a

GAO

United States Government Accountability Office

Report to Congressional Committees

November 2004 MULTIFAMILY 

HOUSING

Implementation of 

Fiscal Year 2003 

Requirements 

Concerning Housing 

Choice Voucher 

Administrative Fees

GAO-05-30
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-30.

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. 

Highlights of GAO-05-30, a report to 

congressional committees 

November 2004

MULTIFAMILY HOUSING 

Implementation of Fiscal Year 2003 

Requirements Concerning Housing 

Choice Voucher Administrative Fees 

By the end of calendar year 2004, HUD expects to have finished 

implementing most of the provisions in the Consolidated Appropriations 

Resolution of 2003 that address the administrative fees housing agencies 

receive under the Housing Choice Voucher Program. As of September 2004, 

all but 5 of the 2,477 housing agencies had reported their available 

administrative fee reserves as of January 31, 2003. The reported amounts 

totaled $587 million, or about $211 million (26 percent) less than the average 

$798 million that housing agencies had reported in fiscal years 1999 to 2002. 

GAO found several reasons for this decline. For example, the 2003 resolution 

allowed housing agencies to deduct from their January 2003 reported 

amounts funds that were not “available.” Some housing agencies deducted 

obligated or committed funds they considered unavailable, although they 

normally include these funds in the reserve amounts they report at their 

fiscal year ends. Further, between the end of their fiscal year 2002 and the 

January reporting date, some housing agencies obligated some of their 

reserves for expenses not related to the Housing Choice Voucher Program, 

as was permitted by HUD regulations. 

By December 2004, HUD plans to have completed most of the required 

reductions to the estimated fiscal year 2003 administrative fees of 180 

housing agencies, a total of about $37.8 million (see figure). As required by 

the 2003 resolution, HUD identified housing agencies whose fees would be 

reduced based on the difference between their available January 2003 

reserve balances and 105 percent of the fees they earned in federal fiscal 

year 2002. HUD has not recaptured any excess 2003 administrative fees but 

expects to have made some of the required recaptures by December 2004. 

Estimated Reductions to 180 Housing Agencies’ Fiscal Year 2003 Fees 

Source: HUD.

27%

(49 agencies)

32%

(58 agencies)

41%

(73 agencies)

More than $250,000

Amount of

estimated reductions:

$100,000–$249,999

Less than $100,000

Total

estimated

reductions:

$37,800,000

The Department of Housing and 

Urban Development (HUD) 

received $12.9 billion in fiscal year 

2003 for the Housing Choice 

Voucher Program, which helps 

about 2 million low-income families 

pay rent for privately owned 

housing. This amount included $1.1 

billion in administrative fee 

payments to the public housing 

agencies that administer the 

program for HUD. In the 

Consolidated Appropriations 

Resolution of 2003, Congress 

included provisions to address a 

concern that housing agencies may 

have received more in fees than 

they needed to run the program. 

Housing agencies were directed to 

report to HUD their available 

reserves as of January 31, 2003. 

HUD was directed to reduce the 

fees agencies would receive if 

these levels were too high and 

recapture some excess fees. 

The conference report 

accompanying the Consolidated 

Appropriations Act of 2004 directed 

GAO to review compliance with 

these provisions. This report 

discusses (1) the extent to which 

housing agencies complied with the

requirement to report to HUD their 

available administrative fee 

reserves as of January 31, 2003; (2) 

how these reported reserves 

compared with reserves reported in 

earlier fiscal years and possible 

reasons for any declines; (3) the 

extent to which HUD made 

required reductions to fiscal year 

2003 fees; and (4) the extent to 

which HUD has recaptured excess 

fiscal year 2003 administrative fees. 
Page i GAO-05-30 Multifamily Housing

Contents

Letter 1

Background 3

Results in Brief 5

Almost All Housing Agencies Reported Their Available Reserves, but 

Agencies Interpreted the Reporting Requirement Differently 7

Some Housing Agencies’ Available January 2003 Reserves Were 

Lower Than Previously Reported Reserves for Several 

Reasons 10

HUD Is Reducing Estimated Administrative Fees by About $37.8 

Million 13

HUD Expects to Have Recaptured Some Excess 2003 Administrative 

Fees by December 2004 19

Agency Comments 21

Appendixes

Appendix I: Scope and Methodology 22

Appendix II: GAO Contacts and Staff Acknowledgments 24

GAO Contacts 24

Acknowledgments 24

Figures Figure 1: Proportion of Housing Agencies Whose January 2003 

Available Reserves Were Different from Their Average 

Reserves from 1999 to 2002 11

Figure 2: Total Reserves, by Housing Agency Fiscal Year 12

Figure 3: How HUD Estimated Administrative Fees Earned in 

Federal Fiscal Year 2002 14

Figure 4: HUD’s Process for Determining Reductions to Fiscal Year 

2003 Fees 16

Figure 5: Months in Which HUD Applied Reduced Administrative 

Fee Payments 18

Figure 6: Estimated Reductions to 180 Housing Agencies’ Fiscal 

Year 2003 Fees 19

Figure 7: How HUD Determines Amounts to Be Recaptured 20
Contents

Page ii GAO-05-30 Multifamily Housing

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Page 1 GAO-05-30 Multifamily Housing

United States Government Accountability Office

Washington, D.C. 20548

A

November 19, 2004 Letr

The Honorable Christopher Bond

Chairman

The Honorable Barbara A. Mikulski

Ranking Minority Member

Subcommittee on Veterans Affairs, Housing and Urban Development and

 Independent Agencies

Committee on Appropriations

United States Senate

The Honorable James T. Walsh

Chairman 

The Honorable Alan B. Mollohan

Ranking Minority Member

Subcommittee on Veterans Affairs, Housing and Urban Development and

 Independent Agencies

Committee on Appropriations

House of Representatives

The Department of Housing and Urban Development (HUD) received $12.9 

billion in fiscal year 2003 appropriations to help about 2 million low-income 

families nationwide pay rent for privately owned housing through the 

Housing Choice Voucher Program. About $1.1 billion of this amount was 

designated for administrative fee payments to the approximately 2,500 

public housing agencies that administer the program for HUD.1

 The fee 

payments, which are intended to compensate the housing agencies for 

administrative activities such as finding property owners to participate in 

the program, inspecting rental units, and determining family eligibility, are 

not based on actual incurred expenses, but rather on a formula that takes 

into account the number of vouchers administered. The difference between 

the fees earned and expenses incurred are recorded annually in the 

administrative fee reserve, which shows the accumulated gains and losses 

housing agencies incur over time. Housing agencies can use their 

administrative fee reserves for the voucher program and other 

housing-related expenses.

1

These 2,500 public housing agencies are among the more than 4,100 housing agencies that 

administer federal housing programs on behalf of HUD.
Page 2 GAO-05-30 Multifamily Housing

In the Consolidated Appropriations Resolution of 2003, Congress 

addressed a concern that housing agencies may have been provided more 

in fees than necessary to effectively run the Housing Choice Voucher 

Program, as indicated by the large amounts of some housing agencies’ 

administrative fee reserves. Specifically, the 2003 resolution included 

provisions requiring the housing agencies to report to HUD their 

administrative fee reserves available as of January 31, 2003, and requiring 

HUD to: 

• withhold administrative fees for fiscal year 2003 from agencies that did 

not report their January 2003 reserves; 

• reduce the administrative fees paid in fiscal year 2003 to any agency 

whose reserve amount was more than an established limit; and 

• recapture any fees paid in fiscal year 2003 that exceeded housing 

agencies’ actual administrative expenses.2

However, the conference report accompanying the Consolidated 

Appropriations Act of 2004 raised concerns that neither HUD nor the 

housing agencies had fully complied with the requirements in the 2003 

resolution. This concern was based largely on the fact that some of the 

reported January 2003 reserves were far lower than had been expected. 

The conference report directed GAO to review compliance with the 

provisions of the 2003 resolution. Accordingly, this report:

• shows the extent to which housing agencies complied with the 

requirement to report to HUD their administrative fee reserves available 

as of January 31, 2003;

• compares housing agencies’ reported available reserves as of January 

31, 2003, with reserves reported in earlier fiscal years and discusses 

possible reasons for any declines;

2

These provisions were unique to the 2003 Appropriations Resolution and were not included 

in previous or subsequent appropriations acts. Several public housing industry associations 

and public housing agencies have filed a lawsuit in federal district court against HUD 

concerning the administrative fee provisions in the 2003 resolution. The plaintiffs maintain 

that the administrative fee reserves are the property of the pubic housing agencies and that 

the appropriations provisions, by requiring the reduction and recapture of the fees earned in 

fiscal year 2003, are unconstitutional and violate both the contractual terms and the 

Administrative Procedure Act.
Page 3 GAO-05-30 Multifamily Housing

• examines the extent to which HUD reduced fiscal year 2003 

administrative fee payments, as required, in light of housing agencies’ 

reported reserves;3

 and

• shows the extent to which HUD recaptured excess fiscal year 2003 

administrative fees, as required.

To meet our objectives, we reviewed relevant laws and HUD guidance, 

compared HUD data on the January 2003 reported amounts with reserves 

reported in prior fiscal years, and interviewed officials from HUD’s Office 

of Public and Indian Housing and Financial Management Center. We also 

visited 5 housing agencies to review financial documents related to their 

administrative fee reserves and to interview staff involved in calculating 

their reserves.4

 We selected these 5 agencies from the 10 that showed the 

largest differences between their January 2003 reported reserves and their 

average reported reserves for fiscal years 1999 to 2002.5

 In addition, we 

interviewed officials from several housing industry associations and spoke 

with private-sector accountants these associations cited as experts in 

housing agency accounting. We did not perform a financial audit of the 

housing agencies’ administrative fee reserves. We conducted our work 

from January through September 2004 in Los Angeles and Orange County, 

California; Broward County, Florida; Needham, Massachusetts; Newark, 

New Jersey; New York, New York; and Washington, D.C., in accordance 

with generally accepted government auditing standards. Our scope and 

methodology are discussed in greater detail in appendix I.

Background The federal government’s Housing Choice Voucher Program helps 

very-low-income families, the elderly, and the disabled pay for housing in

3

Unless otherwise noted, “fiscal year” refers to the Housing Choice Voucher Program’s fiscal 

year, which runs from January to December. 

4

The agencies we visited were the Housing Authority of the City of Los Angeles (California), 

the Orange County Housing Authority (California), the Broward County Housing Authority 

(Florida), the Newark Housing Authority (New Jersey), and the New York City Housing 

Authority (New York).

5

To achieve some geographic distribution, we selected sites in both the eastern and western 

parts of the country. None of the 10 housing agencies showing the largest differences were 

located in the Midwest.
Page 4 GAO-05-30 Multifamily Housing

the private market.6 The program, which has been operating for about 30 

years, provides housing vouchers that individuals and families can use to 

rent houses or apartments in the private housing market if property owners 

participate in the program. Voucher holders are responsible for finding 

suitable housing, which must meet the health and safety standards set by 

the local housing agency. Voucher holders generally pay about 30 percent 

of their household income on the rent and utilities and the housing agency 

pays the remainder in subsidies that are paid directly to the property 

owners. 

The administrative fees housing agencies earn are not tied to the actual 

expenses of operating the Housing Choice Voucher Program. Rather, the 

fees are based on a formula that takes into account the number of months 

that each voucher is actually in use (i.e., is used to pay for a rental unit 

under lease). The amounts used to calculate federal fiscal year 2003 fees 

were set in the Federal Register on May 6, 2003.7

 In addition, housing 

agencies may also earn additional special administrative fees—for 

example, the “hard-to-house” fee for certain clients, such as persons with 

disabilities, who require help in locating housing. 

Administrative fee payments are based on estimates of voucher use and are 

reconciled with actual earned amounts at the end of each housing agency’s 

fiscal year. Housing agencies’ fiscal years are grouped into four cycles 

ending in March, June, September, and December that allow HUD to more 

easily complete the fiscal-year-end settlement process, which generally is 

completed a few months after the close of a housing agency’s fiscal year. 

HUD projects leasing activity annually based on data the housing agencies 

submit and provides the agencies with monthly disbursements that are 

based on these projections. HUD uses the fiscal-year-end settlement 

process to reconcile the administrative fees disbursed to housing agencies 

with fees earned based on actual voucher use. For example, if the fees a 

housing agency earns exceed the projected amounts that HUD disbursed 

during the housing agency’s fiscal year, HUD pays the difference once the 

settlement process is completed. Conversely, if the fees a housing agency 

earns are less than the amount it was paid during its fiscal year, HUD 

offsets future fee payments by the amount of the difference. 

6

The Housing Choice Voucher Program was formerly referred to as the Section 8 

Tenant-Based Program.

7

Federal Register, Vol. 68, No. 87.
Page 5 GAO-05-30 Multifamily Housing

Housing agencies can use their administrative fee reserves both for 

expenses associated with the voucher program and other expenses. 

However, housing agencies must use their reserves for any actual 

administrative expenses that exceed the total amount HUD provides for 

each housing agency fiscal year. In addition, housing agencies are allowed 

to use administrative fee reserves accumulated prior to fiscal year 2004 

appropriations “for other housing purposes permitted by state and local 

law,” provided that the agencies have adequately administered the Housing 

Choice Voucher Program. For example, some housing agencies we visited 

had used their reserves to offset expenses incurred from rehabilitating or 

producing affordable housing units, while others had used their reserves to 

offset expenses from their public housing programs. In the Consolidated 

Appropriations Act of 2004, Congress limited the uses of the administrative 

fees earned in fiscal year 2004 to the provision of Housing Choice Voucher 

Program rental assistance and related development activities. 

The amount of the administrative fee reserve is calculated based on 

housing agency accounting data and does not necessarily represent cash 

reserves. Housing agencies determine the amount of their administrative 

fee reserve by calculating the difference (either gain or loss) between the 

fees they earned that year and the expenses they actually incurred, and 

adding that amount to (or subtracting it from) its last fiscal-year-end 

amount. They also deduct amounts used for nonprogram expenses. In 

calculating their reserves, housing agencies may deduct amounts equal to 

noncash assets procured with administrative fee reserves. For example, if a 

housing agency were to purchase a vehicle for program purposes, it could 

deduct the purchase amount when calculating the year-end balance for that 

year. However, a housing agency may include amounts equal to noncash 

assets in their total reported reserve. Housing agencies report their total 

administrative fee reserves to HUD as a part of the fiscal-year-end 

settlement process.

Results in Brief As of September 2004, all but 5 of the 2,477 housing agencies that were 

required to report their administrative fee reserves available as of January 

31, 2003, had done so. All five housing agencies we visited determined their 

reserves in a manner consistent with HUD’s guidance. However, because 

HUD did not define the term “available” used in the 2003 Appropriations 

Resolution, they did not calculate their reserves in exactly the same way. 

For example, in calculating the amount of available reserves, some housing 

agencies excluded amounts committed (but not obligated) for anticipated 

expenses. Moreover, two housing agencies differed in their interpretation 
Page 6 GAO-05-30 Multifamily Housing

of whether noncash assets should be included in available reserves; one 

housing agency had excluded an amount equal to its noncash assets, while 

another had not.

The total of all housing agencies’ reported reserves available as of 

January 31, 2003, was $587 million, or about $211 million (26 percent) less 

than the average $798 million in total reserves reported for fiscal years 1999 

to 2002. Ten housing agencies, including the five we visited, accounted for 

82 percent of the total difference. Officials from HUD, housing agencies, 

and housing industry groups cited several reasons why the total reported 

amount declined during that time. First, the 2003 resolution allowed 

housing agencies to deduct from their January 2003 reported amounts 

funds that were not “available,” a term that some housing agencies 

interpreted as excluding obligated or committed funds. Housing agencies 

normally include these funds in the reserve amounts they report at their 

fiscal year ends. Second, prior to the reporting date, some housing agencies 

used some of their reserves for expenses not related to the Housing Choice 

Voucher Program, as was permitted by HUD regulations. For example, 

between the end of their 2002 fiscal years and January 2003, the housing 

agencies we visited had used their reserves for, among other things, 

providing security services for housing developments. Finally, changes in 

government accounting standards, which were phased in beginning in 2001, 

could have had a small effect on some housing agencies’ reported reserves 

by requiring agencies to deduct from their reserves certain liabilities, such 

as employees’ unused leave, that they had not previously deducted.

By December 2004, HUD plans to have completed most of the required 

reductions to the estimated fiscal year 2003 administrative fees of 180 

housing agencies, a total of about $37.8 million. As required by the 2003 

Appropriations Resolution, HUD identified housing agencies whose fees 

would be reduced based on the difference between (a) their January 2003 

reserves and (b) 105 percent of the fees they earned in federal fiscal year 

2002. HUD made about $27.4 million in reductions to housing agencies’ 

estimated administrative fees over the course of calendar year 2003 (also 

the fiscal year for the Housing Choice Voucher Program) and plans to 

complete the remainder of the required reductions as part of the housing 

agencies’ next fiscal-year-end settlement process.

HUD has not yet recaptured any excess fiscal year 2003 administrative fees. 

However, it has begun processing recaptures and plans to have made some 

of the required recaptures by December 2004. The 2003 Appropriations 

Resolution required HUD to recapture fees paid to housing agencies that 
Page 7 GAO-05-30 Multifamily Housing

exceeded administrative expenses, except the fees necessary to maintain a 

reserve of 5 percent of the fees earned in fiscal year 2003. As a result, only 

housing agencies that had reserve amounts of less than 5 percent of their 

fiscal year 2003 fees could add to their reserves. As of September 2004, 

HUD was not able to provide estimates of the number of housing agencies 

that would be affected or the amount it expected to recapture.

Almost All Housing 

Agencies Reported 

Their Available 

Reserves, but Agencies 

Interpreted the 

Reporting Requirement 

Differently 

Almost all of the housing agencies that were required to report their 

available administrative fee reserves as of January 31, 2003, have done so. 

However, because HUD did not define the term “available” used in the 2003 

Appropriations Resolution, housing agencies may have interpreted the 

term—and thus calculated their reserves—differently. Although the five 

housing agencies we visited determined their reserves in a manner 

consistent with HUD’s guidance, we found differences in their 

methodologies. 

Almost All Housing 

Agencies Reported January 

2003 Reserves

As of September 2004, all but 5 of the 2,477 housing agencies required to 

report their available administrative fee reserves as of January 31, 2003, 

had done so. The 2003 Appropriations Resolution instructed HUD to collect 

these reserves data from each housing agency administering the Housing 

Choice Voucher Program. Although housing agencies had until April 9, 

2003, to report their reserves, HUD officials said they did not track which 

housing agencies met that deadline. However, they said that, as directed, 

HUD withheld 2003 administrative fees from housing agencies until they 

reported. The officials said that HUD continued to withhold 2003 

administrative fees from the 5 housing agencies that had not yet reported 

their reserves.8

8

The five housing agencies represented 0.02 percent of fees earned in fiscal year 2002. 

Therefore, these missing data probably had little effect on the total reserves reported as of 

January 2003. 
Page 8 GAO-05-30 Multifamily Housing

The five housing agencies we visited calculated their reserves available as 

of January 31, 2003, in a manner consistent with HUD’s instructions.9

 As 

directed, they began with their last fiscal-year-end reserve amounts and 

employed year-end closing procedures to bring the reserves current as of 

January 31, 2003. The five housing agencies had different fiscal years, 

however. For example, to meet this requirement the New York City 

Housing Authority had to update its reserve from its fiscal year ending 

December 31, 2002, while the Newark Housing Authority had to update its 

reserve from its fiscal year ending March 31, 2002.10 The five housing 

agencies we visited first added estimated fees earned and other income, 

such as interest income, earned since their most recent fiscal year end. 

They then deducted program expenses, such as staff salaries, incurred up 

to the January 2003 reporting date. In addition, all of the housing agencies 

deducted amounts used for housing purposes other than the Housing 

Choice Voucher Program, an action allowed under HUD regulations. For 

example, officials from the Broward County Housing Authority deducted 

$1.5 million (13 percent of its average reserve from 1999 to 2002) from its 

administrative fee reserves to offset the cost of installing air conditioning in 

public housing units. Finally, officials from two of the housing agencies 

deducted obligated amounts from their reported reserves. For example, 

officials from the New York City Housing Authority deducted slightly over 

$6 million (8 percent of its average reserve from 1999 to 2002) from the 

agency’s reported reserve for two housing-related development projects. 

Housing Agencies 

Interpreted “Available” 

Reserves Differently Due to 

a Lack of HUD Guidance

Because HUD did not define the term “available” used in the 2003 

Appropriations Resolution, housing agencies interpreted the term 

differently and thus may not have reported consistently defined reserve 

amounts to HUD.11 HUD’s regular fiscal-year-end closing procedures 

require housing agencies to report their total reserves. Therefore, reporting 

only their “available” reserves was a new requirement for housing agencies. 

HUD program officials did not elaborate on the 2003 Appropriations 

9

Results from a judgmental sample cannot be used to make inferences about a population, 

because in a judgmental sample some elements of the population being studied have no 

chance or an unknown chance of being selected as part of the sample.

10None of the four fiscal year ending dates (March 31, June 30, September 30, and December 

31) corresponds to the January 31, 2003 reporting date required by the 2003 Appropriations 

Resolution.

11The 2003 resolution required housing agencies to report to HUD “the amounts remaining 

available as of January 31, 2003,” in their administrative fee reserves (P.L. 108-7).
Page 9 GAO-05-30 Multifamily Housing

Resolution’s language. In the guidance it provided housing agencies 

regarding the 2003 resolution, HUD simply emphasized the word 

“available” with bold and italics several times throughout the instructions. 

Officials from HUD’s Office of General Counsel told us that legally 

obligated funds were not “available” amounts.

The lack of a clear definition of “available” resulted in two interpretive 

issues. First, three of the housing agencies we visited deducted from their 

“available” reserves amounts committed (but not yet obligated) for 

anticipated expenses. For example, Orange County Housing Authority 

officials deducted almost $900,000 (5 percent of its average reserve from 

1999 to 2002) that the agency had committed for fraud investigation 

services for the Housing Choice Voucher Program in future fiscal years. 

Similarly, officials at the Housing Authority of the City of Los Angeles 

deducted over $8 million (15 percent of its average reserve from 1999 to 

2002) from its reported reserve for an expected shortfall in public housing 

subsidies. HUD’s guidance did not indicate whether these amounts should 

or should not have been deducted from their “available” reserves.

Second, two housing agencies differed on whether to include noncash 

assets in their reported reserves. Officials from the Newark Housing 

Authority did not deduct amounts representing noncash assets, including 

computers and vehicles, from their January 2003 reported reserve. 

According to these officials, they included those amounts in the reported 

reserve because they include noncash assets in the amount they report to 

HUD at their fiscal year end. In contrast, officials from the Orange County 

Housing Authority deducted amounts from their reported reserve for 

noncash assets—primarily notes receivable from loans they had made to 

help developers build affordable housing. These officials told us that they 

did not consider these amounts to be “available” because the loans had not 

yet been repaid.
Page 10 GAO-05-30 Multifamily Housing

Some Housing 

Agencies’ Available 

January 2003 Reserves 

Were Lower Than 

Previously Reported 

Reserves for Several 

Reasons

Housing agencies’ total reported reserves available as of January 31, 2003, 

were about 26 percent less than the average total reserves reported by the 

agencies for fiscal years 1999 to 2002. Declines in the amounts reported by 

10 housing agencies, including the 5 we visited, represented 82 percent of 

this difference. Officials from HUD, housing agencies, and housing industry 

groups cited several explanations for the difference. 

A Small Number of Housing 

Agencies Were Responsible 

for Most of the Difference

The total of all the housing agencies’ reported reserves available as of 

January 31, 2003, was $587 million, about $211 million (26 percent) lower 

than the average total reserves of $798 million for fiscal years 1999 to 

2002.12 Of those housing agencies whose January 2003 available reserves 

were different from their average reserves from 1999 to 2002, 984 (41 

percent) housing agencies reported available reserve amounts that were 

lower than their average year-end amounts, but a small number of housing 

agencies was largely responsible for the overall difference (fig. 1). Of 

housing agencies that reported lower amounts, most (69 percent) showed a 

decline of less than $100,000, while only about 8 percent had declines of 

over $500,000. Specifically, the 10 housing agencies with the largest 

declines represented 82 percent ($173 million) of the decline in total 

reserves; of these, the 5 we visited represented 61 percent ($129 million) of 

the total difference. In contrast, most housing agencies (59 percent) 

reported amounts that were higher than their average reserves from 1999 to 

2002.13

12The average total reserve is based on the sum of the reserves reported by housing agencies 

at the end of their fiscal years. 

13We did not determine the reasons for these increases in the course of our audit work.
Page 11 GAO-05-30 Multifamily Housing

Figure 1: Proportion of Housing Agencies Whose January 2003 Available Reserves 

Were Different from Their Average Reserves from 1999 to 2002

Note: The figure above accounts for 2,398 of the 2,472 (97 percent) housing agencies that reported a 

January 2003 reserve. Due to missing data, GAO could not calculate the differences for 63 housing 

agencies. In addition, 11 housing agencies reported no change between their average reserves 

(1999-2002) and their January 2003 reported reserves.

The total amount of reserves reported by agencies at fiscal year ends varied 

from fiscal year to fiscal year. For example, the total reserves went from 

$753 million in fiscal year 1999 to $825 million in fiscal year 2000 but fell 

from $888 million in 2001 to $725 million in 2002 (fig. 2).14 Over a third of 

the total decline between 2001 and 2002 was attributable to the New York 

City Housing Authority, which used $58 million to cover deficits in public 

housing programs sponsored by their state and city governments. 

14These fiscal year totals are the sum of the reserves housing agencies reported at the end of 

their fiscal years. 

59%

(1,414 agencies)

41%

(984 agencies) 69%

8%

23%

All housing agencies

Housing agencies with January

2003 reserve lower than average

January 2003 reserve higher than average

January 2003 reserve lower than average

>$500,000

(81 agencies)

Decreases:

$100,000 - $500,000

(226 agencies)

<$100,000

(677 agencies)

Source: HUD.
Page 12 GAO-05-30 Multifamily Housing

Figure 2: Total Reserves, by Housing Agency Fiscal Year 

January 2003 Available 

Reserves Were Lower for 

Several Reasons

We found several reasons for the difference in reported reserve amounts. 

First, officials from HUD, housing industry associations, and some housing 

agencies we visited told us that the different reporting requirement was in 

part responsible for the lower reported amounts. As previously discussed, 

the January 2003 requirement was for “available” reserves, a term that 

some housing agencies interpreted as excluding funds that had been 

obligated or committed. The regular year-end reporting requirement was 

(and is) for total reserves, including amounts the housing agency had either 

obligated or committed. As a result, the January 2003 reserves for some 

housing agencies fell from the previous year-end levels—in some cases, 

dramatically. For example, officials from the Broward County Housing 

Authority deducted from the agency’s January 2003 reported reserve

$9.5 million (80 percent of its average reserve from 1999 to 2002) that it had 

committed for the redevelopment of a public housing site. 

0

200

400

600

800

1,000

January 2003

(available

reserves only)

1999 2000 2001 2002

Reserves (dollars in millions)

Fiscal year

Source: HUD.
Page 13 GAO-05-30 Multifamily Housing

Second, some housing agencies obligated some of their reserves for 

expenses not related to the Housing Choice Voucher Program, as was 

permitted by HUD regulations.15 Of the five housing agencies we visited, 

two had used their reserves for projects or expenses not related to the 

Housing Choice Voucher Program between the end of their fiscal year 2002 

and the January 2003 reporting date. For example, officials from the 

Newark Housing Authority deducted about $3.4 million (47 percent of its 

average reserve from 1999 to 2002) from its reserve for security services at 

their housing developments. 

Third, a new accounting requirement may have contributed to the decline 

in the total reported amount, but housing agency officials said that this 

effect was likely small. Beginning in 2001, housing agencies began 

implementing applicable provisions of the Governmental Accounting 

Standards Board Statement No. 34, Basic Financial Statements—and 

Management’s Discussion and Analysis—for State and Local 

Governments. The statement directed housing agencies to deduct from 

their reserves certain liabilities that they had not been required to deduct 

before, such as employees’ unused compensated leave. The largest 

agencies were required to implement this standard in June 2001. Other 

agencies were not required to implement the standard until June 2003. 

According to some housing agency officials, the effect of this accounting 

requirement was relatively small. For example, officials at the Housing 

Authority of the City of Los Angeles deducted almost $4 million (7 percent 

of its average reserve from 1999 to 2002) from its reported reserve as a 

result of the conversion to this accounting standard.

HUD Is Reducing 

Estimated 

Administrative Fees by 

About $37.8 Million

By December 2004, HUD plans to have completed most of the required 

reductions to the estimated fiscal year 2003 administrative fees of 180 

housing agencies, a total of about $37.8 million. As required by the 2003 

Appropriations Resolution, HUD identified housing agencies whose fees 

should be reduced because their reported January 2003 reserves exceeded 

105 percent of the fees they earned in federal fiscal year 2002. HUD made 

about $27.4 million in reductions to housing agencies’ estimated 

15HUD regulations permitted housing agencies to use administrative fee reserves 

accumulated prior to 2004 for other housing purposes permitted by state or local law. The 

Consolidated Appropriations Act of 2004 prohibited housing agencies from using 

administrative fees earned under the period covered by the act for purposes not related to 

the program. 
Page 14 GAO-05-30 Multifamily Housing

administrative fees over the course of calendar year 2003 (the Housing 

Choice Voucher Program’s fiscal year). HUD plans to make most of the 

remaining reductions by December 2004 through the housing agencies’ 

fiscal-year-end settlements. 

HUD Identified 180 Housing 

Agencies That Should 

Receive Reductions

To implement the reductions required in the 2003 Appropriations 

Resolution, HUD needed information on each housing agency’s available 

administrative fee reserves as of January 31, 2003, and on the fees each 

housing agency earned in fiscal year 2002. According to HUD attorneys, 

HUD interpreted the term “fiscal year 2002” in the 2003 resolution to mean 

federal fiscal year 2002. Because HUD generally collects information on 

fees earned based on the housing agency fiscal year, it had to estimate the 

amounts for federal fiscal year 2002 for all agencies except those with fiscal 

years that ended in September. As shown in figure 3, HUD used a 

combination of data to estimate fees housing agencies earned in federal 

fiscal year 2002.

Figure 3: How HUD Estimated Administrative Fees Earned in Federal Fiscal Year 

2002

a

HUD used August 2002 data for these months because it was the nearest monthly data available.

Oct.

2001

Dec.

2001

Sept.

2002

Aug.

2002

Oct.

2001

March

2002

Oct.

2001

June

2002

Oct.

2001

Housing agencies

with fiscal year

ending in: 

December

September

June

March

Equal to 1/12 of the total fees the housing agency earned in its last fiscal year

Equal to August 2002 feesa

Reported by the housing agency

Source: GAO.

Aug.

2002

Sept.

2002

Sept.

2002

Aug.

2002

Sept.

2002

Sum of amounts

equals estimated

fees earned in

federal fiscal

year 2002

Months during which the amount was:
Page 15 GAO-05-30 Multifamily Housing

Using these estimates and housing agencies’ reported January 2003 

reserves, HUD determined which housing agencies should receive less in 

administrative fees and the amounts of the reductions.16 HUD identified 180 

housing agencies whose fiscal year 2003 administrative fees should be 

reduced because their available reserves as of January 31, 2003, exceeded 

105 percent of the fees they earned in federal fiscal year 2002. The total 

reduction for each agency was the lower of (a) the difference between its 

January 2003 reserve and 105 percent of the fees it earned in federal fiscal 

year 2002, or (b) the total administrative fees the housing agency would 

earn in fiscal year 2003. HUD did not reduce the fees of some housing 

agencies by the full difference between their January 2003 reserves and 105 

percent of the fees earned in federal fiscal year 2002, because the 2003 

resolution did not require HUD to make reductions to housing agencies’ 

administrative fees that exceeded the amounts they earned in fiscal year 

2003. Figure 4 shows, for three possible scenarios, how HUD determined 

the reduction, if any, in a housing agency’s fiscal year 2003 fees. In the first 

scenario, no reduction would be made, because the reserves were less than 

the 105 percent level; the housing agency would receive all of the fiscal 

year 2003 fees it earned. In the second scenario, the reduction would equal 

the full difference between the January 2003 reserves and the 105 percent 

level, and the housing agency would receive the remainder of its fiscal year 

2003 administrative fees. In the third scenario, the reduction would equal 

the full amount of the housing agency’s fiscal year 2003 fees, and the 

housing agency would not receive any administrative fees.

16The 2003 Appropriations Resolution did not require HUD to reduce the fees of any housing 

agency that earned less than $100,000 in administrative fees in fiscal year 2003. 
Page 16 GAO-05-30 Multifamily Housing

Figure 4: HUD’s Process for Determining Reductions to Fiscal Year 2003 Fees 

HUD Reduced 

Administrative Fees in Two 

Stages

As noted previously, HUD normally makes monthly disbursements to 

housing agencies based on projections of their earnings for each month, 

and reconciles these disbursements with the agencies’ actual earnings 

during the fiscal-year-end settlement process.17 To implement the 

reductions required by the 2003 Appropriations Resolution, HUD estimated 

each agency’s total reduction (as described above) and the estimated 

January 2003 

available 

reserve

105% of fees 

earned in federal 

fiscal year 2002

Fees earned 

in fiscal year 

2003

No Yes

Yes

HUD did not 

reduce fiscal 

year 2003 fees.

HUD reduced 

fiscal year 2003 

fees to zero.

No

HUD reduced fiscal year 2003 fee 

payments by the difference between 

the January 2003 reserve and 105% of 

fees earned in federal fiscal year 2002.

Source: GAO.

Scenario 1 Scenario 2 Scenario 3

HUD calculated the 

difference between January 

2003 available reserve and 

105% of fees earned in 

federal fiscal year 2002.

Calculated 

difference

Was

January 2003

available reserve greater

than 105% of fees earned in 

federal fiscal year 2002?

Was

the calculated

difference greater

than the fees earned in

fiscal year 2003?

17Housing agencies receive a monthly disbursement from HUD to cover both their 

administrative fees and the housing assistance payments that the agencies pay to property 

owners on behalf of tenants in the Housing Choice Voucher Program.
Page 17 GAO-05-30 Multifamily Housing

monthly reduction, based on the total fees earned in federal fiscal year 2002 

divided by 12. Using these amounts, HUD reduced some housing agencies’ 

monthly payments over the course of calendar year 2003 (also the fiscal 

year for the Housing Choice Voucher Program) and will make any 

remaining reductions during the housing agencies’ fiscal-year-end 

settlement process. 

In the first stage of reductions, HUD lowered the monthly disbursements 

for the housing agencies’ estimated administrative fees by a total of about 

$27.4 million between September and December 2003. Although HUD 

began calculating reductions in May 2003, HUD did not apply any 

reductions to fee disbursements until September 2003, after housing 

agencies’ budgets were revised.18 The September payments reflected up to 

5 months of estimated monthly reductions (May through September), even 

if the reduction affected not only the administrative fees but also the 

payments for tenants’ housing assistance. In contrast, fees for October 

through December 2003 were reduced by no more than the estimated 

monthly reduction. According to HUD officials, HUD initially stopped 

reductions with the December 2003 payment after 8 months of estimated 

monthly reductions because of uncertainty about applying the 2003 

Appropriations Resolution retroactively to January through April 2003, the 

first 4 months of the Housing Choice Voucher Program fiscal year.

Although HUD has already made these estimated reductions, it must 

complete the housing agencies’ fiscal-year-end settlements to determine 

the actual amount of fees to which reductions should be applied. HUD will 

not have the data to calculate the actual reductions for all housing agencies 

until after December 2004 (when the September 2004 fiscal-year-end 

settlements are due), because housing agencies whose fiscal years ended in 

June and September received reduced payments over the course of two of 

their fiscal years, as illustrated in figure 5. The actual reductions might be 

higher or lower than the estimated amounts, depending on each agency’s 

actual voucher use.

18In January through August 2003, HUD disbursed fees according to housing agencies’ 

existing budgets until they were revised in August 2003.
Page 18 GAO-05-30 Multifamily Housing

Figure 5: Months in Which HUD Applied Reduced Administrative Fee Payments

HUD will implement a second stage of reductions because its general 

counsel determined that the reductions should apply to the entire period 

during which fiscal year 2003 appropriations were used. In July 2004, HUD 

developed procedures to make adjustments to housing agencies’ January, 

February, March, and April 2004 payments using the fiscal-year-end 

settlement process. HUD will use actual fees earned to determine the 

amount of additional reductions to be made to the fees of housing agencies 

whose fees have not been reduced by the full amount required by the 2003 

Appropriations Resolution. HUD estimated that these additional 4 months 

of administrative fee reductions would total about $10.4 million, bringing 

the total reduction to about $37.8 million. As shown in figure 6, most 

housing agencies will receive total reductions of less than $250,000. By 

December 2004, HUD plans to have completed reductions for the majority 

of housing agencies.

Jan.

2003

May

2003

Jan.

2003

May

2003

Dec.

2003

Jan.

2003

Dec.

2003

Jan.

2003

May

2003

Dec.

2003

Housing agencies

with fiscal year

ending in: 

December

September

June

March

Month in which reduced payments were applied

Last month of the fiscal year

Source: GAO.

Dec.

2003

March

2004

Sept.

2004

Sept.

2003

June

2003

May

2003

March

2003

June

2004
Page 19 GAO-05-30 Multifamily Housing

Figure 6: Estimated Reductions to 180 Housing Agencies’ Fiscal Year 2003 Fees

HUD Expects to Have 

Recaptured Some 

Excess 2003 

Administrative Fees by 

December 2004

The 2003 Appropriations Resolution required HUD to recapture from 

housing agencies administrative fees that they earned in fiscal year 2003 

that exceeded administrative expenses, except for an amount necessary to 

maintain a reserve equal to 5 percent of the fees earned in the Housing 

Choice Voucher Program fiscal year 2003. HUD began processing 

recaptures in July 2004, but had not completed any at the time of our 

review. 

During the fiscal-year-end settlement process, HUD will review housing 

agencies’ actual earned fees (including any reductions resulting from the 

2003 Appropriations Resolution) and compare them with expenses

incurred to determine any amounts that should be recaptured.19 According 

to the provisions of the 2003 resolution, if a housing agency’s fiscal year 

2003 fees did not exceed its fiscal year 2003 program expenses, it will not 

Source: HUD.

27%

(49 agencies)

32%

(58 agencies)

41%

(73 agencies)

More than $250,000

Amount of

estimated reductions:

$100,000–$249,999

Less than $100,000

Total

estimated

reductions:

$37,800,000

19This process, which calculates the difference between actual fees earned and actual 

expenses incurred, differs from the regular fiscal-year-end settlement process, which 

calculates the difference between the projection-based monthly disbursements and the 

actual fees earned based on voucher use. 
Page 20 GAO-05-30 Multifamily Housing

be subject to any fee recaptures, regardless of the amount of its reserves. 

However, if a housing agency’s fiscal year 2003 fees exceeded its fiscal year 

2003 program expenses, HUD will compare the housing agency’s last 

fiscal-year-end reserve with 5 percent of the fees it earned in fiscal year 

2003. HUD will then recapture the entire difference or, if the agency has a 

very low reserve, HUD will recapture an amount that will leave the housing 

agency with a reserve equaling 5 percent of its fiscal year 2003 fees (fig. 7). 

Thus, this provision prevented housing agencies from adding to their 

reserves unless they had reserve amounts of less than 5 percent of their 

fiscal year 2003 fees.

Figure 7: How HUD Determines Amounts to Be Recaptured

Fees

(less any

reductions)

Program

expenses

Program fiscal

year 2003

Reserve

(at last fiscal

year end)

5% of fees 

earned

Program fiscal

year 2003

No Yes

Yes

HUD will not 

recapture any 

2003 fees.

HUD will recapture the entire 

difference between a housing 

agency's fees and expenses.

No

HUD will recapture an amount that 

will leave the housing agency with 

excess fees to bring its reserve to 5% 

of fees earned in 2003.

Source: GAO.

Were

the fees earned

in fiscal year 2003

greater than program expenses?

Was

the reserve at

the last fiscal year end

greater than 5% of fees earned

in fiscal year 2003?
Page 21 GAO-05-30 Multifamily Housing

HUD has not yet recaptured any excess fiscal year 2003 administrative fees. 

In July 2004, HUD began implementing the recapture process for the first 

housing agencies for which data were available—those whose fiscal years 

ended in December 2003. As with the reduction process, HUD will have all 

the data needed to calculate recaptures following the receipt of September 

2004 fiscal-year-end settlements. HUD plans to complete the recaptures for 

the first group of housing agencies by December 2004. As of September 

2004, HUD could not estimate the number of housing agencies that would 

be affected or the total amount to be recaptured and could not give a date 

when the process would be completed. 

Agency Comments HUD agreed with our findings and provided technical comments, which we 

incorporated into this report as appropriate.

We are sending copies of this report to the Secretary of Housing and Urban 

Development and will make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. Please contact me at (202) 512-8678 if you or your staff 

have any questions concerning this report. Key contributors to this report 

are listed in appendix II. 

David G. Wood

Director, Financial Markets

and Community Investment
Page 22 GAO-05-30 Multifamily Housing

Appendix I

Scope and Methodology ApApenednxidexiIs

To meet our objectives, we reviewed relevant laws and HUD guidance, 

analyzed HUD data, and interviewed officials from HUD’s Office of Public 

and Indian Housing and Financial Management Center. We also visited five 

housing agencies to review financial documents related to their reserves 

and to interview staff involved in calculating the reserves. In addition, we 

interviewed officials from several housing industry associations and spoke 

with private-sector accountants these associations cited as experts in 

housing agency accounting. We did not perform a financial audit of the 

housing agencies’ administrative fee reserves.

To determine the extent to which housing agencies reported to HUD their 

available administrative fee reserves as of January 31, 2003, we analyzed 

data from HUD showing all of the housing agencies that had reported their 

January 2003 reserves and the amounts they had reported. In addition, to 

compare the January 2003 reserves with reserves reported in prior fiscal 

years, we analyzed HUD data showing the fiscal-year-end reserves for the 

housing agencies participating in the Housing Choice Voucher Program in 

fiscal years 1999 to 2002. We reviewed the reliability of these data through 

electronic data testing and interviews with HUD staff familiar with the 

databases from which this information was extracted and determined that 

the data were sufficiently reliable for the purposes of our report. We also 

interviewed HUD officials from the Financial Management Center to 

confirm the number of housing agencies that had not reported their 

available reserves as of January 31, 2003. Because the January 2003 

reporting date did not coincide with any other reporting requirements HUD 

places on housing agencies, we could not validate the accuracy of the 

January 2003 reported reserves.

To determine how housing agencies calculated their reserves as of January 

31, 2003, and the possible reasons for declines in the reported amounts, we 

selected 5 of the 10 housing agencies that had the largest differences 

between the average of their reserves reported for fiscal years 1999 to 2002 

and the amount they reported as of January 2003.1

 To achieve some 

geographic distribution, we selected sites in both the eastern and western 

parts of the country. None of the 10 housing agencies with the largest 

differences were located in the Midwest. The sites we selected were the 

Housing Authority of the City of Los Angeles (California), the Orange 

1

Our sample was a judgmental sample, so our results cannot be used to make inferences 

about the population. In a judgmental sample, some elements of the population being 

studied have no chance or an unknown chance of being selected for the sample. 
Appendix I

Scope and Methodology

Page 23 GAO-05-30 Multifamily Housing

County Housing Authority (California), the Broward County Housing 

Authority (Florida), the Newark Housing Authority (New Jersey), and the 

New York City Housing Authority (New York).2

 Prior to our site visits, we 

sent each housing agency a data collection instrument on which they 

documented how their reserves had changed from their last fiscal year end 

to the January 2003 reporting date. During our site visits, we obtained 

documentation to support the financial information recorded in the data 

collection instrument and interviewed housing agency officials involved in 

preparing financial information submitted to HUD. In addition, to 

determine why the January 2003 amounts might have been lower than 

previously reported amounts, we interviewed officials from HUD, the five 

housing agencies, and several public housing industry associations, as well 

as private-sector accountants working for housing agencies. 

To determine the extent to which HUD reduced fiscal year 2003 

administrative fees in light of the reported January 2003 reserves, we 

obtained data from HUD showing all of the housing agencies subject to 

reductions and the estimated amount of those reductions. We reviewed the 

reliability of these data and determined that the data were sufficiently 

reliable for the purposes of our report. To assess HUD’s processes and how 

they related to the legislation, we reviewed applicable legislation, HUD 

notices, and policies concerning administrative fees, as well as a 

contractor’s analysis of HUD’s process for determining which housing 

agencies were subject to a reduction in fees. We also interviewed HUD 

officials regarding the implementation of the process. 

To determine the extent to which HUD recaptured excess fiscal year 2003 

administrative fees, we reviewed applicable legislation and HUD policies 

regarding the recapture process. In addition, we interviewed HUD officials 

regarding the implementation of the process. 

We conducted our work from January through September 2004 in Los 

Angeles and Orange County, California; Broward County, Florida; 

Needham, Massachusetts; Newark, New Jersey; New York, New York; and 

Washington, D.C., in accordance with generally accepted government 

auditing standards. 

2

The other five housing agencies with the largest differences were the Housing Authority of 

the County of Santa Clara (California), the Oakland Housing Authority (California), the 

Housing Authority of the County of Tulare (California), the City and County of Honolulu 

(Hawaii), and the Boston Housing Authority (Massachusetts).
Page 24 GAO-05-30 Multifamily Housing

Appendix II

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts David G. Wood (202) 512-8678

Steven Westley (202) 512-6221

Acknowledgments In addition to those named above, Daniel Blair, Christine Bonham, 

Emily Chalmers, Eben Darling, David Dornisch, John McGrail, 

Phillip McIntyre, Marc Molino, Gretchen Maier Pattison, and Mijo Vodopic 

made key contributions to this report.

(250188)
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