 60 Percent for PHAS Subindicators

Note: The maximum possible score for these subindicators varies from 2 to
9; thus, the closest approximation of less than 60 percent is different
for each indicator. Subindicators with an approximate failing percentage
represented as 0 had maximum scores of only 2 or 3, and the closest
percentage less than 60 was 0.

Source: GAO analysis of HUD data.

For several subindicators, particularly within the financial condition and
resident service and satisfaction indicators, a large percentage of
housing authorities received a score of zero. Again, the information in
the database did not allow us to determine whether this score indicated a
serious performance problem or a problem with filing the required data.
Figure 17 shows the percentages of housing authorities that received
scores of zero for the subindicators.

Figure 17: Percentages of Public Housing Authorities Receiving Scores of
Zero for PHAS Subindicators

Source: GAO analysis of HUD data.

PIC Data for the End of HUD*s Office of Public and Indian Housing, which
administers the public Fiscal Year 2001 housing program, uses PIC, an
Internet- based information system, to generate risk assessments for the
nation*s public housing authorities. These risk assessments use the total
PHAS score and information about

funding and compliance issues to classify housing authorities as high,
moderate, or low risk. HUD*s 43 field offices can then use the results of
these assessments to plan their annual monitoring strategies.

Besides generating risk assessment scores, PIC includes information on the
presence of certain factors associated with the quality of a housing
authority*s operations. Figure 18 lists the factors* all of which are
indicative of potential problems* and the percentage of housing

authorities where, according to PIC, the factors were present. As the
figure indicates, the factors most frequently identified as present (apart
from *other problems*) were insufficient staff skills, delays in
submitting required information, and reports from tenants of something
done improperly by the housing authority. The database does not define
what is in the *other problems* category.

Figure 18: Presence of Factors Indicating Potential Problems with the
Quality of Housing Authorities* Management

Source: GAO analysis of HUD data.

Problems at Nontroubled High- Risk Public

Appendi x II

Housing Authorities To identify the kinds of problems found at public
housing authorities that HUD has not designated as troubled but has
classified as high risk, we applied HUD*s criteria for determining housing
authorities* status (troubled or nontroubled) and risk level (high,
moderate, or low) to the nation*s 3, 166 public housing authorities. 19
First, as HUD has done to date, we considered the scores for the PHAS
management operations indicator alone and determined which housing
authorities met HUD*s criteria for troubled (those that scored less than
18 out of 30 possible points) and nontroubled (those that scored 18 or
more points). We then considered the PIC risk

assessment scores and determined what risk levels would be assigned to the
troubled and nontroubled housing authorities under HUD*s scoring system.
Under PIC, housing authorities are classified as low risk if they score
between 0 and 44, moderate risk if they score between 45 and 64, and high
risk if they score between 65 and 100. All data were for the end of fiscal
year 2001. Our analysis produced six groups of housing authorities,

the largest of which were the nontroubled high- risk (1, 416) and the
nontroubled low- risk (1, 615) groups. After grouping the nation*s housing
authorities according to their status and risk level, we attempted to
identify the kinds of problems found at nontroubled high- risk authorities
by determining what quality factors were associated with this group. For
comparative purposes, we also determined what quality factors were
associated with the nontroubled low- risk

authorities. 20 As discussed in appendix I, the quality factors are
indicative of potential problems. Table 2 identifies the percentage of
housing authorities in each group where, according to PIC, the factors
were present. When we compared our results for the two groups, we found
that,

in all but one instance, 21 the quality factors were more commonly present
for the nontroubled high- risk authorities than for the nontroubled low-
risk authorities. The largest differences between the two groups were for
other problems; reports where tenants claimed that the housing authority
did something improperly; and the number, size, or complexity of new

19 Because the data we received from PIC did not include the risk
assessment scores for 1 of the 3, 167 housing authorities, we eliminated
this authority from our analysis.

20 Because fewer than 5 percent of the nontroubled housing authorities
were classified as moderate risk, it was inappropriate to compare the
results for them with the results for the other nontroubled categories. 21
No housing authorities in either the nontroubled high- risk or the
nontroubled low- risk group had a Section 8 Management Assessment Program
score on appeal reported.

programs. The factors are ordered in the table according to their
frequency at nontroubled high- risk housing authorities.

Table 2: Quality Factors Associated with Nontroubled High- Risk and
Nontroubled Low- Risk Housing Authorities High risk

Low risk Quality factor (n= 1,416) (n= 1, 615)

Other problems 16.4 6. 7 Staff skills insufficient to carry out housing
6.9 5. 2 authority*s functions Significant and repeated delays in

4.9 4. 1 submitting required information Reports in which tenants claim
that authority

4.5 1. 9 did something improperly Number, size, or complexity of new

4.4 0. 6 programs in last 12 months Board or management issues or 3.2 1. 9

disagreements that restrict authority*s management

Theft, fraud, or other significant major audit 2.5 0. 5 findings News
sources indicating significant and 2.3 0. 3

credible problems Serious or violent crime rate significantly 2.1 1. 2
above the norm Court actions or situations that restrict 2.0 0. 1
authority*s management Concerns about authority raised by another

1.7 1. 2 group or department Unemployment, influx of people, and

1.2 0. 4 community antagonism Actions by political entity that restrict
0.8 0. 3

authority*s management PHAS score is on appeal 0.4 0 Fire, flood, tornado,
explosion, disease, or

0.1 0 any act of God Section 8 Management Assessment

0 0 Program score is on appeal Source: GAO analysis of HUD data.

Appendi x I II

Camden Housing Authority The Camden Housing Authority was established on
April 20, 1938. It consists of nine developments with 1,540 units. In
addition, it administers 804 Section 8 units and 93 Homeownership Project
units, which are available for purchase by residents. For fiscal year
2001, the authority received an operating subsidy of $8.1 million and
capital funding of $4.8 million. Over the years, it has also received
about $80 million for two ongoing HOPE VI projects*$ 42. 1 million in
fiscal year 1993, $3. 1 million in fiscal year 1998, and $35 million in
fiscal year 2000. The authority is currently under administrative
receivership because it breached its annual

contributions contract. The director of the New York Office of Public
Housing is the HUD secretary*s designee and functions in lieu of the
Camden Housing Board of Commissioners, with the responsibilities and
authority that would normally be assigned to the board.

Historical Problems Management turnover has long been a problem at the
Camden Housing Authority. Since 1992, the authority has had nine executive
directors and

many changes in the membership and leadership of its board of
commissioners, including five different chairpersons. Past administrators
attempted to respond to a broad range of issues and constituencies*
including local, state, and federal officials; community leaders;
residents; special interest groups; and the press* instead of setting the
foundations for substantive change. This reactive management style left
the residents confused and disheartened, the staff demoralized, and the
public housing authority open to continuous criticism. In almost every key
functional area, the authority*s systems were weak, nonexistent, or poorly
administered. In addition, the authority lacked clear goals, a strategic
plan, and strong leadership; most management decisions were subject to
political pressure; and the authority*s workforce lacked the technical

competencies needed to operate a large property management organization.
In addition, in July 1996 the HUD Inspector General reported that the
Camden Housing Authority was not complying with many of the public housing
program*s requirements and regulations. Specifically, the report indicated
that the housing authority was, among other things,

 generally not providing decent, safe, and sanitary housing to tenants;

 not complying with its procurement policies or with federal procurement
regulations;

 improperly hiring staff and providing salary increases;

 improperly paying for vacations and overtime;

 incurring unnecessary costs;

 inadequately controlling the disbursement of funds; and

 inadequately controlling its equipment inventory. On August 4, 1997, HUD
found that the Camden Housing Authority had substantially breached its
annual contributions contract, seized the authority*s assets, appointed a
transitional administrator, and appointed a secretary*s designee to assume
the role and responsibilities of the board of commissioners until the
authority could be returned to a fully functioning

board.

Figure 19: Example of a Deteriorated Public Housing Development at the
Camden Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

HUD*s Role and After taking over the Camden Housing Authority, HUD
installed a

Corrective Actions consultant to act as a transitional executive director
and start the recovery

process. This individual assessed conditions at the public housing
authority, finding many of the problems previously identified by the
Inspector General, and formulated a recovery plan. The initial approach
was to gain the confidence of residents through meetings with them and to

ensure that staff were properly trained and placed in positions for which
they were qualified. Several short- term initiatives were instituted to
clean and repair the housing projects, improve management*s relationship
with

residents, and improve the authority*s organizational structure. In
addition, the authority developed a long- term improvement strategy that
focused on modernization efforts, property management and maintenance,
financial management, administration, security, resident initiatives, and
strategic

planning. HUD awarded two technical assistance grants that totaled $1. 1
million for consulting services to manage the authority*s day- to- day
operations as well as to provide technical assistance to the transitional
administrator and

staff. In November 1997, HUD decided to downsize the consultant team and
hire permanent management staff in order to build permanent capacity and
stabilize the recovery effort for the long term. On June 3, 1998, the
transitional administrator resigned and a permanent executive director
took control of the public housing authority. Since that time, there have

been three executive directors. Throughout the recovery process, HUD*s New
Jersey State Office has provided intensive oversight and technical
assistance to the public housing authority to ensure an efficient and
effective recovery process.

Current Status and Under the current executive director, the public
housing authority has Challenges

achieved many goals and successes in several operational areas. For
example, the public housing authority has

 privatized its financial management and modernization functions until
internal capacity could be built;

 hired consultants to conduct an extensive training program and
reassigned its strongest employees to prominent positions;  rehabilitated
148 units authoritywide;

 submitted an annual plan for the first time;

 initiated several capital improvement projects;

 reduced crime by improving security in its developments; and

 instituted a skills training program for residents, many of whom have
subsequently been hired by the housing authority or the rehabilitation and
modernization contractors.

Figure 20: Example of a Rehabilitated Public Housing Development at the
Camden Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

In addition, the executive director established a PHAS coordinator who
made a concerted effort to raise the authority*s PHAS scores. The results

have been positive. For example, the management operations indicator rose
from a troubled level of 16 in fiscal year 1999 to a standard level of 23
in fiscal year 2000, and the financial operations indicator rose from a
failing score of 15 in fiscal year 1999 to a passing score of 19 in 2000.

Despite these improvements, the public housing authority has not yet fully
recovered. Furthermore, there is a real concern within the authority*s
current administration regarding whether the existing reforms can be
sustained and the authority can continue to move forward after the Camden
housing board resumes control.

Appendi x V I Puerto Rico Public Housing Administration Public housing
programs started in Puerto Rico in 1938. In an effort to reorganize its
public housing, in 1957, the Puerto Rico government created the Urban
Renewal and Housing Corporation* the current housing authority*s
predecessor. Then, in 1989, the government created the Puerto Rico Public
Housing Administration (PRPHA) within the Puerto Rico Department of
Housing. For a brief period, the government operated both housing
authorities before dissolving the Puerto Rico Urban Renewal and

Housing Corporation in 1991 and transferring its public housing program to
PRPHA. An administrator who is appointed by the Puerto Rico secretary of
housing directs PRPHA. PRPHA is the second largest public housing
authority in the nation, 22 with 338 developments and 56,834 units.
Fifteen private management companies and eight resident management
corporations manage the developments. In fiscal year 2001, it received
about $270 million from the federal government, including $175.2 million
for its Capital Fund Program, $80.8 million for its operations, and $14
million for its Drug Elimination Program. In addition, PRPHA continued to
obligate funds from a $50 million HOPE VI grant that it received in fiscal
year 1994.

Historical Problems Over the years, PRPHA has experienced many management
problems, although it is not currently considered troubled under PHAS. In
1981, HUD

designated the authority*s predecessor as *financially troubled.* Later,
in 1985, because of serious financial, administrative, and project
maintenance problems, HUD designated the agency as *operationally
troubled.* In 1991, HUD severely sanctioned the agency by freezing about
$308 million of

unobligated funds, and in 1992, the governor of Puerto Rico transferred
the housing authority*s modernization and development programs to the
Puerto Rico Building Authority, directing it to act as an agent for the

housing authority. In addition, private management companies were hired to
manage the housing developments, and the housing authority*s staff was
reduced from over 4, 500 employees to fewer than 100. The housing

authority*s role was limited to accounting for and reporting on the use of
federal funds and ensuring that the management agents were fulfilling
their contractual responsibilities. HUD continued to view the housing
authority as troubled until December 1996, when it lifted the troubled
rating and restored control of the modernization program to the authority.
However, a

22 The New York City Housing Authority is the nation*s largest public
housing authority.

year later, HUD designated the modernization program as troubled because
of financial management problems and the need for corrective actions.
Single audits 23 and HUD Inspector General reports have disclosed other
serious problems at PRPHA, including noncompliance with procurement
standards and associated management control weaknesses. From fiscal years
1992 to 1997, single audit reports repeatedly cited the housing

authority for not following federal procurement requirements. The reports
also disclosed numerous instances of poor management controls over
disbursements and recommended that millions of dollars in ineligible costs
be recovered. Financial statement audits for fiscal years 1993 through
1996 resulted in a disclaimer of opinion because of the poor condition of
the authority*s accounting system and internal control weaknesses.
Furthermore, these audits were all done in 1998* the authority had not
contracted for a single audit since 1991. In 1997, the authority received
a

clean opinion, 24 even though the auditors found its internal controls to
be inadequate, and, in 1998 and 1999, it again received clean opinions
despite misappropriations of funds during those 2 years. For example, an
Inspector General*s audit of the authority*s fiscal year 1999 procurement
activities disclosed that the authority had improperly withdrawn and used
about $17 million in public housing operating funds for ineligible
disaster relief expenses. Additionally, according to the audit, the
authority had

improperly withdrawn and transferred $1 million in Comprehensive Grant
Program funds to the Puerto Rico Economic Development Bank for loans to
public housing residents.

In March 2000, the Inspector General issued an audit report on the housing
authority*s procurement management. The audit*s objectives had been to
determine whether the authority (1) had procurement policies and

procedures that complied with HUD*s requirements, (2) followed the
policies and procedures, (3) adequately determined the need for goods and
services, and (4) had adequate management controls to ensure the receipt
of quality goods and services and preclude duplicate payments. According

23 *Single audits* are annual financial audits conducted by independent
public accounting firms. 24 Receipt of a *clean opinion,* according to the
auditors, indicates that the authority*s financial statements fairly
present the financial position of the organization and the results of its
operations and its cash flows for the year, in conformity with generally
accepted accounting principles.

to the report, the authority*s procurement practices and controls fell
short, as follows:  PRPHA did not comply with federal and agency
procurement requirements and did not maintain control over its central
office procurement activities. For example, it bought 12,000 electric
stoves at a cost of $2,604,000 without going through the proper bidding
process, 21, 425 hot water heaters at a cost of $2,365,437 even though the
heaters could not be installed in many of the projects because the units
had only one water line, and a desktop computer at the excessive price of
$8, 200.

 The housing authority also paid about $4.9 million more than necessary
for two professional services contracts valued at almost $14 million,
because it issued the contracts without competition and a comprehensive
cost and price analysis.

 The authority did not have effective management controls to deter waste,
abuse, and fraud.

 The authority did not maintain adequate property management and related
procurement documents.

The Inspector General recommended, among other things, that HUD consider
declaring the authority in substantial default and placing it on a
reimbursement basis for funding. The authority *vehemently* disagreed

with many aspects of the report, including many factual findings and
recommendations, and claimed, among other things, that the report failed
to recognize efforts already in place to improve operations.

In addition, since 1998, a number of former public housing authority and
HUD employees and contractors have been under investigation for embezzling
federal housing funds, conspiracy, bribery, and money laundering. These
investigations have resulted in 26 indictments and 24 guilty pleas.

Finally, on March 30, 2001, the Inspector General reported a total
breakdown of the housing authority*s administration of its HOPE VI
revitalization project. The report indicated that the authority lacked
effective management and accounting controls over its federal funds and
did not effectively monitor the activities of its project manager.
Furthermore, the Inspector General identified $5. 4 million of ineligible
expenditures and $10.5 million of unsupported costs.

HUD*s Role and Since many of PRPHA*s problems were in the procurement
area, HUD sent

Corrective Actions a procurement team to Puerto Rico in October 2000 to
oversee the

procurement process and provide technical assistance. Specifically, the
team assessed how well the housing authority was addressing the Inspector
General*s findings and recommendations, evaluated the procurement
practices, provided staff training, and reviewed documents and manuals.
The team spent 2 weeks a month on- site. In addition, HUD

sent a 10- member management team to Puerto Rico to provide technical
assistance in a variety of areas. The team expects the housing authority
to make tangible improvements over a specified time frame. HUD will
continue to evaluate the authority*s progress and determine whether more
drastic intervention, such as placing the authority into receivership, is
warranted. Lastly, HUD planned to add seven staff to its Puerto Rico field

office to enhance its capacity to monitor the authority and provide
technical assistance.

To resolve problems with PRPHA*s HOPE VI program, the governor of Puerto
Rico agreed on July 6, 2001, to transfer the program to HUD, including all
assets and functions necessary to complete and lease all of the
developments in the program. As a result, HUD now has

 the ability to direct and hire the staff* including housing authority
staff* needed to complete the HOPE VI program,

 the right to propose resolutions of claims against the housing authority
arising under the program, and

 the ability to direct and administer contracts that pertain to the
program.

Current Status and PRPHA*s new administration has many initiatives under
way to improve Challenges

operations and internal controls and to resolve many of the issues
identified by the HUD Inspector General. For example, the administration
centralized procurement functions in one office and developed a
procurement plan and manual, centralized all modernization functions that
were formerly decentralized, and created a new central auditing office to
review the authority*s operations and coordinate corrective actions with
the Inspector General.

While these steps appear to be positive, there continues to be high
turnover in the housing authority*s management* a source of past problems
and a potential limit on the authority*s ability to sustain recent
improvements. The authority has had several administrators over the past
few years as well as a constantly changing stream of senior administrative
staff. With every change in administration, new staff have been trained,
and new processes and guidelines have been established. This constant
change has resulted in a lack of accountability for past problems and
confusion among those responsible for implementing the new processes and
procedures.

Already, the new administration, which was installed in January 2001, has
hired a second administrator.

Appendi x V

Housing Authority of New Orleans The Housing Authority of New Orleans
(HANO) was organized in 1937 to assist and provide housing to low- income
residents of New Orleans. HANO operates approximately 9, 600 public
housing units in the city of New Orleans. As of December 14, 2001, the
housing authority had approximately 6,600 occupied units and 3, 000 vacant
units. HANO was designated as troubled in 1979 and remained as such until
1998, after it scored well enough under HUD*s former evaluation system to
be removed from the troubled list. The most recent and available
assessment of the

housing authority*s performance is for fiscal year 2000. Under this
assessment, the authority received an overall advisory PHAS score of 61
out of 100 possible points, including 26 out of 30 points for its
management operations. For fiscal year 2001, the housing authority
received over $66 million, including an operating subsidy of $34 million,
$29.8 million through the Capital Fund Program, and $2.8 million through
the Drug Elimination Program.

HANO*s current executive director assumed responsibility in September
2000. At that time, the accounting and management firm of Mitchell and
Titus, LLP, won a federal contract to assume the role of the board of
commissioners at HANO. In January 2001, the firm appointed a

subcontractor who acts as a one- person board for HANO. Historical
Problems HANO has experienced significant management problems,
particularly a lack of continuity in its top management. Since 1997, HANO
has had four

different one- person boards. In addition, it has had three executive
directors in the past 6 years. This lack of continuity has contributed to
the housing authority*s inability to make any significant progress in
maintaining and improving its housing stock. During some periods, routine
maintenance was not conducted on many of its properties, and it is only
now, under its most recent executive director, that it has begun major
rehabilitation work to modernize many of its units. Because of these

management problems, HANO has received poor physical condition scores for
the last several years. The current executive director has also had to
make changes within the Section 8 staff. The executive director conveyed

that an in- depth investigation of the program revealed improprieties
among some of the staff, and several individuals were fired, placed on
administrative leave, or relocated.

Figure 21: Example of a Deteriorated Public Housing Development at the
Housing Authority of New Orleans

Source: GAO photographs taken during site visits to five housing
authorities.

According to HANO officials, outside interference has made it extremely
difficult to determine who is actually in charge at HANO. The chair of
HANO*s board of directors explained that he has periodically seen
outsiders step in and either influence or reverse decisions taken by the
housing authority. The chair explained that the ambiguity surrounding who
is in charge at HANO has contributed to further delays in the housing
authority*s plans to maintain its housing assets. Specifically, he said
that contracts and proposals have at times been delayed by outside
interference.

HANO also has had a history of procurement problems. According to the
local HUD Inspector General*s office, HUD headquarters has denied
procurements in some cases because of improprieties in the housing
authority*s scoring of bids for projects. Concerns have also arisen about

procurement violations under a recovery plan that the authority embarked
upon in 1996.

Finally, HANO has accumulated insurance and other claims that have
amounted to about $22 million in liabilities. Judgments against the
housing authority have continued to accrue interest. While the claims have
left the housing authority financially strapped, HUD*s current executive
monitor

and HANO*s executive director are making this issue a priority, allocating
approximately $5 million annually for payments of claims.

HUD*s Role and In 1996, HUD entered into a partnership with the city of
New Orleans

Corrective Actions through a cooperative endeavor agreement designed to
bring about the

agency*s recovery. HANO officials view this agreement as a form of
administrative receivership. Under the agreement, HANO*s seven- member
board of commissioners was dissolved and the acting assistant secretary
for public and Indian housing was given the authority to fulfill the
duties of the board. An executive monitor position was created to oversee,
coordinate, and monitor HANO*s compliance with the agreement.
Specifically, the executive monitor oversees work on modernization,
revitalization, capital funding, and development. HUD retained its right
to appoint a receiver and created a specific action plan for the
authority*s improvement. Under the agreement, HUD headquarters, and not
the local HUD field office, makes most of the decisions affecting the
oversight and monitoring of the housing authority. The cooperative
endeavor agreement is effective through December 31, 2003.

Current Status and HANO is currently focusing on its modernization and
revitalization

Challenges projects. The authority is taking steps to correct the problems
caused by deferring maintenance in the past. Progress has been slower than
expected, particularly on the HOPE VI sites where, according to the local
HUD field office, tenants* concerns about relocation have caused delays.

The housing authority is also investigating the insurance claims against
it and attempting to settle those that pose the greatest financial risks.

HUD and HANO have discussed the possibility of a judicial receivership as
the next step in bringing about the authority*s recovery. However, they
have not yet reached a final decision.

Appendi x VI

Chicago Housing Authority The Chicago Housing Authority* the nation*s
third largest, with 38, 000 units* has long had a history of problems. HUD
designated the authority as *troubled* as far back as 1979, when the
Department first began to focus on poorly performing housing authorities.
In 1995, HUD took control of the authority*s operations. It reorganized
the authority*s management, privatized some functions, developed plans to
improve maintenance and security, and began to rebuild and rehabilitate
the housing stock. After completing these actions, HUD returned the
authority to local control in 1999. For fiscal year 1999, the Chicago
Housing Authority received an overall advisory PHAS score of 65.

Historical Problems Management problems and distressed housing conditions
have plagued the Chicago Housing Authority for years. It has had material
weaknesses in its internal control system, fiscal problems, and frequent
turnover of top

management. In 1989, we reported that the authority had operated for years
without reasonable assurance that federal funds were adequately
safeguarded against waste, loss, or misuse. 25 In addition, the
authority*s housing is among the worst in the nation* old, deteriorated,
and poorly designed for the climate. According to a Chicago Housing
Authority official, the cost of repairing these poorly designed projects
is excessive. For example, after the boilers at the authority*s Robert
Taylor Homes

development broke down in the middle of winter, causing flooding and
freezing, the repairs cost $150,000 per affected unit, according to a
housing authority official. Further complicating the authority*s problems
are large

concentrations of high- rise family projects. For example, the Robert
Taylor Homes and Stateway Gardens public housing complexes form one
continuous development with approximately 6,000 units. The design of these
developments and their concentration of residents have exacerbated crime
and social problems in Chicago*s public housing.

25 U. S. General Accounting Office, Public Housing: Chicago Housing
Authority Taking Steps to Address Long- Standing Problems, GAO/ RCED- 89-
100 (Washington, D. C.: June 8, 1995).

Figure 22: Examples of a Deteriorated Public Housing Development at the
Chicago Housing Authority

Source: GAO photographs taken during site visits to five housing
authorities.

HUD*s Role and After returning the Chicago Housing Authority to local
control, HUD

Corrective Actions agreed with its management and Mayor Daley to grant the
authority budget and management flexibility, allowing it to completely
revamp public housing in Chicago under its Plan for Transformation. HUD
agreed to

provide $1.5 billion over 10 years so that the housing authority could
carry out this plan, which includes the demolition of 18, 000 units and
the redevelopment or rehabilitation of 25,000 units. The new units are to
be located in mixed- income communities. HUD used its Moving to Work
Program to allow the Chicago Housing Authority to undertake a
redevelopment plan of this size, even though the authority does not have

the history of high performance that other authorities in the program have
had. The Moving to Work Program was designed to reward housing authorities
that had demonstrated above- average performance by giving them the
flexibility to combine their funding streams into a single block grant.
The purpose of the program was to test innovative methods of providing
housing and delivering services to low- income families in a costeffective
manner. According to Chicago Housing Authority and HUD officials, even
though the housing authority was not a high- performing agency, the Moving
to Work Program was the only means by which it could carry out its Plan
for Transformation. According to housing authority officials, they needed
to combine their funding sources to leverage their assets and attract
private funding.

Under this special agreement, HUD is monitoring the housing authority
through a headquarters- based liaison, using monitoring goals that the
authority agreed to under the Plan for Transformation. While still subject
to evaluation under PHAS, the authority will not be penalized until March
2003 if its developments fail their physical inspections, if the authority
is making reasonable progress under its plan. HUD considers the Plan for

Transformation sufficient to meet its requirement for a recovery plan.
Current Status and

The Chicago Housing Authority has instituted several changes in its
Challenges

operations in accordance with its goals under the Plan for Transformation
and has begun redevelopment activities. It has transferred all of its
property management functions to professional property management
companies or resident management corporations, reduced overhead expenses,
and eliminated its police force to achieve further cost savings. According
to the representatives of resident groups we spoke with, maintenance at
the developments has improved since the transfer of property management
responsibilities to private companies. The

representatives also commented that under the Plan for Transformation, the
housing authority officials are more responsive to the residents* concerns
and have a better rapport with the residents. Housing authority

officials are also seeking input from residents on the design of the new
public housing developments and the amenities they should provide.
According to the Chicago Housing Authority, redevelopment has begun at six
of its major developments. Since 1995, the authority has spent
approximately $50 million on redevelopment activities, including the

demolition of 1, 190 units, rehabilitation of 2,178 units, and
construction of 455 new units.

The Chicago Housing Authority has many challenges to face in completing
its massive transformation. The plan will take several years to complete,
repairs of existing units will cost over $3 billion, and approximately 6,
000

households will require relocation. Some of the residents are opposed to
relocating because they are fearful that they will not be able to return
to public housing. As a result, residents have taken legal action to
prevent the demolition of their housing projects. Another challenge for
the residents who need to relocate is the tightness of the rental housing
market in Chicago. Some residents have complained that they have not been
able to use their Section 8 vouchers to find apartments. According to the

Metropolitan Planning Council, as of 1999, Chicago*s rental market has a
vacancy rate of 4.2 percent, well below the 6- percent figure that HUD
uses to define a tight market. 26 The Chicago Housing Authority also faces
constraints on where it may build new public housing developments. As a
result of a 1969 court order, known as the Gautreaux 27 judgment order,
the building of new public housing units is restricted in neighborhoods
where more than 30 percent of the population is African American.

26 Public Housing in the Public Interest: Chicago Housing Authority
Transformation Plan Update, October 2000, Metropolitan Planning Council
(Chicago: Oct. 2000). 27 Gautreaux v. CHA, 304 F. Supp. 736 (N. D. Ill.
1969)

Appendi x VII

San Francisco Housing Authority The San Francisco Housing Authority (SFHA)
was established in 1938 and currently operates approximately 6, 100 public
housing units in the city of San Francisco. As of July 31, 2001,
approximately 98 percent of these units were occupied. The current
executive director assumed his position in March 2001. For fiscal year
2001, SFHA received over $43 million,

including a $24.6 million operating subsidy, $17.6 million through the
Capital Fund Program, and $1.4 million through the Drug Elimination
Program. To date, the authority has also received $115 million in HOPE VI
grants.

The most recent and available assessment of SFHA*s performance is for
fiscal year 2000. The authority received an overall advisory PHAS score of
63 but was awarded only 9 of 30 possible points for the financial
condition indicator. The authority was taken over by a HUD recovery team
from 1996 to 1997 and was then assigned to a recovery center in 1997. The
housing authority could have been removed from the center in 1999 after
being designated as a standard performer under PHMAP, but the authority
decided to stay in the center so that it could continue to receive
assistance. SFHA is currently assigned to the Memphis Troubled Agency
Recovery

Center. Historical Problems SFHA*s most pressing problem* and the primary
reason for its low

financial condition score under PHAS* is an operating reserve shortfall.
The authority has been unable to balance its budget and for fiscal year
2001 had an operating deficit of $6. 2 million. In general, the authority
has very high expenses because, according to HUD officials, its employees
are paid at union rates, reflecting the strength of unions in the city. In
addition, the housing authority spent almost $5 million during fiscal year
2001 for security provided by the San Francisco Police Department and by
private

security hired by the authority. Other reasons for SFHA*s operating
reserve shortfall include debt incurred in recent years and past improper
procurements. The authority is paying back approximately $22 million in
emergency funds that the previous executive director borrowed from HUD for
repairs to roofs and broken concrete, among other problems. In addition,
more money was spent on some contracts than was necessary because the
authority was not following procurement policies correctly and contracts
were being handled

improperly.

According to SFHA officials, the housing authority has also had problems
with high turnover and staffing. Specifically, the authority has had 10
executive directors in the past 10 years. In addition, past hiring
practices led to overstaffing, and some of the personnel who were hired
did not have the necessary qualifications, according to HUD and SFHA
officials. Furthermore, an SFHA official explained that some of the
housing authority*s current employees are still loyal to the previous
executive

director, and that this situation has caused divisions within the housing
authority. HUD*s Role and The Memphis recovery center is currently
servicing SFHA. A team from Corrective Actions the center provides
technical assistance deemed necessary for the authority*s recovery and
works closely with the authority*s public housing programs. It also
monitors the authority and works with it to close out the HUD Inspector
General*s audit findings.

The recovery center works with the housing authority on many fronts.
Together, they have developed a plan to balance the budget, and the center
has submitted a plan to the authority*s executive director for improving
the authority*s operations. HUD expects that some of the plan*s
recommendations will be reflected in the authority*s budget. The recovery
center has also worked with the authority on procurement procedures by
training staff on contracting regulations and practices. The recovery
center

also reviews all procurement actions in excess of $50,000. Finally, the
recovery center is assessing the staffing situation at SFHA. According to
the recovery center*s team leader for SFHA, since the center began

servicing the authority, 50 to 70 positions have been terminated in an
effort to cut costs and alleviate the overstaffing. As part of this
effort, the center is responsible for reviewing the hiring of individuals
whose salary exceed $50,000.

Current Status and SFHA has made some progress toward financial
accountability under the Challenges

recovery center*s supervision. More attention is now being given to how
the housing authority allocates its budget. In addition, procurement
policies and procedures are being improved. The housing authority has
reduced its staff and, with assistance from the recovery center, is
working on a plan to improve its operations. The center*s goal for
completing the authority*s recovery is September 30, 2002.

Appendi x VI II

Contact and Staff Acknowledgments GAO Contact Paul Schmidt, (312) 220-
7681 Acknowledgments In addition to those named above, Avani Divgi, Mark
Egger, Elizabeth

Eisenstadt, Michele Fejfar, Jacqueline Garza, Kirk Kiester, Tarek
Mahmassani, John McGrail, Frank J. Minore, Theresa Perkins, and Roberto
Pinero made key contributions to this report.

(391007)

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                                       A

Report to the Ranking Minority Member, Subcommittee on Housing and
Transportation, Committee on Banking,

Housing, and Urban Affairs, U. S. Senate

March 2002 PUBLIC HOUSING New Assessment System Holds Potential for
Evaluating Performance Note: A short video presentation, Public Housing
Today, GAO- 02- 1040SP accompanies this report.

GAO- 02- 282

a

GAO United States General Accounting Office

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Contents

Contents

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Appendix I

Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix I Extent to Which Problems Occur at All Public Housing
Authorities

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Appendix II

Appendix II Problems at Nontroubled High- Risk Public Housing Authorities

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Appendix III

Appendix III Camden Housing Authority

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Appendix III Camden Housing Authority

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Appendix III Camden Housing Authority

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Appendix III Camden Housing Authority

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Appendix III Camden Housing Authority

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Appendix IV

Appendix IV Puerto Rico Public Housing Administration

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Appendix IV Puerto Rico Public Housing Administration

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Appendix IV Puerto Rico Public Housing Administration

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Appendix IV Puerto Rico Public Housing Administration

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Appendix V

Appendix V Housing Authority of New Orleans

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Appendix V Housing Authority of New Orleans

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Appendix V Housing Authority of New Orleans

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Appendix VI

Appendix VI Chicago Housing Authority

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Appendix VI Chicago Housing Authority

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Appendix VI Chicago Housing Authority

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Appendix VII

Appendix VII San Francisco Housing Authority

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Appendix VIII

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