The Office of Inspector General (OIG) conducted an audit of the Chicago Low-Income Housing Trust Fund’s management of housing quality inspections for units participating in the Rental Subsidy Program (RSP) in 2017.
The objectives of the audit were to determine if the Trust Fund met its mission of providing “secure, safe, and sound” housing by ensuring that RSP properties,
- received their required annual Housing Quality Standards (HQS) inspections;
- had evidence of a lead safe housing certificate in their contract;
- came into compliance after the discovery of housing deficiencies, including serious health and safety risks; and
- addressed unresolved Chicago Building Code violations.
OIG concluded that, in 2017, the Trust Fund did not ensure that all properties participating in the RSP met its standards for safe, sound, and secure housing. The Trust Fund subsidized properties with Chicago Building Code violations and other serious housing quality deficiencies, had a payment system that inadequately protected against potential fraud and errors, and paid properties with incomplete contract documentation. In addition, errors in its internal management tool meant the Trust Fund published inaccurate and incomplete quarterly reports from 2014 through 2018, and could not accurately gauge the amount of funding it had allotted to RSP properties in those years.
The Trust Fund did not ensure that all RSP properties met their annual health and safety requirements in 2017. Full HQS compliance required each subsidized unit to receive and pass inspections. Analysis of a random representative sample showed that 45.8% of the properties did not reach full compliance in 2017. We also found that the Trust Fund allowed properties with longstanding Chicago Building Code violations to remain in the program, including properties with serious housing quality deficiencies. Based on the same sample, 61.4% of RSP properties had unresolved Chicago Building Code violations at the end of 2017.
The Trust Fund issued overpayments totaling $30,703 to at least six properties in 2017 and $6,120 to at least one property in 2018, based on a sample of 83 properties. Before OIG inquired, the Trust Fund was not aware of most of the errors. These overpayments were possible because the Trust Fund’s system did not have controls to prevent erroneous or fraudulent payments, and its payment review process did not provide sufficient oversight to prevent those payments from being approved.
In addition, the Trust Fund did not maintain complete documentation of known lead hazards, City Building Code violations, and local court action against subsidized properties. Specifically, OIG found that 22.3% of the property files in our sample were missing complete ownership disclosure affidavits, and 31.3% lacked evidence of a completed lead hazard exhibit for all covered units. These documents are essential to ensure that the Trust Fund is subsidizing only safe and well-maintained properties. A previous external review completed in 2017 found similar problems with the Trust Fund’s contract management practices, largely related to tenant eligibility documents and payment reconciliations.
Finally, OIG identified errors in the Trust Fund’s property inventory, establishing that its quarterly reports related to the City’s 2014-2018 Five-Year Housing Plan were inaccurate and incomplete. Therefore, the City and the public could not rely on them to accurately represent Trust Fund activities. Because the reports were generated from the Trust Fund’s core operational spreadsheet, these inaccuracies also meant that it could not rely on its own records to show the distribution of RSP properties across the City or the amount of funding it had committed in those time periods.
OIG recommends that the Trust Fund develop a contracting, inspection, and payment process sufficient to ensure that it only subsidizes well-maintained housing for low-income Chicagoans. To achieve this, the Trust Fund should continue developing a software system that monitors properties’ inspection compliance status, ensures that noncompliant properties do not receive payment, and tracks contract documents in a reliable manner. The system should allow the Trust Fund to independently monitor the compliance of its HQS inspection vendor, Globetrotters International. Furthermore, the Trust Fund should assess properties compliance with the Chicago Building Code every quarter before it pays property owners. The system should also incorporate controls for quarterly payments to reduce or remove the opportunity for fraud and errors. Finally, the Trust Fund must immediately resolve errors in its property tracking spreadsheet, and should take additional measures to ensure that its reports accurately reflect both the full distribution of active subsidies across the City and the amount of available funding for the RSP.
In response to our audit findings and recommendations, the Trust Fund stated that it was working with Globetrotters to merge its inspection, document submission, and payment systems to allow for real-time inspection updates and improved reporting on funding, inspection status, unoccupied units, and units with emergency deficiencies. The Trust Fund aims to have all initial property inspections completed by September 30 of each year to allow for re-inspections between the months of October and December. The new system will block payments to noncompliant landlords. The Trust Fund will review outstanding Building Code violations and document its rationale if it decides to pay a landlord with unresolved violations. Regarding payment ledgers, the Trust Fund stated that staff members are reconciling payments as landlords submit new payment requests, and that it has assigned a staffer to audit past years’ ledgers. The Trust Fund has also instructed program coordinators to document prior lead hazard compliance by ensuring that each file includes a copy of the original lead hazard exhibit.
Finally, the Trust Fund is updating its property spreadsheet to reflect accurate property records, which can be uploaded into its new database. The Trust Fund stated that its public reports will be “completely revamped” after the new system is in place.