Update on RGI Calculations Item 15 July 6, 2016 Board of Directors

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1 Page 1 of 9 Update on RGI Calculations Item 15 July 6, 2016 Board of Directors Report: To: TCHC: Board of Directors From: Resident Services Committee (RSC) Date: May 30, 2016 Strategic Plan Priority: Service Excellence: Innovate service delivery by adapting service models, policies, procedures, and business processes to improve customer service for residents. PURPOSE: To provide the Board of Directors with an update on the administrative audit of RGI Calculations as of March 31, RECOMMENDATIONS: It is recommended that the Board of Directors receive the report for information and discussion. RESIDENT SERVICES COMMITTEE The report was considered by the RSC in closed session at its meeting on May 30th, 2016, and was received by the Committee for information and discussion. The Committee recommended that the report be presented to the Board during the public session.

2 Page 2 of 9 REASONS FOR RECOMMENDATIONS: As part of the role of housing provider, Toronto Community Housing administrates RGI rent in compliance with both the Housing Service Act, 2011 ( HSA ) and Operating Agreement with the City. The HSA prescribes the manner in which Rent-Geared-to- Income ( RGI ) is administrated and the Operating Agreement documents the local rules that the City is permitted to make. The City maintains an RGI Administration Manual that details the calculation steps, including all of the various considerations, inclusions, and exclusions based on specific income circumstances. Toronto Community Housing has consolidated the process management of RGI Rent Calculation with Tenant Service Coordinators ( TSC ). Generally, the process requires TSCs to: Work with Resident to take receipt of their respective Annual Rent Review form (including all of the necessary related documents). o TSCs provide receipts for packages including documentation of any missing items to render the package complete. Determine who lives in the household and the gross monthly income of each person in the household. Determine the Adjusted Monthly Income (including consideration of specific deductions allowed). Calculate the Income part of RGI Rent for a Family and/or Benefit Unit. Determine the Utility Part of RGI Rent. Calculate the household RGI Rent. Provide a written Notice of Decision. Each year, Toronto Community Housing manually processes over 45,000 rent calculations as part of the administration required by the HSA. As part of the annual financial audit in 2014, PWC (for the first time) performed sampled based testing (approximately 100 files) of our RGI calculations during which they determined an error rate of just under 1% (both for underpayment and over charging). Each of the Residents among the sample whom were determined to have been over-charged were reimbursed. The Board subsequently approved the recruitment of 13 Administrative Audit Assistants (AAA) to: Review the rent calculations conducted by TSCs during the current year s rent review and coordinate the correction of any errors. Concurrently audit the rent calculations performed during the previous year s rent review. Reimburse Residents whom were found to have been overcharged during the previous year.

3 Page 3 of 9 Administrative Audit Assistant (AAA) Recruitment The staff were recruited for start date on Oct 19 th Training was provided over the first 6 weeks and an Academy Bay period (auditing within one specific Operating Unit) occurred during December. The period was to both trial the business processes developed to accomplish the auditing (primarily to assess length of time) as well as to test the audit reporting and afford staff time to gain familiarity with the actual Resident files. The balance of the Operating Units folded into the audit team over the course of Q TSC Training As calculations can become somewhat complex and documentation standards very specific, there are rules within the Operating Agreement that stipulate how training is conducted. The agreement requires that new staff must attend a City delivered training course within three months of beginning the job. Once trained, existing staff must undergo TCH delivered remedial training every subsequent 18 months. New staff attended one of two sessions conducted by the City in 2015 (Sept / Dec) and existing staff attended the remedial training during April and May of The remedial training included: Review of Audit Findings (types of errors uncovered) RGI Income Qualification (review of included and excluded income) Income and Asset Document Verification (Requirements) RGI Rent Calculation (staff completed various case studies to review end-to-end process) Concurrently, Operating Unit Managers were centrally supported by the AAA staff to facilitate one-on-one job coaching with TSCs as well as to continuously disseminate reminder communications intended to prompt greater compliance in areas where error trends had emerged. Q1 Administrative Audit Results The AAA audits evaluate errors related to: Rent calculation Missing documentation Other errors (in correct effective dates, notice of decision inaccuracies and IT system data entry errors) Not all errors produced a financial effect (i.e. resulted in an over or under charge) but where one occurred, it was distinctly tracked. Among the current year s audits, all over

4 Page 4 of 9 and under charges were respectively corrected in advance of the notice being issued to the Resident. Among the previous year s audits, all over charges will be reimbursed to Residents during Q2-16 with a letter explaining both the nature of the error and effect of the audit. It has proven easier and more cost effective to bulk the reimbursements for payment and communication by quarter. Management is evaluating the workflow such that this can migrate to monthly reimbursement. Monthly Financial Summary The financial audit expressed the error rate in terms of percentage of monthly rent. In the AAA team s Q1 assessment, the net error rate was marginally higher among the 2015 audits and much lower among the 2016 audits. Table one presents the Monthly Error amount (difference between calculation and corrected calculation) as a percentage of the total Monthly Rent Charge of the audited calculations. Table 1 File Error Summary On a per file basis, Tables 2 and 3 detail the rate of files where auditing uncovered an error with a financial effect for the present and previous year s rent reviews respectively.

5 Page 5 of 9 Table 2 Table 3 In 2016, 5.5% of files were encountered with an error that resulted in an over-charge (+$27K) while 5.7% of files were encountered with an error that resulted in an undercharge (-$33K). Among the 2015 results, the auditors are not able to definitively determine whether any missing documentation resulted in any over or undercharge because the process does not seek to re-engage Residents to collect missing documents.

6 Page 6 of 9 Calculation Errors Calculation errors accounted for roughly 88% of the circumstances producing an over or undercharge. These related to errors in the: calculation of income (included vs. excluded, treatment of deductions, calculation of the adjusted monthly income) calculation of parking charges Missing documentation accounted for roughly 10% of the total errors resulting in an over or under-charge. All errors were corrected in advance of having provided notice to the Resident of the annual rent change. Administrative Errors Administrative errors (unrelated to calculation issues), were comprised of missing documentation (Table 4) and data entry mistakes (Table 5). As documentation requirements were a key focus of the remedial training, the minority percentage of errors in this category represents progress with documentation compliance. Only 1% of the files with missing documentation produced an over or under charge. The data entry errors have increased and stem from the manual nature of the process, including in the transcription into HMS (Housing Management System) and generation of resident letters. Table 4

7 Page 7 of 9 Table 5 Next Steps: As the AAA team continues to measure and report on both error rates and trends, the Program Services division will develop intra-year staff communications and local training forums to further clarify where compliance issues exist in either the calculation or administration elements of the process. The assigned AAA staff are already physically working several days a month in the Operating Units in order to spend time engaged with staff in one-on-one coaching and team training. Now that the AAA team is operating with calibrated business practices, planning is underway to physically co-locate the auditors within the OU offices to grow both the working relationship and training value of the auditors. A focus group of TSCs has been convened and will meet several times over the next 4-6 weeks to further evaluate the specifics to the audit findings in an effort to further develop coaching aids and other remedial training topics. The group will concurrently conduct a review of the business process being used to accomplish the rent calculation audits as it has become apparent that it has produced additional workload challenges. TCH is also working with HSC (Housing Services Company) to potentially adopt a calculation tool intended to increase accuracy. Although many of the calculation errors relate to the interpretation of income documents (i.e. determining the numbers to include in the calculation), the tool may assist in prompting correct income/deduction identifications. Additionally, TCH will continue to monitor the return on the investment made to introduce the rent calculation audit. The recruitment of the AAA staff at $980K was with an aspiration to discover under-charged rents at a rate that would render the investment cost neutral. Given the relatively low values of miscalculation and general balance between over and under-charges, the benefit has been limited to the assurance that current year s rent decisions are being provided to Resident with little to no risk of error. Rent Calculation Audit Workload Challenges There are emerging workload challenges for the TSCs growing from the management of the Rent Calculation Audit Process. These relate to the time spent: Preparing the present year s file for audit (and forwarding to head office)

8 Page 8 of 9 Searching the OU file rooms for the previous year s physical file and organizing it for audit (there are no electronic file management tools) o Removing the documents specifically related to the annual rent review and refiling. o Backlogged filing in the OU has further added to the work Liaising with the AAA staff to clarify/review discrepancies (including search and supply of missing documentation) and resubmit Engaging with residents to collect the missing documentation and explaining the documentation requirement that might not have been enforced previously Correcting errors emerging from the AAA Audit findings. Other contributing factors to the workload include: The unpredictable rate at which Annual Rent Reviews arrive in a completed format on a weekly/monthly from Residents and, subsequently from the TSCs to the AAA team. The disparity in RGI reviews that exist among the various Operating Units (some higher, others lower). The volume of units that require multiple rent calculations stemming from: o Number of Residents within the household with qualifying income o Number of Residents with fluctuating income whom do not report the changes intra-year. Competing workload that exists among Arrear Collection duties and day-to-day administrative support to Residents in the Operating Unit Offices. CUPE Local 79 represent TCH s inside workforce and has filed a grievance pertaining to the concern with TSC workload. Management has agreed to work with our labour partner to evaluate the audit process and identify any quick-win training initiatives that may alleviate the additional workload related to the audit of files. Once the AAA staff is deployed to the local Operating Units, this may include the AAA team managing the 2015 Annual Rent Review audits in a separate process to exclude TSC involvement. IMPLICATIONS AND RISKS: RGI Administration is strictly legislated through both the HSA and TCH s Operating Agreement with the City of Toronto. It command compliance with the various guidelines and local rules established. Under-charges represent an area of lost revenue that could otherwise be re-invested in the capital needs of the portfolio. Over-charges can have a disproportionate impact on a demographic of Residents whom are already marginalized with financial challenges. To that end, rent calculation errors have impacts on the organization s reputation as a service provider to low income households. The Contract Management portfolio is not presently audited by the AAA staff as it was anticipated that the retendering of the contact would include provisions to separately audit

9 Page 9 of 9 rent calculation. The tender was subsequently cancelled. In lieu of the extension of the current contract into their 5 th year, Asset Management is reallocating AAA staff to audit the Contract providers by Q3-16. There are clauses in the current contract that render the providers financially responsible for any losses generated by rent calculation errors. SIGNATURE: Graham Leah Graham Leah Vice President, Asset Management STAFF CONTACT: Graham Leah, Vice President, Asset Management graham.leah@torontohousing.ca