RURAL HOUSING 

SERVICE

Additional Actions 

Would Help Ensure 

Reasonableness of 

Rental Assistance 

Estimates

Report to the Subcommittee on 

Agriculture, Rural Development, Food 

and Drug Administration, and Related 

Agencies, Committee on Appropriations, 

U.S. Senate

September 2017

GAO-17-725

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-725, a report to the 

Subcommittee on Agriculture, Rural

Development, Food and Drug

Administration, and Related Agencies,

Committee on Appropriations, U.S. Senate

September 2017

RURAL HOUSING SERVICE

Additional Actions Would Help Ensure 

Reasonableness of Rental Assistance Estimates

What GAO Found

An interplay of three primary factors contributed to the funding gaps that the

rental assistance program of the U.S. Department of Agriculture’s Rural Housing 

Service (RHS) faced in fiscal years 2013–2015:

• Fiscal year 2013 sequestration and rescissions. An across-the-board 

cancelation of budgetary resources in March 2013 decreased the program’s 

approximately $907 million budget by about $70 million.

• Unreliable methods for estimating rental assistance costs. RHS used a 

state-wide, per-unit average cost to calculate rental assistance agreement 

amounts. This resulted in some properties receiving more funds than 

needed, tying up funds that could have been used for other properties.

• Limited management flexibility. RHS had limited ability to adjust its 

program management to help prevent funding gaps. For example, RHS does

not have authority to fund agreement renewals for less than 1 year.

RHS took steps to mitigate the effects of the funding gaps on property owners, 

but some had negative consequences. For example, to cover fiscal year 2014–

2015 gaps, RHS used unexpended rental assistance funds from properties that 

had exited the program. But, as a result, the program lost the associated rental 

assistance units and RHS could not re-assign the units to other properties.

RHS has taken steps under its existing authorities to help prevent future funding 

gaps but lacks certain plans and controls to help ensure its estimates of rental 

assistance costs are reasonable. In fiscal year 2016, RHS began using a new

cost model integrated with its program information system that more accurately

estimates rental assistance agreement renewals. For instance, the model 

estimates renewal costs based on property-level data rather than state-wide 

averages. RHS also began including estimates of agreements that would need 

two renewals in the same fiscal year (a number of which are to be expected) in 

budget requests. But, GAO found weaknesses in aspects of RHS’s budget 

estimation and execution of rental assistance. Specifically, RHS:

• does not have a plan for ongoing monitoring or testing of the new estimation 

method. Federal internal control standards call for management to establish 

monitoring activities and evaluate results.

• lacks controls to detect misestimates of rental assistance, a problem RHS 

experienced during early use of the model. Federal internal control standards 

call for control activities for information systems to respond to risks.

• has not used the appropriate inflation rates in its budget estimates since 

fiscal year 2009. Office of Management and Budget guidance states budgets

should be consistent with the economic assumptions it provides.

• has not provided staff guidance on their responsibilities for determining 

whether properties’ rental assistance should be renewed. Federal internal 

control standards call for documenting responsibilities through policies.

The weaknesses may exist partly because RHS continues to refine its estimation 

method, which has been in effect for about 2 years. By addressing them, RHS 

would have greater assurance that it will develop the best possible estimates.

View GAO-17-725. For more information, 

contact Daniel Garcia-Diaz at (202) 512-8678

or garciadiazd@gao.gov.

Why GAO Did This Study

RHS provides about $1.4 billion

annually in rental subsidies to owners 

of multifamily housing for more than 

270,000 low-income rural households.

RHS’s agreements with property 

owners provide rental assistance 

payments estimated to last 1 year. In 

fiscal years 2013–2015, RHS was 

unable to renew all its agreements 

because it ran out of funds. For 

example, in fiscal year 2015, the 

funding gap was about $97 million. As 

a result, some property owners’ rental 

assistance payments were delayed. 

GAO was asked to examine the 

reasons why RHS ran out of funds and

how RHS plans to improve its budget 

requests. This report examines (1) 

reasons RHS ran out of funds for 

renewing rental assistance agreements

in fiscal years 2013–2015 and how it 

responded, and (2) what RHS has 

done to help prevent future funding 

gaps and the extent to which it has

addressed related budgetary issues.

GAO analyzed RHS budget and rental 

assistance data for fiscal years 2011–

2016, reviewed RHS policies and 

procedures, and interviewed RHS 

national office officials and staff from15 

(of 47) randomly selected state offices.

What GAO Recommends

GAO recommends that RHS develop 

plans for testing rental assistance 

estimation methods, develop 

estimation controls, create controls to 

ensure use of appropriate assumptions

in budget requests, and provide

guidance on reviews of rental 

assistance renewals. RHS did not 

comment on GAO’s recommendations.
Page i GAO-17-725 Rural Housing Service

Letter 1

Background 3

Multiple Factors Caused Funding Gaps and RHS Took Steps to 

Mitigate Effects 5

RHS Improved Rental Assistance Estimates but Some 

Weaknesses Exist in Budget Estimation and Execution 15

Conclusions 26

Recommendations for Executive Action 27

Agency Comments 28

Appendix I Objectives, Scope, and Methodology 29

Appendix II GAO Contact and Staff Acknowledgments 34

Table

Table 1: Inflation Rates Used in RHS’s Budget Requests for the 

Rental Assistance Program Compared with the 

President’s Economic Assumptions 23

Figures

Figure 1: Percentage of RHS Rental Assistance Agreement

Renewals, Categorized by Number of Payments Made, 

Fiscal Years 2013–2015 8

Figure 2: Percentage of RHS Rental Assistance Agreements 

Renewed in October Compared with the Rest of the 

Fiscal Year, Fiscal Years 2011–2016 12

Figure 3: Percentage of RHS Rental Assistance Agreement 

Renewals Made in Fiscal Year 2016, Categorized by 

Number of Payments Made or Projected to Be Made 17

Contents
Page ii GAO-17-725 Rural Housing Service

Abbreviations

AMAS Automated Multi-Family Housing Accounting System 

IT information technology

MFIS Multi-Family Housing Information System

OMB Office of Management and Budget

RHS Rural Housing Service

USDA U.S. Department of Agriculture

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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necessary if you wish to reproduce this material separately.
Page 1 GAO-17-725 Rural Housing Service

441 G St. N.W.

Washington, DC 20548

September 13, 2017

The Honorable John Hoeven

Chairman

The Honorable Jeff Merkley

Ranking Member

Subcommittee on Agriculture, Rural

Development, Food and Drug

Administration, and Related Agencies

Committee on Appropriations

United States Senate

Each year, the Rural Housing Service (RHS) of the U.S. Department of 

Agriculture (USDA) provides rental subsidies through the Section 521 

Rental Assistance Program for more than 270,000 rural households.1

Under the program, eligible tenants pay no more than 30 percent of their 

income toward the rent, and RHS pays the balance to the property owner. 

With an annual budget of more than $1.3 billion, the rental assistance 

program is the largest program within RHS, accounting for more than half 

of its budget.

In fiscal years 2013–2015, RHS was not able to renew all eligible rental 

assistance agreements because it obligated (legally committed) all its 

appropriated funds before the end of the fiscal year, September 30. This 

resulted in some owners missing or receiving delayed rental assistance 

payments. Additionally, RHS requested and received more than $200 

million for fiscal year 2016 above the amount requested in the President’s 

budget to cover (among other things) the cost of renewing agreements 

that could not be renewed at the end of fiscal year 2015.

You asked us to examine why RHS ran out of funds before the ends of 

fiscal years 2013–2015 and how RHS plans to improve the accuracy of its 

budget requests. This report examines (1) the reasons RHS ran out of 

funds for renewing rental assistance agreements in fiscal years 2013–

2015, and how it responded to the funding gaps in those years; and (2) 

 1

The program is authorized by Section 521 of the Housing Act of 1949, as amended (42 

U.S.C.1490a).

Letter
Page 2 GAO-17-725 Rural Housing Service

what RHS has done to help prevent future funding gaps and the extent to 

which it has addressed related budgetary issues.2

To address these objectives, we analyzed rental assistance obligation 

and expenditure data from RHS’s accounting system for fiscal years 

2011–2016 to determine the timing and amount of renewals of rental 

assistance agreements in each year. We reviewed RHS policies and 

procedures for budget estimation and execution (such as allocating and 

obligating funds for rental assistance agreements) and compared them to 

federal guidance on budget preparation and federal internal control 

standards that apply to these processes. We also reviewed budget 

documents showing the amount of budget authority appropriated to the 

rental assistance program in fiscal years 2013–2015 and reductions in 

appropriated amounts due to sequestration and rescissions (cancelations 

of budgetary resources) in fiscal year 2013. We examined the 

methodology behind RHS’s obligation tool for estimating rental assistance 

agreement amounts and budget requests. We interviewed RHS and 

Office of Management and Budget (OMB) officials and staff on RHS’s 

budget estimation processes, including the inflation rates RHS used for 

fiscal year 2010–2018 budget requests. We interviewed staff who 

administer the rental assistance program at a nongeneralizable sample of 

15 randomly selected Rural Development state offices (out of 47) about 

practices for reviewing and approving rental assistance obligations.3 To 

assess the reliability of data from RHS’s accounting system, we 

interviewed Rural Development officials, reviewed related documentation, 

and tested the data for missing or erroneous values. We determined the 

data we used were sufficiently reliable for purposes of describing the 

number and timing of rental assistance agreement renewals and 

payments. Appendix I describes our objectives, scope, and methodology 

in greater detail.

We conducted this performance audit from November 2015 to September 

2017 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

 2

In this report, we use the term “funding gap” to refer to situations in which RHS 

exhausted its funding before the end of the fiscal year and could not renew rental 

assistance agreements up for renewal. 

3

Rural Development is the USDA component that oversees RHS. We interviewed staff 

from the following state offices: Arkansas, Delaware-Maryland, Indiana, Iowa, Kentucky, 

Maine, Massachusetts-Rhode Island-Connecticut, Minnesota, Mississippi, Nebraska, 

Nevada, New Jersey, North Carolina, Oklahoma, and South Dakota.
Page 3 GAO-17-725 Rural Housing Service

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

The Section 521 Rental Assistance Program, started in 1978, is 

administered by RHS’s Multi-family Housing Portfolio Management 

Division. The program provides rental assistance for tenants living in 

properties financed by direct loans from RHS’s Multi-Family Housing 

Direct Loans and Farm Labor Housing Direct Loans and Grants 

programs.4 As discussed previously, eligible tenants pay no more than 30 

percent of their income toward rent and RHS pays the balance to the 

property owner. Tenants must be low-income (with incomes 50-80 

percent below area median income) or very-low-income (with incomes 

below 50 percent of area median income) to be eligible for rental 

assistance. As of the end of fiscal year 2016, the program had 14,308 

properties and 282,806 units receiving rental assistance, according to 

RHS.

RHS provides the rental subsidies through agreements with property 

owners for an amount estimated to last for 1 year as required under the 

program’s appropriations acts, which RHS interprets as 12 monthly rental 

assistance payments.5 RHS draws down on this amount for each rental 

assistance payment made for the property. The agreements with the 

owners expire when the original dollar amount obligated is fully 

expended, even if the period covered by the agreement is longer than the 

expected 1 year (that is, more than 12 payments are required to exhaust 

 4

The programs were authorized by Sections 514, 515, and 516 of the Housing Act of 

1949, as amended, 42 U.S.C. § § 1484, 1485, 1486. The Section 515 Multi-Family 

Housing Direct Loans program provides loans, subsidized as low as 1 percent interest, to 

developers to build rental housing. The Section 514 and 516 Farm Labor Housing Direct 

Loans and Grants programs provide direct loans subsidized at 1 percent interest and 

grants to build rental housing for farm laborers. Only “off-farm” labor housing is eligible for 

rental assistance subsidies. 

5

The length of agreements has changed over time. According to RHS officials, RHS 

issued 20-year agreements from the program’s inception through fiscal year 1982, 5-year 

agreements during fiscal years 1983–2003, 4-year agreements in fiscal years 2004–2006, 

and a combination of 1- and 2-year agreements in fiscal year 2007. Officials said RHS has 

issued 1-year agreements since fiscal year 2008.

Background
Page 4 GAO-17-725 Rural Housing Service

the obligated dollar amount), or is less than 1 year.6 The agreements 

specify that owners will receive payments on behalf of tenants in a 

designated number of units at the property. Each month, property owners 

or their management companies must certify the number of rental 

assistance units that are occupied and submit a request for payment of 

rental assistance to RHS. In addition, property owners must certify 

tenants’ incomes annually or when a tenant experiences a substantial 

change in income.

RHS automatically renews expiring agreements if funding is available and 

the owner is in compliance with program requirements. For fiscal years 

2013–2015, the vast majority of rental assistance agreements were 

renewals of prior agreements, as opposed to new agreements for 

properties entering the rental assistance program. An agreement can be 

renewed more than once in the same fiscal year if the obligated funds are 

fully expended within the fiscal year. RHS refers to the second agreement 

in the same fiscal year as a “second renewal.”

RHS’s national office and Rural Development’s state and local offices 

manage the rental assistance program. The Portfolio Management 

Division within the national Multi-Family Housing office develops and 

implements program regulations, estimates program budgets, and tracks 

nationwide program statistics. It also has responsibility for executing the 

program’s budget, including allocating funds to properties for rental 

assistance agreements and tracking use of the appropriated funds. Rural 

Development state and local offices monitor the program and interact with 

property owners and property management companies. State office 

responsibilities include budget execution duties such as approving and 

obligating funds for rental assistance agreements with property owners 

and monitoring unused rental assistance units in the state. Local offices 

review and approve property budgets and rent increases and review 

owners’ compliance with program requirements.

RHS uses the Multi-Family Housing Information System (MFIS) to 

allocate funds, calculate obligation amounts for rental assistance 

agreements, and maintain data on properties and tenants. Property 

 6

Rental assistance agreements are unlikely to last for 12 payments exactly because of the 

uncertainty in estimating rental assistance costs. Many factors can lead to rental 

assistance agreements lasting shorter or longer than anticipated, including changes in 

vacancies, tenant incomes, and the number of dwelling units undergoing repair or 

rehabilitation. 
Page 5 GAO-17-725 Rural Housing Service

owners or their management companies submit tenant information and 

monthly requests for payment through an online portal that uploads the 

information directly to MFIS. As noted above, properties must be financed 

by the Multi-Family Housing Direct Loans or Farm Labor Housing Direct 

Loans and Grants programs to receive rental assistance. Because each 

owner also must make a monthly mortgage loan payment to RHS for the 

property, MFIS calculates the net rental assistance payment due to the 

owners each month. That is, it calculates the amount of rental assistance 

due to the owner and subtracts the mortgage payment that the owner 

must pay to RHS, among other things. If the amount owed to the owner is 

greater, RHS makes a cash payment to the owner. If the amount owed to 

RHS is greater, the owner must still make a payment to RHS.

An interplay of factors—primarily sequestration and rescissions, 

unreliable estimation methods, and limits on RHS’s ability to manage 

program funds differently—resulted in the program funding falling short of 

the amount needed to renew all eligible rental assistance agreements at 

the ends of fiscal years 2013, 2014, and 2015. In those years, RHS used 

all that remained of its appropriated funds for agreement renewals by July 

or August. According to our analysis of RHS data, the number of 

properties whose agreements ran out of funds but could not be renewed 

until the next fiscal year was 308 in fiscal year 2013, 401 in fiscal year 

2014, and 943 in fiscal year 2015 (of about 15,000 properties).7 RHS 

 7

RHS provided us with a spreadsheet containing a list of the agreements that were 

renewed at the beginning of fiscal years 2014–2016 that would have been renewed at the 

end of the prior fiscal year if the program had the funding. We calculated these numbers 

using this list. We were not able to independently reproduce the list of agreements in 

RHS’s spreadsheet using the data we received from RHS’s accounting system because 

the accounting system has no indicator that would identify the properties that had not 

been renewed in the prior year, according to RHS. RHS developed the list using reports 

officials had run at the end of each fiscal year that identified properties with rental 

assistance payments that were in pending status because there was not enough money 

on their rental assistance agreements.

Multiple Factors 

Caused Funding 

Gaps and RHS Took 

Steps to Mitigate 

Effects

An Interplay of Factors 

Contributed to Fiscal Year 

2013–2015 Gaps
Page 6 GAO-17-725 Rural Housing Service

officials estimated that the program would have needed about $97 million 

more in fiscal year 2015 to renew all eligible agreements on time. RHS 

did not calculate the amount of funds it would have needed to renew all 

expiring agreements in fiscal year 2013 because no funds were available 

to the program for renewals, according to RHS officials. The officials 

noted that RHS also did not calculate this number for fiscal year 2014 

because it addressed the rental assistance needs of the affected 

properties by using previously obligated funds associated with properties 

that had exited the program, as discussed below.

Sequestration and rescissions. In fiscal year 2013, sequestration and 

rescissions cut about $70 million of the rental assistance program’s 

approximately $907 million budget.8 These cuts also had implications for 

the rental assistance program in fiscal year 2014 because they pushed 

renewals that could not be funded at the end of 2013 into the subsequent 

year.

Unreliable estimation methods. RHS’s methods for calculating the 

dollar amount for annual renewal agreements and budget requests had 

weaknesses. In fiscal years 2013–2015, RHS calculated the amount of 

renewal funding each property would receive by multiplying the number of 

rental assistance units by a state-wide, per-unit average cost. Because 

actual rental assistance costs at each property generally differed from the 

state-wide average, this method resulted in some properties receiving 

agreement renewals that provided less funds than needed for 1 year 

(resulting in the need for an additional renewal within the same 12-month 

period) and other properties receiving more funds than needed for 1 year 

(tying up funds that could have been obligated to other properties). In the 

aggregate, for agreements renewed in fiscal years 2013–2015, 

approximately 35 percent of the amounts were sufficient to make 11–13 

 8

Specifically, sequestration cut $45.5 million of the program’s budget and two across-theboard rescissions—legislation enacted by Congress that cancels budget authority 

previously enacted—cut an additional $24.6 million, according to a Rural Development 

Budget Division official. On March 1, 2013, pursuant to the Balanced Budget and 

Emergency Deficit Control Act of 1985, the President ordered an across-the-board 

cancelation of budgetary resources—known as sequestration—to achieve $85.3 billion in 

reductions across accounts. The Consolidated and Further Continuing Appropriations Act, 

2013 included across-the-board rescissions, which were applied to full-year appropriations 

for fiscal year 2013 (in addition to the reductions required by sequestration).
Page 7 GAO-17-725 Rural Housing Service

rental assistance payments—that is, about 1 year (see fig. 1).9 In 

contrast, about 20 percent lasted for fewer than 11 payments, including 

17 percent with funding that lasted for 8–10 payments and about 3 

percent with funding that lasted for fewer than 8 payments. Further, about 

44 percent of the agreements renewed during the 3-year period lasted for 

more than 13 payments, including about 26 percent with funding that 

lasted for 14–16 payments and about 18 percent with funding that lasted 

for more than 16 payments.

 9

This count includes full rental assistance payments and any partial payments funded by 

the agreement. A partial payment may occur, for example, when an agreement is renewed 

and the prior agreement has a small amount of remaining funds. In that case, the next 

rental assistance payment may consist partly of funds from the prior agreement and partly 

of funds from the renewed agreement. The count also includes agreements for properties 

that may have been transferred to a new owner while the agreement was in effect. When 

a transfer occurs, the identification number associated with the agreement in RHS’s 

database changes. The agreement with the new identification number may appear to last 

for fewer payments because part of the funding was used under the former identification 

number. We could not identify rental assistance units that had been transferred to a new 

owner in the data we received from RHS.
Page 8 GAO-17-725 Rural Housing Service

Figure 1: Percentage of RHS Rental Assistance Agreement Renewals, Categorized 

by Number of Payments Made, Fiscal Years 2013–2015

Note: The number of payments made is based on a count of the months for which the agreement was 

used to make full rental assistance payments and any partial payments. In some cases, the number 

of payments made may be understated if the property was transferred to a new owner while the 

agreement was in effect, resulting in the agreement appearing to last for fewer payments than it 

otherwise would have. RHS renewed about 8,300 agreements in fiscal year 2013, about 10,700 

agreements in fiscal year 2014, and about 10,600 agreements in fiscal year 2015.

In addition to the limitations in agreement estimates, RHS’s methods for 

estimating program costs for its budget requests had weaknesses. For 

example, RHS did not account for second renewals (which occur when 

the same property requires two renewals of its rental assistance 

agreement in the same fiscal year) for its fiscal year 2013 and 2014 
Page 9 GAO-17-725 Rural Housing Service

budget requests.10 Some second renewals are to be expected because of 

the uncertainty involved in estimating rental assistance costs—vacancies 

at properties and tenant incomes can change from month to month. Our 

analysis of RHS data found that about 2 percent of properties received a 

second renewal in fiscal year 2013 and about 8 percent in fiscal year 

2014. These percentages would have been higher if RHS had not run out 

of funds for renewals in these years.

Limitations on RHS’s ability to manage funds differently. Program 

requirements limited the options available to RHS officials to manage

rental assistance funds differently when faced with constrained budgets. 

RHS officials said they were aware in April 2013 that the program lacked 

sufficient funds to renew all agreements that would exhaust their funding 

before the end of fiscal year 2013 due to reductions in appropriations 

from sequestration and rescissions. However, they added that they were 

not able to adjust their renewal practices to address the funding gap 

because of program requirements.

• First, the appropriations acts that funded the program in fiscal years 

2013–2015 stated that the agreements must be funded for a 1-year 

period, which RHS interpreted as 12 rental assistance payments. (As 

previously noted, RHS obligates the amount it estimates is needed for 

12 payments, and the agreement expires when the funds are fully 

expended, even if the period covered by the agreement is longer than 

the expected 1 year.)

• Second, program regulations require each rental assistance 

agreement to be renewed when it exhausts its funding as long as the 

owner has complied with all program requirements.

• Third, RHS could not move funds from agreements with more funds 

than needed for a 12-month period to agreements with less funds 

than needed for a 12-month period because doing so might have 

breached the agreements, according to program officials. As 

previously stated, RHS’s rental assistance agreements specify a 

 10RHS also did not include an estimate of second renewals in its fiscal year 2015 budget 

request for the program because officials were aware that a prohibition on second 

renewals was to be included in the appropriations law for fiscal year 2015. The prohibition 

in the Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No. 113-

235, 128 Stat. 2130, 2148 (2014) was not enacted until December 2014, more than 2 

months into fiscal year 2015, and any agreements entered into before this date were 

eligible for second renewals, according to RHS officials. This resulted in 573 second 

renewals that fiscal year, according to RHS. 
Page 10 GAO-17-725 Rural Housing Service

dollar amount of funding that will be available for rental assistance at 

the property until fully expended. RHS officials told us that it was their 

understanding that RHS did not have the authority to move funds from 

agreements for active properties.

RHS requested certain legislative changes that RHS stated would have

provided it more flexibility to manage constrained budgets. These 

proposals were generally not enacted. For example, the President’s 

budgets for fiscal years 2015 and 2016 requested authorization for RHS 

to enter into partial-year agreements so that RHS could renew 

agreements for smaller dollar amounts (that is, amounts estimated to 

cover fewer than 12 payments) during periods of funding uncertainty. To 

help manage constrained budgets, the President’s budgets also sought 

authority for RHS to prioritize agreement renewals based on factors other 

than the order in which agreements exhausted their funding. RHS 

explained that it had no ability to prioritize renewals for properties where 

the need might surpass that of other properties. If it had received the 

authority, examples of the criteria RHS said it would use to prioritize 

renewals included whether the rental assistance units were occupied over 

the prior 12 months and whether more than half of the units at a property 

had rental assistance.

RHS used a variety of approaches in the years it faced funding gaps to try 

to minimize effects on property owners, with mixed results.

• Fiscal year 2013. RHS offered owners who did not receive rental 

assistance payments at the end of the fiscal year several options to 

lessen the financial effect. According to RHS, 308 of approximately 

15,000 properties (about 2 percent) were affected by the funding gap 

that year. The options RHS offered included allowing owners to use 

money from the property’s capital reserve account for operating 

purposes, suspend payments to the capital reserve account, and 

defer payments on their RHS mortgages (loan deferral). However, 

according to RHS officials, some owners declined the options RHS 

offered and none of the owners were compensated for the rental 

assistance payments they did not receive that year.

• Fiscal year 2014. RHS used rental assistance previously obligated to 

properties that had exited the program due to foreclosure, mortgage 

prepayment, or mortgage maturity for properties with agreements 

RHS Took Steps to 

Mitigate the Effects of the 

Funding Gaps but Some 

Had Negative 

Consequences
Page 11 GAO-17-725 Rural Housing Service

needing renewal.11 In some cases, RHS funded 1-year renewals. 

According to RHS, the program used about $8.5 million in previously 

obligated but unexpended funds to renew agreements for properties 

currently in the program that had exhausted their funds in September 

and October 2014. In other cases, RHS provided enough funding to 

cover a property’s September 2014 rental assistance payment. RHS 

officials said they used about $315,000 in previously obligated but 

unexpended funds in this manner in fiscal year 2014. In these cases, 

RHS renewed the rental assistance agreements when the next fiscal 

year’s appropriation was available. According to RHS, agreements for 

401 properties (about 3 percent) could not be renewed until the next 

fiscal year, but due to the use of previously obligated but unexpended 

funds, owners received all rental assistance payments they were due 

in fiscal year 2014.

• Fiscal year 2015. RHS used two main approaches to try to avoid or 

lessen the effect of funding gaps on owners of the 943 properties 

(about 6 percent) whose agreements RHS could not renew.

• RHS tried to decrease the likelihood of a funding gap by asking 

Congress to prohibit second renewals—meaning that, if legislation 

were enacted, any agreement that fully expended its funding in 

less than 12 months could not be renewed another time in the 

same fiscal year. Congress enacted legislation containing the 

prohibition on December 16, 2014 (about 2-1/2 months into fiscal 

year 2015), but any agreements entered into before that date 

were eligible for second renewals.12 According to RHS officials, 

this resulted in 573 second renewals in fiscal year 2015 that RHS 

had not anticipated. RHS ran out of funds to renew rental 

assistance agreements in July 2015.

• In December 2015, Congress authorized RHS to use funds 

obligated to properties that had since exited the program to 

compensate owners for rental assistance payments that RHS 

missed at the end of fiscal year 2015 due to the funding gap. 

 11Before using the same approach to address the fiscal year 2015 funding gap, RHS 

sought, and obtained, explicit authority from Congress to use the previously obligated but 

unexpended funds in this manner. See Consolidated Appropriations Act, 2016, Pub. L. 

No. 114-113, 129 Stat. 2242, 2259 (2015).

12Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No. 113-235, 

128 Stat. 2130, 2148 (2014).
Page 12 GAO-17-725 Rural Housing Service

Between December 2015 and early March 2016, RHS made such 

payments totaling about $5.4 million, according to RHS data.13

In each fiscal year, some or all of the agreements that could not be 

renewed on time due to funding gaps were renewed when the next fiscal 

year’s appropriation became available. As previously noted, hundreds of 

properties fell into this situation each year. Program officials told us that 

these renewals happened early in the next fiscal year. Consistent with 

this statement, our analysis found that the number of agreements 

renewed in October was substantially higher in fiscal years 2014–2016 

than in prior years (see fig. 2). For example, 19 percent of agreements in 

fiscal year 2014 were renewed in October. Agreements renewed early in 

the fiscal year were more likely to need a second renewal later that year, 

further increasing the likelihood that RHS would run out of funds before 

the end of the year.

Figure 2: Percentage of RHS Rental Assistance Agreements Renewed in October 

Compared with the Rest of the Fiscal Year, Fiscal Years 2011–2016

 13RHS had used this approach to address the fiscal year 2014 funding gap. Before using 

the same approach to address the fiscal year 2015 gap, RHS sought, and obtained, 

explicit authority from Congress to use the previously obligated but unexpended funds in 

this manner. See Consolidated Appropriations Act, 2016. Pub. L. No. 114-113, 129 Stat. 

2242, 2259 (2015).
Page 13 GAO-17-725 Rural Housing Service

However, some of the approaches RHS used to lessen the effects of the 

funding gaps at the end of each fiscal year had negative consequences, 

as described below:

• Loan deferrals. When some property owners chose to defer their 

mortgage payments at the end of fiscal year 2013, RHS’s automated 

accounting system incorrectly marked the owners as delinquent on 

their mortgages. According to RHS officials, this created problems in 

the system such as charging owners late fees and remitting rental 

assistance checks to local Rural Development offices instead of 

owners. In response, RHS waived the late fees and local office staff 

forwarded checks to owners. It took RHS longer than expected to 

change the accounting system to correct the delinquencies. Since 

February 2017, RHS staff have been able to create deferral 

transactions that do not mark the owners as delinquent on their 

mortgages.

• Use of unexpended funds from properties that exited the 

program. When RHS uses funds obligated to properties that exited 

the program (due to prepayment of, foreclosure on, or maturing of an 

RHS mortgage) to address funding needs at other properties, the 

rental assistance units associated with the funds from the exited 

properties permanently leave the program.14 RHS officials said that 

rental assistance units must have funds obligated to them in order for 

them to remain available to the program. RHS can preserve those 

rental assistance units only by assigning them to a second property in 

RHS’s portfolio before the funds on their current obligation are 

exhausted.15 The previously obligated but unexpended funds RHS 

used to mitigate the effects of the fiscal year 2014 and 2015 funding 

gaps—$8.5 million and $5.4 million, respectively—were available 

because RHS had not assigned the units associated with those funds 

to other properties. RHS officials told us they made a policy decision 

around the time of the 2013 sequestration to use the unexpended 

funds to help mitigate funding gaps rather than re-assign the units to 

 14In this context, “rental assistance unit” refers to the authorization to commit rental 

assistance funding for a dwelling unit. 

15Also, according to RHS officials, tenants receiving rental assistance at properties with 

mortgages that are foreclosed, prepaid, or matured are provided a Letter of Priority 

Entitlement and may use it to move to another property in RHS’s Multi-Family Housing 

Direct Loans and Farm Labor Housing Direct Loans and Grants programs. These tenants 

may transfer their rental assistance unit to the new property. The tenant has 4 months to 

elect to utilize the rental assistance at the new property. See 7 C.F.R. §§ 3560.259(c),

3560.502.
Page 14 GAO-17-725 Rural Housing Service

maintain the number of units in the program. Therefore, a trade-off of 

RHS’s strategy is a shrinking portfolio of assisted rental units.16

• Prohibition on second renewals. Due to the statutory prohibition on 

second renewals in fiscal year 2015, agreements for $4.5 million in 

rental assistance could not be renewed that year when they 

exhausted their funds. While RHS requested this legislative change to 

help prevent the program from running out of funds for standard 

renewals, it put owners whose agreement funding lasted less than 1 

year in a financially difficult position. Additionally, tenants in affected 

properties faced the prospect of rent increases to compensate for the 

missed payments. In fiscal year 2016, RHS paid the owners the 

missed rental assistance—totaling about $191,000—using previously 

obligated but unexpended funds from properties that had exited the 

program due to foreclosure or mortgage prepayment.17 RHS also 

asked Congress to remove the prohibition on second renewals for 

fiscal year 2016, which Congress did as part of the Continuing 

Appropriations Act, 2016, and the Consolidated Appropriations Act, 

2016.18

RHS officials said if they faced funding gaps in the future, they would 

implement the same mitigation measures they have in the past—which 

have included using unexpended funds from properties that exited the 

program and offering relief options to owners. However, RHS officials told 

us that as of the end of fiscal year 2016, RHS had only $5.3 million in 

previously obligated but unexpended funds remaining. Further, this 

method would reduce the number of assisted units that could be 

preserved.

 16According to RHS, the program had 285,008 rental assistance units at the end of fiscal 

year 2014, compared with 282,806 units at the end of fiscal year 2016. However, we 

cannot attribute a specific number of lost units to RHS’s strategy because RHS does not 

track the number of units associated with unexpended funds from exited properties. 

17The Consolidated Appropriations Act, 2016 authorized RHS to recapture rental 

assistance provided under agreements entered into prior to fiscal year 2016 for projects 

that no longer needed rental assistance and use the funds for current needs and unmet 

rental assistance needs from fiscal year 2015, Pub. L. No. 114-113, 129 Stat. 2242, 2259 

(2015). In fiscal year 2015, RHS initially offered property owners who did not receive 

rental assistance payments options similar to those offered in fiscal year 2013 to lessen 

the financial impact. However, RHS canceled these options after it received approval to 

make missed payments using previously obligated, unexpended funds. 

18Pub. L. No. 114-53, §117,129 Stat. 502, 508 (2015), Pub. L. No. 114-113, 129 Stat. 

2242, 2259 (2015).
Page 15 GAO-17-725 Rural Housing Service

To improve its rental assistance estimates and streamline the obligation 

process, RHS in 2014 began developing a “rental assistance obligation 

tool” (obligation tool), a model that estimates rental assistance costs 

based on each property’s rental assistance payment requests over the 

prior 12 months. RHS began using the tool—which is integrated with 

MFIS, RHS’s management information system for the rental assistance 

program—to renew agreements in fiscal year 2016 and to estimate the 

program’s fiscal year 2017 budget request. To calculate the amount of 

funding for each agreement renewal, the obligation tool averages the 

property owner’s monthly requests for rental assistance over the past 12 

months, but assigns increasingly higher weights to more recent requests. 

RHS officials said they chose this weighted average approach because it 

is more likely that future rental assistance costs at a property will be 

similar to the amount needed in the most recent month of the agreement 

than in the first month. The obligation tool also takes into account the 

effect of any recent or planned rent increases at the property on its future 

rental assistance costs.19

In addition to calculating renewal amounts, RHS staff use the obligation 

tool to allocate and obligate funds for agreement renewals. The tool 

tracks the use of rental assistance at every property and determines 

which agreements will be renewed next based on estimates that are 

updated daily for each property. In general, when the rental assistance 

program receives a funding apportionment from OMB, a program official 

enters the amount received into the obligation tool, and the tool allocates 

the funds to the agreements that will exhaust their funding next, according 

 19The obligation tool estimates costs based on the number of rental assistance units 

allotted to the property when the agreement was renewed, which may be greater than the 

number of rental assistance units occupied at that time of the renewal. 

RHS Improved Rental 

Assistance Estimates 

but Some 

Weaknesses Exist in 

Budget Estimation 

and Execution

RHS’s New Tool Improved 

Estimates of Rental 

Assistance Costs
Page 16 GAO-17-725 Rural Housing Service

to RHS.20 USDA Rural Development staff in state offices then use the tool 

to obligate the funding amount the tool calculated. According to RHS, the 

obligation tool was developed partly to improve efficiency, and the tool 

has reduced the administrative burden on state office staff of renewing 

rental assistance agreements. When asked about the benefits and 

challenges of using the obligation tool, staff with whom we spoke from 12 

of 15 randomly selected Rural Development state offices told us that it 

reduced the amount of time it took them to obligate funds for renewals.

Our analysis of renewal amounts calculated by the obligation tool in fiscal 

year 2016 indicates that RHS’s estimation method generally results in 

agreements that last for about 12 payments (see fig. 3). For agreements 

that fully expended their funds within the fiscal year, 82 percent of the 

amounts were sufficient to make 11–13 rental assistance payments 

(compared with about 35 percent for agreements renewed in fiscal years 

2013–2015).21 In contrast, about 9 percent lasted for fewer than 11 

payments and about 10 percent lasted for more than 13 payments. For 

agreements that did not fully expend their funds during the fiscal year, we 

projected remaining payments based on the average of the prior 12 

payments. We estimated that 77 percent of these agreements had funds 

to make 11–13 payments, while about 2 percent had funds for fewer than 

11 payments and about 21 percent had funds for more than 13 payments.

 20RHS generally receives allotments of funding quarterly, according to a Rural 

Development Budget Division official. When the program needs funds, Rural Development 

Budget Division staff write a request for an apportionment. Office of Budget and Program 

Analysis analysts review the request and submit the information to OMB for approval. 

21This count includes full rental assistance payments and any partial payments funded by 

the agreement. A partial payment may occur, for example, when an agreement is renewed 

and the prior agreement has a small amount of remaining funds. In that case, the next 

rental assistance payment may consist partly of funds from the prior agreement and partly 

from the renewed agreement. The count also includes agreements for properties that may 

have been transferred to a new owner while the agreement was in effect. When a transfer 

occurs, the identification number associated with the agreement in RHS’s database 

changes. The agreement with the new identification number may appear to last for fewer 

payments because part of the funding was used under the former identification number. 

We could not identify rental assistance units that had been transferred to a new owner in 

the data we received from RHS.
Page 17 GAO-17-725 Rural Housing Service

Figure 3: Percentage of RHS Rental Assistance Agreement Renewals Made in Fiscal 

Year 2016, Categorized by Number of Payments Made or Projected to Be Made

Note: The number of payments made is based on a count of the months for which the agreement was 

used to make full rental assistance payments and any partial payments. In some cases, the number 

of payments made may be understated if the property was transferred to a new owner while the 

agreement was in effect, resulting in the agreement appearing to last for fewer payments than it 

otherwise would have. RHS renewed about 12,700 agreements in fiscal year 2016.

In addition to improving agreement renewal estimates, RHS took steps to 

improve its budget estimation procedures. Besides calculating renewal 

amounts for each agreement, the obligation tool estimates the cost of the 

rental assistance program in future years. Program officials have used the 

estimates to help develop the program’s annual budget request, 

beginning with the fiscal year 2017 budget. More specifically, the 

obligation tool calculates the forecasted cost of the program for the 

upcoming 12 months, and program officials may apply an inflation rate to 

that number. The forecasted cost is based on the rental assistance usage 

at each property and is updated generally on a daily basis by 

incorporating new data such as utilization of rental assistance, rent 

increases, and other information.

This approach is an improvement over the prior budget estimation 

method because it is based on the actual usage of rental assistance at 
Page 18 GAO-17-725 Rural Housing Service

each property and the data are more up-to-date.22 Also, in developing 

requests for the fiscal year 2016 and 2017 budgets, RHS included the 

estimated cost of second renewals in those years. RHS officials told us 

the estimates were based on prior experience. While the new estimation 

methods for calculating agreement renewals and program budgets are an 

improvement over the prior methods, we identified some issues that 

suggest further enhancements are needed:

• Agreements with excess funds. While we found that the large 

majority of agreement renewal amounts calculated by the new 

obligation tool were sufficient to make about 12 rental assistance 

payments, we also estimated that a limited number of agreements—

about 91 out of about 11,530 renewals (less than 1 percent) in fiscal 

year 2016—had funding sufficient for 20 or more rental assistance 

payments. As noted earlier, agreements with funding that lasts for 

more than 12 payments tie up program funds that could be obligated 

to other properties. According to an RHS official, an agreement may 

last substantially longer than 12 months for a number of reasons. For 

example, a property may use less rental assistance than the tool 

calculated if the owner leaves units vacant in order to rehabilitate 

them. However, these cases also could be the result of 

methodological problems.

• Seasonal farm labor housing properties. The obligation tool may 

not correctly estimate renewal amounts for rental agreements at farm 

labor housing properties with occupancy levels that vary seasonally 

(as demand fluctuates with crop activity). According to an RHS official, 

this issue is likely most pertinent to the approximately 12–15 

properties that house migrant workers and that use rental assistance 

funds as operating assistance.23 A staff member at one Rural 

Development state office told us that she detected a misestimate for a 

farm labor housing property because of the way the obligation tool 

weights prior rental assistance usage. As previously noted, the tool 

puts the most weight on the most recent month’s rental assistance 

 22RHS officials said that before implementing the obligation tool, they generally developed 

budget estimates by multiplying the number of units expected to be renewed during the 

budget year (based on the number that needed a renewal in the year the budget request 

was being calculated) by the state-wide average per-unit cost and applied an inflation rate.

23Section 521 rental assistance funds may be used as operating assistance in migrant 

farmworker projects financed under the Section 514 and 516 programs to reduce 

operating costs so that rents may be set at rates affordable to low-income migrant 

farmworkers.
Page 19 GAO-17-725 Rural Housing Service

payment request. Consequently, at a high-occupancy time of year for 

a farm labor housing property, the tool would tend to overestimate the 

amount of funding needed for an agreement renewal. According to 

RHS data, utilization of rental assistance units at the property cited by 

the state office official ranged from 1 to 40 units during fiscal years 

2015 and 2016, depending on the month. An RHS official said that 

they need to adjust the tool to correctly estimate agreement amounts 

for these properties and are currently calculating agreement amounts 

manually.

• Second renewal estimates. Our analysis of RHS data found that the 

number of second renewals RHS estimated for its fiscal year 2016 

budget request was low. As previously noted, RHS included an 

estimate of the cost of second renewals in its fiscal year 2016 budget 

estimate (which was calculated before the obligation tool was put into 

use). According to program officials, RHS initially estimated that 8 

percent of the units renewed in the year would need a second 

renewal, and the President’s budget ultimately included an estimate of 

6 percent.24 However, our analysis of RHS data found more than 14 

percent of units required a second renewal in fiscal year 2016.

Limitations in Initial Testing and Monitoring and No Formalized Plan 

for Ongoing Evaluation

RHS had an information technology (IT) contractor test the obligation tool 

during its development to help ensure that it performed computations as 

intended, but the contractor did not conduct other tests of conceptual 

soundness before the obligation tool was put into use in fiscal year 2016. 

For example, RHS did not use earlier years’ rental assistance data to 

assess whether the obligation tool would have accurately estimated the 

amount of funding a property needed in a subsequent year. RHS staff 

and IT contractors also did not test whether the assumptions in the tool 

were optimal, such as the way in which rental assistance payment 

requests from prior months were weighted in making estimates. RHS 

officials told us that the tool was a work in progress and that the first year 

of use (fiscal year 2016) would provide the best opportunity to evaluate its 

performance. They said that they intended to continuously monitor the 

obligation tool and make adjustments as needed.

 24Program budget requests may be revised as agency officials weigh different budget 

priorities when the department-wide budget request is developed.

RHS Lacks Formalized 

Plans for Ongoing Testing 

of the New Tool and a 

Reasonableness Check 

for Rental Assistance 

Amounts
Page 20 GAO-17-725 Rural Housing Service

RHS has done some monitoring of the performance of its obligation tool, 

but these efforts had limitations. For example, RHS officials provided us 

with two analyses they conducted during fiscal year 2016 to estimate how 

long the obligations calculated by the tool would last. However, these 

analyses used the date of obligation as the starting point instead of the 

date on which the obligated funds were first used to make a rental 

assistance payment (which could be 1 or 2 months after obligation). An 

RHS official said that the date of first use is not in the information system 

from which the obligation tool pulled data. Federal internal control 

standards call for management to use quality information to achieve 

objectives, including relevant data that have a logical connection with the 

information requirements.25 By not using data on the date of first use, 

RHS’s analyses may have overstated the length of time the obligations 

could be expected to last.

To monitor the tool’s performance, RHS officials also developed a report 

showing the obligation tool’s daily forecasts of total program costs. RHS 

officials said they check the daily forecasts to detect any unexpected 

variances and compare these amounts to amounts appropriated for the 

program. During the course of our review, RHS made several changes to 

how this forecast amount was calculated. One change in early fiscal year 

2017 was prompted by our question to RHS about why the forecasted 

cost grew by about $94 million at the end of fiscal year 2016. RHS 

officials realized that the estimate in the report was based on rental 

assistance costs for 13 months instead of 12 months. RHS subsequently 

adjusted the tool to make forecasts based on costs for 12 months. 

Additionally, according to RHS officials, IT contractors conducted an 

analysis in early fiscal year 2017 of how long agreement amounts 

calculated by the tool in early fiscal year 2016 lasted. But, as of June 

2017, RHS was not able to provide us with the analysis because officials 

said it was in the clearance process.

One reason RHS has not developed plans for ongoing testing of the tool 

may be that RHS has been focused on initial testing of the tool’s 

performance during its first year. RHS’s obligation tool is the primary 

control to ensure that rental assistance allocations and obligations are 

calculated correctly and that program budget requests are reasonable. 

Federal internal control standards call for management to establish 

 25GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).
Page 21 GAO-17-725 Rural Housing Service

monitoring activities to monitor controls and evaluate results and for 

ongoing monitoring to be built into a program’s operations and be 

performed continually.26 Furthermore, useful practices for managing risks 

associated with models, such as the obligation tool, can include designing 

a program of ongoing testing and evaluation of model performance along 

with procedures for responding to any problems that appear.27 Without 

monitoring and testing activities called for by federal internal control 

standards and other guidance, RHS heightens the risk that any problems 

with the obligation tool will go undetected.

No Automated Checks or Other Controls for Reasonableness of 

Rental Assistance Amounts

While the obligation tool uses an improved method to estimate rental 

assistance costs, RHS does not have automated checks in the tool or 

other controls to catch unreasonable estimates (for example, excessive 

amounts) that may result from unforeseen circumstances or programming 

errors. Early in fiscal year 2016, the tool over-allocated about $4 million to 

properties that had recently been transferred from one owner to another 

because it did not correctly account for changes in rents at the 

properties.28 According to RHS officials, this error affected agreements for 

43 properties. RHS did not catch the error through its own monitoring. 

Rather, a property manager alerted RHS that the agreement renewal for 

one of his properties provided significantly more funds than needed. 

Specifically, according to information provided by the property manager, 

the amount RHS provided was nearly twice the amount that should have 

been obligated (about $175,000 more than needed). RHS fixed the 

programming error that caused this particular miscalculation and deobligated the excess funds.

 26GAO-14-704G. 

27For example, see Board of Governors of the Federal Reserve System and Office of the 

Comptroller of the Currency, Supervisory Guidance on Model Risk Management, SR 

Letter 11-7 (Washington, D.C.: April 2011), accessed on May 5, 2017,

https://www.federalreserve.gov/supervisionreg/srletters/sr1107a1.pdf.

28Specifically, the obligation tool treated the full rent amounts at the newly transferred 

properties as changes to the existing rents, resulting in artificially high rents used to 

calculate the properties’ rental assistance costs. As previously noted, the obligation tool 

takes into account the effect of any recent or planned rent increases at properties on their 

rental assistance costs.
Page 22 GAO-17-725 Rural Housing Service

However, according to the IT contractor who developed the obligation 

tool, the tool does not have an automated check to detect such errors. As 

previously noted, RHS said that the first year of use would provide the 

best opportunity to evaluate the tool’s performance and an opportunity to 

identify any needed improvements. In addition, RHS guidance does not 

instruct either the RHS national office officials who use the obligation tool 

to allocate funds or the Rural Development state office staff who review 

and approve obligations to check the amount being allocated to each 

property for agreement renewals.29 Federal internal control standards call 

for management to design control activities for entities’ information 

systems to respond to risks.30 Without automated checks or other controls 

to catch programming errors or unforeseen circumstances that may result 

in incorrect or unreasonable agreement amounts, RHS lacks assurance 

that these mistakes will be caught prior to obligating funds.

Since fiscal year 2010, RHS either has used no inflation rate or one that 

differed from the President’s economic assumptions when calculating 

budget request estimates for the rental assistance program (see table 1). 

RHS’s current budget estimation process involves applying an inflation 

rate to the obligation tool’s estimate of the cost of the program for the 

upcoming 12 months. RHS officials said that before they started using the 

obligation tool, they generally developed budget estimates by calculating 

the number of units expected to be renewed during the budget year, 

multiplying that number by the statewide average per-unit cost, and, in 

some years, applying an inflation rate.

 29However, state office staff in 3 of the 15 offices we interviewed told us that they regularly 

did some type of review of the obligation amounts when obligating funds.

30GAO-14-704G.

RHS Has Not Used 

Appropriate Inflation Rates 

to Estimate Its Budget 

Request in Recent Years
Page 23 GAO-17-725 Rural Housing Service

Table 1: Inflation Rates Used in RHS’s Budget Requests for the Rental Assistance 

Program Compared with the President’s Economic Assumptions

Fiscal year 

budget request

Inflation rate RHS reported 

using in budget request

(percent)

President’s economic assumption 

available in year budget prepared

(percent)

2010 0 2.1

2011 0 1.4

2012 0 1.4 

2013 0 1.7

2014 0 1.9 

2015 1.69 2.2

2016 2.9 1.9

2017 3 1.9

2018 0 2.1

Source: Rural Housing Service (RHS) officials and President’s budgets. | GAO-17-725

Note: According to an Office of Budget and Program Analysis official, the President’s economic 

assumptions for the forthcoming budget are generally not available when RHS prepares its budget 

requests. According to the Office of Management and Budget, in those circumstances, the agency 

should use the President’s assumptions from the prior year. The President’s assumptions in the table 

are the prior-year assumptions available at the time RHS was preparing the budget requests.

In our 2004 report on RHS’s budget estimation procedures, we 

recommended that RHS use the inflation rate from the President’s 

economic assumptions when estimating rental assistance budget costs.31

During our current review, RHS officials told us they used the rates 

provided by OMB (the President’s economic assumptions) for the fiscal 

year 2005–2009 estimates and after that used no inflation rate until the 

fiscal year 2015 budget request. However, officials could not explain why 

RHS stopped using the rate from the President’s economic assumptions 

for the fiscal year 2010 budget, other than that the RHS Administrator at 

the time directed the change. RHS officials also did not know the rationale 

for using no inflation rate in the budget requests for fiscal years 2010–

2014 and did not offer the reason for using 1.69 percent for fiscal year 

2015. For fiscal years 2016 and 2017, RHS officials told us they used an 

inflation rate based on changes in housing costs, but the rates differed 

from the President’s economic assumptions. According to the Rural 

Development Budget Division, RHS used an inflation rate of zero for the 

fiscal year 2018 President’s budget.

 31GAO, Rural Housing Service: Standardization of Budget Estimation Processes Needed 

for Rental Assistance Program, GAO-04-424 (Washington, D.C.: Mar. 25, 2004).
Page 24 GAO-17-725 Rural Housing Service

OMB Circular A-11, Preparation, Submission, and Execution of the 

Budget—which provides guidance to agency officials on preparing budget 

estimates—states that preparation of agency budgets must be consistent 

with the President’s economic assumptions provided by OMB. These 

assumptions are listed each year in the President’s budget. Consistency 

in budget assumptions across government programs helps clarify tradeoffs among competing priorities.32 OMB staff told us that RHS should use 

the inflation rate in the President’s economic assumptions to develop its 

budget requests, as stated in the OMB circular. According to OMB staff, if 

the agency is preparing its budget prior to the issuance of the President’s 

economic assumptions for the forthcoming budget, the agency should use 

the prior year’s assumptions when developing its estimates. However, 

RHS also did not use the prior year’s assumptions (see table 1). USDA 

Office of Budget and Program Analysis officials said that they were not 

aware that RHS was not using the inflation rate from the President’s 

economic assumptions. Additionally, we could not identify a control 

procedure designed to ensure the use of the required inflation rate. 

Federal internal control standards state management should design 

control activities to achieve compliance objectives.

If RHS had used the inflation rate from the President’s economic 

assumptions to estimate its rental assistance budget requests for fiscal 

years 2013–2015, the program may have faced somewhat smaller 

funding gaps those years. For example, according to RHS, in fiscal year 

2015, the agency would have needed about $97 million more in funding 

to renew all eligible properties that requested a renewal that year. If RHS 

had used the inflation rate in the President’s economic assumptions, its 

budget request would have been about $5.5 million higher, although 

several factors outside of the program’s control affect the level of funding 

it ultimately receives.33 Without controls for ensuring the use of proper 

inflation rates, RHS may continue to be out of compliance with OMB 

 32See Organisation for Economic Co-operation and Development (OECD), Senior Budget 

Officials, OECD Principles of Budgetary Governance (June 2014). OECD is an 

organization of 34 industrialized countries, operating by consensus, that fosters dialogue 

among members to discuss, develop, and refine economic and social policies. According 

to OECD, the principles provide a concise overview of good practices across the full 

spectrum of budget activity. 

33For example, the department-wide budget request that the President sends to Congress 

may not include the same funding level that RHS officials estimate the program will cost in 

a given year because of other budget priorities. Congress also must consider and vote on 

requests. Therefore, even if RHS had requested different amounts in its budget request, it 

may not have received the amounts requested.
Page 25 GAO-17-725 Rural Housing Service

requirements and use rates that differ from the President’s economic 

assumptions.

Staff at 15 randomly selected Rural Development state offices with whom 

we spoke had different understandings of their roles and responsibilities 

for reviewing rental assistance renewal obligations. In addition, their 

understanding of their role frequently varied from the role that program 

officials in RHS’s national office said they had. Federal internal control 

standards state that management should implement control activities 

through the documentation of policies, including documenting 

responsibilities of different units for control activities.34

According to RHS national office officials, state office staff should review 

each obligation prior to approval to confirm that renewals of rental 

assistance agreements are warranted. More specifically, state office staff 

are to review the properties in their jurisdiction that the obligation tool has 

indicated are in need of renewal to determine if they are undergoing a 

servicing action, such as a prepayment or foreclosure. In these cases, 

state office staff are to use their judgment about whether providing a 1-

year agreement renewal would be appropriate, according to RHS national 

office officials. For example, state office staff may know that a property 

owner is in the process of prepaying the RHS mortgage on the property 

or if the property has started the foreclosure process, in which case a new 

obligation for rental assistance might not be necessary.35 A program 

official in RHS’s national office stated that this review provides a check on 

the obligations.

In contrast, state office staff with whom we spoke did not consistently

perform, and in some cases were not aware of, these responsibilities. Of 

the 15 state offices that we interviewed, staff in 3 of the offices said that 

they check whether properties up for renewal are prepaying their 

mortgage or in the foreclosure process before approving renewal 

obligations. Staff at 2 of these offices told us that they have found 

properties that should not receive a 1-year renewal through this process. 

Additionally, staff in 10 offices told us that they did not believe it was their 

job to confirm that obligations should be provided to the properties before 

 34GAO-14-704G.

35Only properties that have an active RHS mortgage on the property are eligible to receive 

rental assistance. 

State Offices Lack a 

Common Understanding 

of Their Role in Reviewing 

Rental Assistance 

Renewals
Page 26 GAO-17-725 Rural Housing Service

approving them; rather, they believed the national office was responsible 

for making renewal determinations.

RHS has not clearly articulated and documented expectations for state 

office staff reviews, which has contributed to inconsistencies. RHS 

officials were not able to provide us with any written guidance on the roles 

and responsibilities of state office staff in reviewing obligations. Most of 

the state office staff with whom we spoke said they used briefing slides 

from the national office (intended as training on the new obligation tool) 

as guidance for obligating funds, but the slides do not mention a review 

by state staff. Rather, the slides focus on what buttons to click in the 

obligation tool to complete the obligation. Also, a national office official 

told us that the national office sends e-mails to state offices alerting them 

that funds are available to obligate and reminding them to review the 

properties. However, an example e-mail provided by the official did not 

directly ask for such a review or indicate what the review should consist

of. Furthermore, a chapter in a program handbook that RHS officials said 

was the primary guidance for state office staff on the obligation process 

does not indicate that a review of the servicing status should be 

completed prior to approving obligations. By not documenting staff 

responsibilities for reviewing whether rental assistance obligations are 

warranted, RHS increases the risk that state offices may be approving 

obligations for properties that do not need a rental assistance agreement 

renewal—tying up funds that could be used by other properties and 

potentially contributing to program funding gaps.

In recent years, RHS has experienced funding gaps in its rental 

assistance program that created challenges for the agency and some 

property owners. While the agency took some steps to mitigate effects on 

property owners and improve its budget estimates, weaknesses remain in 

some of RHS’s budget estimation and execution processes.

• First, RHS does not have a plan for ongoing monitoring (including 

testing and evaluation) of its new obligation tool and has not always 

used the most relevant data for monitoring, contrary to federal internal 

control standards calling for monitoring of control activities and use of 

quality information.

• Second, RHS does not have automated checks in the obligation tool 

or other controls to mitigate the risk of misestimates, as RHS 

experienced in fiscal year 2016. Federal internal control standards call 

for control activities that respond to risks.

Conclusions
Page 27 GAO-17-725 Rural Housing Service

• Third, RHS has not complied with OMB requirements to use inflation 

rates from the President’s economic assumptions in developing 

budget estimates. RHS’s lack of a related control procedure, as 

required by federal internal control standards, increases the risk that it 

will continue not to comply with the OMB requirement.

• Fourth, contrary to federal internal control standards on 

documentation of policies, RHS lacks written guidance on the 

responsibilities of Rural Development state offices for reviewing rental 

assistance agreement renewals before obligating funds.

These weaknesses may exist partly because RHS continues to refine its 

estimation method, which has been in effect for about 2 years. By 

enhancing monitoring and internal controls, RHS could strengthen its 

budget estimation and execution processes to help ensure it manages the 

program as efficiently and effectively as possible, including during times 

of budgetary challenges.

We are making the following four recommendations to RHS:

• The Administrator of RHS should develop and implement a plan for 

ongoing monitoring, including testing and evaluation, of the obligation 

tool using relevant data. (Recommendation 1)

• The Administrator of RHS should develop controls to check the 

reasonableness of rental assistance agreement amounts calculated 

by the obligation tool. (Recommendation 2)

• The Administrator of RHS should develop controls to ensure that RHS 

uses the inflation rates from the President’s economic assumptions in 

developing budget estimates. (Recommendation 3)

• The Administrator of RHS should provide guidance to Rural 

Development state offices that specifies that prior to obligating funds, 

staff are to review information related to a property’s mortgage 

servicing status. (Recommendation 4)

Recommendations for 

Executive Action
Page 28 GAO-17-725 Rural Housing Service

We provided a draft of this report to OMB and RHS for their review and 

comment. OMB stated that it had no comments on the draft. RHS 

provided technical comments, which we incorporated into the report, but 

did not provide comments on our recommendations.

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Agriculture, the Director of the Office of 

Management and Budget, and other interested parties. In addition, the 

report is available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Key contributors to this report are listed in 

appendix II.

Daniel Garcia-Diaz

Director, Financial Markets and Community Investment

Agency Comments 
Appendix I: Objectives, Scope, and 

Methodology

Page 29 GAO-17-725 Rural Housing Service

Our objectives were to examine (1) the reasons the Rural Housing 

Service (RHS) ran out of funds for renewing rental assistance 

agreements under the Section 521 program in fiscal years 2013–2015, 

and how it responded to the funding gaps in those years; and (2) what 

RHS has done to help prevent future funding gaps and the extent to 

which it addressed related budgetary issues.

For both objectives, we analyzed data from RHS’s accounting system—

the Automated Multi-Family Housing Accounting System (AMAS)—for 

fiscal years 2011–2016. We analyzed data on the dollar amount and date 

of obligations to renew rental assistance agreements and the rental 

assistance payments (expenditures) associated with those obligations. 

We excluded obligations that were canceled, for zero dollars, or had 

accounting codes generally associated with supplemental funding rather 

than renewal funding. As discussed in the body of this report, RHS 

extended the life of some rental assistance agreements by using funds 

from properties that had exited the program for properties that could not 

receive agreement renewals due to funding gaps.

To assess the reliability of the AMAS data we used, we reviewed 

information about the system and the data. We interviewed agency 

officials and contractors knowledgeable about the data—including officials 

from RHS, Rural Development’s Office of Operations and Management, 

and the U.S. Department of Agriculture’s (USDA) National Financial and 

Accounting Operations Center—to discuss interpretations of data fields 

and patterns we observed in the data. We also conducted electronic 

testing, including checks for outliers, missing data, and erroneous values. 

Additionally, we compared the data with RHS summary statistics, where 

possible. We determined that the data were sufficiently reliable for the 

purposes of describing the number and timing of rental assistance 

agreement renewals and payments.

To examine the reasons why RHS ran out of funds for renewing rental 

assistance agreements in fiscal years 2013–2015, we reviewed 

documentation from RHS that provided evidence of funding gaps, 

including a list of properties whose agreements were due for renewal but 

could not be renewed at the ends of the 3 fiscal years. We reviewed 

budget documents showing the amount of budget authority appropriated 

to the rental assistance program for the 3-year period and reductions to 

appropriations from sequestration and rescissions (cancelations of 

budgetary resources) in fiscal year 2013. We also examined the methods 

Appendix I: Objectives, Scope, and 

Methodology

Data Used in Our Analysis

Funding Gaps and How 

RHS Resolved Them
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-17-725 Rural Housing Service

RHS used to estimate agreement renewal costs and budget requests for 

those years, as explained in greater detail below. Additionally, we 

reviewed legislative and regulatory requirements that affected how RHS 

managed the program in years with funding gaps, including requirements 

in the appropriations acts for fiscal years 2013–2015 and program 

regulations.

To assess RHS’s calculations of agreement renewal amounts for fiscal 

years 2013–2015, we reviewed RHS documentation on the methodology 

behind the calculations and analyzed rental assistance payment data in 

AMAS. More specifically, we analyzed AMAS data to count how many full 

payments and partial payments RHS made from each of the agreements 

it renewed in fiscal years 2013–2015.1 Our counts also included 

agreements for properties that may have been transferred to a new owner 

while the agreement was in effect, which may have resulted in some 

understatement of the number of payments made.2 We used the results 

of this analysis to determine whether the obligation tool’s estimates 

resulted in agreement renewals that lasted about 12 payments (that is, 

close to the 1-year period they are intended to last) or for fewer or more 

payments. We sorted the agreements into five categories based on the 

number of payments they provided (fewer than 8, 8–10, 11–13, 14–16, 

and greater than 16) and calculated the percentage of agreements in 

each category by year and in the aggregate. To assess RHS’s methods 

for estimating its program budget requests for fiscal years 2013–2015, we 

reviewed key assumptions, including how RHS estimated the number of 

renewals and any second renewals (which occur when an agreement is 

renewed twice in the same fiscal year) expected in each year. We used 

AMAS data to identify the percentage of properties that had a second 

renewal in each year and compared the results to the percentage of 

second renewals RHS incorporated in its budget requests. To do this, we

used a variable in AMAS that identifies second renewal obligations.

 1

A partial payment may occur when an agreement is renewed and the prior agreement 

has a small amount of remaining funds. In that case, the next rental assistance payment 

may consist of funds partly from the prior agreement and partly from the renewed 

agreement.

2

When a transfer occurs, the identification number associated with the agreement in 

RHS’s database changes. The agreement with the new identification number may appear 

to last for fewer payments because part of the funding was used under the former 

identification number. We could not identify rental assistance units that had been 

transferred to a new owner in the data we received from RHS.
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-17-725 Rural Housing Service

To examine how RHS responded to the funding gaps in fiscal years 

2013–2015, we reviewed RHS documentation on the options it offered to 

property owners who could not receive agreement renewals due to the 

funding gaps (for example, allowing owners to defer payments on their 

RHS mortgages). Additionally, we analyzed AMAS data to assess the 

extent to which RHS executed renewals it could not make at the ends of 

fiscal years 2013–2015 early in the next fiscal year when new 

appropriations became available. Specifically, we compared the number 

of renewals RHS made in October of fiscal years 2014–2016 (years 

following funding gaps) to the number of October renewals RHS made in 

the 3 prior fiscal years (2011–2013). We also reviewed RHS 

documentation on obligated but unexpended funds from properties that 

had exited the rental assistance program (due to foreclosure or mortgage 

prepayment), funding that was then available for use for agreements 

needing renewal. The documentation included information on the amount 

of funds available and the amount RHS used in fiscal years 2013–2015, 

as well as the amount remaining as of the end of fiscal year 2016. 

Additionally, we reviewed RHS fiscal year 2015 and 2016 budget 

justifications for the rental assistance program to understand legislative 

changes RHS sought to give it more flexibility in managing the program in 

times of funding uncertainty.

Finally, we interviewed officials from the Office of the Under Secretary for 

Rural Development, RHS Multi-Family Housing (including the Portfolio 

Management Division), Rural Development Budget Division and Office of 

Operations and Management, and USDA National Financial Accounting 

and Operations Center and Office of Budget and Program Analysis. The 

interviews focused on the reasons for the fiscal year 2013–2015 funding 

gaps, including how RHS calculated agreement renewals and budget 

requests in those years; how RHS addressed the gaps, including 

processes for using previously obligated, unexpended funds; and the data 

systems RHS used to manage the rental assistance program, including 

AMAS.

To examine what RHS has done to help prevent future rental assistance 

gaps and the extent to which it addressed related budgetary issues, we 

reviewed RHS tools, policies, and procedures for budget estimation and 

execution (such as allocating and obligating funds for rental assistance 

agreements), including changes made since the fiscal year 2013–2015 

gaps. More specifically:

RHS Actions to Prevent 

Future Funding Gaps and 

Address Related 

Budgetary Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-17-725 Rural Housing Service

• We reviewed documentation on the rental assistance obligation tool 

RHS developed in 2015 to estimate rental assistance costs, including 

the tool’s methodology and controls and tests conducted on the tool 

during development and in its first year of use. We also examined the 

extent to which RHS had developed plans for future testing. We 

assessed RHS’s development and testing efforts using federal 

internal control standards for monitoring activities, use of quality 

information, and design of control activities.3 We also compared RHS 

efforts to useful practices found in federal banking regulator guidance 

for managing risks associated with models.4

• We reviewed the inflation rates that RHS officials indicated were used 

in budget estimates for fiscal years 2010–2018 and compared them to 

applicable inflation rates in the President’s economic assumptions.5

We assessed the extent to which RHS’s practices were consistent 

with relevant parts of Office of Management and Budget (OMB) 

guidance on preparing agency budgets (Circular A-11, Preparation, 

Submission, and Execution of the Budget) and federal internal control 

standards for designing control activities.

• We randomly selected a nongeneralizable sample of 15 Rural 

Development state offices (out of 47) and conducted interviews with 

officials and staff about policies and practices for reviewing and 

approving rental assistance obligations for agreement renewals.6 We 

assessed the extent to which the stated practices of these offices 

aligned with expectations of RHS Multi-Family Housing officials and 

whether these expectations were documented, as called for by federal 

internal control standards for implementing control activities through 

policies.

 3

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September2014).

4

For example, see Board of Governors of the Federal Reserve System and Office of the 

Comptroller of the Currency, Supervisory Guidance on Model Risk Management, SR 

Letter 11-7 (Washington, D.C.: April 2011), accessed on May 5, 2017,

https://www.federalreserve.gov/supervisionreg/srletters/sr1107a1.pdf.

5

According to an Office of Budget and Program Analysis official, the President’s economic 

assumptions for the forthcoming budget are generally not available when RHS prepares 

its budget requests. According to an OMB staff member, in those circumstances, the 

agency should use the President’s assumptions for the prior year. Accordingly, we 

compared the inflation rates RHS used to the President’s assumptions for the prior year.

6

The state offices were Arkansas, Delaware-Maryland, Indiana, Iowa, Kentucky, Maine, 

Massachusetts-Rhode Island-Connecticut, Minnesota, Mississippi, Nebraska, Nevada, 

New Jersey, North Carolina, Oklahoma, and South Dakota.
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-17-725 Rural Housing Service

To supplement our review of the obligation tool, we used the AMAS data 

previously discussed to analyze how many full and partial rental 

assistance payments were made out of renewal agreements calculated 

by the tool in fiscal year 2016. This analysis was the same as the one we 

did for agreement renewals in fiscal years 2013–2015 with one exception. 

Specifically, we split the fiscal year 2016 agreements into two groups—

those that fully expended their funds during fiscal year 2016 and those 

that did not—because the latter group did not yet have a full payment 

history as of the data’s end date (end of fiscal year 2016). For that group, 

we projected remaining payments based on the average of the prior 12 

payments. We added this number to the number of payments that were 

made out of the agreement in fiscal year 2016.

We also reviewed changes to RHS’s budget estimation procedures. 

Specifically, for fiscal year 2016, we used AMAS data to calculate the 

percentage of second renewals in that year and compared it to the 

amount of second renewals RHS included in its budget request. We also 

reviewed how RHS used the obligation tool to estimate its fiscal year 

2017 and 2018 budget requests and compared this method to its budget 

estimation procedures for prior years.

Finally, we interviewed RHS Multi-Family Housing officials and 

information technology contractors in Rural Development’s Office of 

Operations and Management about the development of and methodology 

used in the obligation tool. We interviewed USDA Office of Budget and 

Program Analysis, Rural Development Budget Division, and RHS MultiFamily Housing officials about the program’s budget estimation and 

execution policies and procedures. We also interviewed RHS Multi-Family 

Housing Portfolio Management Division officials about the roles and 

responsibilities of state office staff for obligating funds. Additionally, we 

interviewed OMB staff with responsibility for reviewing the rental 

assistance program’s budget estimates about the inflation rates RHS 

used in its budget requests.

We conducted this performance audit from November 2015 to September 

2017 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 34 GAO-17-725 Rural Housing Service

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov

In addition to the contact named above, Steve Westley (Assistant 

Director); Melissa Kornblau (Analyst in Charge); Hiwotte Amare; Josie 

Carver; Stephen Brown; William Chatlos; John McGrail; Barbara 

Roesmann; and Jena Sinkfield made key contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100444)
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