HAPTER 5 Calculation Problem Areas - HUD

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Reducing Income and Rent Errors by Building a Quality ProgramCHAPTER 5Calculation Problem AreasSection 1Introduction In this chapter, we will focus on the components ofincome and rent determination on which errors are mostlikely to be made.-These components were identified in a reportpublished by HUD’s Office of Policy Development andResearch (PD&R) in 2001, “Quality Control for RentalAssistance Subsidies Determinations.”-The components are emphasized in Rental IntegrityMonitoring (RIM) reviews.The purpose of the chapter is threefold:-To identify common errors-To examine the reasons for these errors-To practice the more difficult calculationsWe will not cover every facet of rent calculation. Instead,we will focus on the following problem areas: Employment income Training program income The earned income disallowance (EID) Assets and asset income Utility allowances Payment standardsPIH Rental Integrity Summit-HCVPage 5-1January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 1: IntroductionNotesPIH Rental Integrity Summit-HCVPage 5-2January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasNotesSection 2 Employment IncomeThe PD&R study found a 68 percent error rate forfamilies with employment, or earned, income.-The error rate was even higher—88 percent—forfamilies with more than one source of earned income.-Employment income is the single strongest predictorof errors in rent calculation.According to the regulation at 24 CFR 5.609(b)(1),employment income includes the full amount, before anypayroll deductions, of:-Wages and salaries-Overtime pay-Commissions-Fees-Tips-Bonuses-Other compensation for personal servicesEmployment income is usually reported in hourly,weekly, biweekly, semimonthly, or monthly amountsrather than annual amounts. To convert these to annualamounts, use the following formulas:-Full-time hourly: rate 2080-Weekly: amount 52-Biweekly: amount 26-Semimonthly: amount 24-Monthly: amount 12PIH Rental Integrity Summit-HCVPage 5-3January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotesVERIFICATION ISSUES Most errors in employment income are caused by lack ofadequate verification. Either PHAs do not obtain third-party verification ofemployment income or they fail to use the verificationsthey do receive. -Some PHAs base their rent calculations on pay stubsprovided by applicants and participants.-When third-party verification is not available, PHAsoften neglect to document their files accordingly.For some hands-on experience with the discrepanciesthat can arise when using pay stubs as opposed tothird-party employer information in determining income,do the learning activity on the following page.PIH Rental Integrity Summit-HCVPage 5-4January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeLEARNING ACTIVITY 5-1PAY STUBS VS. THIRD-PARTY VERIFICATIONScenario Anywhere Housing Authority (AHA) is conducting an annual reexamination forNatalie Buchanan. The reexamination effective date is October 1, 2003. Natalie is employed as an office receptionist. She has provided her pay stubs for thelast 6 weeks. The PHA has requested third-party verification from her employer.Part 1 Calculate Ms. Buchanan’s annual income using the six pay stubs that follow.1Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie nRateHrs AmountCurrentGrossWages 9.2532 PIH Rental Integrity Summit-HCV 296.00296.00123 High View Dr., Cubzide City, ST 55555Period StartPeriod End7-27-03Year to Date 5,328.00TotalDeductionsPage 5-58-2-03Check n AmountYear to DateFed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 1029.60 372.96 77.04 159.84 Net 204.9291.08January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment Income1Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie Buchanan123 High View Dr., Cubzide City, ST 55555Period Start123-45-6789Period End7-20-037-26-03Check Date8-1-03DescriptionEarnings/CompensationRateHrs AmountYear to DateWages 9.25 5,032.00Fed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 972.40 352.24 72.76 150.96CurrentGrossTotalDeductions Net 204.92132 296.00 296.00Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie nRateHrs AmountCurrentGrossWages 9.2532 PIH Rental Integrity Summit-HCV ion AmountYear to Date91.08123 High View Dr., Cubzide City, ST 55555Period StartPeriod End7-13-03Year to Date 4,736.00TotalDeductionsPage 5-67-19-03Check on AmountYear to DateFed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 915.20 331.52 68.48 142.08 Net 204.9291.08January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment Income1Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie Buchanan123 High View Dr., Cubzide City, ST 55555Period Start123-45-6789Period End7-6-037-12-03Check Date7-18-03DescriptionEarnings/CompensationRateHrs AmountYear to DateWages 9.25 4,440.00Fed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 858.00 310.80 64.20 133.20CurrentGrossTotalDeductions Net 204.92132 296.00 296.00Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie nRateHrs AmountCurrentGrossWages 9.2532 PIH Rental Integrity Summit-HCV ion AmountYear to Date91.08123 High View Dr., Cubzide City, ST 55555Period StartPeriod End6-29-03Year to Date 4,144.00TotalDeductionsPage 5-77-5-03Check on AmountYear to DateFed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 800.80 290.08 59.92 124.32 Net 204.9291.08January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment Income1Myron Rawleigh, M.D.Employee NameEmployee SSNNatalie Buchanan123-45-6789123 High View Dr., Cubzide City, ST 55555Period StartPeriod End6-22-036-28-03Check Date7-4-03DescriptionEarnings/CompensationRateHrs AmountYear to DateWages 9.25 3,848.00Fed W/HFICAMedicareST W/H 57.20 20.72 4.28 8.88 743.60 269.36 55.64 115.44CurrentGrossTotalDeductions Net 204.9232 ion AmountYear to Date91.08ANNUAL INCOME:Part 2 Anywhere Housing Authority is about to notify Ms. Buchanan of her new rentalamount. However, on August 20, the PHA receives delayed third-party verificationfrom her employer, as shown on the following page. Notice that Ms. Buchanan isgoing to begin working full-time on September 1 and is anticipated to have someovertime. Calculate her annual income using the employer verification form.ANNUAL INCOME:PIH Rental Integrity Summit-HCVPage 5-8January 2004

Anywhere Housing AuthorityVerification of Income from EmploymentPIH Rental Integrity Summit-HCVPage 5-9January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeDiscussion Questions1. What would a PHA staff person do in this situation?2. What is the first step you would take?3. Which verification would you use and why?4. How would you know when the new rental amount would go into effect?5. What would you do if the verification had come in after the reexamination date?PIH Rental Integrity Summit-HCVPage 5-10January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotesUNREPORTED AND UNDERREPORTED INCOME Some families fail to report or underreport employmentincome.-A common form of underreporting is reporting netincome (take-home pay) rather than gross income. To identify unreported or underreported employmentincome, use up-front income verification (UIV) sources. Inform program applicants and participants of the UIVsources to be checked.-Providing this information encourages more accuratereporting.SPORADIC INCOME Temporary, nonrecurring, or sporadic income (includinggifts) is not included in annual income. (24 CFR5.609(c)(9)) Sporadic income is income that is neither reliable norperiodic.PIH Rental Integrity Summit-HCVPage 5-11January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeSporadic Income Example Scenario: Daniel Morgan receives social security disability benefits. In addition, heworks occasionally as a handyman. Daniel claims to have worked only a couple oftimes last year; he has no documentation to support this claim. Question 1: Do Daniel’s earnings from working as a handyman fit the definition ofsporadic income? Question 2: How should Daniel’s PHA handle his employment income? Question 3: What type of documentation should the PHA have in Daniel’s file tosupport its decision?PIH Rental Integrity Summit-HCVPage 5-12January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotesSEASONAL EMPLOYMENT People in some occupations regularly work less than 12months per year. For example:-School employees-Agricultural workers-Construction workersHUD’s Housing Choice Voucher Program Guidebookdescribes two acceptable methods of calculatingemployment income for seasonal workers.-In method 1, the PHA annualizes current income andthen conducts an interim reexamination when incomechanges.-In method 2, the PHA calculates anticipated incomefrom all known sources for the entire year andconducts no interim reexamination. For this second method, a history of income frompast years is needed. This method is not useful when a future incomesource is “unknown” or “none.”PIH Rental Integrity Summit-HCVPage 5-13January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotesExample Scenario: Marcy Walsh is currently employed as a tilesetter with ABC Construction, earning 1,000 per month.For the last four years, she has worked this job for sixmonths a year during the construction season. During theother six months of each year, she works part-time atDomino’s Pizza, earning 400 per month. Method 1: -At the regular reexamination, annualize currentincome by multiplying monthly income by 12: 1,000/month 12 months/year 12,000/year.-When the construction season ends, conduct aninterim reexam. Again, annualize current income bymultiplying monthly income by 12: 400/month 12months/year 4,800/year.Method 2:--At the regular reexamination, calculate anticipatedincome from all known sources for the entire year: ABC Construction: 1,000/month 6months/year 6,000/year Domino’s Pizza: 400/month 6 months/year 2,400/year Total annual income: 6,000/year 2,400/year 8,400/yearNote: Under method 2, there is no interimreexamination when Ms. Walsh changes jobs.PIH Rental Integrity Summit-HCVPage 5-14January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotes A common error in using method 1 is to compute annualincome by counting the current income only for theanticipated length of the job.-In the previous example, this miscalculation wouldlead to an annual income of only 6,000( 1,000/month 6 months) at the regular reexamand only 2,400 ( 400/month 6 months) at theinterim reexam.-This common error leads to a lower total tenantpayment (TTP) than the family is required to pay byHUD regulations. PHAs need to develop a written policy covering seasonalemployment. PHAs must also:-Ensure that the policy is implemented consistently-Inform families with seasonal employment about thepolicy If a PHA adopts method 1, families need to knowthat an interim reexam will be conducted. If a PHA adopts method 2, families need to knowthat an interim reexam will not be conducted.PIH Rental Integrity Summit-HCVPage 5-15January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 2: Employment IncomeNotesPIH Rental Integrity Summit-HCVPage 5-16January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 3Training Program IncomeHUD-FUNDED TRAINING PROGRAM The regulation at 24 CFR 5.609(c)(8)(i) states that allamounts received under training programs funded byHUD are to be excluded from annual income.Example Scenario: The head of a participant family receives 500 per month in TemporaryAssistance for Needy Families (TANF) benefits. She then enrolls in a HUD-fundedtraining program operated by her PHA, and her TANF benefits stop. She receives 600per month while she is participating in the training program. Upon completion of theprogram, she gets a job at the PHA earning 700 per month. Question 1: What monthly income is counted while the woman is participating in thetraining program? Question 2: What monthly income is counted after completion of the program? Question 3: How long is the training income excluded?PIH Rental Integrity Summit-HCVPage 5-17January 2004

Reducing Income and Rent Errors by Building a Quality ProgramCalculation Problem AreasSection 3: Training Program IncomeNotesOTHER TRAINING PROGRAM INCOME The regulation at 24 CFR 5.609(c)(8)(v) states that allincremental earnings and benefits resulting fromparticipation in a qualifying state or local employmenttraining program (including training programs notaffiliated with a local government) are excluded fromannual income.- To be considered qualifying for the purposes of thisregulatory exclusion, an employment training programmust have clearly defined goals and objecti