Technical Amendment to the Section 8 Management Assessment Program (SEMAP)

SUMMARY: This interim rule amends the regulations for the Section 8

Management Assessment Program (SEMAP) for the purpose of incorporating

technical revisions recommended by the Office of Management and Budget

to conform to requirements under the Single Audit Act Amendments of

1996. This interim rule revises the basis upon which HUD assigns

ratings under eight SEMAP indicators. For the eight SEMAP indicators

where the HUD verification method is the latest independent auditor

(IA) annual audit report, this interim rule provides that the rating

will be based on the housing agency (HA) SEMAP certification to HUD,

rather than on statements in the annual audit report. Under this

interim rule, SEMAP ratings will be subject to change after HUD

receives the HA's annual audit report if the audit report contains

information that the HA's SEMAP certification is not accurate.

DATES: Effective Date: August 25, 1999. Comments Due Date: September

24, 1999.

ADDRESSES: Interested persons are invited to submit comments regarding

this rule to Rules Docket Clerk, Office of General Counsel, Room 10276,

Department of Housing and Urban Development, 451 Seventh Street, S.W.,

Washington, D.C. 20410-0500. Communications should refer to the above

docket number and title. Facsimile (FAX) comments are not acceptable. A

copy of each communications submitted will be available for public

inspection and copying between 7:30 a.m. and 5:30 p.m. weekdays at the

above address.

FOR FURTHER INFORMATION CONTACT: Gerald Benoit, Acting Director, Real

Estate and Housing Performance Division, Office of Public and Assisted

Housing Delivery, Office of Public and Indian Housing, Room 4210, 451

Seventh Street, S.W., Washington, DC 20410-0500. Telephone: (202) 708-

0477 (voice); (202) 708-0850 (TTY). Persons with hearing or speech-

impairments may call 1-800-877-8339 (Federal Information Relay Service

TTY). (Other than the ``800'' number, these are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

On September 10, 1998 (63 FR 48548), HUD published a final rule

which established the Section 8 Management Assessment Program (SEMAP).

The September 10, 1998 final rule provided that HUD would rate the

performance of a housing authority (HA) under eight SEMAP indicators

based on statements in the latest independent auditor (IA) annual audit

report. The eight indicators are: (1) Selection from the Waiting List;

(2) Reasonable Rent; (3) Determination of Adjusted Income; (4) Utility

Allowance Schedule; (5) Housing Quality Standards (HQS) Quality Control

Inspections; (6) HQS Enforcement; (7) Expanding Housing Opportunities;

and (8) Deconcentration Bonus. HUD intended that IAs would

independently test a minimum sample of files for HA compliance with

requirements under five of these eight indicators and would include

specific statements concerning HA compliance in the audit report on

compliance with all eight. Procedures of the Office of Management and

Budget (OMB) implementing the Single Audit Act Amendments of 1996,

however, do not permit HUD to include audit procedures in the OMB

Circular A-133 compliance supplement which require either minimum

samples of files or any specific reporting on compliance.

II. This Rule

In accordance with OMB requirements under the Single Audit Act

Amendments of 1996, HUD is amending the September 10, 1998 final rule

to base ratings for the eight indicators on the HA's SEMAP

certification to HUD, rather than on the IA annual audit report. The

OMB Circular A-133 compliance supplement for the Section 8 tenant-based

programs will still provide procedures for the IA to audit compliance

for the eight SEMAP indicators, and to verify the accuracy of the HA's

SEMAP certification to HUD. Therefore, the HUD method of verification

of HA performance under the eight indicators remains the IA annual

audit report. The Department continues to rely on IA's to verify the

accuracy of the HA's SEMAP certification with respect to the eight

indicators. This interim rule also clarifies that HUD confirmatory

reviews will be used as an additional method of verification to the

extent they are performed.

This technical amendment to the September 10, 1998 final rule

requires the HA to submit a SEMAP certification concerning the results

of its supervisory quality control reviews of file samples drawn in an

unbiased manner to ensure compliance under four SEMAP indicators ((1)

Selection from the Waiting List; (2) Reasonable Rent; (3) Determination

of Adjusted Income; and (4) HQS Enforcement). The interim rule,

therefore, requires the HA to perform annual quality control reviews of

its performance under these indicators in order to complete the SEMAP

certification form. While there has previously been no regulatory

requirement that an HA perform quality control reviews in these four

areas, many HAs would have instituted such procedures under the

September 10, 1998 final rule. Further, sound management practices

require adequate internal control systems, such as supervisory quality

control reviews, which the Department has required and encouraged in

the past.

This technical amendment also revises the SEMAP standard under

Sec. 985.3(e) for HQS quality control inspections. This indicator is

changed to require HQS quality control samples of the same minimum

sample size as required for other supervisory quality control reviews.

The requirement for a 5 percent HQS quality control sample no longer

applies.

III. Justification for Interim Rulemaking

It is HUD's policy to publish rules for public comment before their

issuance for effect, in accordance with its own regulations on

rulemaking found at 24 CFR part 10. Part 10 provides, however, that

prior public procedure will be omitted if HUD determines that it is

``impracticable, unnecessary, or contrary to the public interest'' (24

CFR 10.0). HUD finds that in this case prior comment is unnecessary.

This interim rule amends Secs. 985.1, 985.2, 985.3, and 985.103, only

to make technical changes to the basis for HUD ratings on eight SEMAP

indicators and to the minimum sample size for HQS quality control

inspections. Rather than relying on statements in the IA annual audit

report to assign ratings under the eight indicators, HUD will rely on

the HA's SEMAP certification to assign ratings. The HA's SEMAP

certification for these eight indicators may be subject to a compliance

audit under the Single Audit Act Amendments of 1996, or to a HUD

confirmatory review, and if the audit report on compliance or the

[[Page 40497]]

confirmatory review report contains information that the HA's SEMAP

certification is not accurate, SEMAP ratings will be subject to change.

IV. Findings and Certifications

Environmental Impact

A Finding of No Significant Impact with respect to the environment

for this rule has been made in accordance with HUD regulations at 24

CFR part 50, which implement section 102(2)(C) of the National

Environmental Policy Act of 1969. The Finding of No Significant Impact

is available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk, Office of the General

Counsel, Department of Housing and Urban Development, Room 10276, 451

Seventh Street, S.W., Washington, D.C. 20410.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule would not have a significant

economic impact on a substantial number of small entities. There are no

anti-competitive discriminatory aspects of the rule with regard to

small entities, and there are not any unusual procedures that would

need to be complied with by small entities. Nevertheless, the

Department is sensitive to the fact that the uniform application of

requirements on entities of differing sizes often places a

disproportionate burden on small businesses. The Department, therefore,

is soliciting alternatives for compliance from small entities as to how

these small entities might comply in a way less burdensome to them.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that this rule

does not have ``federalism implications'' because it does not have

substantial direct effects on the States (including their political

subdivisions), or on the distribution of power and responsibilities

among the various levels of government.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance Program numbers assigned

to the Section 8 Management Assessment Program are 14.855 and 14.857.

List of Subjects for 24 CFR Part 985

Grant programs--housing and community development, Housing, Rent

subsidies, Reporting and recordkeeping requirements.

Accordingly, part 985 of title 24 of the Code of Federal

Regulations is amended as follows:

PART 985--SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP)

1. The authority citation for 24 CFR part 985 continues to read as

follows:

Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d).

2. Section 985.1 is amended by revising the second sentence of

paragraph (a) to read as follows:

Sec. 985.1 Purpose and applicability.

(a) Purpose. * * * SEMAP also establishes a system for HUD to

measure HA performance in key Section 8 program areas and to assign

performance ratings. * * *

* * * * *

3. In Sec. 985.2 amend paragraph (b) by adding definitions of

``confirmatory review'' and ``HA's quality control sample'' in

alphabetical order to read as follows:

Sec. 985.2 Definitions.

* * * * *

(b) * * *

Confirmatory review means an on site review performed by HUD to

verify the management performance of an HA.

* * * * *

HA's quality control sample means an annual sample of files or

records drawn in an unbiased manner and reviewed by an HA supervisor

(or by another qualified person other than the person who performed the

original work) to determine if the work documented in the files or

records conforms to program requirements. The minimum size of the HA's

quality control sample is as follows:

------------------------------------------------------------------------

Minimum number of files or

Universe records to be sampled

------------------------------------------------------------------------

50 or less............................ 5.

51-600................................ 5 plus 1 for each 50 (or part of

50) over 50.

601-2000.............................. 16 plus 1 for each 100 (or part

of 100) over 600.

Over 2000............................. 30 plus 1 for each 200 (or part

of 200) over 2000.

------------------------------------------------------------------------

Where the universe is: the number of admissions in the last year for

each of the two quality control samples under the SEMAP indicator at

Sec. 985.3(a) Selection from the Waiting List; the number of families

assisted for the SEMAP indicators at Sec. 985.3(b) Reasonable Rent, and

985.3(c) Determination of Adjusted Income; the number of units under

HAP contract during the last completed HA fiscal year for the SEMAP

indicator at Sec. 985.3(e) HQS Quality Control Inspections; and the

number of failed HQS inspections in the last year for the SEMAP

indicator at Sec. 985.3(f) HQS Enforcement.

* * * * *

4. Section 985.3 is amended by revising the last sentence of the

first introductory paragraph, the first sentence of the second

introductory paragraph, and paragraphs (a)(2), (a)(3) introductory

text, (a)(3)(i) introductory text, (a)(3)(i)(B), (a)(3)(ii), (b)(2),

(b)(3) introductory text, (b)(3)(i) introductory text, (b)(3)(i)(B),

(b)(3)(ii), (b)(3)(iii), (c)(2), (c)(3) introductory text, (c)(3)(i)

introductory text, (c)(3)(ii), (c)(3)(iii), (d)(2), (d)(3), (e),

(f)(2), (f)(3), (g)(2), (g)(3) introductory text, (g)(3)(i)

introductory text, (g)(3)(ii), (h)(2) and (h)(3) to read as follows:

Sec. 985.3 Indicators, HUD verification methods and ratings.

* * * The method for selecting the HA's quality control sample

under paragraphs (a), (b), (c) and (f) of this section must leave a

clear audit trail that can be used to verify that the HA's quality

control sample was drawn in an unbiased manner.

An HA that expends less than $300,000 in Federal awards and whose

Section 8 programs are not audited by an independent auditor (IA), will

not be rated under the SEMAP indicators in paragraphs (a) through (g)

of this section for which the annual IA audit report is a HUD

verification method. * * *

(a) * * *

(2) HUD verification method: The independent auditor (IA) annual

audit report covering the HA fiscal year entered on the SEMAP

certification and on-site confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that:

* * * * *

(B) Based on the HA's quality control samples, drawn separately for

applicants reaching the top of the waiting list and for admissions,

documentation shows that at least 98 percent of the families in both

samples of applicants and admissions were selected from the waiting

list for admission in accordance with these policies and met the

selection criteria that determined their places on the waiting list and

their order of selection. 15 points.

(ii) The HA's SEMAP certification does not support the statement in

paragraph (a)(3)(i) of this section. 0 points.

(b) * * *

[[Page 40498]]

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that:

* * * * *

(B) Based on the HA's quality control sample of tenant files, the

HA follows its written method to determine reasonable rent and has

documented its determination that the rent to owner is reasonable in

accordance with Sec. 982.503 for at least 98 percent of units sampled

at the time of initial leasing, if there is any increase in the rent to

owner and, at the HAP contract anniversary if there is a 5 percent

decrease in the published FMR in effect 60 days before the HAP contract

anniversary. 20 points.

(ii) The HA's SEMAP certification includes the statements in

paragraph (b)(3)(i) of this section, except that the HA documents its

determination of reasonable rent for only 80 to 97 percent of units

sampled at initial leasing, if there is any increase in the rent to

owner, and at the HAP contract anniversary if there is a 5 percent

decrease in the published FMR in effect 60 days before the HAP contract

anniversary. 15 points.

(iii) The HA's SEMAP certification does not support the statements

in either paragraph (b)(3)(i) or (b)(3)(ii) of this section. 0 points.

(c) * * *

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that, based on

the HA's quality control sample of tenant files, for at least 90

percent of families:

* * * * *

(ii) The HA's SEMAP certification includes the statements in

paragraph (c)(3)(i) of this section, except that the HA obtains and

uses independent verification of income, properly attributes

allowances, and uses the appropriate utility allowances for only 80 to

89 percent of families. 15 points.

(iii) The HA's SEMAP certification does not support the statements

in either paragraph (c)(3)(i) or (c)(3)(ii) of this section. 0 points.

(d) * * *

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that the HA

reviewed utility rate data within the last 12 months, and adjusted its

utility allowance schedule if there has been a change of 10 percent or

more in a utility rate since the last time the utility allowance

schedule was revised. 5 points.

(ii) The HA's SEMAP certification does not support the statement in

paragraph (d)(3)(i) of this section. 0 points.

(e) HQS quality control inspections. (1) This indicator shows

whether an HA supervisor or other qualified person reinspects a sample

of units under contract during the HA fiscal year, which meets the

minimum sample size requirements specified at Sec. 983.2 under HA's

quality control sample, for quality control of HQS inspections. The HA

supervisor's reinspected sample is to be drawn from recently completed

HQS inspections (i.e., performed during the 3 months preceding

reinspection) and is to be drawn to represent a cross section of

neighborhoods and the work of a cross section of inspectors. (24 CFR

982.405(b))

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that an HA

supervisor or other qualified person performed quality control HQS

reinspections during the HA fiscal year for a sample of units under

contract which meets the minimum sample size requirements specified in

Sec. 983.2 under HA's quality control sample. The HA's SEMAP

certification also states that the reinspected sample was drawn from

recently completed HQS inspections (i.e., performed during the 3 months

preceding the quality control reinspection) and was drawn to represent

a cross section of neighborhoods and the work of a cross section of

inspectors. 5 points.

(ii) The HA's SEMAP certification does not support the statements

in paragraph (e)(3)(i) of this section. 0 points.

(f) * * *

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that the HA's

quality control sample of case files with failed HQS inspections shows

that, for all cases sampled, any cited life-threatening HQS

deficiencies were corrected within 24 hours from the inspection and,

for at least 98 percent of cases sampled, all other cited HQS

deficiencies were corrected within no more than 30 calendar days from

the inspection or any HA-approved extension, or, if any life-

threatening HQS deficiencies were not corrected within 24 hours and all

other HQS deficiencies were not corrected within 30 calendar days or

any HA-approved extension, the HA stopped (abated) housing assistance

payments beginning no later than the first of the month following the

correction period, or took prompt and vigorous action to enforce family

obligations. 10 points.

(ii) The HA's SEMAP certification does not support the statement in

paragraph (f)(3)(i) of this section. 0 points.

(g) * * *

(2) HUD verification method: The IA annual audit report covering

the HA fiscal year entered on the SEMAP certification and on-site

confirmatory review if performed.

(3) Rating: (i) The HA's SEMAP certification states that:

* * * * *

(ii) The HA's SEMAP certification does not support the statement in

paragraph (g)(3)(i) of this section. 0 points.

(h) * * *

(2) HUD verification methods: HA data submitted for the

deconcentration bonus, the IA annual audit report covering the HA

fiscal year entered on the SEMAP certification, and on-site

confirmatory review if performed.

(3) Rating: (i) The data submitted by the HA for the

deconcentration bonus shows that the HA met the requirements for bonus

points in paragraph (h)(1)(i), (ii) or (iii) of this section. 5 points.

(ii) The data submitted by the HA for the deconcentration bonus

does not show that the HA met the requirements for bonus points in

paragraph (h)(1)(i), (ii) or (iii) of this section. 0 points.

* * * * *

5. Section 985.103 is amended by redesignating paragraph (d) as

paragraph (e), adding a new paragraph (d), and revising newly

redesignated paragraph (e)(3), to read as follows:

Sec. 985.103 SEMAP score and overall performance rating.

* * * * *

(d) Modified rating on an indicator. A rating on any of the

indicators at Secs. 985.3(a) through 985.3(h) will be subject to change

after HUD receives the HA's annual audit report or after HUD conducts a

confirmatory review if the

[[Page 40499]]

audit report or the confirmatory review report contains information

that the HA's SEMAP certification concerning an indicator is not

accurate.

(e) Modified or withheld overall rating. * * *

(3) When HUD modifies or withholds a rating for any reason, it

shall explain in writing to the HA the reasons for the modification or

for withholding the rating.

Dated: June 23, 1999.

Harold Lucas,

Assistant Secretary for Public and Indian Housing.

[FR Doc. 99-18877 Filed 7-23-99; 8:45 am]

BILLING CODE 4210-33-P