HUD Rental Assistance
Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
Gao ID: GAO-05-224 February 18, 2005
In fiscal year 2003, the Department of Housing and Urban Development (HUD) paid about $28 billion to help some 5 million low-income tenants afford decent rental housing. HUD has three major programs: the Housing Choice Voucher (voucher) and public housing programs, administered by public housing agencies; and project-based Section 8, administered by private property owners. As they are in every year, some payments were too high or too low, for several reasons. To assess the magnitude and reasons for these errors, HUD established the Rental Housing Integrity Improvement Project (RHIIP). In response to a congressional request, GAO examined the sources and magnitude of improper rent subsidy payments HUD has identified and the steps HUD is taking to address them, including efforts to simplify the process of determining rent subsidies.
HUD has identified three sources of errors contributing to improper rent subsidy payments: (1) incorrect subsidy determinations by program administrators, (2) unreported tenant income, and (3) incorrect billing. HUD has attempted to estimate the amounts of improper subsidies attributable to each source but has developed reliable estimates for only the first--and likely largest--source. HUD paid an estimated $1.4 billion in gross improper subsidies (consisting of $896 million in overpayments and $519 million in underpayments) in fiscal year 2003 as a result of program administrator errors--a 39 percent decline from HUD's fiscal year 2000 (baseline) estimate. GAO estimates that the amount of net overpayments could have subsidized another 56,000 households with vouchers in 2003. HUD has made several efforts under RHIIP to address improper rent subsidies for its public housing and voucher programs. Rental Integrity Monitoring (RIM) reviews by HUD's field offices--on-site assessments of public housing agencies' compliance with policies for determining rent subsidies--are a key part of the initiative. However, GAO found that resource constraints and a lack of clear guidance from HUD headquarters hampered the reviews and that the field offices did not collect complete and consistent data, limiting HUD's ability to analyze and make use of the results. HUD has not incorporated RIM reviews into its routine oversight activities. HUD expects that a second effort, a Web-based tenant income verification system, will avoid an estimated $6 billion in improper subsidies over 10 years, but the system is not yet fully implemented. HUD has undertaken RHIIP efforts for its project-based Section 8 programs but faces several challenges. HUD has improved its policies and guidance for property owners. The agency also plans to give owners access to the Web-based income verification system by the end of 2006. HUD plans to rely more extensively on contractors to monitor property owners' compliance with its policies for determining subsidies. According to HUD, the complexity of the existing policies contributes to the difficulties program administrators have in determining rent subsidies correctly. For example, program administrators must assess tenants' eligibility for 44 different income exclusions and deductions. However, simplification will likely require statutory changes by Congress and affect the rental payments of many tenants. HUD is considering various approaches to simplifying policies for determining rent subsidies but has not conducted a formal study to inform policymakers on this issue.
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GAO-05-224, HUD Rental Assistance: Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
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Report to the Chairman, Subcommittee on Housing and Community
Opportunity, Committee on Financial Services, House of Representatives:
February 2005:
HUD Rental Assistance:
Progress and Challenges in Measuring and Reducing Improper Rent
Subsidies:
GAO-05-224:
GAO Highlights:
Highlights of GAO-05-224, a report to the Chairman, Subcommittee on
Housing and Community Opportunity, Committee on Financial Services,
House of Representatives
Why GAO Did This Study:
In fiscal year 2003, the Department of Housing and Urban Development
(HUD) paid about $28 billion to help some 5 million low-income tenants
afford decent rental housing. HUD has three major programs: the Housing
Choice Voucher (voucher) and public housing programs, administered by
public housing agencies; and project-based Section 8, administered by
private property owners. As they are in every year, some payments were
too high or too low, for several reasons. To assess the magnitude and
reasons for these errors, HUD established the Rental Housing Integrity
Improvement Project (RHIIP). In response to a congressional request,
GAO examined the sources and magnitude of improper rent subsidy
payments HUD has identified and the steps HUD is taking to address
them, including efforts to simplify the process of determining rent
subsidies.
What GAO Found:
HUD has identified three sources of errors contributing to improper
rent subsidy payments: (1) incorrect subsidy determinations by program
administrators, (2) unreported tenant income, and (3) incorrect
billing. HUD has attempted to estimate the amounts of improper
subsidies attributable to each source but has developed reliable
estimates for only the first”and likely largest”source. HUD paid an
estimated $1.4 billion in gross improper subsidies (consisting of $896
million in overpayments and $519 million in underpayments) in fiscal
year 2003 as a result of program administrator errors”a 39 percent
decline from HUD‘s fiscal year 2000 (baseline) estimate. GAO estimates
that the amount of net overpayments could have subsidized another
56,000 households with vouchers in 2003.
HUD has made several efforts under RHIIP to address improper rent
subsidies for its public housing and voucher programs. Rental Integrity
Monitoring (RIM) reviews by HUD‘s field offices”on-site assessments of
public housing agencies‘ compliance with policies for determining rent
subsidies”are a key part of the initiative. However, GAO found that
resource constraints and a lack of clear guidance from HUD headquarters
hampered the reviews and that the field offices did not collect
complete and consistent data, limiting HUD‘s ability to analyze and
make use of the results. HUD has not incorporated RIM reviews into its
routine oversight activities. HUD expects that a second effort, a Web-
based tenant income verification system, will avoid an estimated $6
billion in improper subsidies over 10 years, but the system is not yet
fully implemented.
HUD has undertaken RHIIP efforts for its project-based Section 8
programs but faces several challenges. HUD has improved its policies
and guidance for property owners. The agency also plans to give owners
access to the Web-based income verification system by the end of 2006.
HUD plans to rely more extensively on contractors to monitor property
owners‘ compliance with its policies for determining subsidies.
According to HUD, the complexity of the existing policies contributes
to the difficulties program administrators have in determining rent
subsidies correctly. For example, program administrators must assess
tenants‘ eligibility for 44 different income exclusions and deductions.
However, simplification will likely require statutory changes by
Congress and affect the rental payments of many tenants. HUD is
considering various approaches to simplifying policies for determining
rent subsidies but has not conducted a formal study to inform
policymakers on this issue.
What GAO Recommends:
GAO makes recommendations designed to improve HUD‘s oversight of the
process for determining rental subsidies in its housing assistance
programs. GAO also recommends that HUD study the potential impacts of
alternatives for simplifying the rent determination process. HUD agreed
with GAO‘s recommendations to improve its program oversight but said
that the report did not fully present the significance and impact of
HUD‘s efforts under RHIIP.
www.gao.gov/cgi-bin/getrpt?GAO-05-224.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact David G. Wood at (202) 512-8678 or
woodd@gao.gov.
[End of section]
Contents:
Letter:
Executive Summary:
Purpose:
Background:
Results in Brief:
Principal Findings:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Chapter 1: Introduction:
HUD's Rental Assistance Programs Vary in Size and Are Administered
Differently:
HUD's Oversight of Program Administrators Varies among Programs:
Tenant Rents under Rental Assistance Programs Are Generally Based on
Income:
HUD Established RHIIP to Respond to Ongoing Problems with Improper Rent
Subsidy Payments:
Objectives, Scope, and Methodology:
Chapter 2: HUD Has Identified Sources of Errors but Lacks Complete and
Reliable Estimates of Improper Subsidies for Every Source:
HUD Has Attempted to Estimate the Improper Subsidies Caused by Each
Identified Source of Error:
Estimates of Improper Subsidies Due to Errors by Program Administrators
Appear Reasonably Accurate and Show a Decline:
Fiscal Year 2003 Estimate of Improper Subsidies Due to Unreported
Tenant Income Is Not Reliable:
HUD's Estimate of Improper Subsidies Due to Billing Errors Is
Incomplete:
Agency Comments and Our Evaluation:
Chapter 3: HUD Is Addressing Improper Payments for Public Housing and
Vouchers, but Implementation Problems Hampered Efforts:
HUD Supplemented Monitoring of PHAs with On-site Reviews but Had
Problems Implementing Them:
HUD's New System for Verifying Tenants' Incomes Has Limitations:
HUD's Training and Guidance for PHAs Was Not Always Adequate or Timely:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Chapter 4: HUD Is Improving Oversight of Rent Subsidy Determinations
for Project-Based Section 8, but Challenges Remain:
HUD Has Improved Guidance and Training, but a Key Element of the
Guidance Was Not Widely Followed:
HUD Plans to Implement a New Income Verification System but Must First
Address Data Security Concerns:
HUD Will Rely on PBCAs to Address Its Monitoring Effort under RHIIP:
Agency Comments and Our Evaluation:
Chapter 5: HUD is Considering Approaches for Simplifying Rent Subsidy
Policies, but these Approaches Need More Study
HUD Is in the Initial Stages of Considering Approaches for
Simplification of Rent Subsidy Policies and Has Not Conducted Formal
Study of These Approaches:
HUD's Current Policies for Determining Rent Subsidies Are Complex:
Simplifying the Process for Determining Rent Subsidies Could Affect
Tenants and Pose Implementation Challenges:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Data Tables:
Appendix II: Information on HUD's Policies for Determining Rent
Subsidies:
Appendix III: Comments from the Department of Housing and Urban
Development:
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Summary of HUD's Efforts to Address Sources of Errors for the
Voucher and Public Housing Programs:
Table 2: Ratio of Staff to RIM Reviews, Selected HUD Field Offices:
Table 3: Summary of HUD's Efforts to Address Sources of Errors for
Project-Based Section 8 Programs:
Table 4: Estimated Total Gross Improper Rent Subsidies Attributable to
Program Administrator Error, Fiscal Year 2003:
Table 5: Estimated Gross Improper Rent Subsidies per Household
Attributable to Program Administrator Error, Fiscal Year 2003:
Table 6: Estimated Subsidy Overpayments Attributable to Program
Administrator Error, Fiscal Year 2003:
Table 7: Estimated Subsidy Overpayment per Household Attributable to
Program Administrator Error, Fiscal Year 2003:
Table 8: Estimated Subsidy Underpayments Attributable to Program
Administrator Error, Fiscal Year 2003:
Table 9: Estimated Subsidy Underpayments per Household Attributable to
Program Administrator Error, Fiscal Year 2003:
Table 10: Estimated Dollar and Percent Change in Rent under 30 Percent
of Gross Income Simplification Proposal, Fiscal Year 2003:
Table 11: Estimated Dollar Change in Rent under 30 Percent of Gross
Income Simplification Proposal, Fiscal Year 2003:
Table 12: Estimated Average Dollar and Percent Change in Rent under
HUD's "27/30" Simplification Proposal, Fiscal Year 2003:
Table 13: Estimated Dollar Change in Rent under HUD's "27/30"
Simplification Proposal, Fiscal Year 2003:
Figures:
Figure 1: HUD's Oversight Structure of Rental Assistance Programs:
Figure 2: Process for Determining Rent Subsidies:
Figure 3: Estimated Gross Improper Rent Subsidies Due to Program
Administrator Error, Fiscal Years 2000 and 2003:
Figure 4: Median Monthly Gross Improper Rent Subsidy per Household Due
to Program Administrator Errors, Fiscal Years 2000 and 2003:
Figure 5: Estimated Rent Subsidy Overpayments and Underpayments Due to
Errors Made by Program Administrators, Fiscal Year 2003:
Figure 6: Timing of First-and Second-Round RIM Reviews:
Figure 7: Percentage of PHAs without Comparable Data for First-and
Second-Round RIM Reviews:
Figure 8: Timing of Training and RIM Reviews:
Figure 9: Earned Income Allowance Timeline (Full Exclusion and Phase-In
Periods Over Consecutive Months):
Figure 10: Excerpt from HUD Family Report:
Abbreviations:
AMI: area median income:
EID: earned income disallowance:
HUD: Department of Housing and Urban Development:
OIG: Office of Inspector General:
PBCA: performance-based contract administrator:
PHA: public housing agency:
PHAS: Public Housing Assessment System:
PHMAP: Public Housing Management Assessment Program:
RHIIP: Rental Housing Integrity Improvement Project:
RIM: Rental Integrity Monitoring:
SEMAP: Section 8 Management Assessment Program:
TRACS: Tenant Rental Assistance Certification Program:
Letter February 18, 2005:
The Honorable Robert W. Ney:
Chairman, Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
Dear Mr. Chairman:
This report responds to your request that we evaluate issues related to
improper rent subsidy payments in the Department of Housing and Urban
Development's (HUD) housing assistance programs. Specifically, this
report examines (1) the sources and magnitude of improper payments that
HUD has identified, (2) the actions HUD is taking under its Rental
Housing Integrity Improvement Project (RHIIP) to reduce improper
payments in the Housing Choice Voucher (voucher) and public housing
programs and the status of these initiatives, (3) the actions HUD is
taking under RHIIP to reduce improper payments in its project-based
Section 8 programs and the status of these initiatives, and (4) the
status and potential impact of HUD's efforts to reduce the risk of
improper payments by simplifying the subsidy determination process.
This report includes recommendations to the HUD Secretary.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to interested Members of Congress and Congressional Committees. We will
also send copies to the HUD Secretary and make copies available to
others upon request. In addition, this report will be available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].
This report was prepared under the direction of Steven Westley,
Assistant Director. If you or your staff have any questions about this
report, please contact me at (202) 512-8678 or [Hyperlink,
woodd@gao.gov] or Mr. Westley at (202) 512-6221 or w [Hyperlink,
westleys@gao.gov]. Major contributors to this report are listed in
appendix IV.
Sincerely yours,
Signed by:
David G. Wood:
Director, Financial Markets and Community Investment:
[End of section]
Executive Summary:
Purpose:
The Department of Housing and Urban Development (HUD) expended about
$28 billion in fiscal year 2003 for rent subsidies to public housing
agencies (PHA) and property owners to make rents affordable to about 5
million low-income tenants. These subsidies accounted for almost 75
percent of the department's total expenditures. Yet every year HUD
makes improper payments under these programs because it cannot ensure
that tenant rental payments and subsidies are calculated correctly.
Because of their vulnerability to waste, fraud, and abuse, GAO has
designated HUD's rental assistance programs as high risk since early
2001.[Footnote 1] In addition, the President's Management Agenda for
Fiscal Year 2002 identified HUD's rental assistance programs as one of
nine program areas that had severe management challenges and that
needed immediate reform.[Footnote 2] In response to these assessments,
HUD established the Rental Housing Integrity Improvement Project
(RHIIP) to increase accountability and reduce improper subsidy
payments.
The Chairman of the House Subcommittee on Housing and Community
Opportunity, Committee on Financial Services, asked GAO to examine
HUD's efforts to reduce improper rental assistance payments in its
voucher, public housing, and project-based Section 8 programs.
Specifically, this report discusses (1) the sources and magnitude of
improper payments that HUD has identified, (2) the actions HUD is
taking under RHIIP to reduce improper payments in the voucher and
public housing programs and the status of these initiatives, (3) the
actions HUD is taking under RHIIP to reduce improper payments in its
project-based Section 8 programs and the status of these initiatives,
and (4) the status and potential impact of HUD's efforts to reduce the
risk of improper payments by simplifying the subsidy determination
process. To address these objectives, GAO obtained and analyzed data on
improper payments that HUD collected for fiscal years 2000 and 2003. We
also interviewed officials from HUD's headquarters and field offices,
PHAs, and contract administrators; examined laws, regulations,
policies, and guidance related to subsidy determinations; and reviewed
relevant HUD reports and studies. Chapter 1 provides the details of our
scope and methodology. We conducted our work between February and
December 2004 in accordance with generally accepted government auditing
standards.
Background:
HUD offers assistance to low-income renters through three major
programs: voucher, public housing, and project-based Section 8. Under
each program, HUD makes up the difference between a unit's monthly
rental cost (or, for public housing, the operating cost) and the
tenant's payment, which is generally equal to 30 percent of the
tenant's adjusted monthly income. PHAs administer the voucher and
public housing programs, and private property owners administer the
project-based Section 8 programs. These program administrators are
responsible for ensuring that tenants meet HUD's eligibility criteria
and for accurately determining rent subsidies.
HUD established RHIIP in 2001 with a goal of reducing the estimated
dollar amount of improper rent subsidies by 50 percent from fiscal
years 2000 (baseline year) to 2005. To accomplish this goal, HUD
initiated three program-level efforts designed to (1) increase
monitoring of program administrators, (2) establish an income
verification system that allows PHAs and property owners to compare
income information reported by tenants with income information from
government agencies, and (3) providing additional training and guidance
for program administrators. HUD also initiated two overarching efforts
under RHIIP that are aimed at measuring the amount of improper
subsidies and simplifying rent subsidy policies.
Results in Brief:
HUD has identified three sources of errors that result in improper rent
subsidy payments: (1) incorrect subsidy determinations made by program
administrators (program administrator errors), (2) unreported tenant
income, and (3) incorrect billing or distribution of subsidy payments
(billing errors). HUD conducted separate studies to identify the amount
of improper rent subsidies attributable to each source of error but has
developed reliable estimates for only one of the three sources--program
administrator errors--for fiscal years 2000 and 2003. HUD paid an
estimated $1.4 billion in gross improper subsidies (the sum of both
overpayments and underpayments) in fiscal year 2003 as a result of such
errors. While this amount represents a 39 percent decrease in such
errors since fiscal year 2000, HUD officials stated that the decline
cannot be attributed entirely to RHIIP because many of the key efforts
were in the early stages of implementation in 2003. HUD does not have
reliable estimates for unreported tenant income or billing errors.
HUD has made several program-level efforts under the RHIIP initiative
to address improper rent subsidies for its public housing and voucher
programs. An important part of these efforts was the Rental Integrity
Monitoring (RIM) review, HUD's on-site assessment of PHAs' compliance
with the department's policies for determining rent subsidies that were
conducted from 2002 to 2004. However, these reviews, while important,
were hampered by implementation problems, including a lack of clear
policies and procedures. Further, HUD has not incorporated the reviews
into its routine oversight activities. While HUD has established a
database to track the results of RIM reviews, the data are incomplete
and inconsistent, limiting their usefulness in analyzing the results of
the assessments and measuring improvements in PHAs' determinations of
rent subsidies. HUD has begun implementing a new Web-based tenant
income verification system, which is expected to reduce improper rent
subsidies due to tenant underreporting of income. HUD lacks a reliable
estimate of improper payments attributable to billing errors in these
programs and, as of December 2004, did not have an effort in place
specifically to address billing errors.
HUD has undertaken RHIIP efforts for its project-based Section 8
programs but faces several challenges. First, HUD has improved its
policies and guidance for property owners. However, a key part of the
guidance calling for contract administrators to collect information on
improper rent subsidies at each property was not widely followed partly
because the data collection effort was not mandatory and duplicated
some contract administrators' existing procedures. Second, it plans to
implement a new Web-based income verification system but not until
fiscal year 2006 after it has taken necessary security precautions
against improper disclosure of income information. Finally, HUD plans
to rely on performance-based contract administrators (PBCA) to monitor
property owners' compliance with department policies for calculating
subsidies. Although HUD's requirements for PBCAs call for extensive
monitoring of the subsidy determination process, HUD may face
challenges in ensuring that PBCAs follow these requirements.
According to HUD, the complexity of the existing policies is one of the
reasons program administrators have difficulty calculating rent
subsidies correctly. HUD is considering ways to simplify its policies
for determining rent subsidies and is meeting with program
administrators and other interested groups to discuss possible
approaches. Currently, three potential approaches to simplifying
policies for determining subsidies are being examined: (1) basing rents
on tenants' income but using few or no exclusions or deductions, (2)
setting flat rents for different income tiers, and (3) a mixed
approach. Changes to current policies for determining rent subsidies
could result in higher rents for some tenants and lower rents for
others. For example, some tenants might be required to pay more if
certain income exclusions and deductions for which they currently
qualify are eliminated. In addition, implementing simplified policies
could be difficult, creating confusion among program administrators and
tenants in the short term.
Principal Findings:
HUD Has Identified Sources of Error but Lacks Complete and Reliable
Estimates of Improper Subsidies for Every Source:
To determine the amounts of improper rent subsidies resulting from
program administrator errors, HUD collected data on more than 2,400
randomly selected households participating in the voucher, public
housing, and project-based Section 8 programs for fiscal years 2000 and
2003. GAO's analysis of the documentation and data collected indicated
that these studies provide a reasonably accurate estimate of the
subsidy determination errors that the program administrators made. Data
from the fiscal year 2003 study showed that the department paid an
estimated $1.4 billion in gross improper rent subsidies (representing
$896 million in overpayments and $519 million in underpayments) as a
result of program administrator errors in fiscal year 2003--a 39
percent decrease from fiscal year 2000.[Footnote 3] GAO estimates that,
if these errors had not occurred, HUD could have provided vouchers to
56,000 additional households in fiscal year 2003--approximately the
same number of households that receive vouchers in the Los Angeles,
California, area.
For the other two sources of errors, HUD did not produce complete or
reliable estimates for all three programs for fiscal years 2000 and
2003. More specifically, HUD's fiscal year 2003 estimate of improper
rent subsidies attributable to unreported tenant income was unreliable
because it was based on a sample that was too small to produce a more
precise dollar estimate. Also, significant differences in the
methodologies HUD used to make the fiscal year 2000 and 2003 estimates
suggest that any comparison between the estimates would be invalid.
Furthermore, HUD has had difficulty making an accurate estimate of
billing errors for the project-based Section 8 programs for fiscal year
2003 and does not plan to make estimates for the voucher and public
housing programs until September 2005. However, according to HUD, the
low incidence of unreported income and billing errors identified in its
studies indicate that these two sources of errors are likely small
relative to program administrator error.
Although HUD Has Taken Action to Reduce Improper Rent Subsidies in the
Public Housing and Voucher Programs, Implementation Problems Have
Hampered Its Efforts:
HUD has undertaken several efforts under RHIIP to address improper rent
subsidies for its public housing and voucher programs. These efforts
addressed two of the three sources of errors--program administrator
errors and unreported tenant income. As of December 2004, HUD did not
have an effort in place specifically to address billing errors.
To increase monitoring of PHAs' subsidy determinations, HUD field
office staff completed RIM reviews at 722 PHAs between June 2002 and
September 2003. From April 2003 through October 2004, the field offices
conducted additional reviews at 363 PHAs to determine whether the PHAs
had corrected problems identified during the original reviews. However,
GAO found that the RIM reviews were hampered by implementation
difficulties. For example, officials at several HUD field offices
reported that they did not have enough staff to perform RIM reviews in
a timely manner. Additionally, field offices did not always follow
policies and procedures for conducting reviews--for instance, by not
adequately supporting findings in their RIM review reports. Further,
problems with a database containing information on RIM reviews
prevented HUD from analyzing the results of the reviews to assess
improvements in PHAs' calculations of tenant subsidies and provide
technical assistance to PHAs. Specifically, HUD staff did not always
enter information in the database because, according to HUD officials,
field offices had not submitted the data in a timely manner and
headquarters lacked staff to manage data collection and entry tasks.
Although RIM reviews are not a regular part of HUD's oversight
activities, HUD is considering permanent on-site monitoring of PHAs'
subsidy determinations but has not yet decided whether to implement it.
HUD has implemented a Web-based income verification system and has
provided training and guidance for PHAs. HUD expects that the income
verification system will help PHAs detect underreported and unreported
tenant income and yield an estimated $6 billion in savings for all of
its programs over a 10-year period. HUD has provided more training and
guidance to PHAs on topics such as how to calculate subsidies and
improve quality control procedures. However, these efforts have not
always been adequate or timely. For example, although HUD sponsored
training on its subsidy determination policies in early 2004 to prepare
PHAs for RIM reviews, the training was held after most RIM reviews had
been completed. Had the training been held prior to the RIM reviews,
PHAs might have been better able to understand the basis for the RIM
review findings and the corrective actions needed to address them.
HUD Has Made Efforts to Strengthen Oversight of Rent Subsidy
Determinations in Project-Based Section 8, but Challenges Remain:
HUD has begun to implement efforts under RHIIP that address all three
sources of errors in its project-based Section 8 programs, but the
department faces several challenges in carrying out these initiatives.
First, HUD has improved its policies and guidance for its project-based
Section 8 programs. However, contract administrators have not always
followed a key part of the guidance that called for them to collect
information on improper rent subsidies at each property because the
data collection effort was not mandatory and duplicated some contract
administrators' existing procedures. Second, HUD plans to use the same
Web-based income verification system it is implementing for its voucher
and public housing programs for its project-based Section 8 programs.
Because HUD must resolve security concerns about improper disclosure of
tenant income information to private property owners, the system will
not be used for the project-based Section 8 programs until fiscal year
2006.
Finally, HUD plans to rely on PBCAs to monitor property owners'
compliance with HUD's policies for determining rent subsidies. For the
past several years, HUD has been transferring responsibility for
overseeing property owners to PBCAs from other types of contract
administrators. HUD has transferred contract administration
responsibilities to PBCAs because its field offices lack the resources
to adequately monitor properties. HUD requires PBCAs to perform
extensive annual reviews of properties' operations, including reviewing
owners' rent subsidy calculations. To ensure that the PBCAs meet HUD's
performance standards, HUD has developed a comprehensive oversight
program. Implementing these oversight measures, however, could pose
challenges for HUD.
HUD Is Considering Simplifying Policies for Determining Rent Subsidies,
but the Effects of These Changes Require Further Study:
As part of RHIIP, HUD is considering ways to simplify its policies for
determining rent subsidies but has not formulated a specific proposal.
According to HUD, the complexity of the existing policies contributes
to errors in determining subsidies. For example, program administrators
currently must determine tenants' eligibility for 44 different income
exclusions and deductions in order to calculate rent payments and
subsidies. HUD is considering several approaches for simplifying rent
subsidy policies, including:
* an income-based approach that would set tenants' rents at a
percentage of income, possibly with a limited number of exclusions and
deductions or none at all;
* a tiered flat-rent system that would establish tenants' rents for
several income bands and eliminate the need to readjust rents because
of income changes, provided the changes were within the same band; and:
* a mixed approach that would give program administrators various rent
structures to choose from, including income-based and tiered flat
rents.
Adopting any simplification approach would represent a change from
current policies. Because most of HUD's policies have a basis in
statute, major changes are likely to require congressional action.
Under any simplification approach, many tenants' rental payments could
be affected, with some tenants paying higher rents and others paying
lower rents--for example, if the current system of income deductions
and exclusions is altered or eliminated, some tenants could end up
paying more in rent. HUD staff have conducted a preliminary analysis of
the impact of some simplification approaches on tenants' rental
payments and program costs. However, the department has not conducted a
formal study on the impact of policy changes to inform policymakers on
this issue.
Recommendations for Executive Action:
To ensure that HUD continues to reduce improper subsidies in its public
housing and voucher programs, we recommend that the HUD Secretary make
regular monitoring of PHAs' compliance with HUD's policies for
determining rent subsidies as a permanent part of HUD's oversight
activities. Also, we recommend that the Secretary study the potential
impacts on tenant rental payments and program costs of alternative
strategies for simplifying program policies.
Agency Comments and Our Evaluation:
We provided HUD with a draft of this report for review and comment. HUD
provided general comments in a letter from the Deputy Secretary, which
are discussed in detail at the end of chapters 2, 3, 4, and 5. The
letter is printed in appendix III. The department also provided
technical comments that we incorporated where appropriate.
HUD stated that our draft report did not fully present the impact of
HUD's efforts under RHIIP. For example, HUD said that the draft report
did not recognize the department's outreach, guidance, and training
efforts as contributing factors to the reduction in estimated improper
payments. Although the draft report discussed these efforts, we added
language to the final report to incorporate HUD's view that these
efforts contributed to the reduction. HUD also disagreed with the draft
report's finding that the department has complete and reliable
estimates only for one source of error. Because HUD's estimates for two
of the three sources of errors had margins of error greater than the
estimates themselves and, for billing errors, only covered project-
based Section 8, we made no changes to this finding in the final
report. HUD concurred with our finding that guidance for collecting
data on the types and frequency of errors property owners made in
determining subsidies was not widely followed and stated that it would
revise its contracts with PBCAs to address this issue.
HUD agreed with and has taken steps to implement our recommendation
that the department regularly monitor PHAs' compliance with its
policies for determining rent subsidies for the public housing and
voucher programs and collect information from these monitoring efforts
HUD disagreed with our recommendation to conduct additional analysis of
data on program administrator errors for the project-based Section 8
program because existing data were insufficient to make a statistically
valid estimate of error by type of contract administrator. Given that
HUD's existing data would not readily allow HUD to perform this
analysis, we did not include this recommendation in our final report.
HUD did not respond directly to our recommendation that the department
formally study the impact of proposed changes for simplifying its rent
subsidy policies but said that its prior simplification proposals had
undergone extensive analysis. Our draft report discussed HUD's efforts
to analyze simplification approaches. During the course of our review,
and in its technical comments on our draft report, the department
provided us only an internal analysis of a single simplification
approach, which, according to HUD, it is no longer considering. Because
simplifying HUD's policies for determining rent subsidies will likely
require legislative changes, we continue to believe that a formal study
will be essential to informing congressional decision making.
[End of section]
Chapter 1: Introduction:
In fiscal year 2003, the Department of Housing and Urban Development
(HUD) expended about $28 billion in rental assistance--about 75 percent
of the department's total expenditures--to help almost 5 million low-
income tenants afford decent housing. HUD provides rental assistance
through three major programs: Housing Choice Vouchers (vouchers),
public housing, and several project-based Section 8 programs. These
programs reduce tenants' rental payments by providing subsidies to
owners of private properties, the public housing agencies (PHA)
responsible for government-owned developments, or both. Because these
subsidies involve complicated calculations and program rules, the
process of determining them is prone to errors. In response to growing
concerns about improper rental assistance payments, in fiscal year 2001
HUD established the Rental Housing Integrity Improvement Project
(RHIIP), which is designed to address the causes of these errors and
ensure that only eligible people receive subsidies.
This report discusses (1) the sources and magnitude of improper
payments that HUD has identified, (2) the actions HUD is taking under
RHIIP to reduce improper payments in the voucher and public housing
programs and the status of these initiatives, (3) the actions HUD is
taking under RHIIP to reduce improper payments in its project-based
programs and the status of these initiatives, and (4) the status and
potential impact of HUD's efforts to reduce the risk of improper
payments by simplifying the subsidy determination process.
HUD's Rental Assistance Programs Vary in Size and Are Administered
Differently:
HUD's voucher, public housing, and project-based assistance programs
share the common mission of making housing affordable to low-income
households. The subsidies these programs provide are not an
entitlement. Typically, the number of low-income households eligible
for assistance exceeds the number of subsidized units and vouchers that
is available. Specifically, HUD estimated that in 1999 about a quarter
of all households eligible for housing assistance received it. HUD's
programs are administered differently and vary in the number of
households they assist and the amount of funding they receive.
The voucher program, which local PHAs administer on HUD's behalf, is
HUD's largest rental assistance program. The program, authorized under
Section 8 of the United States Housing Act of 1937, as amended,
provides housing vouchers that eligible individuals and families can
use to rent houses or apartments in the private housing market from
property owners participating in the program. Voucher holders are
responsible for finding suitable housing, which must meet HUD's housing
quality standards. In fiscal year 2003, the program assisted about 2
million households (42 percent of all households receiving HUD housing
assistance) and had outlays of $13.4 billion (47 percent of HUD's total
rental assistance outlays). In general, only households with very low
incomes--those with incomes that are less than or equal to 50 percent
of area median income (AMI)--are eligible for vouchers. In addition,
the legislation requires that at least 75 percent of new participants
in the voucher program have extremely low incomes--that is, their
incomes must be at or below 30 percent of AMI.[Footnote 4] Voucher
holders generally pay 30 percent of their adjusted monthly income
toward rent, and the PHA receives HUD subsidies to pay the remainder of
the rent to the property owners. The subsidies in the voucher program
are tenant based--that is, they are tied to the household rather than
to the rental unit. The approximately 2,500 PHAs that administer the
voucher program are responsible for ensuring that tenants meet program
eligibility requirements and that tenant subsidies are calculated
properly.[Footnote 5] PHAs are also required to develop written
policies and procedures to administer the program according to HUD
regulations.
Under the public housing program authorized by United States Housing
Act of 1937, as amended, HUD subsidized the development, operation, and
modernization of government-owned properties, which are currently
managed by some 3,300 PHAs. In fiscal year 2003, HUD's public housing
program assisted 1.2 million households (25 percent of households
receiving housing assistance) and had outlays of $7.1 billion (25
percent of HUD's total rental assistance outlays).[Footnote 6] To be
eligible for public housing, a household must be low income--that is,
have an income that is less than or equal to 80 percent of AMI--and the
legislation stipulates that at least 40 percent of new residents have
extremely low incomes--less than or equal to 30 percent of
AMI.[Footnote 7] As in the voucher program, public housing tenants
generally pay 30 percent of their adjusted monthly income on rent. HUD
pays subsidies to the PHAs for the remainder to cover the difference
between the PHAs' operating costs and rental receipts. In contrast to
the voucher program, the subsidies in the public housing program are
project based--that is, they are tied to the unit, and tenants receive
assistance only when they live in units eligible for subsidies. PHAs
are responsible for ensuring that tenants are eligible for public
housing, that tenant subsidies are calculated properly, and that the
PHAs' policies and procedures conform to HUD's regulations.
Under a variety of project-based Section 8 programs authorized by the
Housing and Community Development Act of 1974, as amended, HUD has
subsidized rents with multiyear rental assistance payments, which have
often been combined with construction subsidies from other HUD
programs. These programs included the New Construction, Substantial
Rehabilitation, Loan Management Set-Aside, Property Disposition, and
Moderate Rehabilitation programs. Before project-based Section 8
programs, HUD had provided rental assistance through Rent Supplement
and Section 236 Rental Assistance Payment programs. For ease of
presentation, this report refers to all of these rental assistance
programs as project-based Section 8. Property owners and managers for
about 22,000 subsidized properties currently participate in these
programs. In fiscal year 2003, HUD's project-based programs assisted
1.6 million households (33 percent of all households receiving
assistance from HUD) and had outlays of $7.7 billion (27 percent of
HUD's total rental assistance outlays). As in HUD's other rental
assistance programs, households receiving project-based Section 8
assistance generally pay 30 percent of their adjusted income toward
rent and HUD pays a subsidy--in this case to property owners and
managers--for the remainder of the rent. In general, only households
with low incomes are eligible for HUD project-based Section 8
assistance, and at least 40 percent of new residents must have
extremely low incomes. Private property owners and managers have
similar requirements to PHAs for administering the project-based
Section 8 program--they must ensure that tenants meet program
eligibility requirements and that tenant subsidies are calculated
correctly.[Footnote 8] They also must develop administrative policies
and procedures that are consistent with HUD's regulations.
HUD's Oversight of Program Administrators Varies among Programs:
HUD's oversight of program administrators varies depending on the
program (see fig. 1). For vouchers and public housing, HUD field
offices provide oversight of the PHAs that administer the programs.
Field office staff conduct on-site reviews and analysis of PHAs'
operations. Field offices are also responsible for confirming the
accuracy of information PHAs submit to HUD's performance rating systems
for vouchers and public housing: the Section 8 Management Assessment
Program (SEMAP) and Public Housing Assessment System (PHAS),
respectively. Both SEMAP and PHAS provide HUD managers with performance
measures in key program areas, such as program management and the
physical condition of properties.
Figure 1: HUD's Oversight Structure of Rental Assistance Programs:
[See PDF for image]
[End of figure]
For HUD's Section 8 project-based programs, contract administrators are
responsible for overseeing individual Section 8 properties and ensuring
that properties are in compliance with HUD's policies. The
administrators conduct on-site reviews of property owners' tenant
information files, process monthly payment vouchers, respond to health
and safety issues, and renew rental assistance contracts. Currently,
there are three different types of contract administrators: performance-
based contract administrators, "traditional" contract administrators,
and HUD field office staff (see chap. 4).[Footnote 9]
Tenant Rents under Rental Assistance Programs Are Generally Based on
Income:
Subsidies under HUD's rental assistance programs are generally based on
tenant households' adjusted annual income, or gross income less any
exclusions and deductions. Laws and HUD regulations provide for 44
different types of income exclusions and deductions. Of these, HUD's
regulations cite 20 income sources, such as income from minors, student
financial aid, and qualifying employment training programs, which are
excluded when determining households' eligibility to receive assistance
and calculating tenants' rent.[Footnote 10] Nineteen other income
sources qualify as exclusions under various statutes. For example,
Earned Income Tax Credit refund payments received on or after January
1, 1991, are excluded, as is income from participating in
AmeriCorps.[Footnote 11] A complete list and descriptions of these
exclusions appear in appendix II.
In addition to these 39 income exclusions, program administrators must
also apply five income deductions, which reduce the amount of income
that can be considered in calculating tenants' rent.[Footnote 12]
Legislation specifies the following five deductions from annual income:
* a standard amount ($480) for each dependent;
* a standard amount ($400) for elderly or disabled family members;
* unreimbursed child care expenses that are necessary for a family
member to remain employed;
* the sum of the following to the extent that it exceeds 3 percent of
annual income:
* certain unreimbursed medical expenses for elderly or disabled family
members and:
* certain unreimbursed attendant care and auxiliary apparatus expenses
necessary for a disabled family member to be employed; and:
* other deductions from annual income as determined by program
administrator.
Once program administrators have collected information from tenants on
income and applicable exclusions and deductions, HUD policy requires
that program administrators independently verify this information
(third-party verification). To obtain third-party verification, program
administrators must directly contact employers, welfare offices, health
care providers, and others to ensure that the information tenants have
reported is accurate and complete. However, third-party verification on
its own may not identify all income not reported (intentionally or
otherwise) by tenants. The program administrator must maintain all
verified information in the tenant's file.
After verifying tenants' income information, program administrators
must compute the amounts tenants pay in rent. HUD regulations define
these payments as the highest of the following amounts: (1) 30 percent
of a family's monthly adjusted income--that is monthly income after
exclusions or deductions; (2) 10 percent of the family's gross monthly
income--that is, monthly income before exclusions or deductions; or (3)
the applicable minimum monthly rent, which is typically between $0 and
$50.[Footnote 13] Generally, the amount paid by low-and very-low-income
tenants is not enough to cover the entire rent for a unit or, for
public housing, to cover operating costs. As a result, for vouchers and
project-based Section 8, HUD generally covers the difference between
the unit's rent and the tenant's rental payment in the form of a
housing assistance payment. For public housing, HUD pays the PHA an
operating subsidy to cover the difference between the PHA's operating
costs and rental receipts. In this report, we refer to both types of
payments as rent subsidies.
HUD Established RHIIP to Respond to Ongoing Problems with Improper Rent
Subsidy Payments:
RHIIP was created as a Secretarial Initiative in the spring of 2001 to
ensure that the right benefits go to the right people. RHIIP was set up
as a direct result of HUD's analysis of data it collected on improper
subsidy payments in fiscal year 2000. For the first time, HUD managers
had access to statistically valid estimates of the extent, severity,
costs, and sources of subsidy errors for vouchers, public housing, and
project-based Section 8 nationwide. The results of the analysis were
issued in a June 2001 report, Quality Control for Rental Assistance
Subsidies Determinations. The report focused on subsidy errors made by
program administrators but did not attempt to determine if the tenants
supplied accurate and complete income information. In February 2002,
HUD completed a separate evaluation to determine rental assistance
errors caused by unreported tenant income. The study matched incomes
tenants reported with income information from Internal Revenue Service
and Social Security Administration databases. The results of these
studies are examined further in chapter 2.
Evaluations by GAO and HUD's Office of Inspector General (OIG) have
identified long-standing problems with HUD's monitoring of program
administrators responsible for making rent subsidy determinations. In
2001, GAO designated HUD's rental housing programs as high risk for
waste, fraud, and abuse because the department could not ensure that
only eligible households received housing subsidies or that the
households received the correct amounts.[Footnote 14] Also, HUD's OIG
reported on material weaknesses in HUD's monitoring of program
administrators in its financial audits of the department since 1996.
The OIG found that these weaknesses had adversely affected HUD's
ability to ensure that program administrators were correctly
calculating housing subsidies.[Footnote 15]
RHIIP's goal is to reduce the incidence and dollar amount of improper
rent subsidies by 50 percent in fiscal year 2005 compared with fiscal
year 2000, with interim goals of a 15 percent reduction by fiscal year
2003 and a 30 percent reduction by fiscal year 2004. RHIIP's
performance goals are largely drawn from The President's Management
Agenda, Fiscal Year 2002, which established nine agency-specific goals
to improve federal management and performance.[Footnote 16]
To accomplish RHIIP's goals, HUD has initiated the following three
program-level efforts to reduce improper subsidy payments (see chapters
3 and 4):
* Increased monitoring of program administrators to evaluate whether
subsidy calculations are correct, third-party verification of
information provided by tenants is sufficient, quality control
procedures are adequate, and tenant files are complete;
* Income verification to allow PHAs or property owners to compare
tenant income information, as reported by federal and state agencies,
with the information reported by the tenant; and:
* Additional training and guidance to provide HUD staff and program
administrators with the tools necessary to understand the complex
requirements for determining subsidies determination.
HUD also initiated the following two overarching efforts under RHIIP:
* Error measurement to develop estimates of the magnitude of improper
rent subsidy payments for all three programs and to assess progress in
meeting RHIIP's goals (see chapter 2);[Footnote 17] and:
* Simplification of rent subsidy policies to develop approaches to
reduce complexity of program rules that have resulted in an error-prone
process (see chapter 5).[Footnote 18]
To further assist its efforts under RHIIP, HUD has set up a RHIIP
advisory group responsible for advising HUD's principal staff on
improper rental assistance payments and to provide support for planning
and implementing corrective actions that will reduce the risk of
improper payments to an acceptable level. The advisory group is
composed of representatives from, among others, HUD's program
management and research offices. Members of the advisory group meet on
a weekly basis to discuss progress and coordinate efforts.
Objectives, Scope, and Methodology:
Our objectives were to determine (1) the sources and magnitude of
improper rental assistance payments that HUD has identified, (2) the
actions HUD is taking under RHIIP to reduce improper rental assistance
payments in the voucher and public housing programs and the status of
these initiatives, (3) the actions HUD is taking under RHIIP to reduce
improper payments in the project-based Section 8 program and the status
of these initiatives, and (4) the status and potential impact of HUD's
efforts to reduce the risk of improper payments by simplifying the
subsidy determination process. The scope of this work was limited to
HUD's rental assistance programs under Housing Choice Vouchers, public
housing, and project-based Section 8.
To determine the sources and magnitude of improper rental assistance
payments identified by HUD, we obtained fiscal year 2000 data on
program administrator errors that HUD collected for its 2001 Quality
Control for Rental Assistance Subsidies Determination report and
similar data for fiscal year 2003. We tested the reliability of both
data files and found them reliable for the purposes of this report. We
estimated the total amount of improper rent subsidies for all three
housing programs. Our estimated totals generally agreed with those in
HUD's fiscal year 2003 and 2004 Performance and Accountability Report.
We also estimated improper rent subsidies per household. To illustrate
the impact of improper rent subsidies, we estimated the number of
households that could have received assistance under the voucher
programs by dividing the estimated total net improper rent subsidy
overpayments (i.e., total estimated subsidy overpayments minus total
estimate subsidy underpayments) by the average cost of a voucher
(including administrative costs) in fiscal year 2003. Appendix I
contains detailed results of our analyses. We reviewed HUD notices,
guidebooks, and reports, including HUD's 2001 Quality Control for
Rental Assistance Subsidies Determinations and HUD's 2003 and 2004
Performance and Accountability Report. We interviewed HUD headquarters
officials from the Office of Public and Indian Housing (for the
vouchers and public housing programs), the Office of Housing (for
project-based Section 8 programs), and the Office of Policy Development
and Research. We also reviewed reports by and interviewed officials
from HUD's OIG.
To describe the actions HUD is taking under RHIIP to reduce improper
payments in the public housing and voucher programs and the status of
these initiatives, we analyzed RHIIP status reports and schedules,
obtained and reviewed relevant HUD policies and procedures, and
interviewed officials at HUD headquarters and seven field offices
responsible for the two rental assistance programs--Baltimore,
Maryland; Boston, Massachusetts; Chicago, Illinois; Los Angeles,
California; Miami, Florida; New York City, New York; and San Francisco,
California. We selected these field offices based on the volume of rent
subsidies they oversee and to achieve some geographic distribution.
Together, these field offices oversaw about $7.8 billion in rent
subsidies payments in fiscal year 2003, or 55 percent of the total. We
also met with 14 of the largest PHAs responsible for administering the
public housing and voucher programs in the HUD field office
jurisdictions we visited and interviewed groups that represent state
and local housing agencies and tenants. To assess HUD's implementation
of Rental Integrity Monitoring reviews and public housing authorities'
progress in reducing improper rental assistance payments, we obtained
and reviewed HUD policies, procedures, and training materials on
conducting these reviews, analyzed all 31 rental integrity monitoring
reviews from 13 of the largest public housing authorities in the
country, and reviewed HUD's quality assurance reviews of HUD field
office performance.
To describe the actions HUD is taking under RHIIP to reduce improper
payments in its project-based Section 8 programs and the status of
these initiatives, we interviewed officials from HUD headquarters and
at six HUD field offices responsible for these programs--Boston,
Massachusetts; Chicago, Illinois; Los Angeles, California; New York
City, New York; Philadelphia, Pennsylvania; and San Francisco,
California. We also selected these field offices based on the volume of
rent subsidies they oversee and to achieve some geographic
distribution. Together, these field offices oversaw about $8.5 billion
in rent subsidies payments in fiscal year 2003, or 47 percent of the
total. We met with the four performance-based contract administrators
responsible for administering project-based Section 8 contracts in
these HUD field office locations.[Footnote 19] We also obtained and
reviewed HUD policies and procedures related to the implementation of
RHIIP initiatives and RHIIP status reports.
To determine the status and impact of HUD's effort to simplify the
subsidy determination process, we reviewed relevant laws and HUD
regulations. We also estimated the potential impact on tenant rents
under possible approaches using data HUD had collected for the update
to its 2001 report, Quality Control for Rental Assistance Subsidies
Determinations. Specifically, we compared the difference between the
amount of rent paid by tenants (as identified in HUD's data) and the
amount tenants would pay under the two simplification approaches. We
interviewed officials at HUD headquarters and field offices and at
state and local agencies that administer HUD's rental assistance
programs.
We also met with industry groups representing state and local housing
agencies and tenants. These groups include the National Association of
Housing and Redevelopment Organization, National Leased Housing
Association, Public Housing Authorities Directors Association, and
Massachusetts Union of Public Housing Tenants.
We conducted our work from February to December 2004 in accordance with
generally accepted government auditing standards.
[End of section]
Chapter 2: HUD Has Identified Sources of Errors but Lacks Complete and
Reliable Estimates of Improper Subsidies for Every Source:
As part of the Rental Housing Integrity Improvement Project's (RHIIP)
error measurement effort, the Department of Housing and Urban
Development (HUD) identified three sources of errors that resulted in
improper rent subsidy payments: (1) incorrect rent subsidy
determinations made by program administrators (program administrator
errors), (2) unreported tenant income, and (3) incorrect billing or
distribution of subsidy payments (billing errors). HUD conducted
separate studies to look at the amount of improper rent subsidies
attributable to each source of error for vouchers, public housing, and
project-based Section 8 but was able to develop reliable estimates of
dollar errors for only one of the three sources--errors made by program
administrators in determining rent subsidies--for fiscal years 2000 and
2003. HUD paid an estimated $1.4 billion in gross improper subsidies in
fiscal year 2003 as a result of such errors.[Footnote 20] This amount
represents a decrease of 39 percent since fiscal year 2000. HUD
officials stated that this decline cannot be attributed entirely to
RHIIP because many of the activities under the RHIIP initiative were in
their early stages of implementation in 2003. However, HUD officials
indicated that their communications with program administrators about
the importance of addressing improper payments probably led to
voluntary compliance with HUD's policies for determining rent subsidies
and likely contributed to the reduction in improper payments. HUD
reported that the department paid an estimated $191 million in fiscal
year 2003 in gross improper rent subsidies due to unreported tenant
income--an 80 percent reduction compared with fiscal year 2000.
However, our analysis indicates that this figure is not reliable
because of the small sample size it was based on and because meaningful
comparisons between the 2000 and 2003 estimates cannot be made owing to
differences in the methodologies used to calculate them. Finally, HUD
does not have a complete and reliable estimate of billing errors for
either fiscal year 2000 or 2003.
HUD Has Attempted to Estimate the Improper Subsidies Caused by Each
Identified Source of Error:
HUD has identified three basic sources of errors that have resulted in
improper rent subsidy payments: (1) program administrator errors, (2)
unreported tenant income, and (3) billing errors. HUD conducted
separate studies of each type of error to assess the magnitude of the
problem and the progress that has been made in reducing them.
HUD Identified Three Basic Sources of Errors That Cause Improper
Subsidies:
HUD identified three basic sources of errors that resulted in improper
rent subsidy payments. Program administrator errors are the broadest
because, as figure 2 shows, this type of error can affect nearly all
the critical dimensions of the process for determining rent subsidies.
Program administrators are responsible for collecting information on
household income, expenses, and composition to determine tenants'
eligibility to receive housing assistance and the size of the
subsidies. In performing their work, program administrators may
incorrectly determine rent subsidies by, for example, making
calculation and transcription errors or misapplying allowed income
exclusions and deductions required by HUD policies.
Errors that result from unreported tenant income occur when tenants do
not report an income source (either for themselves or another household
member) to program administrators. According to HUD, these errors do
not include cases in which the tenants reported all sources of income
but not the correct amounts. HUD classifies these discrepancies as
program administrator errors because program administrators are
required to verify tenants' income amounts through third parties, such
as employers and public assistance agencies. Unreported income errors
generally occur early in the process for determining rent subsidies,
when the tenant first submits income information to program
administrators (fig. 2). Although some tenants may not disclose all
income sources in order to qualify for assistance and to increase the
rent subsidies they receive, tenants may also fail to report income
sources unintentionally if program administrators provide unclear
instructions.
Finally, billing errors occur at the very end of the process for
determining rent subsidies (fig. 2). The procedures used by program
administrators to bill HUD for subsidy payments vary for each of the
three rental assistance programs, and as a result the specific types of
mistakes that lead to billing errors can also vary. However, in
general, billing errors arise when discrepancies exist between the
amount of a rent subsidy determined by the program administrator and
the amount that is actually billed to and paid by HUD. Billing errors
can also include accounting discrepancies between amounts paid by HUD
and a property's bank statements and accounting records.
Figure 2: Process for Determining Rent Subsidies:
[See PDF for image]
[End of figure]
Estimating Improper Rent Subsidies Resulting from Each Source of Error
Is an Important Effort under RHIIP:
As part of its error measurement effort under RHIIP, HUD planned to
estimate improper rent subsidies attributable to each source of error.
According to HUD, this effort was to allow the department to assess the
magnitude of improper rent subsidies and the progress made in meeting
RHIIP's goal of reducing improper subsidies. To develop these
estimates, HUD conducted separate studies on improper rent subsidies
attributable to each source of error for fiscal years 2000 and 2003.
(Information on the methodology and reliability of these studies is
discussed later in this chapter.) About two years after HUD began
estimating improper rent subsidies, Congress passed the Improper
Payments Information Act of 2002, which mandated that federal agencies
submit annual estimates of improper payments for at-risk
programs.[Footnote 21] According to HUD, the department plans to
continue updating its estimates in subsequent years in order to comply
with the requirements of the act. HUD has reported its estimates in its
annual audited financial statements and performance and accountability
reports.
There are a number of ways to describe the size and magnitude of
improper rent subsidies. One way is simply the dollar difference
between the actual rent subsidy HUD paid and the "correct" rent
subsidy--that is, the amount of subsidy that would have been paid on
behalf of the tenant if no errors had occurred. The dollar amount
erroneously paid can be either positive or negative because errors can
reflect subsidy overpayments or underpayments.[Footnote 22] The gross
dollar error or gross improper payment reflects the sum of the absolute
value of the subsidy overpayments and underpayments--that is, the total
of all erroneously paid funds.[Footnote 23] Office of Management and
Budget guidance recommends using the gross improper payment measure to
indicate the overall accuracy of the income and rent determination
process. A second indicator, net dollar error or net improper payment,
takes into account whether the difference between the actual and
correct rent subsidy amounts is positive or negative. This measure is a
useful way of expressing the impact of errors on actual program
expenditures because it accounts for the offsetting effect of subsidy
over-and underpayments.
Estimates of Improper Subsidies Due to Errors by Program Administrators
Appear Reasonably Accurate and Show a Decline:
To assess the accuracy of subsidy determinations made by program
administrators, HUD collected data for fiscal years 2000 and 2003. HUD
paid an estimated $1.4 billion in gross improper rent subsidies
(consisting of an estimated $896 million in overpayments and $519
million in underpayments) as a result of such errors in fiscal year
2003. This amount represents a 39 percent reduction compared with
fiscal year 2000. The voucher program accounted for about half of the
fiscal year 2003 errors, and the public housing and project-based
Section 8 programs each accounted for about a quarter. Between fiscal
years 2000 and 2003, each of the rental assistance programs experienced
substantial decreases in program administrator errors--50 percent for
public housing and more than 30 percent for both vouchers and project-
based Section 8. Despite these reductions, the data show an estimated
$377 million net subsidy overpayment in fiscal year 2003 that reduced
the amount of funds available to assist other families with housing
needs. We estimate that HUD could have provided vouchers to 56,000
additional households in fiscal year 2003 with this amount.
HUD Conducted a Study to Estimate Program Administrator Errors:
As part of its Quality Control for Rental Assistance Subsidies
Determinations study for fiscal year 2000, HUD collected data on the
subsidy determinations made by program administrators. HUD subsequently
repeated the study, using data for fiscal year 2003. Each study
collected data on over 2,400 randomly selected households participating
in the voucher, public housing, and project-based Section 8 programs.
The methodology involved reviewing tenant files, interviewing a sample
of tenants to gather income information, verifying all sources of
reported income, and recalculating rents and subsidies. HUD estimated
the subsidy errors by identifying the sum of the discrepancies between
the actual rent subsidies calculated by program administrators and the
amounts calculated by the quality control study staff. The results were
projected to the entire population of assisted households to develop a
national estimate of total improper rent subsidies. Our analysis of the
documentation and the data collected indicates that these studies
provide a reasonably accurate estimate of subsidy determination errors
made by program administrators.
Estimated Errors by Program Administrators Declined by 39 Percent
between Fiscal Years 2000 and 2003:
Our analysis of data that HUD gathered for its quality control study
indicates that HUD made an estimated $1.4 billion in gross improper
rent subsidies in fiscal year 2003 as a result of errors made by
program administrators--about 39 percent less than the estimated $2.3
billion in fiscal year 2000.[Footnote 24] The voucher program accounted
for the largest share of this amount--about 52 percent, or $731
million. Public housing and project-based Section 8 accounted for 22
percent ($316 million) and 26 percent ($369 million), respectively.
Appendix I contains more detailed information on the amount of improper
rent subsidies presented in this chapter.
Each of the rental assistance programs experienced substantial
reductions in gross program administrator error--50 percent for public
housing, 35 percent for vouchers, and 32 percent for project-based
Section 8 (fig. 3). These reductions exceeded HUD's interim RHIIP goal
of reducing improper rent subsidies resulting from these errors by 15
percent by fiscal year 2003.[Footnote 25] According to HUD, the
reductions in gross improper subsidies cannot be attributed entirely to
RHIIP. Many of the initiatives under RHIIP, such as the RIM reviews and
the income verification system, were too early in their implementation
to have had any direct impact on the reductions. However, HUD officials
stated that its communications with program administrators about the
importance of addressing improper rent subsidies and program
administrators' anticipation of increased monitoring by HUD probably
led to voluntary improvements in internal control activities (such as
increased supervisory reviews, testing of files, and staff training)
and likely contributed to these reductions. In addition, some PHAs we
interviewed had already begun improving their controls before RHIIP was
established. Estimates of improper subsidies in future years may show
whether further reductions can be made and sustained as the RHIIP
initiative matures.
Figure 3: Estimated Gross Improper Rent Subsidies Due to Program
Administrator Error, Fiscal Years 2000 and 2003:
[See PDF for image]
[End of figure]
Overall, we estimate that the median gross subsidy error per household
was about $33 per month ($396 annually) for all the rental assistance
programs (fig. 4).[Footnote 26] In addition to having the highest total
gross rent subsidy error in fiscal year 2003, the voucher program had
the highest median gross subsidy error per household, about $41 per
month. The comparable figures for project-based Section 8 and public
housing were $27 and $29 per month, respectively.
Figure 4: Median Monthly Gross Improper Rent Subsidy per Household Due
to Program Administrator Errors, Fiscal Years 2000 and 2003:
[See PDF for image]
[End of figure]
The median dollar error per household for all the rental assistance
programs decreased by about 18 percent, or $7, between fiscal years
2000 and 2003. The median dollar error per household for vouchers and
public housing decreased by 27 percent and 24 percent, respectively,
over that time period. Although the median for project-based Section 8
did not change, suggesting no improvement, the program experienced
significant decreases in gross subsidy error for households that had
the largest error in fiscal year 2000.
Estimated Improper Subsidies Due to Program Administrator Errors Remain
Significant:
Because of program administrator errors, HUD paid an estimated $377
million in net subsidy overpayments in fiscal year 2003, reducing the
amount of funds that were available to assist additional households
with housing needs. This amount reflects the difference between $896
million in estimated subsidy overpayments and $519 million in estimated
subsidy underpayments (fig. 5). Total estimated subsidy overpayments
have decreased by 64 percent since fiscal year 2000.
Figure 5: Estimated Rent Subsidy Overpayments and Underpayments Due to
Errors Made by Program Administrators, Fiscal Year 2003:
[See PDF for image]
[End of figure]
As discussed earlier, calculating net improper rent subsidies permits
estimates of the errors' impact on actual program expenditures because
the calculation accounts for the offsetting effects of estimated
subsidy over-and underpayments. Because the overpayments exceeded the
underpayments in fiscal year 2003, HUD was not able to use an estimated
$377 million of its funding to assist needy low-income households. We
evaluated the impact of the estimate on the number of households that
could have been served if this amount had been available to subsidize
eligible households with new vouchers. Based on the average national
subsidy cost of subsidizing a voucher--about $6,720 annually, including
administrative costs--we determined that HUD could have provided an
additional 56,000 households nationwide with vouchers in fiscal year
2003--nearly the same number of households that are currently assisted
with vouchers in the Los Angeles, California, area.
Fiscal Year 2003 Estimate of Improper Subsidies Due to Unreported
Tenant Income Is Not Reliable:
HUD has developed a methodology to estimate the amount of rent
subsidies the department has paid improperly due to tenants who did not
report all sources of earned income to program administrators. Based on
this methodology, HUD estimated that the department paid $191 million
in fiscal year 2003 in gross improper rent subsidies due to unreported
tenant income, but our analysis found that this figure was not reliable
because of the small number of tenant files with unreported income that
were used to make the estimate. In addition, significant differences in
the methodology used to calculate the fiscal year 2000 and 2003
estimates means that any comparison between the estimates would be
invalid. Finally, HUD's methodology does not capture other potential
types of unreported income, a limitation that would be difficult to
overcome.
Estimates of Fiscal Year 2000 and 2003 Subsidy Errors from Unreported
Tenant Income Are Not Comparable:
HUD developed a methodology to estimate the amounts of rent subsidies
the department paid improperly in fiscal years 2000 and 2003 because
tenants did not report all sources of earned income to program
administrators. HUD's methodology identified unreported income sources
by comparing the information reported by tenants in the quality control
study database with the information reported by employers in federal
wage and income databases. HUD first identified households that
appeared not to have reported an income source and then took various
steps to screen out "false positives" resulting from definitional and
timing differences. For example, HUD program staff eliminated those
cases involving unreported income sources, such as income from minors
or training programs, that should be excluded from family income under
HUD's policies. HUD also eliminated cases if third-party verification
showed that the income fell outside the period covered by the program
administrator's most recent income examination.
However, the methodologies used for fiscal years 2000 and 2003 have two
significant differences, and as a result any comparison between the two
estimates would not be valid. First, according to HUD, individuals who
conducted the study for fiscal year 2003 did substantially more follow-
up work to reconcile discrepancies in income sources than those
conducting the study for fiscal year 2000. As a result, the fiscal year
2000 estimate probably included more "false positives" and overstated
the amount of improper rent subsidies HUD paid. Second, HUD officials
stated that the staff used to conduct the study for fiscal year 2000
had less experience with housing programs than the staff used for the
later study. The officials said that, as a result, the staff from the
earlier study may not have known enough about HUD's program policies to
reliably determine whether tenants had or had not reported all of their
income sources.
Fiscal Year 2003 Dollar Estimate Is Not Reliable:
While HUD's Performance and Accountability Report for Fiscal Year 2004
states that the department paid an estimated $191 million in fiscal
year 2003 in gross improper rent subsidies due to unreported tenant
income, this figure is not reliable because the number of tenant files
with unreported income that were used to make the estimate was small.
Specifically, HUD identified 30 tenant files, or 1.2 percent of the
2,401 tenant files in the sample, with at least one unreported income
source. HUD officials agreed that because of the small number of files
used for the estimate and the large variances in the amounts of income
that tenants did not report, the margin of error was so large that the
estimate was not meaningful--that is, the actual amount of improper
rent subsidies for this source of error could have been as low as zero
or many times higher than HUD's estimate. HUD officials stated that,
even though the estimate may not be meaningful, the low incidence of
tenants who did not report all sources of income could indicate that
unreported income sources may not be a major problem. However, they
also recognized that the low incidence is somewhat counterintuitive,
given that tenants have an incentive to conceal income from program
administrators, and it is possible that the methodology may not be
adequately capturing the full extent of this problem. HUD indicated
that to obtain a more precise estimate of dollar error would require a
considerably larger sample, but that doing so would be difficult and
costly.
HUD also stated in its Performance and Accountability Report for Fiscal
Year 2004 that gross improper rent subsidies from unreported income
decreased by 80 percent from fiscal year 2000 to 2003. HUD recognized
in the report that the apparently significant reduction was partly due
to improvements in its methodology. However, as discussed previously,
any comparison between the two estimates is not valid because of the
limitations of the fiscal year 2003 estimate and the significant
differences in the methodologies used for the two years.
HUD's Methodology Does Not Account for Possible Fraud but Addressing
This Limitation Would Be Difficult:
Neither of HUD's fiscal year 2000 and 2003 estimates of improper rent
subsidies from unreported tenant income accounts for the different
types of problems that may exist with unreported tenant income, but
overcoming this limitation would be difficult. According to HUD,
because the study's scope was limited to identifying sources of income
that tenants did not report, the study did not evaluate differences in
the amount of income reported by a tenant's employer (and entered in
the quality control study database) and the amount reported in the new
hires database. As a result, HUD could not account for those tenants
who may have colluded with their employers to underreport their income
to program administrators. Some program administrators we interviewed
stated that they believe such collusion may be a problem, but no
systematic data are available to confirm how widespread it might be. In
addition, HUD's methodology does not account for cash income that
tenants received but failed to report to program administrators. Some
program administrators we met with said unreported cash income could be
widespread but that data are not available to confirm the extent of the
problem. Although collusion and unreported cash income are potentially
significant problems, it is not likely that there is any satisfactory
way of quantifying their extent. Furthermore, HUD officials do not
believe that there is an effective way of accounting for these problems
in its methodology.
HUD's Estimate of Improper Subsidies Due to Billing Errors Is
Incomplete:
HUD did not produce complete and reliable estimates of the amount of
billing errors in fiscal years 2000 and 2003 for the voucher, public
housing, or project-based Section 8 programs. HUD attempted to estimate
fiscal year 2000 billing errors for the voucher program and initially
found about $1.5 billion in improper rent subsidies. However, after
reviewing the results, HUD managers questioned both the study's
validity and whether staff involved in the study had sufficient
knowledge of program policies and accounting practices that pertain to
the billing process. As a result, HUD sent program experts to conduct
additional fieldwork to confirm the estimate. The experts reexamined
approximately $1.2 billion of the total $1.5 billion in estimated
billing errors, found that the estimate was unsupportable, and reduced
it by over 80 percent. Given the questionable and incomplete nature of
the original billing error study for vouchers, HUD determined that the
results were inconclusive and unacceptable as a baseline error
estimate. For the public housing program, HUD did not attempt to
estimate billing errors. HUD has begun to develop and implement a
methodology to establish a statistically valid baseline of billing
errors for fiscal year 2003 for vouchers and public housing. According
to HUD, this effort will be completed by September 2005.
For project-based Section 8, HUD estimated that approximately $100
million in gross improper rent subsidies were paid as a result of
erroneous amounts billed to HUD and disbursed to private property
owners in fiscal year 2003. This estimate was based on a small sample
of 150 properties, and the concentration of errors in a small number of
properties resulted in a large margin of error. However, according to
HUD, the estimated amount of improper payments due to billing errors is
relatively modest even at the high end of the error range. In its
Performance and Accountability Report for Fiscal Year 2004, HUD
acknowledged that it would need a sample six times larger to obtain
normally accepted levels of estimation accuracy.
Agency Comments and Our Evaluation:
In addition to providing technical comments that we incorporated where
appropriate, HUD stated that our draft report did not fully present the
impact of HUD's efforts under RHIIP. For example, HUD stated that the
draft report did not recognize the department's outreach, guidance, and
training efforts as contributing factors to the reduction in estimated
improper payments. The draft report discussed HUD's efforts under
RHIIP, including guidance, training, and various outreach activities.
The draft report also reflected the comments of HUD officials that
program administrators' anticipation of increased oversight and
monitoring by HUD probably led to voluntary improvements in their
performance. We added language to the final report to incorporate HUD's
view that these efforts contributed to the reduction. While we believe
that HUD's view is reasonable, the specific extent to which these
efforts contributed to the reduction in estimated improper payments is
not known.
HUD disagreed with the draft report's finding that the department has
complete and reliable estimates only for one source of error. In
particular, HUD described as "misleading" our statement that its fiscal
year 2003 estimates of improper rent subsidies attributable to
unreported tenant income and billing errors were unreliable because
they were based on samples too small to produce accurate results, and
questioned the need to measure these errors more precisely. HUD also
said that the estimated "incidence of cases" where a tenant household
did not report at least one source of income was 1.2 percent and that
there was a 95 percent likelihood that the true incidence of such cases
was between 0.1 and 2 percent. We do not believe that our draft report-
-which focused on the estimated dollar amount of improper payments due
to unreported income rather than the estimated number of households
with unreported income--was misleading. As the report stated, the
margins of error for HUD's estimates of the dollar amount of improper
payments were many times larger than the estimates themselves.
Furthermore, HUD itself acknowledged in its comment letter that a much
larger sample would be necessary to make a more precise dollar
estimate. Accordingly, we made no changes to this finding. The draft
report did not intend to criticize HUD's sampling methodology or
suggest that HUD attempt to make more precise estimates, which, as HUD
indicated, could be difficult and costly. In addition, the report
recognized that the problems with the reliability of the estimates were
due partly to the small number of households with unreported income in
HUD's samples. We revised the report language where appropriate to
further clarify this point.
[End of section]
Chapter 3: HUD Is Addressing Improper Payments for Public Housing and
Vouchers, but Implementation Problems Hampered Efforts:
The Department of Housing and Urban Development (HUD) has made several
program-level efforts under the Rental Housing Integrity Improvement
Project (RHIIP) initiative to address improper rent subsidies for its
public housing and voucher programs. However, several factors hampered
HUD's implementation of these efforts. First, HUD instituted on-site
Rental Integrity Monitoring (RIM) reviews to assess public housing
agencies' (PHA) compliance with HUD's policies for determining rent
subsidies, but these reviews, which are not a regular part of HUD's PHA
oversight activities, were poorly implemented due to, among other
things, a lack of clear policies and procedures. Second, HUD began
implementing a new Web-based tenant income verification system, which
is expected to significantly reduce tenant underreporting of income
despite having some limitations. Finally, the training and guidance HUD
provided to PHAs on its policies for determining rent subsidies were
not consistently adequate or timely.
As shown in table 1, each of these efforts attempts to address sources
of errors discussed in chapter 2 (i.e., program administrator,
unreported tenant income, and billing error) that contribute to
improper rent subsidies in the voucher and public housing programs.
However, none of these efforts directly addresses billing errors. As
noted previously, HUD does not have complete and reliable information
on the extent to which billing errors are a problem for these two
programs.
Table 1: Summary of HUD's Efforts to Address Sources of Errors for the
Voucher and Public Housing Programs:
HUD effort: Rent Integrity Monitoring;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: No.
HUD effort: Income verification;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: No.
HUD effort: Training;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: No.
HUD effort: Revised and updated program guidance;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: No.
Source: GAO.
[End of table]
HUD Supplemented Monitoring of PHAs with On-site Reviews but Had
Problems Implementing Them:
According to HUD officials, RIM reviews are the first comprehensive
reviews of PHAs' tenant information files in more than 20 years.
However, inadequate staff resources and competing work demands kept
some HUD field offices from issuing reports in a timely manner or
completing all of their other PHA oversight responsibilities. These and
other factors have prevented HUD from determining the impact of its RIM
review effort. Recognizing the importance of regular monitoring of
PHAs, HUD is considering implementing some type of on-site monitoring
of PHAs' subsidy determinations on a permanent basis.
HUD Implemented RIM Reviews Under RHIIP to Address Monitoring
Weaknesses:
To address weaknesses in monitoring and help reduce PHA errors in rent
subsidy calculations, in June 2002 HUD field office staff began
conducting RIM reviews as part of the RHIIP initiative. RIM reviews are
on-site evaluations of PHA procedures for collecting and verifying
income information from tenants and for calculating subsidies. HUD's
Rental Integrity Monitoring Guide (RIM Guide)--the department's manual
for conducting RIM reviews--instructs field office staff to (1) review
a sample of tenant files and recalculate the tenant's rent subsidy,
based on information in the tenant file, to identify any subsidy
miscalculations made by the PHA and (2) assess the PHA's written
policies and procedures to determine the underlying causes of these
miscalculations. According to the RIM Guide, the field offices are
required to report their overall findings--for example, violations of
HUD policies, such as misapplied deductions and lack of third-party
verification of tenant income--in writing to PHAs, along with a list of
specific subsidy calculation errors they identified. The field offices
must also track PHAs' progress in addressing findings and correcting
errors and provide technical assistance to PHAs, as needed. If a PHA
fails to implement corrective actions or rectify errors found during a
RIM review, HUD can sanction the PHA by withholding the voucher
administrative fee or the public housing operating subsidy.[Footnote
27] HUD requires that the written report be sent to the PHA within 30
to 45 days of the end of the review. HUD field office staff completed
722 RIM reviews--the first of two rounds of reviews--between June 2002
and September 2003 (fig. 6).[Footnote 28]
In April 2003, HUD began conducting a second round of RIM reviews at
selected PHAs to confirm whether (1) the calculation errors identified
during the first round of RIM reviews had been corrected, (2) those
PHAs that were required to implement corrective action plans to address
findings from previous RIM reviews had done so, and (3) the
implementation of corrective action plans led to a reduction in subsidy
calculation errors. From April 2003 through October 2004, HUD field
offices conducted second-round RIM reviews at 363 PHAs (fig.
6).[Footnote 29]
Figure 6: Timing of First-and Second-Round RIM Reviews:
[See PDF for image]
[End of figure]
According to HUD and officials at several PHAs we met with, HUD did not
routinely oversee subsidy determinations for public housing and voucher
programs at PHAs before the RIM reviews began in 2002. According to
HUD, prior to 1980 the department reviewed, among other things, PHAs'
management of their properties and their compliance with HUD policies
and procedures. These reviews included an assessment of PHAs' subsidy
determinations but not at the same level of detail as RIM reviews.
Starting in the early 1980s and continuing through the 1990s, HUD did
little to oversee the subsidy determination process at PHAs and instead
focused its resources primarily on assessing the PHAs' physical and
financial condition.
Starting in 1998, HUD increased its oversight of the voucher and public
housing programs by creating two management and performance assessment
systems. The Public Housing Assessment System (PHAS)[Footnote 30]
evaluates four aspects of PHAs' operations--physical condition,
financial condition, management operations, and resident satisfaction-
-but does not include an indicator for subsidy determinations.[Footnote
31] In contrast, the Section 8 Management Assessment Program (SEMAP)
includes an indicator that requires PHAs that administer voucher
programs to self-certify to HUD annually that they have correctly
determined each household's adjusted annual income--the basis for
calculating rent subsidies. However, according to HUD, the limited
scope of the reviews (SEMAP confirmatory reviews) field offices perform
does not adequately ensure that PHAs' self-certifications are accurate.
In most cases, the sample used to confirm a PHA's self-certification
with SEMAP requirements is smaller than the sample reviewed as part of
a RIM review. In addition, while PHAs selected for SEMAP confirmatory
reviews are generally limited to those that are moving into or out of
"troubled" status, RIM reviews cover a broader range of PHAs.[Footnote
32]
Resource, Policy, and Compliance Problems at Field Offices Hampered RIM
Reviews:
Inadequate resources and noncompliance with review policies and
procedures affected field offices' efforts to implement RIM reviews. We
examined 31 RIM review reports for 13 of the largest PHAs and HUD's
quality assurance reviews--evaluations of the field offices' RIM
reviews--of eight field offices. Our examination showed that limited
resources and lack of clear and timely guidance from HUD headquarters
contributed to inconsistencies in the way field offices interpreted the
department's policies and conducted RIM reviews.
Some Field Offices Had Difficulty Conducting RIM Reviews Because of
Staff Limitations:
Officials from most of the HUD field offices we met with said that they
did not have enough staff to conduct all of their first-round RIM
reviews within the 5-to 7-month period established by HUD and still
fulfill their other oversight responsibilities. Also, several HUD
quality assurance reports showed that field offices had limited staff
to perform the reviews. As a result of these resource constraints, some
field offices had to use staff with little or no experience in
monitoring PHAs to perform RIM reviews, issue their RIM review reports
late, and postpone other monitoring activities such as inspections of
troubled properties.
The number of staff assigned to RIM reviews and the number of reviews
per staff member varied among the seven field offices we
contacted.[Footnote 33] For example, we found that the number of first-
round RIM reviews per staff member ranged from 0.8 in New York City to
3.5 in San Francisco (table 2). The average figure for all seven field
offices was two RIM reviews per staff person. Notwithstanding other
factors--such as the size of the PHA reviewed--that might have affected
the ability of field offices to meet RIM review timing requirements, we
found that those field offices with a low ratio of staff to reviews
were likely to issue their reports after the 30-to 45-day deadline.
Table 2: Ratio of Staff to RIM Reviews, Selected HUD Field Offices:
HUD field office: San Francisco;
Number of HUD field office staff conducting RIM reviews: 11;
Number of first-round RIM reviews: 39;
Number of RIM reviews per staff member: 3.5.
HUD field office: Baltimore;
Number of HUD field office staff conducting RIM reviews: 9[A];
Number of first-round RIM reviews: 27;
Number of RIM reviews per staff member: 3.
HUD field office: Los Angeles;
Number of HUD field office staff conducting RIM reviews: 9;
Number of first-round RIM reviews: 24;
Number of RIM reviews per staff member: 2.7.
HUD field office: Boston;
Number of HUD field office staff conducting RIM reviews: 30;
Number of first-round RIM reviews: 44;
Number of RIM reviews per staff member: 1.5.
HUD field office: Miami;
Number of HUD field office staff conducting RIM reviews: 12;
Number of first-round RIM reviews: 17;
Number of RIM reviews per staff member: 1.4.
HUD field office: Chicago;
Number of HUD field office staff conducting RIM reviews: 16;
Number of first-round RIM reviews: 17;
Number of RIM reviews per staff member: 1.1.
HUD field office: New York;
Number of HUD field office staff conducting RIM reviews: 18;
Number of first-round RIM reviews: 14;
Number of RIM reviews per staff member: 0.8.
HUD field office: Average;
Number of HUD field office staff conducting RIM reviews: 15;
Number of first-round RIM reviews: 26;
Number of RIM reviews per staff member: 2.0.
Source: HUD.
[A] Baltimore field office officials told us that they generally used
four staff to conduct RIM reviews but that for some PHAs they used
additional staff. As a result, the number of RIM reviews per staff
member may be understated for Baltimore.
[End of table]
Recognizing that some field offices were having difficulty completing
their RIM reviews within the 5-to 7-month time frame, HUD alleviated
the burden at some of the field offices by assigning contractors or
staff from other field offices to complete or assist with second-round
reviews. For example, according to HUD, contractors completed 60
percent of the second-round RIM reviews assigned to the San Francisco
field office. In addition, HUD relieved field offices of certain other
oversight responsibilities to give them time to complete the RIM
reviews within the required time frame. For example, HUD reduced the
number of SEMAP confirmatory reviews field offices had to complete and
allowed them to combine RIM and SEMAP reviews at larger PHAs.
HUD Did Not Always Provide or Clarify Policies in a Timely Manner:
HUD did not provide clear, timely policies for RIM reviews. In some
cases, the lack of clear and timely policies resulted in
inconsistencies in the way field offices interpreted the department's
policies and conducted RIM reviews. The following are some examples of
these inconsistencies:
* HUD did not clarify whether its policy on the use of outdated tenant
income information applied to data obtained through HUD's income
verification system.[Footnote 34] The RIM Guide states that PHAs should
not use documentation that is more than 90 to 120 days old to verify
tenant-reported incomes. HUD policy also requires that PHAs use data
from HUD's income verification system if they have access to it.
However, in conducting RIM reviews, some HUD field offices cited PHAs
for not using data from this system, even though the PHAs had
determined that the data were more than 120 days old.
* HUD changed its definition of a "systemic finding" while the RIM
reviews were under way. Although HUD had initially defined a systemic
finding as an error (such as a misapplied deduction) that represented
30 percent or more of the total errors identified at one PHA, the
department later redefined the term to mean violations of policy that
were made "consistently," leaving the interpretation of "consistently"
up to the field offices. Based on the RIM review reports we examined,
we found that field offices had different interpretations. For example,
one field office interpreted "consistent" as errors found in 15 percent
or more of the files, while another field office interpreted it as
errors found in 30 percent or more of the files.
* As of December 2004, HUD had not developed a policy on the extent to
which PHAs should correct the calculation errors found in their tenant
files. As a result, the field offices we spoke with had varying
requirements, with resulting variations in the amounts of time and
resources PHAs expended to address the errors. For example, according
to the PHAs we spoke with, some field offices required that PHAs review
and correct all of their tenant files for errors--in one case 17,000
files--while others required PHAs to correct only the files that HUD
examined during the RIM reviews.
* HUD did not issue a policy on how to address PHAs' disagreements with
RIM review findings until May 2004, over 8 months after completing the
first round of reviews and 13 months after the field offices began
conducting the second round of reviews. Prior to the release of this
policy, the field offices had each handled PHAs' disagreements
differently.
Field Offices Did Not Always Follow Policies and Procedures for
Conducting RIM Reviews and Communicating Findings:
Our review of 31 RIM review reports completed by seven of HUD's field
offices showed that the field offices did not consistently follow
policies and procedures when conducting RIM reviews, analyzing the
results of those reviews, and communicating the results of the reviews
to PHAs. Specifically, we found that these field offices, contrary to
HUD guidance, did not consistently provide appropriate support for each
observation and finding--for example, by describing the problem, the
reason for it, and its impact. Similarly, HUD's quality assurance
reviews of field offices' RIM reviews revealed that several offices
either had not supported their report findings or had failed to provide
written reports to the PHAs.
The RIM review reports we reviewed also did not demonstrate that the
field offices we visited had a clear understanding of the difference
between observations and findings. HUD had defined observations as
deficiencies in performance that were not based on a regulatory or
statutory requirement but that should be brought to the attention of
the PHA. HUD defined findings as conditions that were not in compliance
with handbook, regulatory, or statutory requirements. Fifteen of the 31
RIM review reports we reviewed mischaracterized one or more "findings"
as "observations" or vice versa. Properly classifying findings and
observations is important because HUD policy requires PHAs to implement
comprehensive corrective actions for findings but not for observations.
Finally, HUD's RIM Guide stipulated that the field offices must provide
a written report to the PHA no more than 30 days after the RIM review
ended, but 18 of the 31 RIM review reports we reviewed were not
released within the 30-day time frame.[Footnote 35] One PHA told us
that it did not receive a report until 5 months after the completion of
the RIM review and then only after PHA officials called HUD to request
it.
HUD Could Not Analyze RIM Data Because It Was Incomplete and
Inconsistent:
Incomplete and inconsistent data kept HUD from analyzing the results of
RIM reviews to assess improvements in PHAs' calculations of tenant
subsidies and provide targeted oversight and technical assistance to
PHAs to help them address specific errors. When the RIM reviews started
in 2002, the department designed a database to collect information on
the results of the RIM reviews, including the total amount of subsidy
overpayments and underpayments, as well as the efforts PHAs had made to
improve policies and procedures. According to HUD guidance, field
offices must submit a report on subsidy calculation errors and systemic
findings for each PHA to HUD headquarters within 30 days of receiving
the PHA's response to the RIM review report. However, as of November
2004, HUD had not entered data in many of the fields in the database.
HUD officials attributed this problem to field offices that did not
submit the data in a timely manner and to a lack of personnel to manage
data collection and entry tasks.
Even if the database were complete, HUD would not be able to perform a
meaningful analysis of the RIM review data for most PHAs because of the
changes it made to the criteria for selecting PHAs and tenant files.
Because of these changes, HUD does not have comparable first-and second-
round RIM review data for about 70 percent of the PHAs that it
reviewed. Figure 7 shows the specific reasons why the data for PHAs
were not comparable for the two rounds.
Figure 7: Percentage of PHAs without Comparable Data for First-and
Second-Round RIM Reviews:
[See PDF for image]
[End of figure]
HUD Has Not Made RIM Reviews Permanent:
HUD is considering conducting additional rounds of RIM reviews sometime
in 2005 but has not made any decisions on how it will determine which
PHAs should be reviewed and how often these reviews should be
conducted. Currently, RIM reviews are not a regular part of HUD's PHA
oversight activities. HUD had initially intended to review each PHA one
or two times to identify weaknesses in their policies and procedures
for making subsidy determinations. According to HUD officials, they had
not planned to implement routine monitoring of PHAs' subsidy
determination processes. However, HUD officials said that, based on the
results of the RIM reviews, they recognize that routine monitoring of
PHAs may be necessary to mitigate the risk of improper rent subsidies
in the future. As a result, the department is now considering making
permanent some type of on-site monitoring of PHAs' subsidy
determinations. For example, HUD officials said that they are
considering incorporating RIM reviews into the existing performance
measurement systems or conducting reviews at high-risk PHAs every 2 or
3 years. However, according to these officials, budget and staff
resources will ultimately determine the extent to which the department
is able to monitor PHAs in the future.
HUD's New System for Verifying Tenants' Incomes Has Limitations:
To address tenant underreporting of income, HUD has implemented a new
Internet-based income verification system that allows PHAs to compare
income information they receive from tenants with income information
employers report to government agencies. According to HUD officials,
the system is intended not only to help PHAs detect unreported incomes
but also to provide them with a more convenient and accurate way to
verify tenant-reported information. HUD estimates that the system will
yield savings of approximately $6 billion over a 10-year period for all
of its rental assistance programs. Currently, the data in the system,
which HUD obtained through agreements with state wage and income
collection agencies, are available to 2,366 PHAs in 22 states. HUD
continues to work to provide access for the PHAs in the remaining 28
states. To increase the effectiveness and efficiency of its income
verification effort, HUD intends to replace the data from the
individual state agencies with similar data from a single source, the
National Directory of New Hires--a database containing quarterly
federal and state wage data, quarterly unemployment data, and monthly
new hire data reported by employers to state agencies and compiled by
the Department of Health and Human Services. Congress passed
legislation in January 2004 that grants HUD the authority to request
and obtain data from this directory.[Footnote 36] In addition, HUD
officials told us that Social Security income information, which PHAs
currently access through an existing system, will eventually be
accessible through this new system.
According to HUD, regardless of the data source used, the income
verification system does not capture unreported cash income and certain
types of wages that may not be required to be reported to state
agencies. In addition, income from unauthorized tenants (i.e., tenants
who are not on the lease but who live in the apartment and help pay the
rent) is not captured. However, some PHAs have developed ways to
capture these types of income and recover improper subsidy payments.
For example, several PHAs we spoke with have fraud detection units, and
several have partnered with state and local agencies, including
departments of labor and human services, to obtain welfare and other
wage information.
Although officials of most of the 14 PHAs we contacted said that they
welcomed new tools such as the income verification system that would
help them verify tenant incomes and more accurately determine tenant
subsidies, several also expressed concerns that the wage and income
data were too old to verify tenant income. HUD policy states that data
used to verify income must be no more than 120 days old (or about 4
months) on the date of the tenant's certification or recertification of
eligibility.[Footnote 37] HUD estimates that the income verification
data are approximately 3 months old. However, due to large caseloads--
sometimes as many as 750 tenants per caseworker--the PHAs generally
begin collecting tenant income information 3 to 4 months prior to
conducting an annual meeting to recertify the tenant's eligibility for
housing assistance and recalculate the rent subsidy amount. As a
result, verification data can be up to 6 months old on the date of
recertification.[Footnote 38] HUD officials told us that they are aware
of this problem and are working with the Department of Health and Human
Services to improve the timeliness of the data in the National
Directory of New Hires.
HUD's Training and Guidance for PHAs Was Not Always Adequate or Timely:
HUD provided training and guidance to PHAs on topics such as how to
calculate subsidies, improve quality control procedures, and comply
with third-party income verification requirements, but these efforts
were not always adequate or timely. For example, although HUD sponsored
training for PHAs in January and February of 2004 in order to prepare
PHAs for RIM reviews, the training took place after all of the first-
round RIM reviews and 54 (15 percent) of the second-round RIM reviews
had been completed (fig. 8). This training addressed program basics,
including how to interview prospective tenants, verify tenant income
information, and calculate rents. It also provided guidance to PHAs on
developing policies and procedures that would prevent future subsidy
calculation errors. According to some PHAs, had the training been held
prior to the RIM reviews, they would have been better able to
understand the basis for the RIM review findings and the corrective
actions needed to address them. In addition, all of the 14 PHAs we
spoke with said that they had sent a limited number of staff to the
training because, for example, HUD had held only two training sessions-
-one in California and one in Florida. Some PHAs said that they did not
have sufficient travel funds to send their staff to these locations.
Figure 8: Timing of Training and RIM Reviews:
[See PDF for image]
[End of figure]
In addition to training, HUD provided technical assistance through a
contractor to PHAs that were deemed high risk on the basis of their
performance in the first round of RIM reviews. According to a HUD
official, 10 PHAs received technical assistance from the contractor
between October 2002 and April 2004. The technical assistance focused
on areas such as organizing tenant files, verifying tenant incomes, and
calculating rent subsidies.
Finally, HUD updated or developed guidance for PHAs on how to correctly
calculate rent subsidies and reduce errors. However, some of this
guidance was released late in the RIM review process, contradicted
other guidance, or did not provide enough information. For example, HUD
did not revise its public housing guidebook--PHAs' basic program
reference--to reflect changes in program regulations until June 2003, a
year after the RIM reviews began.[Footnote 39] In addition, HUD did not
reconcile minor discrepancies between the voucher and public housing
guidebooks on acceptable forms of third-party income verification until
it issued detailed instructions on HUD's income verification policies
in March 2004.
Conclusion:
Until recently, HUD did little oversight of PHA's subsidy
determinations for the voucher and public housing programs. Although
introducing SEMAP and PHAS in the late 1990s allowed HUD to better
oversee PHAs' performance, SEMAP provides only limited monitoring of
PHAs' compliance with HUD's policies for determining rent subsidies,
and PHAS provides none at all. HUD began implementing RIM reviews in
2002 but has not made the reviews a permanent part of its oversight
activities. In the absence of regular monitoring, HUD cannot determine
the extent to which individual PHAs comply with its policies for
determining rent subsidies. Furthermore, although HUD conducted over
700 RIM reviews, it did not collect complete or consistent information
from these reviews. As a result, HUD cannot assess PHAs' performance
over time or identify those that have made errors in determining
subsidies and thus may require additional oversight and technical
assistance. Further, the lack of complete and consistent information on
the results of RIM reviews limits HUD's ability to identify the factors
that contribute the most to improper subsidy determinations and target
its corrective efforts.
Recommendations for Executive Action:
To enhance HUD's ability to reduce improper subsidies in its public
housing and voucher programs, we recommend that the HUD Secretary take
the following two actions: (1) make regular monitoring of PHAs'
compliance with HUD's policies for determining rent subsidies a
permanent part of HUD's oversight activities and (2) collect complete
and consistent information from these monitoring efforts and use it to
help focus corrective actions where needed.
Agency Comments and Our Evaluation:
HUD agreed with our recommendation that the department regularly
monitor PHAs' compliance with its policies for determining rent
subsidies for the public housing and voucher programs and collect
information from these monitoring efforts. HUD said that it recently
updated its RHIIP plan to address this recommendation. However, in
addition to providing technical comments that we incorporated where
appropriate, HUD commented that the draft report did not adequately
recognize the increase in HUD's monitoring resulting from the RIM
reviews or acknowledge that the scale of its monitoring efforts depends
on the level of budgetary resources it receives. Specifically, HUD
commented that the steady downsizing of the department's staffing over
the past decade had caused HUD to rely on remote monitoring systems,
risk-based monitoring practices, and voluntary compliance by third-
party program administrators. Our draft report stated that the RIM
reviews represented a significant increase in HUD's monitoring of PHAs
compared with its efforts over the previous 20 years. Further, the
draft report recognized that budget resources will ultimately determine
the extent to which the department is able to monitor PHAs.
[End of section]
Chapter 4: HUD Is Improving Oversight of Rent Subsidy Determinations
for Project-Based Section 8, but Challenges Remain:
The Department of Housing and Urban Development (HUD) has taken steps
to implement Rental Housing Integrity Improvement Project (RHIIP)
efforts for its project-based Section 8 programs but also faces several
challenges. First, HUD has improved its policies and guidance for its
project-based Section 8 programs and trained property owners, contract
administrators, and HUD field office staff on their administrative and
oversight responsibilities. However, a key part of the guidance calling
for contract administrators to collect information on improper rent
subsidies at each property was not widely followed partly because the
data collection effort was not mandatory and duplicated some contract
administrators' existing procedures. Second, to improve verification of
tenant income, HUD has gained access to a national database of
employment and wage information.[Footnote 40] But HUD will not be able
to use the database for its project-based Section 8 programs until at
least fiscal year 2006 because of data security issues surrounding the
disclosure of tenant income information to private property owners.
Finally, to implement RHIIP's monitoring effort, HUD plans to rely on
performance-based contract administrators (PBCA) to monitor property
owners' compliance with HUD's subsidy determination policies. HUD's
requirements for PBCAs call for extensive monitoring of the process for
determining subsidies, but HUD may face challenges in ensuring that
PBCAs follow these requirements.
As shown in table 3, these efforts collectively attempt to address the
sources of errors discussed in chapter 2 (i.e., program administrator,
unreported tenant income, and billing errors) that contribute to
improper rent subsidies in the project-based Section 8 programs.
Table 3: Summary of HUD's Efforts to Address Sources of Errors for
Project-Based Section 8 Programs:
HUD effort: Provide training and update program policies and guidance;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: Yes.
HUD effort: Income verification;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: No.
HUD effort: Assignment of monitoring responsibilities to PBCAs;
Sources of errors: Program administrator: Yes;
Sources of errors: Unreported tenant income: Yes;
Sources of errors: Billing: Yes.
Source: GAO.
[End of table]
HUD Has Improved Guidance and Training, but a Key Element of the
Guidance Was Not Widely Followed:
As part of RHIIP, HUD improved its project-based Section 8 guidance and
training for property owners, contract administrators, and HUD field
staff in order to improve their understanding of HUD's policies for
determining rent subsidies. Although HUD's new monitoring guidance
called for contract administrators to collect information on improper
rent subsidies at each property, compliance with this guidance was
limited.
HUD Provided New Guidance and Training on the Subsidy Determination
Process:
HUD's handbook for project-based Section 8 sets forth the requirements
and procedures that property owners must follow in administering these
programs, including determining rent subsides.[Footnote 41] In May
2003, HUD revised this handbook to reflect regulatory and policy
changes that have occurred since the last significant revision in 1995.
The 2003 revision included updated information on tenant screening,
eviction, and citizenship requirements, as well as a new method of
estimating future medical expenses. Officials at four PBCAs and five
HUD field offices we contacted generally agreed that the revised
handbook represented a significant improvement over the previous one.
To supplement the handbook, HUD established various resources, such as
field office RHIIP coordinators, and a Web-based "help desk" that
allows HUD to respond to questions about program policies submitted by
HUD field office staff, contract administrators, and property owners.
HUD also provided additional information on proper rent subsidy
determinations and the RHIIP initiative. For example, HUD issued "fact
sheets" on the rent determination process for property owners and
tenants, which described tenants' rights and responsibilities regarding
income disclosure and third-party verification of income. HUD also
issued periodic newsletters that included a description of the status
of the initiative.
In August 2003, HUD issued a new monitoring guide to help contract
administrators improve their oversight of property owners' subsidy
determinations. HUD intended the guide to provide contract
administrators with a consistent approach for identifying and recording
errors in subsidy determinations during management and occupancy
reviews. Management and occupancy reviews are detailed assessments of a
property's management, physical and financial condition, and compliance
with program policies and procedures, including policies concerning the
eligibility of tenants and accuracy of subsidy determinations.[Footnote
42] However, the new guide was not mandatory, and the contract
administrators we contacted--including PBCAs and HUD field offices--
said that they used the guide to varying degrees. HUD is currently
revising its management and occupancy review policies, which include
detailed procedures for assessing rent subsidy determinations.[Footnote
43] According to HUD, the revised policies, unlike the monitoring
guide, will be mandatory for contract administrators. The revised
policies are currently under departmental review, and the date of their
implementation is uncertain.
HUD accompanied these efforts with training for property owners,
contract administrators, and HUD field offices on the updated handbook
and new monitoring guide. HUD-sponsored training was primarily targeted
to HUD field office staff and contract administrators and, according to
HUD, nearly 2,000 individuals participated in 45 training sessions on
HUD's revised program handbook from June through December 2003. In
addition, nearly 700 HUD staff and contract administrator personnel
attended a satellite broadcast session on the revised program handbook
and the new monitoring guide. Reaction to the HUD-sponsored training
from the four PBCAs and five HUD field offices we spoke with was
generally positive. Most of the PBCAs and HUD field offices indicated
that HUD had done a satisfactory job of using training to emphasize the
importance of properly determining rent subsidies.
In addition to HUD-sponsored training, private training organizations,
including professional training companies and housing industry groups,
offered courses on project-based Section 8 program policies. For
example, according to HUD, property owners, contract administrators,
and HUD staff attended sessions on the revised program handbook, which
covers HUD's policies for determining rent subsidies. HUD officials
stated that sessions on HUD's program policies occur regularly. On the
basis of a survey of major training organizations, the department
estimated that nearly 10,000 property owners and contract
administrators attended such sessions from June through December 2003.
Guidance for Collecting Data Was Not Widely Followed:
To monitor property owners' compliance with HUD's policies, HUD planned
to collect information from contract administrators on the types and
frequency of errors property owners made in determining subsidies. In
the monitoring guide issued in August 2003, HUD recommended that
contract administrators record subsidy errors identified during
management and occupancy reviews and monthly voucher payment reviews in
a uniform "tracking log."[Footnote 44] However, for several reasons,
the tracking log was not widely used. First, because the log was part
of HUD's recommended guidance and, therefore, not mandatory, HUD could
not require contract administrators to use it. Second, according to
some PBCA and HUD officials, some contract administrators found the log
duplicative because they were already collecting much of the
information, although not in a uniform manner.[Footnote 45] Finally,
some HUD and PBCA officials said that the tracking log was problematic
because errors caught during the voucher review process were generally
rectified before property owners were paid and should not have been
recorded on the log as subsidy errors.
As noted previously, HUD is in the process of revising mandatory
procedures for contract administrators to use in identifying and
recording subsidy errors during management and occupancy reviews.
According to HUD, the revised procedures will require contract
administrators to collect uniform information on subsidy errors, as the
tracking log was intended to do. Because these revised procedures apply
only to management and occupancy reviews, they will not cover
information on subsidy errors--including program administrator errors-
-found during monthly payment voucher reviews, which PBCAs already
track separately.
HUD Plans to Implement a New Income Verification System but Must First
Address Data Security Concerns:
HUD plans to implement a Web-based income verification system for
project-based Section 8, a key effort under RHIIP, after it addresses
data security concerns. According to HUD, income verification systems
are a critical component of the department's efforts to reduce improper
subsidy payments because these systems provide property owners with
information necessary to independently check the accuracy of the
incomes tenants report and identify any income source not reported by
the tenant. As discussed in chapter 3, Congress granted HUD access to
the National Directory of New Hires (new hires) database to verify
tenant incomes in its rental assistance programs, including its project-
based Section 8 programs, and required that HUD demonstrate to the
Department of Health and Human Services that all necessary steps had
been taken to prevent the inappropriate disclosure of information from
the database before program administrators are given access.
To alleviate concerns about releasing sensitive information to private
property owners, HUD will initially make the data available only to
public housing agencies (PHA) and confirm that the system is secure. If
the Department of Health and Human Services is satisfied with HUD's
security precautions, HUD plans to make the data from the new hires
database available to private owners of project-based Section 8
properties by fiscal year 2006. Once the system is implemented,
property owners will be able to access earned income data from a secure
Web site. In addition, HUD officials told us that Social Security
income information, which property owners can currently access through
an existing system, will eventually be accessible through the new
system.
HUD Will Rely on PBCAs to Address Its Monitoring Effort under RHIIP:
HUD plans to rely on PBCAs to monitor property owners' compliance with
HUD's policies for determining rent subsidies. For the past several
years, HUD has been transferring contract administration
responsibilities for project-based Section 8 properties from HUD field
offices to the PBCAs but, due to resource constraints, has had
difficulty monitoring the nearly 6,300 properties that are still the
responsibility of field office staff. Although HUD's requirements for
PBCAs call for extensive monitoring of the subsidy determination
process, HUD may face challenges in ensuring that PBCAs follow these
requirements. Finally, HUD has continued to work with contract
administrators and property owners to improve the completeness of
tenant income information in a database used, among other things, to
monitor property owners' subsidy calculations.
HUD Plans to Continue Transferring Contract Administration
Responsibilities to PBCAs Because of Resource Constraints:
In 2000, prior to the start of RHIIP, HUD began transferring the
administration of project-based Section 8 contracts from HUD field
offices to PBCAs. As of October 2004, HUD's project-based Section 8
program consisted of about 21,900 properties, and HUD had transferred
contracts for about 11,800 of these properties to PBCAs. As of the same
date, according to HUD, field offices served as contract administrators
for about 6,300 properties, including 2,200 properties to be
transferred to PBCAs sometime in fiscal year 2005 and about 4,100
properties with contracts that HUD will competitively source to a new
contract administrator by the end of fiscal year 2005.[Footnote 46] HUD
also plans to transfer about 3,800 additional properties to PBCAs that
are currently the responsibility of "traditional" (i.e., not
performance-based) contractors as these properties' contracts come up
for renewal.
HUD has transferred contract administration responsibilities to PBCAs
because its field offices lack the resources to adequately monitor
properties. HUD requires PBCAs to perform annual management and
occupancy reviews for all of their assigned properties and conduct
monthly reviews of all payment vouchers submitted by property owners.
In contrast, HUD field offices are not conducting the same level of
monitoring for all of their 6,300 properties. For example, HUD
conducted management and occupancy reviews for about 1,800, or
approximately 30 percent, of these 6,300 properties in fiscal year
2004. According to HUD, the field offices did not perform annual
management and occupancy reviews for all of these properties because of
insufficient staff and funding. HUD policy also requires review of
monthly payment vouchers for their properties. However, HUD's Office of
Inspector General (OIG) reported in its audit of HUD's fiscal years
2002 and 2003 financial statements that the field offices were
performing monthly voucher reviews for only about 2 percent of the
vouchers for their assigned properties.[Footnote 47]
According to HUD, traditional contract administrators also have
generally not conducted management and occupancy reviews each year for
all of their properties or routinely reviewed monthly vouchers
submitted by property owners. HUD officials we contacted also said that
although the department required that the traditional contractors
perform management and occupancy reviews and voucher reviews, their
contracts (unlike those with PBCAs) did not specify how
frequently.[Footnote 48] HUD officials stated that, similar to HUD
field offices, traditional contract administrators had concentrated
their monitoring efforts on troubled properties. In fiscal year 2004,
traditional contract administrators conducted management and occupancy
reviews for 900, or 24 percent, of their assigned properties. HUD does
not have data on the number of payment vouchers reviewed for properties
with traditional contract administrators.
HUD Will Rely on PBCAs to Monitor Process for Determining Subsidies:
By transferring more of its project-based Section 8 properties to
PBCAs, HUD plans to increase oversight of these properties and meet
RHIIP's goal of reducing improper rent subsidy payments. According to
HUD, the ongoing PBCA initiative precluded the need for HUD to
implement a monitoring process for its project-based Section 8 programs
similar to the Rental Integrity Monitoring (RIM) reviews for the
voucher and public housing programs. HUD officials also said that,
because of limited resources and the large number of project-based
Section 8 properties, the field offices would not have been able to
carry out a monitoring effort as extensive as the RIM reviews. (About
22,000 property owners administer project-based Section 8 programs,
compared with about 3,300 PHAs that administer vouchers and public
housing.)
As noted previously, PBCAs are responsible for performing annual
management and occupancy reviews for all of their assigned properties
and monthly reviews of all payment vouchers. As part of these reviews,
PBCAs are required to determine whether the owners have properly
calculated subsidy determinations and independently verified tenant-
reported information. As of October 2004, about 11,800 properties were
assigned to PBCAs, and over 90 percent of these properties received a
management and occupancy review.[Footnote 49] In reviewing payment
vouchers, PBCAs must ensure that the tenant information in HUD's
databases is consistent with the requested payment amount. When errors
are found, the PBCA must correct the voucher by the amount of the
error.
To ensure that the PBCAs meet HUD's performance standards, HUD has
developed a comprehensive oversight program. Specifically, HUD field
office staff are required to review status reports provided by the
PBCAs, conduct annual compliance reviews, and use the results of these
reviews to determine the compensation PBCAs should receive.
Implementing these oversight measures could pose challenges for HUD.
For example, the OIG reported in its fiscal year 2004 financial
statement audit of HUD that two of the four PBCAs it reviewed were not
consistently verifying whether the project owner had properly
calculated subsidy amounts and independently verified tenant-reported
information.[Footnote 50] In addition, prior GAO work has shown that
HUD has often not provided adequate oversight of contractors, a factor
that in 2003 led us to designate acquisitions management as one of
HUD's major management challenges.[Footnote 51]
HUD Has Strengthened Monitoring Efforts by Ensuring That Program
Administrators Report Comprehensive Tenant Data to HUD:
According to HUD, ensuring the completeness of tenant data by enforcing
HUD's data reporting policy is a critical component of RHIIP that will
enable the department to reduce the amount of improper rent subsidies.
Contract administrators use HUD's Tenant Rental Assistance
Certification System (TRACS) to monitor property owners, including
identifying discrepancies between owners' payment voucher requests and
the rent subsidy information. To perform their monitoring function
effectively, contract administrators must ensure that property owners
submit complete and accurate data in TRACS, as required by HUD policy.
Since RHIIP began, HUD has improved the completeness of tenant data in
TRACS. Specifically, according to HUD, the percentage of units in TRACS
for which owners reported tenant income information (i.e., the
reporting rate) increased from 88 percent in December 2003 to about 95
percent in October 2004. Properties with contracts administered by
PBCAs had a higher average reporting rate, as of October 2004--over 95
percent--than properties administered by HUD field offices or
traditional contract administrators. This is because PBCAs perform
monthly voucher reviews for all payments and thus must ensure that the
information in TRACS is complete. As of that same date, HUD field
offices and traditional contract administrators, which conduct fewer
payment voucher reviews, had average reporting rates of 85 and 75
percent, respectively.
HUD has continued to work with contract administrators and property
owners to improve TRACS information by enforcing the data reporting
policy. In October 2004, HUD began notifying property owners that the
department would withhold subsidy payments if tenant information was
not provided for at least 85 percent of tenants. According to HUD, the
department suspended subsidy payments for 10 noncompliant property
owners in November 2004 and expects to suspend payments for another
1,800 owners in December 2004.
Agency Comments and Our Evaluation:
HUD concurred with our finding that guidance for collecting data on the
types and frequency of errors property owners made in determining
subsidies was not widely followed and stated that it would revise its
contracts with PBCAs to address this issue. HUD disagreed with a
recommendation in our draft report that the department analyze data it
has collected on program administrator errors by differentiating among
types of contract administrators and use this information to determine
whether additional efforts to reduce this source of error are needed in
the project-based Section 8 programs. HUD's letter characterized our
recommendation as "expand[ing] the process" to provide for separate
error rates, noting that sample sizes would need to be tripled to
permit statistically valid comparisons, and questioning whether such an
effort would be cost-beneficial. Recognizing HUD's increasing use of
PBCAs, our recommendation concerned only data that HUD had already
collected and was not intended to expand the scope of future data
collections. In light of HUD's comments on the insufficiency of its
existing data, we did not include this recommendation in our final
report.
Noting the relationship between its ability to monitor and the level of
resources it is provided, HUD stated that it "remains to be seen"
whether requested resources will be provided to achieve comparable
monitoring levels of program administrators for all of its project-
based assistance programs. We agree that budget resources will
ultimately determine the extent of HUD's monitoring. Further, prior GAO
work has shown that HUD has not always provided adequate oversight of
program intermediaries, a contributing factor to our designation of the
department's rental assistance programs as a high-risk area.[Footnote
52]
[End of section]
Chapter 5: HUD is Considering Approaches for Simplifying Rent Subsidy
Policies, but these Approaches Need More Study:
As part of the Rental Housing Integrity Improvement Project (RHIIP),
the Department of Housing and Urban Development (HUD) is considering
ways to simplify its policies for determining rent subsidies. HUD has
met with program administrators and other interested groups to discuss
simplification approaches. However, HUD has not conducted a formal
study on the impact of these approaches on tenant rental payments and
program costs. According to HUD, a major reason for subsidy calculation
errors is the complexity of the existing policies. For example, program
administrators must determine tenants' eligibility for 44 different
income exclusions and deductions to determine their rent payments and
subsidies. One key concern is the impact that simplification could have
on how much tenants pay in rent. Specifically, some tenants could end
up paying a larger share of their income toward rent if the income
deductions and exclusions that currently provide additional rent relief
to them are eliminated, although others could pay less under certain
approaches. In addition, the transition to simplified policies could
create confusion among program administrators and tenants in the short-
term.
HUD Is in the Initial Stages of Considering Approaches for
Simplification of Rent Subsidy Policies and Has Not Conducted Formal
Study of These Approaches:
As one of its efforts under RHIIP, and as mandated by The President's
Management Agenda for Fiscal Year 2002, HUD is considering various
approaches for statutory, regulatory, and administrative streamlining
and simplification of its policies for determining rent subsidies.
According to HUD, simplification is a key part of the department's long-
term strategy for reducing the risk of improper rent subsidies that
result from the complexity of HUD's current policies. As of December
2004, however, HUD had not officially proposed any approach to
simplification for all of its rental assistance programs. HUD intends
to formulate a proposal early in calendar year 2005 after it meets with
industry stakeholders. Because most of HUD's policies for determining
rent subsidies have a basis in statute, major changes to these policies
would likely require congressional action.
In order to reform program administration and control rising subsidy
costs, HUD proposed legislative changes for the voucher program in its
fiscal year 2004 and 2005 budget proposals through the Housing
Assistance for Needy Families and the Flexible Voucher program,
respectively. These two initiatives called for simplification of the
voucher program's policies, including those for determining rent
subsidies. Specifically, the initiatives would have provided
administering agencies with the flexibility to determine their own rent
policies. However, Congress did not include either of these initiatives
in HUD's appropriations acts.
In October 2004, HUD met with various program administrators and
industry and tenant groups to discuss different approaches for
simplifying HUD's policies for determining rent subsidies and to gauge
the extent to which program stakeholders support simplification.
According to HUD, most of the participants agreed on the need for
simplification and discussed how best to meet this goal. HUD field
office staff, program administrators, and industry groups that we spoke
with also generally agreed on the need for simplification.
Specifically, all of the HUD field office staff we interviewed
supported some form of simplification, and nearly all of the 14 program
administrators we interviewed also supported simplification, but many
were concerned about the impact on existing tenants. The major industry
groups we met with were also supportive of simplification.
The October 2004 meeting concluded with HUD considering performing more
extensive analysis of the various approaches to simplifying its
policies for determining rent subsidies. However, HUD has not
determined when it will begin performing this analysis. Although prior
to this meeting HUD staff had conducted preliminary internal analyses
of the impact of certain simplification approaches on tenant rental
payments and program costs, as of December 2004, HUD has not conducted
a formal study on the possible impact of policy changes for
consideration by policymakers.
HUD's Current Policies for Determining Rent Subsidies Are Complex:
A 2001 HUD study characterized HUD's policies for determining rent
subsidies as "detailed, complex, sometimes ambiguous, and subject to
relatively frequent legislative changes."[Footnote 53] HUD field
offices, program administrators, and industry groups we interviewed
frequently cited the complexity of these policies as a concern and
identified it as a major obstacle in reducing improper rent subsidies.
For example, HUD's current policies include 44 income exclusions and
deductions that program administrators must consider when determining
rent subsidies and tenants' rental payments. The purpose of some of
these income exclusions and deductions is to provide additional relief
to certain tenants, such as elderly and disabled households with large
medical expenses, by reducing the amount they contribute toward rent.
Other income exclusions exist to counteract potential work
disincentives--for example, increasing income resulting in higher
tenant rental payments--in housing assistance programs.
As an example, some HUD field office staff and program administrators
we spoke with cited the earned income disallowance as a complex income
exclusion. The earned income disallowance was initially established in
1990 by the Cranston-Gonzalez National Affordable Housing Act (Pub. L.
No. 101-625) and was revised in 1998 by the Quality Housing and Work
Responsibility Act (Pub. L. No. 105-276). The disallowance policy
provides special treatment to families whose earned income increases as
a result of (1) employment of a family member who was previously
unemployed for one or more years or (2) participation of a family
member in a family self-sufficiency or other job training
program.[Footnote 54] Families that qualify under these provisions are
not subject to increases in their rental payments (that usually occur
if their incomes grow for other reasons) for a 12-month period known as
the "full exclusion period." The rent may be increased during the
following 12-month period, called the "phase-in period," but the
increase may not be greater than 50 percent of the amount of the full
rent increase that would occur otherwise. After completion of both the
full exclusion and phase-in periods, tenant rent increases by the full
amount. However, low-income tenants often have jobs with little
security--that is, they move in and out of employment and training
programs and their income may vary considerably from job to job. To
account for this, HUD developed additional administrative guidelines.
For instance, during the full exclusion and phase-in periods, the
months for which a family can claim the disallowance do not need to be
consecutive. Consequently, a household member can become unemployed and
stop claiming the disallowance and then become reemployed in a later
month and begin claiming the disallowance again. However, keeping track
of when tenants are employed and the amount by which the income
increased is difficult and adds a significant burden on program
administrators.
The process for determining rent subsidies is further complicated by
the difficulty some program administrator staff may have in
understanding and implementing HUD's program requirements. According to
multiple field office staff, program administrators, and industry
groups we met with, program administrator staff responsible for
calculating rent subsidies are often poorly paid, have large caseloads,
and have limited education. These factors can contribute to
misapplication of program policies that result in errors in subsidy
calculations. In addition, these same groups commented that these types
of positions have high turnover, and as a result it is difficult for
program administrators to retain knowledgeable and experienced staff.
Simplifying the Process for Determining Rent Subsidies Could Affect
Tenants and Pose Implementation Challenges:
As noted previously, HUD is considering various approaches for
statutory, regulatory, and administrative streamlining and
simplification of its subsidy determination policies. Regardless of the
approach HUD ultimately adopts, a major concern is the effect that
policy simplification will have on tenant rental payments. It is
possible that tenants' rental payments could decrease under certain
simplification approaches. However, tenants could also see rent
increases if, all other things being equal, the income deductions and
exclusions that currently provide additional rent relief to them are
eliminated. In addition, simplification of HUD's policies for
determining rent subsidies could be difficult to implement and could
create confusion among program administrators and tenants in the short-
term.
HUD is Considering Three Basic Approaches to Simplifying Policies:
HUD is currently considering three basic approaches to simplifying its
subsidy determination policies: (1) income-based rents, (2) tiered flat
rents, and (3) mixed approaches. Descriptions of these three approaches
follow:
* Under an income-based approach, the tenant rental payment is set at a
certain percentage of the tenant's income. The rent subsidy covers the
difference between the contract rent for the unit (or the operating
cost for a public housing unit) and the amount that the tenant pays. A
simplified income-based approach could involve a limited number of
exclusions or deductions or none at all. For example, one approach
could involve tenants paying 30 percent of their gross income in rent
with qualifying tenants receiving standard deductions for special
needs. A different approach HUD has considered would allow elderly,
disabled, and working families to pay 27 percent of their gross income
in rent while all others pay 30 percent. No other deductions or
exclusions would be used in determining the subsidy amount under this
approach.
* Under a tiered flat rent system, tenant rents would be calculated for
several income bands--for example, low, very low, and extremely low
income--and tenants would not see their rents adjusted as their incomes
changed provided that their incomes remain within the same
tier.[Footnote 55] This option is somewhat similar to that used at
properties developed with Low-Income Housing Tax Credit assistance.
Under the tax credit program, property owners reserve some of their
units for tenants at or below certain income limits--either 50 or 60
percent of the area's median gross income. The owners must restrict
tenant rents in these units to 30 percent of the income limit, adjusted
for the number of bedrooms.
* Under a mixed approach, HUD would give program administrators various
rent structures to choose from, including income-based rents and tiered
flat rents. This approach would give program administrators the
flexibility to choose the method that best fits their community
demographics and other factors. Currently, HUD's Moving-to-Work
demonstration program allows participating public housing agencies
(PHA) to obtain exemptions from certain public housing and voucher
program rules, including those related to the calculation of rent
subsidies, and to design and test various approaches to providing and
administering housing assistance.[Footnote 56] As long as the PHA
serves substantially the same number of households that it served under
the public housing and voucher programs, the PHA is free to design its
own rent structure for its tenants. HUD plans to study PHAs'
experiences under the Moving-to-Work demonstration as a possible model
for simplifying its policies.
Simplification of Policies May Significantly Affect Rents for Some
Tenants and May Be Difficult to Implement:
Regardless of which simplification approach is ultimately adopted, a
major concern of program stakeholders is the effect that policy
simplification will have on tenant rent burdens. Although changes to
policies could result in some tenants paying less in rent, some tenants
could end up paying more in rent if, all other things being equal, the
current system of income exclusions and deductions that provides
additional rent relief were eliminated. To illustrate, we analyzed the
potential effects of using a simple income-based approach in which
tenant rents are set at 30 percent of gross income.[Footnote 57] Based
on our analysis of HUD's data for fiscal year 2003, we found that
tenants would see their rent go up by an average of $30 per month ($360
annually), or 16 percent. About 10 percent of these households would
see their rents go up by at least $72 per month (or $864 annually).
Elderly and disabled households and large families who currently
benefit the most from HUD's exclusions and deductions would be hit the
hardest by the elimination of these income adjustments. To take these
households into account, we also estimated the average change in tenant
rents using an approach in which elderly, disabled, and working
families would pay 27 percent of their gross income in rent, all others
would pay 30 percent, and no other deductions or exclusions would
apply. Again using HUD's tenant data from fiscal year 2003, our
analysis showed that this option would increase tenant rents, on
average, by $16 per month ($192 annually), or 12 percent. About half of
current tenants would see modest increases of less than $10 per month,
and around one-quarter could see increases of at least $28 per month.
In addition, the rents for about 25 percent of the tenants would remain
unchanged or decrease under this approach. A more detailed study by HUD
would be necessary to determine the impact of the other policy
simplification approaches on tenants' rental payments as well as on
program costs.
Simplification of HUD's policies for determining rent subsidies may be
difficult to implement and will have a direct impact on how program
administrators conduct their work. Depending on the magnitude of
program changes, program administrators--over the approximately 22,000
property owners and 3,000 PHAs-will have to retrain staff, update
written procedures and administrative plans, and make potentially
costly modifications to their software applications. Program
administrators will also have to perform tenant outreach to explain
changes to existing and new tenants. If HUD determines that these
tenants would be protected from any increases in rent that result from
simplified policies, program administrators would have to deal with the
difficulties of treating existing and new tenants under different sets
of policies. Furthermore, gradually phasing in rent increases for
existing tenants would add additional complexities to the
administration of the programs and require extensive regulatory
guidance from HUD. These changes would likely take time and involve
some trial-and-error before they are fully implemented. It is possible,
at least in the short-term, that transitioning to simplified policies
for determining rent subsidies would result in confusion among program
administrator staff and errors in calculating rent subsidies. This
problem is more likely if the changes made to program policies are
comprehensive, requiring extensive retraining of staff. Because HUD is
in its early stages of developing a policy simplification strategy and
has not conducted a formal study of these issues, it is not possible to
describe how HUD intends to address these difficulties.
Conclusion:
Although part of HUD's long-term strategy to reduce the risk of
improper rent subsidy payments under RHIIP involves simplifying
statutory and regulatory policies for determining rent subsidies, the
department has not conducted a formal study of possible simplification
approaches. According to HUD and program administrators, existing
policies are difficult to implement and have made the process prone to
error. Many of these policies are intended to provide additional relief
to tenants by reducing their rents under certain circumstances.
However, HUD must weigh the degree of relief these policies provide
against the administrative burden they create and the increased risk of
error they generate. Because most current policies stem from specific
statutes, simplifying them would likely require congressional action.
In order to inform potential debate on this issue, policymakers will
need to fully understand how simplification could affect the amount of
rent subsidy errors, program administrators' workload, tenants' rental
payments, and program costs. Regardless of the simplification approach
that is adopted, HUD will face many difficulties in implementing the
necessary policy changes. In particular, HUD will need to promote an
efficient transition and assist program administrators in making the
necessary adjustments to their procedures.
Recommendations for Executive Action:
To ensure that HUD's rental assistance programs are administered
effectively and that policymakers have sufficient information with
which to consider potential simplification approaches, we recommend
that the HUD Secretary study the possible impact of alternative
strategies for simplifying program policies on subsidy errors, tenant
rental payments, program administrators' workload, and program costs.
As part of the study, HUD should determine how it intends to implement
proposed changes and indicate how the department would help tenants
transition from the old to the new rent structures.
Agency Comments and Our Evaluation:
HUD stated that our draft report did not mention legislative
initiatives in its fiscal year 2004 and 2005 budget justifications--the
Housing Assistance for Needy Families and the Flexible Voucher
programs--to simplify the voucher program's policies for determining
rent subsidies. These two initiatives were primarily intended to reform
the funding mechanism for and the administration of the voucher program
but also would have allowed administering agencies the discretion to
define their policies on tenant eligibility and for determining rent
subsidies. We included a description of these two initiatives in our
final report.
HUD did not respond directly to our recommendation that the department
study the impact of simplifying policies for determining rent subsidies
but said that the report incorrectly stated that HUD has not conducted
formal studies on or otherwise considered the effects of its program
simplification proposals. HUD also stated that all of its proposals for
simplifying subsidy determination policies had undergone extensive
analysis. Our draft report did not state that HUD had not considered
the effects of program simplification and, in fact, cited HUD's efforts
to analyze simplification approaches. Further, during the course of our
review and in its technical comments on our draft report, the
department provided us only an internal analysis of a single
simplification approach, which, according to HUD, it is no longer
considering. Moreover, HUD has not issued a study of any simplification
proposal that analyzes the impact of simplification, explains how HUD
intends to implement proposed changes and help tenants transition from
the old to the new rent structures, and is available to policymakers.
Because simplifying HUD's policies for determining rent subsidies will
likely require legislative changes, we continue to believe that a
formal study will be essential to informing congressional decision
making.
[End of section]
Appendixes:
Appendix I: Data Tables:
This appendix contains the results of our analysis of the Department of
Housing and Urban Development's (HUD) fiscal year 2003 data on improper
rent subsidies resulting from errors made by program administrators, as
described in chapter 2. This appendix also provides the results of our
analysis of the impact of two proposals to simplify HUD's policies for
determining rent subsidies on tenant rents.
Information on Improper Rent Subsidies Resulting from Program
Administrator Error:
Tables 4 and 5 contain information on the estimated gross dollar amount
of improper rent subsidies attributable to program administrator error
in fiscal year 2003 for each HUD program.[Footnote 58] These tables
show the sum total of both estimated overpayments and estimated
underpayments. In contrast, tables 6 and 7 provide information on
estimated overpayments alone, and tables 8 and 9 have information on
estimated underpayments alone.[Footnote 59] We followed HUD's approach
of not counting a discrepancy of $5 or less between the rent on file
and the "correct rent" as an error. This was done to eliminate minor
calculation discrepancies that have little impact on programwide
subsidy errors.
Table 4: Estimated Total Gross Improper Rent Subsidies Attributable to
Program Administrator Error, Fiscal Year 2003:
Program: Public housing;
Number of tenant files in sample: 447;
Estimated dollar error: $316,107,576;
Margin of error (95% confidence): ±$58,175,726.
Program: Vouchers;
Number of tenant files in sample: 568;
Estimated dollar error: $730,955,871;
Margin of error (95% confidence): $182,078,577.
Program: Project-based Section 8;
Number of tenant files in sample: 462;
Estimated dollar error: $368,789,321;
Margin of error (95% confidence): $75,105,022.
Total (all programs);
Number of tenant files in sample: 1,477;
Estimated dollar error: $1,415,852,768;
Margin of error (95% confidence): $185,371,036.
Source: GAO.
[End of table]
Table 5: Estimated Gross Improper Rent Subsidies per Household
Attributable to Program Administrator Error, Fiscal Year 2003:
Program: Public housing;
Percentile: 10%: $8;
Percentile: 25%: $12;
Percentile: 50% (median): $29;
Percentile: 75%: $93;
Percentile: 90%: $162.
Program: Vouchers;
Percentile: 10%: $9;
Percentile: 25%: $16;
Percentile: 50% (median): $41;
Percentile: 75%: $91;
Percentile: 90%: $193.
Program: Project-based Section 8;
Percentile: 10%: $7;
Percentile: 25%: $11;
Percentile: 50% (median): $27;
Percentile: 75%: $66;
Percentile: 90%: $161.
Program: Total (all programs);
Percentile: 10%: $8;
Percentile: 25%: $13;
Percentile: 50% (median): $33;
Percentile: 75%: $86;
Percentile: 90%: $170.
Source: GAO.
[End of table]
Table 6: Estimated Subsidy Overpayments Attributable to Program
Administrator Error, Fiscal Year 2003:
Program: Public housing;
Number of tenant files in sample: 255;
Estimated dollar error: $198,822,140;
Margin of error (95% confidence): ±$43,038,878.
Program: Vouchers;
Number of tenant files in sample: 310;
Estimated dollar error: $447,434,740;
Margin of error (95% confidence): $120,874,596.
Program: Project-based Section 8;
Number of tenant files in sample: 257;
Estimated dollar error: $250,232,869;
Margin of error (95% confidence): $64,151,393.
Program: Total (all programs);
Number of tenant files in sample: 822;
Estimated dollar error: $896,489,749;
Margin of error (95% confidence): $131,973,665.
Source: GAO.
[End of table]
Table 7: Estimated Subsidy Overpayment per Household Attributable to
Program Administrator Error, Fiscal Year 2003:
Program: Public housing;
Percentile: 10%: $9;
Percentile: 25%: $15;
Percentile: 50% (median): $41;
Percentile: 75%: $107;
Percentile: 90%: $170.
Program: Vouchers;
Percentile: 10%: $10;
Percentile: 25%: $18;
Percentile: 50% (median): $44;
Percentile: 75%: $102;
Percentile: 90%: $248.
Program: Project-based Section 8;
Percentile: 10%: $9;
Percentile: 25%: $15;
Percentile: 50% (median): $33;
Percentile: 75%: $96;
Percentile: 90%: $209.
Program: Total (all programs);
Percentile: 10%: $9;
Percentile: 25%: $16;
Percentile: 50% (median): $40;
Percentile: 75%: $102;
Percentile: 90%: $211.
Source: GAO.
[End of table]
Table 8: Estimated Subsidy Underpayments Attributable to Program
Administrator Error, Fiscal Year 2003:
Program: Public housing;
Number of tenant files in sample: 192;
Estimated dollar error: $117,285,436;
Margin of error (95% confidence): ±$36,747,257.
Program: Vouchers;
Number of tenant files in sample: 258;
Estimated dollar error: $283,521,130;
Margin of error (95% confidence): $88,835,202.
Program: Project-based Section 8;
Number of tenant files in sample: 205;
Estimated dollar error: $118,556,452;
Margin of error (95% confidence): $31,745,109.
Program: Total (all programs);
Number of tenant files in sample: 655;
Estimated dollar error: $519,363,019;
Margin of error (95% confidence): $95,571,528.
Source: GAO.
[End of table]
Table 9: Estimated Subsidy Underpayments per Household Attributable to
Program Administrator Error, Fiscal Year 2003:
Program: Public housing;
Percentile: 10%: $8;
Percentile: 25%: $11;
Percentile: 50% (median): $23;
Percentile: 75%: $77;
Percentile: 90%: $135.
Program: Vouchers;
Percentile: 10%: $9;
Percentile: 25%: $15;
Percentile: 50% (median): $38;
Percentile: 75%: $82;
Percentile: 90%: $147.
Program: Project-based Section 8;
Percentile: 10%: $6;
Percentile: 25%: $9;
Percentile: 50% (median): $18;
Percentile: 75%: $48;
Percentile: 90%: $111.
Program: Total (all programs);
Percentile: 10%: $8;
Percentile: 25%: $12;
Percentile: 50% (median): $28;
Percentile: 75%: $72;
Percentile: 90%: $136.
Source: GAO.
[End of table]
Information on the Impact of Simplifying Rent Subsidy Policies on
Tenant Rents:
As an illustration of the potential effects of rent simplification
approaches, we used HUD's fiscal year 2003 data to determine the impact
on tenant rents by estimating how tenant rental payments would change
(compared with current policies) under two specific scenarios. Tables
10 and 11 show the impact of a change that would require all families
to pay 30 percent of gross income toward rent. Tables 12 and 13 reflect
the impact of the change that would require all elderly, disabled, and
working families to pay 27 percent of gross income toward rent and all
other families to pay 30 percent.
Table 10: Estimated Dollar and Percent Change in Rent under 30 Percent
of Gross Income Simplification Proposal, Fiscal Year 2003:
Program: Public housing;
Average dollar change in rent: $26;
Average percentage change in rent: 16%.
Program: Vouchers;
Average dollar change in rent: $30;
Average percentage change in rent: 15%.
Program: Project-based Section 8;
Average dollar change in rent: $33;
Average percentage change in rent: 19%.
Program: Total (all programs);
Average dollar change in rent: $30;
Average percentage change in rent: 16%.
Source: GAO.
[End of table]
Table 11: Estimated Dollar Change in Rent under 30 Percent of Gross
Income Simplification Proposal, Fiscal Year 2003:
Program: Public housing;
Percentile: 10%: $0;
Percentile: 25%: $10;
Percentile: 50% (median): $13;
Percentile: 75%: $36;
Percentile: 90%: $64.
Program: Vouchers;
Percentile: 10%: $10;
Percentile: 25%: $10;
Percentile: 50% (median): $22;
Percentile: 75%: $36;
Percentile: 90%: $61.
Program: Project-based Section 8;
Percentile: 10%: $0;
Percentile: 25%: $10;
Percentile: 50% (median): $18;
Percentile: 75%: $41;
Percentile: 90%: $88.
Program: Total (all programs);
Percentile: 10%: $0;
Percentile: 25%: $10;
Percentile: 50% (median): $21;
Percentile: 75%: $36;
Percentile: 90%: $72.
Source: GAO.
[End of table]
Table 12: Estimated Average Dollar and Percent Change in Rent under
HUD's "27/30" Simplification Proposal, Fiscal Year 2003:
Program: Public housing;
Average dollar change in rent: $12;
Average percentage change in rent: 12%.
Program: Vouchers;
Average dollar change in rent: $13;
Average percentage change in rent: 10%.
Program: Project-based Section 8;
Average dollar change in rent: $23;
Average percentage change in rent: 16%.
Program: Total (all programs);
Average dollar change in rent: $16;
Average percentage change in rent: 12%.
Source: GAO.
[End of table]
Table 13: Estimated Dollar Change in Rent under HUD's "27/30"
Simplification Proposal, Fiscal Year 2003:
Program: Public housing;
Percentile: 10%: -$34;
Percentile: 25%: -$1;
Percentile: 50% (median): $10;
Percentile: 75%: 24;
Percentile: 90%: $54.
Program: Vouchers;
Percentile: 10%: -$28;
Percentile: 25%: -$4;
Percentile: 50% (median): $10;
Percentile: 75%: $24;
Percentile: 90%: $49.
Program: Project-based Section 8;
Percentile: 10%: -21;
Percentile: 25%: $10;
Percentile: 50% (median): $11;
Percentile: 75%: $36;
Percentile: 90%: $82.
Program: Total (all programs);
Percentile: 10%: -$27;
Percentile: 25%: $0;
Percentile: 50% (median): $10;
Percentile: 75%: $28;
Percentile: 90%: $62.
Source: GAO.
[End of table]
[End of section]
Appendix II: Information on HUD's Policies for Determining Rent
Subsidies:
As discussed in chapter 5, the Department of Housing and Urban
Development's (HUD) policies for determining rent subsidies are complex
and require program administrators to collect comprehensive personal
information from tenants. This appendix describes the policies and
procedures related to the process for determining tenant rental
payments--the basis for calculating rent subsidy amounts. Specifically,
we identified four key steps in determining tenant rental payments:
program administrators must (1) gather information on tenants, (2)
verify information that tenants report, (3) determine tenants'
eligibility for income exclusions and deductions, and (4) calculate
tenant rental payments.
Step One: Gather Information on Tenants:
Program administrators must obtain comprehensive information on
tenants' household composition, sources of income, assets, public
assistance, and expenses. This information allows program
administrators to determine tenants' gross household incomes, their
eligibility for income exclusions and deductions, and their rental
payments. If program administrators do not request all the required
information from tenants, they cannot make correct subsidy
determinations. Following are examples from HUD guidance of the typical
questions that program administrators should ask tenants:
* Does any household member receive full-or part-time earnings from any
type of employment, including self-employment?
* Has anyone in your household started a new job or had an increase in
earnings? If yes: (a) Is this a person with a disability? (b) Has this
person been unemployed for one year or longer? (c) Is this person
participating in any type of economic self-sufficiency program? (d) Has
this person received welfare benefits in the past 6 months?
* Does any household member receive cash, tips, bonuses, commissions,
or any type of compensation, worker's compensation, or severance pay?
* Does any household member receive child support or alimony?
* Does any household member receive welfare benefits or any other
public assistance?
* Does any household member receive income from any assets, including
interest on checking or savings accounts and interest or dividends on
stocks or bonds?
* Does any household member receive Social Security or supplemental
security income benefits?
* Does anyone outside your household pay for any of your household
bills or living expenses? Or does anyone in your household receive
money from someone outside your household to pay bills or living
expenses?
* Does anyone in your household participate in a job training program?
* Does anyone in your family receive any type of income, money, or
financial support from any sources other than the ones asked about?
* Does any household member have a checking or savings account?
* Does any household member own stocks or bonds?
* Does any household member have child care expenses for a child 12
years or under?
* Is any portion of the child care expenses reimbursed by any person or
agency?
* Do you pay for a care attendant or for any equipment for any
household member with disabilities that is necessary to permit that
person or someone else in the household to work? Are these expenses
reimbursed by a person or agency?
* Is any adult in your household a full-time student?
* Is any family member actively seeking work?
* Does any household member pay for Medicare?
* Is any household member paying on past medical bills or anticipate
any medical expenses during the next 12 months that will not be
reimbursed by any source outside the household?
* Does any household member pay for any type of medical insurance?
Step 2: Verify Information That Tenants Report:
After gathering information from tenants, program administrators must
verify the income, asset, and expense information that the tenant
reports. According to HUD policy, program administrators should begin
by obtaining, where possible, the highest level of verification--that
is, verification from an independent third party, such as government
income databases or written statements from employers, banks, and
government agencies. When third-party verification cannot be obtained,
program administrators can use a lower level of verification, such as
reviewing documents supplied by tenants. However, in such cases,
program administrators must document in the tenant's file why other
forms of verification were not used. HUD has outlined the following
guidelines for verifying tenant asset and income information:
* Automated income verification system: Program administrators obtain
this form of income verification through an independent source that
systematically and uniformly maintains income information in
computerized form for a large number of individuals. This form of
verification includes information on Social Security income from HUD's
Tenant Assessment Subsystem and earned income from state agencies and
the Department of Health and Human Services' National Directory of New
Hires.
* Written third-party verification: Program administrators contact
third-party sources, such an employer, a bank, a government agency, or
a child care service provider, to obtain a written statement supporting
the income and expenses that tenants report. Program administrators
must receive the written statement directly from the independent
source. If the tenant handles the written verification statement in any
way, HUD policy no longer considers it third-party verification.
* Oral third-party verification: Program administrators can verify
income and expense information directly via telephone or an in-person
meeting with the third-party source. Program administrator staff should
document in the tenant file the date and time of the telephone call or
meeting, the name of the person contacted and contact information, and
the confirmed verified information. This verification method is
commonly used when the independent source does not respond to the
program administrator's request for written verification in a
reasonable time frame (e.g., 10 business days).
* Document review: Program administrators review original documents
provided by tenants in support of their reported income, assets, and
expenses. Program administrators can use this verification method only
when third-party verification cannot be obtained. When the program
administrators resort to reviewing tenant-provided documents, they must
document in the tenant file why third-party verification was not
obtained.
* Tenant declaration: Program administrators may accept a notarized
statement or affidavit from tenants declaring their income, assets, and
expenses. As with a document review, program administrators must
document in the tenant file why third-party verification was not
obtained.
Step 3: Determine Tenant Eligibility for Exclusions and Deductions:
A tenant's rent is based on the family's anticipated gross annual
income--that is, income from all sources received by the family head,
spouse, and each additional family member who is 18 years or older--
less applicable exclusions and deductions. We identified 44 exclusions
and deductions from tenant income, most of which were statutorily based
(e.g., deductions for elderly and disabled households are mandated by
the United States Housing Act of 1937, as amended). These exclusions
and deductions are described below.
Federally mandated exclusions cited in 66 Fed. Reg. 20318, April 20,
2001, are as follows:
1. The value of the allotment provided to an eligible household under
the Food Stamp Act of 1977.
2. Payments to volunteers under the Domestic Volunteers Services Act of
1973.
3. Payments received under the Alaska Native Claims Settlement Act.
4. Income derived from certain submarginal land of the United States
that is held in trust for certain Indian tribes.
5. Payments or allowances made under the Department of Health and Human
Services Low-Income Home Energy Assistance program.
6. Payments received under programs funded under the Job Training
Partnership Act/Workforce Investment Act of 1998.
7. Income derived from the disposition of funds to the Grand River Band
of Ottawa Indians.
8. The first $2,000 of per capita shares received from judgment funds
awarded by the Indian Claims Commission or the U.S. Claims Court, the
interests of individual Indian in trust or restricted lands, including
the first $2,000 per year of income received by individual Indians from
funds derived from interests held in such trust or restricted lands.
9. Amounts of scholarships funded under Title IV of the Higher
Education Act of 1965, including awards under federal work-study
programs or under the Bureau of Indian Affairs student assistance
programs.
10. Payments received from programs funded under Title V of the Older
Americans Act of 1985.
11. Payments received on or after January 1, 1989, from the Agent
Orange Settlement Fund or any other fund established pursuant to the
settlement in In Re Agent-product liability litigation.
12. Payments received under the Maine Indian Claims Settlement Act of
1980.
13. The value of any child care provided or arranged (or any amount
received as payment for such care or reimbursement for costs incurred
for such care) under the Child Care and Development Block Grant Act of
1990.
14. Earned income tax credit refund payments received on or after
January 1, 1991.
15. Payments by the Indian Claims Commission to the Confederated Tribes
and Bands of Yakima Indian Nation or the Apache Tribe of Mescalero
Reservation.
16. Allowances, earnings, and payments to AmeriCorps participants under
the National and Community Service Act of 1990.
17. Any allowance paid under the provisions of 38 U.S.C. 1805 to a
child suffering from spina bifida who is the child of a Vietnam
veteran.
18. Any amount of crime victim compensation (under the Victims of Crime
Act) received through crime victim assistance (or payment or
reimbursement of the cost of such assistance) as determined under the
Victims of Crime Act because of the commission of a crime against the
applicant under the Victims of Crime Act.
19. Allowances, earnings, and payments to individuals participating in
programs under the Workforce Investment Act of 1998.
Exclusions cited in 24 C.F.R. 5.609(c) are as follows:
20. Income from employment of children (including foster children)
under the age of 18 years.
21. Payments received for the care of foster children or foster adults
(usually persons with disabilities, unrelated to the tenant family, who
are unable to live alone).
22. Lump-sum additions to family assets, such as inheritances,
insurance payments (including payments under health and accident
insurance and worker's compensation), capital gains and settlement for
personal or property losses.
23. Amounts received by the family that are specifically for, or in
reimbursement of, the cost of medical expenses for any family member.
24. Income of a live-in aide.
25. The full amount of student financial assistance paid directly to
the student or the educational institution.
26. The special pay to a family member serving in the armed forces who
is exposed to hostile fire.
27. Amounts received under training programs funded by HUD.
28. Amounts received by a person with a disability that are disregarded
for a limited time for purposes of supplemental security income
eligibility and benefits because they are set aside for use under a
Plan to Attain Self-Sufficiency.
29. Amounts received by a participant in other publicly assisted
programs that are specifically for or in reimbursement of out-of-pocket
expenses incurred (special equipment, clothing, transportation, child
care, etc.) and that are made solely to allow participation in a
specific program.
30. Amounts received under a resident service stipend. A resident
service stipend is a modest amount (not to exceed $200 per month)
received by a resident for performing a service for the program
administrator, on a part-time basis, that enhance the quality of life
in the development.
31. Incremental earnings and benefits resulting to any family member
from participating in qualifying state or local employment training
programs and training of a family member as resident management staff.
Amounts excluded by this provision must be received under employment
training programs with clearly defined goals and objectives and are
excluded only for the period during which the family member
participates in the employment training program.
32. Temporary, nonrecurring, or sporadic income (including gifts).
33. Reparation payments paid by a foreign government pursuant to claims
filed under the laws of that government by persons who were persecuted
during the Nazi era.
34. Earnings in excess of $480 for each full-time student 18 years or
older (excluding head of household and spouse).
35. Adoption assistance payments in excess of $480 per adopted child.
36. Deferred periodic amounts from supplemental security income and
Social Security benefits that are received in a lump sum amount or in
prospective monthly amounts.
37. Amounts received by the family in the form of refunds or rebates
under state or local law for property taxes paid on the dwelling unit.
38. Amounts paid by a state agency to a family with a member who has a
developmental disability and is living at home to offset the cost of
services and equipment needed to keep the developmentally disabled
family member at home.
Deductions cited in 24 C.F.R. 5.611 are as follows:
39. $480 for each dependent.
40. $400 for any elderly family or disabled family.
41. The sum of the following, to the extent the sum exceeds 3 percent
of annual income:
a. unreimbursed medical expenses of an elderly family or disabled
family;
b. unreimbursed reasonable attendant care and auxiliary apparatus
expenses for each member of the family who is a person with
disabilities, to the extent necessary to enable any member of the
family (including the member who is a person with disabilities) to be
employed.
42. Any reasonable child care expenses necessary to enable a member of
the family to be employed or to further his or her education.
43. Program administrators may adopt additional deductions from annual
income. These deductions must be set forth in the written policies of
the program administrator.
Earned income disallowance (EID) for public housing and voucher tenants
cited 24 C.F.R. 960.255 and 24 C.F.R. 5.617 are as follows:
44. The disallowance policy provides special treatment to families
whose earned income increased as a result of (1) employment of a family
member who was previously unemployed for one or more years and (2)
participation of a family member in a family self-sufficiency or other
job training program. In addition, families who received assistance
through the Temporary Assistance for Needy Family program and their
earned income increased within the previous 6 months can also qualify
for the disallowance. In addition, unlike the public housing program,
the voucher program also requires that the disallowance be restricted
to household members with disabilities. Families that qualify under
these provisions are not subject to increases in their rental
contributions due to higher income from employment or job training for
a 12-month period (full exclusion period). The rent may be increased
during the following 12-month period (phase-in period) but the increase
may not be greater than 50 percent of the amount of the full rent
increase that would be otherwise applicable. After completion of both
the full exclusion and phase-in periods, tenant rent increases by the
full amount (fig. 9). Tenants can claim the disallowance over
nonconsecutive months if their employment status changes, but HUD
imposes a lifetime limit of 48 months starting on the date of the
initial exclusion.
Figure 9: Earned Income Allowance Timeline (Full Exclusion and Phase-In
Periods Over Consecutive Months):
[See PDF for image]
[End of figure]
Step 4: Calculate the Tenant Rental Payments Using Verified
Information:
Finally, after obtaining all the required information and determining
which exclusions and deductions the tenant is eligible to receive, the
program administrator can calculate the tenant rental payment.
According to HUD regulations, tenants must contribute the greater of
the following toward rent for a subsidized unit:
* 30 percent of a family's monthly adjusted income, or monthly income
less exclusion and deductions;
* 10 percent of the family's gross monthly income, or monthly income
before exclusions and deductions; or:
* the applicable minimum rent, which is typically between $0 and $50,
as determined by the program administrator.
Using verified tenant income information, program administrators must
complete the family report.[Footnote 60] In addition to information on
household members' names, birthdates, and Social Security numbers, the
family report also contains forms that program administrators use to
calculate tenant rental payments. Figure 10 is an excerpt from the
family report that illustrates some of the calculations and analysis
that program administrators must perform.
Figure 10: Excerpt from HUD Family Report:
[See PDF for image]
[End of figure]
[End of section]
Appendix III: Comments from the Department of Housing and Urban
Development:
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT:
THE DEPUTY SECRETARY:
WASHINGTON, DC 20410-0050:
February 8, 2005:
David G. Wood:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr.Wood:
Thank you for the opportunity to provide the Department's written
comments on the U.S. Government Accountability Office's draft report on
"HUD Rental Assistance - Progress and Challenges in Measuring and
Reducing Improper Rent Subsidies" (GAO-05-224). HUD's rental housing
assistance programs were separately placed on GAO's list of designated
"high-risk" federal programs in January 2001, and the draft report
served as a primary input to GAO's January 26, 2005 issuance of its
biennial "High-Risk Series - An Update" (GAO-05-207). HUD agrees with
GAO's retention of the high-risk designation for the rental housing
assistance programs and with GAO's summary conclusion that:
...HUD has demonstrated commitment to and progress in addressing
weaknesses identified in its high-risk program areas; however, some of
HUD's corrective actions are in the early stages of implementation, and
additional steps are needed to resolve on-going problems.
However, the draft report does not fully and properly present the
nature and significance of many of HUD's Rental Housing Integrity
Improvement Project (RHIIP) activities. Therefore, HUD requests that
GAO reconsider some of its draft findings and conclusions or put them
in proper context in terms of their actual value in further reducing
the risk of improper payments. Please consider the following general
comments, as well as the separately provided matrix of detailed
comments and technical corrections, in presenting a final report that
is more accurate, balanced, and on point with addressing the stated
objective of assessing the adequacy of HUD's actions to identify and
address the sources and magnitude of improper payments in the rental
housing assistance programs.
HUD Corrective Actions to Reduce Improper Payments:
Outreach, Guidance, Training, and Other Activity Reducing Improper
Payments in 2003:
HUD's rental housing assistance programs are administered by 4,500
public housing agencies (PHAs) and 22,000 multifamily housing property
owners or management agents. Through these program partners, the
Department has been working to address the causes of improper payments
in those programs. An initial focus of the RHIIP effort was to reach
out and communicate the nature and significance of the improper payment
problem to HUD's program partners, housing industry groups, and tenant
advocacy groups and to solicit their support in developing and
implementing corrective actions to reduce improper payments. As
previously recognized in GAO's January 2003 high-risk program
assessment, early RHIIP efforts also focused on providing better
program guidance and training to program administrators, tenant
beneficiaries, and HUD monitoring staff. HUD finds the draft report
remiss in its failure to recognize the Department's outreach, guidance,
and training efforts as contributing factors to the reduction of
improper payments through increased voluntary compliance by program
administrators and tenant beneficiaries.
HUD believes its outreach, guidance, and training activities played a
significant contributing role in the 2003 evidence of a 50 percent
reduction from the 2000 baseline estimate of $3.2 billion in gross
annual improper payments due to errors in program administrator subsidy
determinations and tenant reporting of income. Other factors
contributing to this reduction included increased monitoring by
performance-based contract administrators (PBCAs) in the Section 8
Project-Based Assistance Program; early impacts of the rental integrity
monitoring (RIM) efforts in the Public Housing and Section 8 Voucher
Programs; promotion and initiation of improved computer matching
efforts for tenant income verification; and improvements to the process
for measuring the impacts of undisclosed tenant income sources. While
HUD agrees with GAO's conclusion that some of these later corrective
actions were not fully implemented or were in early stages at the time
of the 2003 error measurement update, they nevertheless had an apparent
impact on improving program compliance in 2003 and hold great promise
for further improper payment reductions upon full implementation.
Increasing and improving Program Monitoring Activity:
HUD's PBCA and RIM initiatives were undertaken to address decades-old
inadequacies in HUD's monitoring and oversight of billings and of
income, rent, and subsidy determinations in its rental housing
assistance programs. HUD believes its increased monitoring efforts to
date have been highly beneficial in improving program administrator
compliance and performance and reducing the risk of improper payments.
While HUD generally agrees with GAO's findings on the need for greater
standardization and consistency in the execution of the Department's
monitoring processes, the final report should put those findings in the
proper context of the significant overall increase in HUD's monitoring
of the rental assistance programs in the past several years and the
value of those efforts in improving program administration and reducing
improper payments.
GAO's final report should also acknowledge that the design and level of
HUD's ongoing program monitoring efforts are directly related to the
level of annual budgetary resources provided to HUD to establish and
sustain an ongoing monitoring capacity. HUD's Fiscal Year (FY) 2005
funding supports less staffing, travel, and contracting for program
monitoring activity than was available in FY 2004. The steady
downsizing of HUD's staffing over the past decade has necessitated that
the Department increasingly rely on remote monitoring systems, risk-
based monitoring practices, and voluntary compliance by third-party
program administrators.
In the case of the PBCA initiative, HUD was given sufficient budgetary
resources for an annual onsite compliance monitoring review and a
review of 100 percent of subsidy payment vouchers submitted under
Section 8 project-based assistance contracts covered by PBCAs. HUD
attributes the relatively low billing error rate and the 2003
reductions in other project-based assistance error components to its
expanded use of PBCAs, which was the only significant explanatory
variable from prior error measurement efforts in 1993 and 2000. While
HUD plans to provide a comparable level of monitoring to its other
project-based assistance program activity and has requested the
budgetary resources to do so, it remains to be seen whether these
resources will be provided and sustained. If not, HUD will have to
devise other, less comprehensive methods of monitoring its project-
based assistance to private owners of low-income housing. HUD is
rewriting its PBCA contract requirements and will address GAO's issue
that more consistent reporting of monitoring results is needed as a
basis for measuring, analyzing, and resolving compliance and
performance problems.
HUD's initial RIM reviews were targeted at the 490 largest PHAs that
together receive 80 percent of the funds from the Public Housing and
Section 8 Voucher programs of the Office of Public and Indian Housing's
(PIH). These were intended to be one-time baseline and follow up
reviews of the larger PHAs' performance of income, rent, and subsidy
determinations, because HUD lacks the capacity to sustain this level of
RIM reviews on an annual basis without adversely affecting PIH's other
program delivery and monitoring responsibilities. However, HUD's FY
2005 Management Plan guidance conveyed HUD's plans to resume the
conduct of RIM reviews as part of HUD's normal oversight activities in
FY 2006. These would follow a targeted FY 2005 focus on follow-up and
enforcement actions on the results of the initial RIM review effort.
In its future RIM reviews, HUD plans to utilize PIH's limited
monitoring capacity to perform RIM reviews on the 490 largest PHAs on a
cyclical basis, along with review of an annual random selection of
smaller PHAs. The frequency of the RIM review cycle will depend on
PIH's staff resource level. HUD's recently updated RHIIP plan addresses
GAO's recommendation on the need to collect complete and consistent
information from its monitoring efforts to help focus corrective
actions. In addition, the Congress provided PIH with 75 additional full-
time equivalent (FTE) positions to improve controls over budgeting and
accounting for the Section 8 Voucher Program. Use of those additional
resources should also further reduce the risk of improper payments.
Program Simplification Efforts:
The draft report does not adequately characterize the work HUD has done
in developing proposals to simplify policies for rent subsidy
determinations that would reduce the risk of improper payments. The
report fails to mention three legislative initiatives that were
proposed in HUD's FY 2004 and FY 2005 budget justifications, the
Housing Assistance for Needy Families proposal, Flexible Voucher
proposal and Freedom To House initiative. Each of these proposals
included rent subsidy simplification. Although none of these
initiatives were enacted as part of HUD's appropriations, each had been
vetted through the Department and through the Office of Management and
Budget (OMB) and reflected the Department's strong interest in pursuing
simplification. As part of its FY 2006 budget, HUD will propose several
initiatives to simplify rent subsidy determinations.
The draft report incorrectly states that HUD has not conducted formal
studies on or otherwise considered the effects of its program
simplification change proposals. To the contrary, all of HUD's
proposals with respect to simplifying rent subsidy determinations have
undergone extensive analysis by the Department's Office of Policy
Development and Research (PD&R) and program staff. Nevertheless, HUD
agrees with GAO's conclusions that major policy changes would require
statutory action by the Congress. HUD also agrees that changes to the
current system of income deductions and exclusions would likely affect
many tenants' rental payments, with some tenants paying higher rent and
others paying lower rent than they do under the current program
structure. Given that such policy changes are beyond HUD's control, the
Department remains focused on improving management controls to reduce
risks in the existing program structures, while continuing to consider
and advance program simplification proposals with program stakeholders.
Efforts to Identify the Sources and Magnitude of Improper Payments:
HUD's efforts to measure the sources and magnitude of improper payments
in its rental housing assistance programs are costly and burdensome to
implement for HUD, as well as for its program administrators and tenant
beneficiaries. HUD's measurement efforts to date have been designed and
deployed as needed to guide corrective actions, to reduce the risk of
improper payments, and to measure the general success of those
activities. The draft report correctly states that HUD has identified
three general sources of improper payments in its rental housing
assistance programs-program administrator subsidy determination error,
tenant income reporting error, and billing or payment error. However,
HUD disagrees with the draft report's conclusion that HUD has complete
and reliable estimates only for the program administrator subsidy
determination component. The Department also disagrees with the
implication that HUD lacks information for program decision-making on
risk reduction efforts for the other identified error components.
Regarding the draft report's conclusions that HUD should measure
certain types of errors and the impacts of corrective actions in
greater detail or more precisely, the Department questions the
necessity and cost-benefit of such efforts.
The draft finds that HUD's FY 2003 estimate of improper rent subsidies
attributable to unreported tenant income was unreliable because it was
based on a sample that was too small to produce an accurate result.
That finding is misleading and should be put in the proper context.
HUD used the same sampling methodology for measuring unreported tenant
income in 2003 as was used and accepted by GAO and HUD's Office of
Inspector General in 2000. HUD's FY 2003 sample consisted of over 5,500
tenants in the 2,401 subsidized households included in the
statistically valid sample for the review of the program administrator
subsidy determinations accepted by GAO. HUD identified 30 of the 2,401
tenant households surveyed as having at least one unreported income
source. The estimated incidence of cases in error was 1.2 percent.
There is a 95 percent likelihood that the true incidence of error was
in the 0.1 to 2.0 percent range. The $191 million dollar error estimate
also has a relatively high confidence interval range, which is partly a
function of the distribution of errors and partly due to the small
number of errors. To obtain a precise estimate of dollar error would
require a much larger and more expensive sample. Since HUD anticipates
that full implementation of its Enterprise Income Verification computer
matching system will eliminate any reasonably detectable underreporting
of income, HUD does not believe that the cost of a survey large enough
to measure this error more accurately is necessary or advisable.
The draft report's discussion of HUD's estimation of billing error in
the Project-Based Assistance programs is also misleading and in need of
clarification. The report ignores three points: (1) the error found was
difficult to measure because it was so small; (2) the sample size used
followed OMB guidelines on measuring improper payments, which were
partly intended to avoid excessive sampling costs; and (3) many of the
"errors" identified were due to the study's protocols, which did not
resolve situations where funds paid could not be fully tracked because
they had been commingled with other activities or projects under
allowed procedures. Funds that could not be fully tracked were
classified as discrepancies and reported as billing errors in this
study, although it is unlikely that most were actually errors that
adversely affected HUD or the program. HUD intends to add procedures to
future billing studies that are almost certain to eliminate a
significant portion of the discrepancies reported in this year's study.
HUD does need to complete the ongoing billing error measurement effort
for the Public Housing and Section 8 Voucher Programs to determine the
nature and extent of any problems that need to be resolved. Even so,
PIH is already taking action to improve controls over billings in those
programs, such as establishing the Office of Voucher Quality Assurance.
While the draft report accepted the methodology and results of HUD's
process for estimating program administrator subsidy determination
error, the report recommends that HUD expand the process for the
Project-Based Assistance programs to provide for separate error rates
for activities respectively monitored by PBCAs, traditional Contract
Administrators, and HUD staff. Such an effort would be far more costly,
because sample sizes would need to be at least tripled to permit
statistically valid comparisons. Unless HUD is unsuccessful in its
efforts to provide all Project-Based Assistance program activity with
the same level of monitoring provided by the PBCAs, such an action does
not seem necessary or cost-beneficial. Even then, an aggregate estimate
might still be acceptable, if the overall error continues to show a
strong downward trend towards an acceptable level, commensurate with
the implementation of HUD's corrective actions. Rather than expand the
costly separate error measurement efforts, HUD prefers to consider
GAO's recommendations to better capture its ongoing monitoring results
as a basis for measuring, analyzing, and addressing problems in the
administration of the rental housing assistance programs.
I appreciate GAO's efforts to assure a full and accurate assessment of
all relevant facts in arriving at valid conclusions on the nature and
significance of HUD's rental housing assistance program risks and the
adequacy of HUD's corrective actions and plans to better manage those
risks. I have requested HUD's staff to meet with GAO on an ongoing
basis to help insure that to the fullest extent possible the Department
addresses all of the criteria that led to GAO's "high-risk"
determination. If your staff has any questions on our comments, please
have them contact James M. Martin, Assistant Chief Financial Officer
for Financial Management, on (202) 708-0614, extension 3706.
Sincerely,
Signed by:
Roy A. Bernardi:
Deputy Secretary:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
David G. Wood (202) 512-8678;
Steven Westley (202) 512-6221:
Staff Acknowledgments:
In addition to the individuals named above, Daniel Garcia-Diaz, Cory
Roman, and Rose Schuville made key contributions to this report. Also
contributing to this report were Carl Barden, Emily Chalmers, John T.
McGrail, Marc W. Molino, Terry Richardson, and Jerry Sandau.
(250173):
FOOTNOTES
[1] GAO, Major Management Challenges and Program Risks: Department of
Housing and Urban Development, GAO-01-248 (Washington, D.C.: January
2001).
[2] Office of Management and Budget, The President's Management Agenda,
Fiscal Year 2002 (Washington, D.C.: August 2001).
[3] The margin of error at the 95 percent level of confidence for the
estimated $1.4 billion in gross improper subsidies is ±$185 million.
The margins of error for the estimated $896 million in overpayments and
$519 million in underpayments are ±$132 million and $±96 million,
respectively.
[4] See 42 U.S.C. 1437n(b)(1).
[5] These 2,500 PHAs are among the approximately 3,300 that administer
federal housing programs on behalf of HUD.
[6] This figure includes both operating and capital subsidies.
[7] See 43 U.S.C. 1437n(a)(2).
[8] The only exception to this is the Section 8 Moderate Rehabilitation
program, which is administered by PHAs rather than property owners or
managers.
[9] Performance-based contract administrators receive an incentive fee
if they perform above a minimum quality level as determined by HUD, and
their fees are reduced if they perform below it.
[10] See 24 C.F.R. 5.609.
[11] HUD periodically identifies these federally mandated exclusions
from income in the Federal Register. See 66 Fed. Reg. 20318 (Apr. 20,
2001) for the most recent listing.
[12] See 24 C.F.R. 5.611.
[13] See 24 C.F.R. 5.628. For project-based Section 8 properties, the
minimum rent is $25 per month.
[14] GAO, Major Management Challenges and Program Risks: Department of
Housing and Urban Development, GAO-03-103 (Washington, D.C.: January
2003) and GAO-01-248.
[15] Office of Inspector General, Department of Housing and Urban
Development, Additional Details to Supplement Our Report on the U.S.
Department of Housing and Urban Development's (HUD) Fiscal Year 2004
Financial Statements (Washington, D.C.: November 2004).
[16] Office of Management and Budget, The President's Management
Agenda, Fiscal Year 2002 (Washington, D.C.: July 2001).
[17] The Improper Payments Information Act of 2002 (Pub. L. No. 107-
300) also required HUD to report its estimate of improper rent
subsidies annually.
[18] The President's Management Agenda also urged HUD to work with
stakeholders to simplify program rules where necessary.
[19] At the time of our field work, HUD had not assigned project-based
Section 8 contracts to a performance-based contract administrator in
either Illinois or Northern California.
[20] Appendix I provides the margins of error for all estimates of
improper rent subsidies attributable to program administrator errors.
[21] Pub. L. No. 107-300, Nov. 26, 2002.
[22] See Office of Management and Budget's guidance "Improper Payments
Information Act of 2002 (Pub. L. No. 107-300)."
[23] Absolute value is the magnitude of a number irrespective of
whether it is positive or negative. For example, the sum of the
absolute values of -2 and 2 is 4.
[24] We followed HUD's approach by not counting a discrepancy of $5 or
less between the rent in the tenant's file and the "correct rent" as an
error in order to eliminate minor discrepancies that have little impact
on programwide subsidy errors. Including all errors (anything greater
than $0) would increase the fiscal year 2003 estimate of program
administrator errors by less than $18 million, or about 1 percent. In
addition, our estimates of such errors for fiscal year 2003 agree with
those published in HUD's Performance and Accountability Report for
Fiscal Year 2004.
[25] RHIIP's quantitative goal for reducing improper rent subsidies
also applies to the other sources of error.
[26] Gross improper subsidies per household are limited to those
households with erroneous subsidies. Those households with no errors
are not included in the calculation.
[27] Notice PIH 2003-34, Rental Integrity Monitoring Disallowed Costs
and Sanctions Under the Rental Housing Integrity Improvement Project
Initiative, Dec. 19, 2003.
[28] HUD conducted the first round of RIM reviews in two phases.
Between June 2002 and March 2003, HUD staff completed 376 RIM reviews
(phase 1 of the first round). Between March and September 2003, HUD
staff selected another 490 PHAs for review (144 from phase 1 and 346
additional PHAs--together, phase 2 of the first round).
[29] Only those PHAs that were part of phase 2 of the first round of
RIM reviews received second-round RIM reviews. According to HUD, some
of these PHAs received two second-round RIM reviews--one for the
voucher program and one for the public housing program. Other PHAs--
either those with only one program or those with two programs, but only
one that required a second-round RIM review--received one second-round
RIM review. As a result, the number of PHAs that received second-round
RIM reviews is smaller than the total number of second-round reviews.
[30] PHAS replaced the Public Housing Management Assessment Program
(PHMAP) in 1998. Implemented in 1992, PHMAP was designed to evaluate
PHAs' management performance. Under PHMAP, PHAs were given scores of
high, standard, or troubled based on self-certified information
submitted by PHAs to HUD.
[31] Under PHAS, HUD may sanction PHAs for poor performance and
noncooperation with the department in addressing problems. For example,
HUD may place restrictions and conditions on PHA expenditures or
suspend or remove PHA officials. See GAO, Public Housing: New
Assessment System Holds Potential for Evaluating Performance, GAO-02-
282 (Washington, D.C: Mar. 15, 2002).
[32] Each year, HUD assigns each PHA a rating for each of the
individual SEMAP indicators and an overall performance rating of high,
standard, or troubled. If a PHA is assigned an overall rating of
troubled, HUD will conduct an on-site review at that PHA to assess the
magnitude and seriousness of the problem. Troubled PHAs are also
required to implement corrective action plans and receive additional
HUD monitoring to ensure improvement in program management. Under
Notice 2003-34, HUD can reduce a PHA's SEMAP score if a RIM review does
not support the PHA's self-certification that it has correctly
determined adjusted annual income for each household. If the reduced
score places the PHA in troubled status, HUD may also impose additional
sanctions. PHAS uses a similar rating system in which HUD assigns PHAs
individual scores for each of the components and an overall composite
rating; however, because PHAS does not assess PHAs' subsidy
determinations, HUD cannot reduce PHAS scores under Notice 2003-34.
[33] HUD does not have criteria for the number of staff required to
conduct a RIM review.
[34] HUD's income verification system is a Web-based application that
allows PHAs to compare Social Security income information reported by
tenants with information reported by the Social Security
Administration. This system is currently available to all PHAs. The
income verification system will be expanded to allow PHAs to compare
earned income information reported by tenants with information that
employers report to government agencies. HUD is in the process of
expanding the income verification system, and it is currently available
to PHAs in a limited number of states. Income verification is discussed
later in this chapter.
[35] In a later memorandum, dated April 28, 2003, HUD instructed field
offices to provide written reports to PHAs no more than 45 days after
the RIM review ended, conflicting with the requirement in the RIM
Guide. If we use the 45-day time frame, 13 of the 31 RIM reports we
reviewed (about 42 percent) were issued late.
[36] Consolidated Appropriations Act, 2004, Pub. L. No. 108-199, Jan.
23, 2004.
[37] Program administrators must certify incomes and eligibility for
assistance when households first apply for assistance and at least
annually thereafter.
[38] This problem affects recertifications, not initial certifications,
because information in HUD's income verification system is limited to
tenants who are already receiving housing assistance.
[39] The guidebook covers a range of issues, including admitting
applicants to programs, calculating subsidies, and terminating leases.
[40] The database will also be used for HUD's public housing and
voucher programs.
[41] HUD Handbook 4350.3 REV-1, "Occupancy Requirements of Subsidized
Multifamily Housing Programs," May 2003.
[42] Prior to the guide's issuance, HUD's procedures for conducting
management and occupancy reviews were not sufficiently detailed to
identify and record information on improper rent subsidies, leading
some PBCAs and field offices to develop their own detailed procedures.
[43] HUD Handbook 4350.1 REV-1, "Multifamily Asset Management and
Project Servicing," January 1996.
[44] Contract administrators review monthly payment voucher requests
from property owners to verify, among other things, that the amount of
the payment for each tenant is correct and that the request does not
include payment for any units that are not eligible for Section 8
rental assistance.
[45] PBCAs' contracts with HUD require that they collect this
information but do not specify how this information should be collected
and in what form.
[46] Currently, HUD cannot transfer to PBCAs contracts for
approximately 4,100 properties that fall under several programs: the
Section 202 Supportive Housing for the Elderly, Section 811 Supportive
Housing for Persons With Disabilities, Rent Supplement, and Rental
Assistance Payment. According to HUD, the department cannot transfer
these contracts because program legislation does not allow appropriated
program funds to pay fees for contract administration by third-party
entities. HUD announced in April 2004 that it would competitively
source the administration of these contracts and determine the most
cost-effective way of administering them. Under Office of Management
and Budget policy, federal employees (including HUD field office staff)
can compete with private sector employees to provide contract
administration services. According to HUD, after the department
determines the most cost-effective contract administrator, it will seek
new budget authority to pay for these services.
[47] U.S. Department of Housing and Urban Development, Office of
Inspector General, Audit of the U.S. Department of Housing and Urban
Development Financial Statements for Fiscal Years 2003 and 2002, 2004-
FO-0003 (Washington, D.C.: December 2003).
[48] HUD pays PBCAs an incentive fee if they perform above a minimum
quality level as determined by HUD or reduces their fee if they perform
below it. Unlike for PBCAs, HUD pays traditional contract
administrators a fixed fee for their services.
[49] In fiscal year 2004, 879 properties that were assigned to PBCAs
did not receive a management and occupancy review. According to HUD,
these properties were not reviewed primarily because they were assigned
to PBCAs in the last 6 months of the fiscal year, and PBCAs have 12
months to review newly assigned properties.
[50] U.S. Department of Housing and Urban Development, Office of
Inspector General, Additional Details to Supplement Our Report on the
U.S. Department of Housing and Urban Development's Fiscal Year 2004
Financial Statements, 2005-FO-0003 (Washington, D.C.: November 2004).
[51] GAO-03-103.
[52] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[53] U.S. Department of Housing and Urban Development, Quality Control
for Rental Assistance Subsidies Determinations (Washington, D.C.: June
2001).
[54] Eligible families can also qualify for the disallowance if they
are, or were within the previous 6 months, assisted by the Temporary
Assistance for Needy Families program and their earned income
increased. In addition, unlike the public housing program, the voucher
program restricts the disallowance to families whose income increases
due to the employment or increased earnings of a household member with
disabilities.
[55] Tenant rents, however, could change for other reasons, such as
annual adjustments for inflation.
[56] Authorized under the Omnibus Consolidated Rescissions and
Appropriations Act of 1996 (Pub. L. No. 104-134), the purpose of the
Moving-to-Work demonstration program is to: (1) reduce costs and
achieve greater cost-effectiveness in the public housing and voucher
programs, (2) give incentives to families with children to become
economically self-sufficient, and (3) increase housing choices for low
income families.
[57] We conducted this analysis to illustrate the potential
implications of specific simplification approaches, not to draw
conclusions about simplification of rent policies generally. Small
changes in the assumptions used in our analysis could yield
significantly different results.
[58] The estimate for the voucher program includes a very small number
of Section 8 Moderate Rehabilitation units, which, like vouchers, are
administered by public housing agencies.
[59] We also show the percentile distribution of values appearing in
multiple tables in this appendix. These percentiles indicate what
percentage of households had values equal to or less than the value
shown in the table. For example, in table 5, 25 percent of households
had dollar errors of $13 or less for all programs. (Another way of
interpreting this would be that 75 percent of households had dollar
errors greater than $13.)
[60] HUD Form 50058 is used for public housing and vouchers and Form
50059 for project-based Section 8.
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