RURAL HOUSING 

SERVICE

Efforts to Identify and 

Reduce Improper 

Rental Assistance 

Payments Could Be 

Enhanced

Report to Congressional Requesters

May 2012

GAO-12-624

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-624, a report to 

congressional requesters

May 2012

RURAL HOUSING SERVICE 

Efforts to Identify and Reduce Improper Rental 

Assistance Payments Could be Enhanced

Why GAO Did This Study

RHS, an agency within USDA, paid 

property owners about $1 billion in 

fiscal year 2011 to help more than 

270,000 low-income rural tenants 

afford rental housing. Each year, some 

of RHS’s rental subsidy payments are 

improper—that is, too high or too low. 

Federal requirements regarding 

improper payments are set forth in 

statute and in OMB guidance. GAO 

was asked to review (1) the extent to 

which RHS has examined the sources 

and magnitude of improper rental 

assistance payments, (2) RHS’s 

compliance with requirements and 

guidance concerning improper 

payments, and (3) potential lessons 

RHS could learn from HUD efforts to 

identify and reduce improper rental 

assistance payments. To do this work, 

GAO analyzed agency data and 

documents; reviewed statutes and 

guidance; and interviewed RHS, HUD, 

and OMB officials. 

What GAO Recommends

To help reduce improper payments 

caused by unreported tenant income, 

GAO suggests that Congress should 

consider authorizing RHS access to 

HHS’s New Hires database and 

recommends that RHS develop 

proposed legislation to gain access to 

SSA benefits data. GAO also 

recommends that USDA submit RHS’s 

method for estimating improper 

payments to OMB for review and that 

RHS take steps to consistently apply 

procedures for classifying payments as 

improper, examine improper payments 

made on behalf of deceased tenants or 

caused by payment processing errors, 

and hold agency managers 

accountable for reducing improper 

payments. USDA said it generally 

agreed with GAO’s recommendations.

What GAO Found

The Rural Housing Service (RHS) has identified improper rental assistance 

payments caused by certain sources of errors, but its reported error rate (total 

amount improperly paid divided by program outlays) may understate the 

magnitude of the problem. RHS has identified improper payments resulting from 

inaccurate calculations of tenant subsidies and incomplete supporting 

documents. From fiscal years 2007 through 2010, RHS reduced its reported error 

rate from 3.95 percent (representing $35 million in errors) to 1.48 percent 

(representing $15 million in errors). However, these figures may be understated 

because RHS has not estimated improper payments due to unreported tenant 

income, and it lacks the authority to match tenant data to federal income data for 

this purpose. These data include the Department of Health and Human Services’ 

(HHS) New Hires database and the Social Security Administration’s (SSA) data 

on benefits payments. RHS has proposed legislation to gain access to the HHS 

data but not the SSA data. Additionally, RHS has not recently estimated payment 

processing errors and has not strictly adhered to procedures for classifying 

payments as improper. Further, in 2008, RHS began excluding improper 

payments of less than $100 from its estimated error rates. However, it did not 

submit this change to the Office of Management and Budget (OMB), which is 

responsible for approving agency methodologies for estimation. As a result, RHS

lacks assurance that its approach is appropriate.

RHS uses required statistical methods for estimating improper payments but has 

not fully met requirements for reporting on, reducing, and recovering such 

payments. Consistent with the Improper Payments Information Act of 2002, as 

amended, and OMB guidance, RHS examines a statistically valid sample of 

payments and generates estimates with an acceptable level of precision. RHS 

also has reported required information, such as actions to address payment 

errors. However, RHS did not fully comply with the requirement to implement and 

report steps for holding agency managers accountable for reducing improper 

payments. In addition, although OMB cites data matching as a way to reduce 

payment errors, RHS has not used data already available from SSA to detect 

payments made on behalf of deceased tenants. Further, RHS has yet to institute 

a recovery audit program in accordance with the Improper Payments Elimination 

and Recovery Act of 2010, although it plans to do so sometime in 2012. These 

shortcomings negatively affect the integrity of RHS’s subsidy payments. 

The Department of Housing and Urban Development’s (HUD) use of data 

matching to reduce improper payments in its rental assistance programs 

illustrates the potential benefits and challenges of this technique for RHS. HUD 

developed a web-based system that allows authorized HUD staff and program 

administrators (e.g., public housing agencies) to match tenant information to

HHS’s New Hires database and SSA benefits data. According to HUD, the 

system has helped to reduce income reporting errors and has contributed to a 

more than threefold decline in total improper payments from fiscal years 2000 

through 2010. Negotiating a data-sharing agreement with one agency and fully 

implementing the data matching system took several years. Additionally, HUD 

provides extensive guidance, training, and technical assistance to program 

administrators to help ensure effective use of the system.

View GAO-12-624. For more information, 

contact Mathew Scirè at (202) 512-8678 or 

scirem@gao.gov.
Page i GAO-12-624 RHS Improper Payments

Letter 1 

Background 4

RHS Has Identified and Reduced Certain Types of Payment Errors, 

but Its Reported Error Rate May Understate the Magnitude of 

the Problem 8

RHS Uses Required Statistical Methods for Estimating Improper 

Payments but Has Not Fully Met Reporting, Reduction, and 

Recovery Requirements 17

HUD’s Efforts Illustrate Potential Benefits and Challenges of Data 

Matching 26

Conclusions 33

Matter for Congressional Consideration 36

Recommendations for Executive Action 36

Agency Comments and Our Evaluation 37

Appendix I Objectives, Scope, and Methodology 39

Appendix II Comments from the Department of Agriculture 44

Appendix III GAO Contact and Staff Acknowledgments 46

Tables

Table 1: RHS Estimates of Gross Improper Rental Assistance 

Payments and Error Rates, Fiscal Years 2007-2010 10

Table 2: RHS Reporting on Improper Payments in Response to 

OMB Requirements 19

Table 3: Status of RHS Corrective Actions Regarding Improper 

Rental Assistance Payments 22

Figures

Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of 

April 2012 6

Figure 2: Potential Sources of Payment Errors Examined and Not 

Examined by RHS’s Improper Payments Audit, as of April 

2012 11

Contents
Page ii GAO-12-624 RHS Improper Payments

Figure 3: Distribution of Improper Payments in RHS’s Sample of 

Fiscal Year 2010 Payments 15

Figure 4: Estimated RHS Improper Rental Assistance Payments in 

Fiscal Year 2010 Including and Excluding Errors Less 

Than $100 16

Abbreviations

CSC Centralized Servicing Center

EIV Enterprise Income Verification System

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

IPERA Improper Payments Elimination and Recovery Act of 2010

IPIA Improper Payments Information Act of 2002

MFIS Multi-Family Information System 

NAHMA National Affordable Housing Management Association

OIG Office of the Inspector General

OMB Office of Management and Budget

PAR Performance and Accountability Report

PHA public housing agency

RFP request for proposals

RHIIP Rental Housing Integrity Improvement Project

RHS Rural Housing Service

SSA Social Security Administration

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 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-624 RHS Improper Payments

United States Government Accountability Office

Washington, DC 20548

May 31, 2012

The Honorable Charles Grassley

Ranking Member

Committee on the Judiciary

United States Senate

The Honorable Judy Biggert

Chair

Subcommittee on Insurance, Housing 

 and Community Opportunity

Committee on Financial Services

House of Representatives

The Honorable Shelley Moore Capito

Chairwoman

Subcommittee on Financial Institutions 

 and Consumer Credit

Committee on Financial Services

House of Representatives

In fiscal year 2011, the Rural Housing Service (RHS) of the U.S. 

Department of Agriculture (USDA) paid about $1.1 billion in subsidies 

under the Section 521 rental assistance program to help more than a 

quarter of a million very low- and low-income rural tenants afford decent 

rental housing.1

Like other executive branch agencies, RHS is required to comply with 

requirements designed to enhance the accuracy and integrity of federal 

payments. Under the Improper Payments Information Act of 2002 (IPIA), 

The properties in which the tenants live were created 

through other RHS programs that provide low-interest loans for the 

development of multifamily housing. RHS pays rental subsidies to the 

owners of the properties to limit tenants’ rent payments to 30 percent of 

the household’s adjusted monthly income. However, each year, some of 

RHS’s subsidy payments are improper because they should not have 

been made or were made in an incorrect amount.

 

1

Very low income is defined as below 50 percent of the area median income; low income 

is from 50 to 80 percent of area median income.

 
 

Page 2 GAO-12-624 RHS Improper Payments

agencies are required to estimate annual amounts improperly paid and to 

report these estimates and actions taken to reduce them.2 The Improper 

Payments Elimination and Recovery Act of 2010 (IPERA) amended IPIA 

and, among other things, expanded requirements for recovering 

overpayments.3

In prior work, we reported that the Department of Housing and Urban 

Development (HUD), which paid over $32 billion in rental subsidies in 

fiscal year 2010, had substantially reduced the amount of improper 

payments in its three rental assistance programs.

The Director of the Office of Management and Budget 

(OMB) prescribes guidance for agencies to use in implementing IPIA, as 

amended.

4

You asked us to examine RHS’s efforts to address improper rental 

assistance payments in the Section 521 program. Accordingly, this report 

addresses (1) the extent to which RHS has examined the sources and 

magnitude of improper rental assistance payments; (2) the extent to 

which RHS has complied with applicable requirements and guidance for 

estimating, reporting, reducing, and recovering improper payments; and 

(3) potential lessons RHS could learn from HUD efforts that have helped 

to identify and reduce improper rental assistance payments.

Specifically, we 

reported that HUD paid an estimated $3.4 billion in improper rent 

subsidies in fiscal year 2000 but cut that amount to about $1.5 billion in 

fiscal year 2005. Since that time, HUD has made continuing efforts to 

reduce improper payments for these programs, including the use of data 

matching techniques to help ensure payment accuracy.

To determine the extent to which RHS has examined the sources and 

magnitude of improper payments, we reviewed RHS’s improper payments 

audits of the rental assistance program for fiscal years 2004 through 2010 

(the most recent audit available at the time of our review). We reviewed 

RHS’s audit procedures and examined the policies governing RHS’s 

subsidy determination and payment processes. We also reviewed 

detailed information on the sample of payments covered by the audit for 

 

2

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).

3

Pub. L. No. 111-204, 124 Stat. 2224 (July 22, 2010). 

4

GAO, HUD Rental Assistance: Progress and Challenges in Measuring and Reducing 

Improper Rent Subsidies, GAO-05-224 (Washington, D.C.: Feb. 18, 2005) and GAO, 

High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007). 
 

Page 3 GAO-12-624 RHS Improper Payments

fiscal year 2010, including the dollar amount and types of errors that 

internal RHS auditors identified, if any, for each payment. We assessed 

the reliability of the payment data in the sample by reviewing information 

on data quality controls and by performing reasonableness checks on the 

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

purposes. In addition, we interviewed RHS officials, including staff 

responsible for managing the rental assistance program and staff who 

conduct the improper payments audit, as well representatives from 

housing industry groups.

To determine the extent to which RHS has complied with applicable 

requirements and guidance concerning improper payments, we reviewed 

IPIA and IPERA provisions, associated OMB implementing guidance, and 

a 2010 presidential memorandum on ensuring payment accuracy. We 

examined RHS’s improper payments audit for fiscal year 2010 and the 

statistical sampling plan underlying the audit. We also reviewed USDA’s 

Performance and Accountability Reports (PAR) for fiscal years 2008 

through 2011 (the most recent available at the time of our review). Our 

review of RHS’s compliance with OMB reporting requirements focused on 

information in the most recent PAR. Our review of RHS’s corrective 

actions to address payment errors covered information in the PARs for 

fiscal years 2008 through 2011. Additionally, we interviewed RHS and 

OMB officials about RHS’s efforts to comply with improper payments 

requirements and guidance.

To determine potential lessons that RHS could learn from HUD’s 

experience, we reviewed HUD’s annual studies of improper rental 

assistance payments (which are comparable to RHS’s improper 

payments audits) conducted for fiscal years 2000 through 2010. We 

examined HUD’s methodology for estimating improper payments and the 

studies’ findings about the sources and magnitude of payment errors. We 

also reviewed HUD’s PARs and other documentation showing the steps 

the agency had taken to identify, reduce, and recover improper payments 

and the results of those efforts. Our work emphasized the benefits and 

challenges associated with HUD’s system for verifying tenant incomes 

because RHS lacks a comparable capability. Finally, we interviewed HUD 

officials responsible for managing the agency’s rental assistance 

programs and estimating and reducing improper payments. Appendix I 

contains a more detailed description of our objectives, scope, and 

methodology.

We conducted this performance audit from July 2011 to May 2012 in 

accordance with generally accepted government auditing standards. 
 

Page 4 GAO-12-624 RHS Improper Payments

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.

The Section 521 rental assistance program, authorized in 1974, is 

administered by RHS’s Multi-Family Housing Portfolio Management 

Division and its network of state and local offices. The program provides 

rental assistance for tenants living in properties created through RHS’s 

Multi-Family Direct Rural Rental Housing Loans and Multi-Family Housing 

Farm Labor Loans programs. These programs provide loans subsidized 

with interest rates as low as 1 percent to help build rental housing for rural 

residents and farm workers. Under the rental assistance program, eligible 

tenants pay up to 30 percent of their income toward the rent, and RHS 

pays the balance to the property owner.5 In fiscal year 2011, RHS paid 

$1.08 billion in subsidies to provide rental assistance to more than 

270,000 households residing in 13,211 different properties. RHS pays the 

subsidies monthly to property owners through multiyear, renewable 

contracts. The Section 521 program is not an entitlement and, therefore, 

not all eligible households receive assistance.6

Section 521 rental subsidies are based on tenant households’ adjusted 

annual income—that is, gross income less any exclusions and 

deductions. For purposes of determining adjusted income, the Section 

521 program follows the same regulations as HUD’s rental assistance 

programs. These regulations provide for over two dozen types of income 

exclusions and deductions. For example, income from minors, student 

 

5

Eligible tenants are persons with very low and low incomes, the elderly, and persons with 

disabilities who are unable to pay the basic monthly rent within 30 percent of their 

adjusted monthly income. Very low income is defined as below 50 percent of the area 

median income; low income is from 50 to 80 percent of area median income.

6

RHS does not collect information on the total number of eligible rural tenants who are not 

assisted. According to RHS data, about 65,000 tenants living in RHS-subsidized 

properties pay more than 30 percent of their adjusted monthly income in rent but do not 

receive rental assistance.

Background 

RHS’s Rental Assistance 

Program
 

Page 5 GAO-12-624 RHS Improper Payments

financial aid, and qualifying employment training programs are excluded 

when determining households’ eligibility to receive assistance and 

calculating rental subsidies. Examples of income deductions include 

standard deductions for dependents ($480) and elderly and disabled 

family members ($400) and unreimbursed child care expenses that are 

necessary for a family member to remain employed.

RHS requires property managers to certify the eligibility of assisted 

tenants at least annually.7 As shown in figure 1, property managers do so 

based on information from tenants on income and applicable exclusions 

and deductions. RHS policy requires property managers to independently 

verify this information with third parties. To obtain third-party verification, 

property managers must directly contact employers, welfare offices, 

health care providers, and others (depending on what information tenants 

provide) to ensure that the information is accurate and complete. Property 

managers must maintain documentation of verified information in the 

tenant’s file and input the information into a Tenant Certification form, 

which the tenant signs and dates. The property manager then submits the 

Tenant Certification form to RHS.8

 

7

Property owners may manage the properties themselves or delegate management 

responsibilities, in full or in part, to a property manager. Unless specifically noted, we use 

the term property manager to refer to both owners and managers. 

Property managers must recertify 

tenants every year, and whenever a tenant’s income changes by $100 or 

more per month, or at the tenant’s request whenever the tenant’s income 

changes by at least $50 per month.

8

Since February 2006, RHS has required all property managers with eight or more units to 

submit tenant certifications electronically. 
 

Page 6 GAO-12-624 RHS Improper Payments

Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of April 2012

Using information in the Tenant Certification forms, RHS generates 

Project Worksheets each month. The Project Worksheets document the 

rent and income levels of tenants for whom the property manager can 

request rental assistance and calculate the amount of rental assistance 

due. Property managers review and verify the worksheets via a secure 

website. As part of this process, the property manager should determine 

that all rental units are occupied by eligible tenants. According to RHS, 

information from the Project Worksheets flows into RHS’s accounting 

system, triggering rental subsidy payments to the property owners.

RHS’s rental assistance program is one of many federal programs subject 

to requirements set forth in IPIA, as amended. IPIA requires the heads of 

executive branch agencies to review their programs and activities and 

identify those that may be susceptible to significant improper payments. 

The act also requires the Director of OMB to prescribe guidance for 

agencies to use in implementing IPIA. OMB has issued implementing 

guidance that requires agencies to use a systematic method for reviewing 

programs and activities that are susceptible to significant improper 

payments.9

 

9

Appendix C (Requirements for Effective Measurement and Remediation of Improper 

Payments) to OMB Circular No. A-123.

IPIA, as amended, and OMB guidance currently define 

significant improper payments as those that exceed both 2.5 percent of 

program outlays and $10 million annually, or $100 million regardless of 

Statutes and Guidance 

Concerning Improper 

Payments
 

Page 7 GAO-12-624 RHS Improper Payments

the percentage of program outlays. Among other things, the guidance 

requires agencies to annually estimate improper payments for each 

susceptible program or activity using statistically valid techniques and to 

report the results of their efforts to reduce improper payments. Dollar 

amounts improperly paid can be either positive or negative because 

errors can reflect overpayments or underpayments. OMB guidance 

requires using measures of gross error, which reflect the sum of the 

absolute value of all erroneously paid funds. IPERA amended IPIA in July 

2010 by expanding on the previous requirements for identifying, 

estimating, reporting on, and recovering improper payments. IPERA 

provisions generally became effective in fiscal year 2011.

Like RHS, HUD provides assistance to low-income renters and is 

required to estimate and report on improper payments in its rental 

assistance programs. HUD provides assistance through three major 

programs: the Housing Choice Voucher and public housing programs, 

which are administered by HUD’s Office of Public and Indian Housing, 

and project-based Section 8, which is administered by the Office of 

Housing. The three programs combined had outlays of more than $32 

billion in fiscal year 2010. Under each program, HUD makes up the 

difference between a unit’s monthly rental cost (or, for public housing, the 

operating cost) and the tenant’s payment, which is generally equal to 30 

percent of the tenant’s adjusted monthly income. Public housing agencies 

(PHA) administer the Housing Choice Voucher and public housing 

programs, and private property owners administer the project-based 

Section 8 programs. These program administrators are responsible for 

ensuring that tenants meet HUD’s eligibility criteria and for accurately 

determining rent subsidies.

In response to growing concerns about improper rental assistance 

payments, HUD established the Rental Housing Integrity Improvement 

Project (RHIIP) in fiscal year 2001, with the goal of substantially reducing 

the estimated dollar amount of improper rent subsidies. To accomplish 

this goal, HUD initiated three efforts designed to (1) increase monitoring 

of program administrators (PHAs and property managers), (2) establish 

an income verification system that allows PHAs and property managers to 

compare income information reported by tenants with income information 

from government agencies, and (3) provide additional training and 

guidance for program administrators.

HUD’s Rental Assistance 

Programs
 

Page 8 GAO-12-624 RHS Improper Payments

RHS’s improper payments audits have identified rental assistance 

payments that were improper because of incorrectly calculated subsidy 

amounts and incomplete tenant file documentation. RHS has reported 

that these types of improper payments have declined since fiscal year 

2007; however, RHS’s reported estimated error rate may be understated.

Since 2005, RHS has conducted an annual improper payments audit that 

identifies sources of payment errors and estimates the magnitude of 

improper payments in RHS’s rental assistance program. To complete the 

annual audit, staff from RHS’s Centralized Servicing Center (CSC) 

examine a random sample of all rental assistance payments made in a 

given fiscal year.10

In recent years, RHS’s improper payments audits have identified rental 

assistance payments that were improper for two reasons: (1) the property 

manager incorrectly calculated the amount of tenant income on which the 

subsidy payment is based and (2) the tenant file did not contain sufficient 

documentation to support the subsidy payment.

For each rental assistance payment in the sample, 

CSC staff request the associated tenant file from the property manager 

and review the file documentation to determine the correct amount of 

rental assistance that the property owner should have received for that 

tenant. The CSC staff then compare these calculations with the actual 

payments in RHS’s records to identify any discrepancies and provide 

RHS’s Multi-Family Housing Portfolio Division with a summary of the 

types and magnitude of errors found in the sample. RHS statisticians 

project the results of CSC’s calculations to the entire universe of rental 

assistance payments to develop a programwide estimate for improper 

payments.

 

10CSC services mortgage loans and grants to individuals in rural areas. CSC’s Appeals, 

Audits & Unauthorized Assistance Unit began conducting the improper payments audit 

starting with the audit of payments made in fiscal year 2007. RHS field staff conducted the 

audit prior to that time. 

RHS Has Identified 

and Reduced Certain 

Types of Payment 

Errors, but Its 

Reported Error Rate 

May Understate the 

Magnitude of the 

Problem 

RHS Has Identified 

Improper Payments 

Caused by Two Types of 

Errors 
 

Page 9 GAO-12-624 RHS Improper Payments

• Incorrect income calculation. Property managers request rental 

assistance subsidies from RHS after determining tenants’ adjusted 

monthly incomes. This process involves collecting and verifying 

income information from tenants and subtracting applicable 

exclusions and deductions from the tenant’s gross income. The rent 

subsidy is the difference between 30 percent of the tenant’s adjusted 

monthly income and the USDA-approved rent for the unit.11

• Insufficient documentation. The primary documentation required for a 

payment to be considered proper is the Tenant Certification form, 

which should be signed and dated prior to the property manager’s 

subsidy request. Among other things, the certification documents a 

tenant’s income, assets, household composition, and disability status. 

Depending on the tenant’s circumstances, other required documents 

may include documentation of Social Security benefits and medical 

bills. If a tenant file does not have complete documentation, RHS 

auditors consider the entire subsidy payment to be improper.

As 

previously noted, RHS regulations provide for numerous types of 

income exclusions and deductions. Due partly to the number and 

complexity of these exclusions and deductions, property managers 

sometimes make errors in calculating adjusted monthly incomes, 

leading to subsidy payments in the wrong amounts.

RHS reported a decline in its estimated gross error rate (gross improper 

payments divided by program outlays) from 3.95 percent in fiscal year 

2007 to 1.48 percent in fiscal year 2010, the most recent year for which 

RHS has an estimate.12

 

11USDA calculates the rent based on the owners’ project costs. 

As shown in table 1, this represented a decrease 

in the estimated dollar amount of gross improper payments from $35 

million to $15 million over a period in which total program outlays 

increased by more than $130 million. The $15 million in estimated 

improper payments that RHS reported for fiscal year 2010 consisted of 

$12 million in overpayments and $3 million in underpayments, for a net 

estimated overpayment of $9 million. Assuming a monthly subsidy 

payment of $318—the average amount in RHS’s sample of fiscal year 

12RHS reported that its estimated error rate has a margin of error of 0.97 percent, 

meaning the actual error rate for fiscal year 2010 could be as low as 0.51 percent and as 

high as 2.45 percent, with a 99 percent level of confidence. 

RHS Reported That Its 

Estimated Error Rate 

Declined from Fiscal Years 

2007 through 2010
 

Page 10 GAO-12-624 RHS Improper Payments

2010 payments—$9 million is the equivalent of annual subsidy payments 

to more than 2,300 households.

Table 1: RHS Estimates of Gross Improper Rental Assistance Payments and Error 

Rates, Fiscal Years 2007-2010

Dollars in millions

Fiscal year 

audited

RHS rental

assistance outlays a Estimated gross improper payments 

Estimated gross 

error rate

2007 $887 $35 3.95%

2008 $887 $18 2.06% 

2009 $979 $14 1.39%

2010 $1,020 $15 1.48%

Source: GAO analysis of data in USDA PARs.

a

RHS’s estimated error rates of 1.39 percent for fiscal year 2009 and 1.48 

percent for fiscal year 2010 are below the current IPIA threshold for 

programs considered susceptible to significant improper payments, but 

they are close to the revised threshold that will take effect in fiscal year 

2013. As previously noted, IPIA, as amended, currently defines significant 

improper payments as those that exceed both 2.5 percent of program 

outlays and $10 million annually, or $100 million regardless of the 

percentage of program outlays. Agencies must estimate improper 

payments for susceptible programs using a statistically valid methodology 

and report these estimates to OMB each fiscal year. OMB implementing 

guidance for IPIA, as amended, will reduce the percentage threshold for 

susceptible programs from 2.5 percent to 1.5 percent starting in fiscal 

year 2013. A program with estimated improper payments below the 

percentage threshold for 2 consecutive years may request relief from the 

annual reporting requirement. Although RHS’s rental assistance program 

has been below the 2.5 percent threshold for the last 3 years, RHS has 

not requested relief from OMB on the annual reporting requirement. RHS 

officials told us they did not plan on requesting relief in the future because 

annually estimating improper payments and reporting the results has 

produced useful information that has helped RHS hold property managers 

accountable for compliance with program requirements.

The fiscal year audited refers to the year in which the payments examined by the audit were made. 

The audits are conducted in the year following the year in which the payments were made.
 

Page 11 GAO-12-624 RHS Improper Payments

RHS’s estimated error rate may be understated because its improper 

payments audit does not examine some types of errors, excludes 

improper payments of less than $100 from its error rate estimates, and 

does not count all payments to tenants with undated certifications as 

improper.

RHS’s annual audits do not examine three additional sources of payment 

errors and therefore may understate RHS’s error rate (see fig. 2). First, 

the audits do not check for an improper payment caused by a tenant not 

reporting all sources of income (intentionally or otherwise). RHS bases its 

rental subsidies, in part, on income information reported from tenants. 

RHS policy requires property managers to verify this information with third 

parties such as employers and welfare offices, but third-party verification 

may not identify all unreported income (for example, if a tenant discloses 

income from only one of two part-time jobs). If tenants do not report all of 

their sources of income, the rental subsidies calculated for the tenants 

may be too high and result in improper payments.

Figure 2: Potential Sources of Payment Errors Examined and Not Examined by RHS’s Improper Payments Audit, as of April 

2012

RHS’s Estimates of 

Improper Payments May 

Be Understated for Several 

Reasons 

Unexamined Sources of Errors
 

Page 12 GAO-12-624 RHS Improper Payments

RHS officials told us the improper payments audits do not examine 

unreported income because RHS does not have access to data that could 

readily identify unreported amounts. Two sources of such data are the 

Department of Health and Human Services’s (HHS) National Directory of 

New Hires (New Hires database) and the Social Security Administration’s 

(SSA) data on Social Security and Supplemental Security Income 

benefits as follows: 

• New Hires database. This national database compiles information 

reported by employers to state workforce agencies and information 

from federal agencies. It contains information on newly hired 

employees, quarterly wage information for each job held by an

employee, and unemployment insurance information on individuals 

who have received or applied for unemployment. In a prior report, we 

said that Congress should consider amending the Social Security Act 

to grant RHS access to the New Hires database for purposes of 

detecting unreported income.13 If such access were granted, RHS 

would have to develop a specific matching agreement with HHS, in 

accordance with the Computer Matching and Privacy Protection Act of 

1988.14

• SSA benefits data. RHS officials stated that RHS does not currently 

have the statutory authority to access data on Social Security and 

Supplemental Security Income payments to assisted tenants. If 

granted this access, RHS would have to develop a matching 

agreement with SSA (pursuant to the Computer Matching and Privacy 

Protection Act of 1988) in order to use the information. In 2005, 

USDA’s Office of the Inspector General (OIG) recommended that 

RHS draft legislation that would give RHS access to federal income 

The President’s budget for fiscal year 2013 contains proposed 

legislation that, if enacted, would give RHS this access. RHS currently 

has agreements with 31 states that give RHS offices in those states 

access to state wage data. However, these data have limited value for 

estimating income reporting errors in the rental assistance program 

because the data do not provide national coverage. Because the New 

Hires database is national in scope, it would not present this limitation.

 

13GAO, Rural Housing Service: Updated Guidance and Additional Monitoring Needed for 

Rental Assistance Distribution Process, GAO-04-937 (Washington, D.C.: Sept. 13, 2004).

14Pub. L. No. 100-503.
 

Page 13 GAO-12-624 RHS Improper Payments

and benefits databases, including those maintained by SSA.15

The second source of improper payments not examined by RHS’s audits 

is a payment made on behalf of a deceased tenant. In the case of singletenant households, rental assistance should be discontinued when the 

tenant dies. In the case of multimember households, the amount of rental 

assistance may need to be adjusted to reflect the change in household 

composition resulting from a tenant’s death.

However, RHS officials told us they had been focused on getting 

statutory access to the New Hires database and had not worked on 

developing legislation for accessing SSA benefits data. Without this 

access, future RHS efforts to identify unreported tenant income will be 

limited.

16

The third source of improper payments not currently examined by RHS’s 

audits is an error that may occur in payment processing. These errors are 

discrepancies between the calculated rent subsidy and the amount RHS 

actually paid. RHS estimated improper payments due to payment 

processing errors in its audit for fiscal year 2004 but has not done so 

since then. RHS stopped examining these errors because the fiscal year 

2004 audit found them to be insignificant. In addition, RHS officials noted 

that in 2006, RHS implemented an automated payment processing 

system to reduce errors in data entry and that 93 percent of subsidies are 

currently processed through this system. Although the automated system 

may reduce the likelihood of payment processing errors, 7 percent of 

payments are not processed through the system. Further, in 2007, 

SSA’s Death Master File, 

which is available to federal agencies, is a national database of deceased 

individuals who had Social Security numbers and whose deaths were 

reported to SSA. It contains information on date of birth, date of death, 

and state or country of residence for each decedent, and is a tool for 

identifying deceased individuals in a timely way. RHS officials told us they 

had not considered using the Death Master File to help identify improper 

payments. Therefore, if the deceased tenant’s landlord or family does not 

notify RHS of the tenant’s death in a timely manner, RHS could continue 

to make rental assistance payments on the deceased tenant’s behalf.

 

15USDA, Office of Inspector General, Rural Housing Service: Subsidy Payment Accuracy 

in Multi-Family Housing Program, Report No. 04099-339-AT (March 2005).

16A number of factors, including household income and the size of the living unit, 

determine whether rental assistance payments need to be adjusted following the death of 

a family member. 
 

Page 14 GAO-12-624 RHS Improper Payments

USDA’s OIG reported on weaknesses in the way RHS was estimating 

improper payments that may have led RHS to understate its reported 

error rates in prior years.17

RHS’s estimated error rates may also mask the true extent of improper 

payments because they exclude improper payments of less than $100. 

RHS began using the $100 exclusion threshold for its audit of fiscal year 

2007 payments. RHS officials said they adopted the threshold for two 

main reasons. First, RHS officials stated that the $100 exclusion 

threshold was based on a USDA regulation that lets tenant households 

wait until their next recertification to report increases in monthly income of 

less than $100. Second, RHS officials indicated that it was not costeffective to attempt to recover small improper payments. While the $100 

threshold may be appropriate for recertifying tenant income or deciding 

whether to recover payments, it does not follow that the same threshold is 

appropriate for conducting the improper payments audit. The purpose of 

the audit is to measure the magnitude of payments made in error, which 

IPIA defines as payments that should not have been made or were made 

in an incorrect amount.

RHS subsequently changed how it conducts 

the improper payments audits, such as by using CSC staff (rather than 

RHS field staff) to help ensure consistency in implementing audit 

procedures, but it has not reestimated payment processing errors since 

making these changes. As a result, RHS’s assumption that payment 

processing errors are negligible may not be accurate.

In the fiscal year 2010 sample of 666 payments, RHS found 15 improper 

payments of $100 or more, which represents 11 percent of all over- and 

underpayments in the sample. One hundred dollars is substantial in the 

context of monthly rental assistance payments. To illustrate, an improper 

payment of $100 represents almost one-third of the median RHS monthly 

rental assistance payment.

While setting an exclusion threshold that eliminates small amounts from 

overall error estimates may be reasonable—such as amounts due to 

rounding up or down to the nearest dollar—RHS’s fiscal year 2010 

sample shows that using the $100 threshold excludes a high percentage 

of improper payments from RHS’s error estimates, including some larger 

 

17USDA, Office of Inspector General, Improper Payments: Monitoring the Progress of 

Corrective Actions for High-Risk Programs in Rural Housing Service, Report No. 04601-

0014-Ch (March 2007). 

Use of Exclusion Threshold
 

Page 15 GAO-12-624 RHS Improper Payments

errors. As shown in figure 3, 89 percent of the improper payments in the 

sample were less than $100. Fourteen percent of the improper payments 

(or 19 payments) were from $25 to $99 and likely cannot be attributed to 

rounding errors. Additionally, HUD—which is the largest provider of 

federal rental subsidies—includes all improper payments greater than $5 

in estimated error rates for its rental assistance programs. In RHS’s 

payment sample for fiscal year 2010, 51 percent of the improper 

payments exceeded $5.

Figure 3: Distribution of Improper Payments in RHS’s Sample of Fiscal Year 2010 

Payments 

OMB is required by IPIA to approve the methods used by agencies to 

estimate improper payments. OMB initially approved RHS’s methodology 

in 2004, prior to RHS’s first improper payments audit and 4 years before 

RHS adopted the $100 exclusion threshold. However, OMB has not 

subsequently reassessed RHS’s methodology and therefore has not 

examined whether RHS’s $100 exclusion threshold is appropriate. In 

addition, OMB guidance does not address the use of exclusion 

thresholds. OMB officials told us they generally do not reassess an 

agency’s estimation method unless the agency tells OMB it is making a 

major change and submits the change to OMB for review. OMB officials 

also noted that more than 70 programs report on improper payments, 
 

Page 16 GAO-12-624 RHS Improper Payments

which makes regular reassessment of each one challenging. Our analysis 

of the $100 threshold indicates that RHS’s adoption of the threshold did 

represent a major change. However, RHS did not submit the change to 

OMB for review.

Our analysis of the payment sample that RHS used for its fiscal year 

2010 audit found that the $100 exclusion threshold had a demonstrable 

impact on the incidence and magnitude of RHS’s reported improper 

payments. If RHS had included all improper payments in its estimates, 

the estimate of gross dollar errors would have been about $23 million 

rather than $15 million, and the estimated error rate would have been 

2.21 percent rather than 1.48 percent (see fig. 4). RHS’s use of an 

exclusion threshold could affect whether or not the rental assistance 

program is subject to annual OMB reporting requirements for programs 

classified as susceptible to improper payments. As previously discussed, 

OMB has indicated that programs with error rates of at least 1.5 percent 

in fiscal year 2013 will be classified as susceptible, and our analysis 

shows that RHS’s use of the $100 threshold reduced its error rate below 

that level for fiscal year 2010.

Figure 4: Estimated RHS Improper Rental Assistance Payments in Fiscal Year 2010 

Including and Excluding Errors Less Than $100

Undated Certifications
 

Page 17 GAO-12-624 RHS Improper Payments

Finally, RHS’s reported error rate may be understated because, contrary 

to its stated audit procedure, RHS does not always count as improper 

those payments with Tenant Certification forms that were signed but not 

dated. The sample of payments that RHS used for the fiscal year 2010 

audit contained five payments that were not counted as improper even 

through the Tenant Certification forms were not dated. Had RHS followed 

its audit procedure strictly and counted the five payments as improper, 

the number of improper payments included in RHS’s estimate would have 

increased by one-third, and RHS’s estimated error rate would have been 

2.53 percent. RHS officials said they did not count payments associated 

with undated certifications as improper when the auditors were able 

impute an acceptable certification date from other documents in the 

tenant file. For example, if auditors determined that income verification 

documents in the tenant file were current and dated prior to the first 

subsidy payment request, auditors considered the sampled payment to 

be proper even though the Tenant Certification form was not dated. While 

this practice may be reasonable, it is inconsistent with RHS’s written audit 

procedure and reduces the transparency of the audit process. In addition, 

having unwritten procedures may increase the risk of inconsistent 

implementation across auditors.

RHS has complied with requirements for using statistically valid methods 

to estimate improper payments and has implemented a number of 

corrective actions to help address the causes of payment errors. 

However, RHS’s reporting on improper payments has been incomplete, 

and the agency has not fully utilized techniques cited in statutes and 

guidance for reducing and recovering improper payments.

RHS Uses Required 

Statistical Methods 

for Estimating 

Improper Payments 

but Has Not Fully Met 

Reporting, Reduction, 

and Recovery 

Requirements 
 

Page 18 GAO-12-624 RHS Improper Payments

RHS’s statistical methods for estimating improper rental assistance 

payments are consistent with OMB requirements. In fiscal year 2011, 

RHS’s reporting on improper payments complied with most OMB 

requirements but lacked required detail in some areas, including steps for 

holding agency managers accountable. Additionally, RHS has generally 

implemented planned corrective actions to address the causes of 

improper payments.

RHS’s methodology for estimating improper payments in its rental 

assistance program complies with OMB requirements for implementing 

IPIA, as amended. OMB Circular A-123 requires agencies to base their 

estimates of improper payments on a random sample of payments that is 

large enough to yield an estimate with a margin of error of plus or minus 

2.5 percentage points at the 90 percent confidence level.18

To comply with requirements in IPIA, as amended, OMB Circulars A-123 

and A-136 state that agencies should include specific information on 

improper payments in their annual PARs or Agency Financial Reports. As 

shown in table 2, our review of USDA’s fiscal year 2011 PAR found that 

the information reported for RHS’s rental assistance program complied 

with four of the seven requirements in OMB guidance but only partially 

complied with the remaining three. For example, the PAR contains 

required information on the program’s estimated improper payments, the 

causes of improper payments, corrective actions to address these 

causes, and statutory or regulatory barriers to reducing improper 

payments. However, the PAR lacks required detail on recovery of 

improper payments because of delays by USDA in implementing a 

recovery audit program. In addition, the required discussion of internal 

Consistent 

with these requirements, RHS’s improper payments audit for fiscal year 

2010 reviewed a random sample of 666 payments from a universe of 

approximately 3.4 million payments. Based on this sample, RHS 

produced an estimate of gross improper payments with a margin of error 

of plus or minus 0.97 percent at the 99 percent confidence level, 

exceeding OMB’s standard. Additionally, we found that the techniques 

and formulas that RHS used to generate the random sample and produce 

estimates from the payment sample were statistically sound.

 

18Agencies may alternatively use a sample that yields an estimate with a margin of error 

of plus or minus 3 percentage points at the 95 percent confidence level.

RHS Has Complied with 

Estimating Requirements 

and Implemented 

Corrective Actions, but Its 

Reporting on Improper 

Payments Has Been 

Incomplete 

Estimating Requirements

Reporting Requirements
 

Page 19 GAO-12-624 RHS Improper Payments

controls, human capital, and information systems to reduce improper 

payments is limited. The discussion consists of a high-level statement 

that USDA is creating information systems and infrastructure to reduce 

improper payments, that some of these efforts are constrained by limited 

resources, and that USDA is working with OMB to focus resources on 

critical needs. Because the discussion is not more specific, it is unclear if 

RHS has sufficiently assessed whether its internal controls, human 

capital, and information systems are sufficient to reduce improper 

payments to targeted levels. A USDA representative told us that USDA 

may provide a more detailed response to this reporting requirement in 

future PARs. Finally, the PAR does not contain required information on 

steps and associated timelines for holding RHS managers accountable 

for reducing and recovering improper payments.

Table 2: RHS Reporting on Improper Payments in Response to OMB Requirements

OMB reporting requirement Information in USDA’s fiscal year 2011 PAR a

Requirements met

The gross estimate of the annual amount of improper 

payments made in the program and the methodology 

used to arrive at that estimate.

The PAR provides estimates of the rental assistance program’s gross 

improper payments ($15 million) and error rate (1.48 percent) for fiscal year 

2010 (the most recent year for which an estimate has been made). It also 

describes how RHS selected a random sample of payments for review and 

how the review was conducted.

A discussion of the causes of improper payments that 

have been identified. 

The PAR cites insufficient file documentation and calculation errors by 

property owners and management agents as the causes of improper 

payments in the rental assistance program. 

A discussion of corrective actions to address the causes 

of improper payments, including planned or actual 

completion dates for these actions.

The PAR indicates that by the end of fiscal year 2011, RHS plans to meet 

with property managers to provide educational opportunities on the 

importance of the IPIA process and the types of payment errors identified 

by RHS. It also states that RHS has ongoing efforts to gain access to 

HHS’s New Hires database (for income verification purposes).

A description of any statutory or regulatory barriers that 

may limit the agency’s corrective actions in reducing 

improper payments.

The PAR notes that RHS is pursuing access to data, including information 

maintained by HHS, that RHS could use to verify tenant incomes. 

Requirements partially met

A discussion of the amount of actual improper 

payments the agency expects to recover and how it will 

go about recovering them.

The PAR states that USDA is unable to report information on expected 

recoveries because USDA is in the process of contracting for recovery 

auditing services. USDA officials told us it would be difficult to estimate 

recoveries until the recovery audits began.

A discussion of whether the agency has the internal 

controls, human capital, information systems, and other 

infrastructure in order to reduce improper payments to 

the levels the agency has targeted.b

The PAR states that USDA is creating information systems and 

infrastructure to reduce improper payments, but that efforts in some 

programs are constrained by limited resources. The PAR also notes that 

USDA is working with OMB to focus available resources on critical needs. 

However, the PAR does not specifically refer to RHS, its rental assistance 

program, or internal controls or human capital issues.

 
 

Page 20 GAO-12-624 RHS Improper Payments

OMB reporting requirement Information in USDA’s fiscal year 2011 PAR a

A description of the steps the agency has taken and 

plans to take (including time lines) to ensure that 

agency managers (including the agency head) are held 

accountable for reducing and recovering improper 

payments.

The PAR describes plans developed by RHS state offices that include 

procedures to train field staff and property managers in maintaining 

required documentation and verifying tenant incomes. However, the PAR 

does not describe accountability steps or associated timelines.

Source: GAO analysis of USDA’s fiscal year 2011 PAR.

a

The reporting requirements listed apply to agencies with improper payments estimates that exceed 

$10 million.

b

RHS’s reduction targets for gross error rates are 1.45 percent for fiscal year 2012, 1.42 percent for 

fiscal year 2013, and 1.39 percent for fiscal year 2014.

With respect to the accountability issue, OMB guidance requires agencies 

to describe the steps they have taken and plan to take to hold agency 

managers accountable for reducing and recovering improper payments. 

The guidance states that agency managers should be held accountable 

through annual performance appraisal criteria for meeting applicable 

improper payments reduction targets and establishing an internal control 

environment that prevents, detects, and recovers improper payments. 

However, in response to these requirements, the PAR states only that 

“[RHS] State Offices with improper payment errors develop a corrective 

action plan. The plan includes procedures to train field staff, borrowers, 

and property manager[s] in appropriate required documentation and 

follow-up with tenants and income-verifiers.” While the plans may be key 

to addressing improper payments, the PAR does not discuss 

mechanisms for ensuring that agency managers follow through on the 

plans or how they are held accountable for reducing and recovering 

improper payments generally. In contrast, the PAR’s descriptions of 

accountability measures for other USDA agencies are more consistent 

with the OMB guidance. For example, the descriptions for several 

agencies discuss how improper payments goals and objectives were 

incorporated into agency managers’ performance plans and performance 

appraisals. RHS officials said that RHS state office directors currently 

have management goals that emphasize efficient and effective use of 

resources but acknowledged that improper payments are not specifically 

referenced in the goals.19

 

19According to RHS, state office directors have a resource management goal that requires 

them to (1) develop and execute plans to achieve organizational goals to maximize 

efficiency and produce high-quality results, and plan, implement, and monitor assigned 

programs and (2) demonstrate exceptional skills and consistency in making the best use 

of available resources when faced with changing requirements, critical demands, and the 

need to do more with less.

In April 2012, RHS officials told us they were 
 

Page 21 GAO-12-624 RHS Improper Payments

seeking departmental approval of revised management goals for fiscal 

year 2012 that explicitly address improper payments. By not 

implementing accountability steps for improper payments, RHS may be 

limiting the effectiveness of its efforts to reduce improper payments. 

Additionally, by not reporting on accountability steps, RHS is not providing 

Congress and OMB information they may need for overseeing 

implementation of IPIA.

OMB Circular A-123 requires agencies to develop and implement 

corrective actions to address the root causes of improper payments. Our 

review of USDA’s PARs for fiscal years 2008 through 2011 and 

documentation from RHS found that RHS developed and generally 

followed through on corrective actions over that period (see table 3). 

RHS’s corrective actions included educating property managers about 

improper payments, enhancing RHS’s reviews of improper payments, and 

seeking access to data for verifying tenant incomes. For example, in 

2011, RHS met with housing industry groups about the results of its most 

recent improper payments audit. This meeting prompted the groups to 

develop training for property managers on how to reduce improper 

payments. In 2010, RHS worked with OMB to develop legislation that 

would grant RHS access to HHS’s New Hires database for income 

verification purposes. The legislative proposal, entitled the “Rural Housing 

Fraud Prevention Act of 2012,” would amend Section 453(j) of the Social 

Security Act. As previously noted, the proposed legislation was included 

in the President’s budget for fiscal year 2013. Additionally, in 2008, RHS 

enhanced its triennial supervisory visits (on-site reviews of assisted 

properties that cover a number of physical, financial, and management 

issues) to include reviews of tenant files that assess compliance with 

income calculation and documentation requirements. RHS subsequently 

enhanced its Multi-Family Information System (MFIS) to track the number 

and results of these reviews.

RHS Corrective Actions
 

Page 22 GAO-12-624 RHS Improper Payments

Table 3: Status of RHS Corrective Actions Regarding Improper Rental Assistance Payments

RHS corrective actions in USDA’s PARs for fiscal 

years 2008-2011 Status of corrective actions as of March 2012

Inform and provide educational opportunities for property 

manager business partners about the importance of the 

IPIA process and the types of payment errors identified 

by RHS. (2008-2009 and 2011 PARs)

In 2008, RHS sent a letter to the National Affordable Housing Management 

Association (NAHMA) about the importance of the IPIA process and the 

results of RHS’s improper payments audits. In 2011, RHS met with 

NAHMA and Council of Affordable Rural Housing representatives about the 

most recent audit. These groups developed training and educational 

materials on improper payments and provided training to property 

managers.

Pursue access to the HHS New Hires database and 

HUD’s Enterprise Income Verification System (EIV) in 

order to share it with RHS state offices and property 

managers.a

RHS sent draft legislation to OMB to obtain access to the HHS New Hires 

database for purposes of income verification. The President’s budget for 

fiscal year 2013 includes this legislation. RHS officials told us they have 

met with HUD officials and property managers who use EIV to better 

understand the system.

(2008-2011 PARs)

Establish a tracking process to monitor the number of 

tenant files reviewed (e.g., for compliance with income 

calculation and documentation requirements) during 

RHS triennial supervisory visits. (2010 PAR)

In 2010, RHS began documenting the number and results of tenant file 

reviews conducted during triennial supervisory visits and tracking the 

information in MFIS. 

Implement a performance assessment system that 

reduces management fees paid to property managers 

who do not comply with RHS requirements (e.g., by 

making errors in Tenant Certification forms). (2010 PAR) 

RHS officials said they put this effort on hold in fiscal year 2012 due to 

other priorities and the difficulty of integrating information about improper 

payments into a performance assessment system. RHS officials said they 

intended to resume this effort in fiscal year 2013.

Implement a quarterly audit process conducted by CSC 

on selected states’ tenant files. (2008 PAR)

Instead of a quarterly audit process, RHS augmented its triennial 

supervisory visits beginning in 2008 to include reviews of tenant files for 

compliance with income calculation and documentation requirements. 

Follow up on corrective actions for errors identified in the 

improper payments audit for fiscal year 2008. (2008 

PAR) 

In 2008, RHS field staff followed up with property managers to confirm they 

had taken corrective actions to address payment errors identified by the 

audit.

Issue a letter to the RHS state offices on the findings 

from the improper payments audit for fiscal year 2008. 

The letter required state offices with an average error 

rate of 2 percent or higher during the past 3 years to 

develop a corrective action plan. (2008 PAR)

In 2008, RHS sent letters to 15 state offices that had average 3-year error 

rates ranging from 2.4 percent to 7.7 percent. The letters required these 

offices to develop action plans for reducing payment errors.

Develop a fact sheet for tenants explaining their 

responsibilities and rights regarding income disclosure 

and verification. (2008 PAR)

In 2008, RHS issued a fact sheet for property managers to distribute to 

tenants entitled “Things You Should Know About USDA Rural Rental 

Housing.” The fact sheet emphasizes the importance of submitting and 

updating accurate income information to property managers and outlines 

procedures for grieving decisions about benefits.

Sources: GAO analysis of USDA PARs and information from RHS.

a

EIV is a web-based tool that allows HUD and HUD program administrators to match information on 

HUD-assisted tenants to the New Hires database and SSA benefits data for purposes of verifying 

tenant incomes. HUD cannot grant RHS access to EIV because RHS does not have legal access to 

the New Hires database or SSA benefits data.
 

Page 23 GAO-12-624 RHS Improper Payments

RHS uses a number of methods to reduce improper payments but has 

not used a database cited in a 2010 presidential memorandum that could 

help RHS identify cases in which rental assistance payments should be 

discontinued or adjusted. In addition, RHS has experienced delays in 

implementing a recovery audit program to comply with IPERA 

requirements.

OMB Circular A-123 states that federal agencies should take all 

necessary steps to ensure the accuracy and integrity of federal payments. 

OMB cites a number of steps that agencies can take to do so, including 

prepayment reviews, quality-control checks to detect improper payments 

that may have occurred, and data matching. Also, in June 2010, the 

President issued a memorandum entitled Enhancing Payment Accuracy 

Through a “Do Not Pay List.” The memorandum directs federal agencies 

to review current prepayment and preaward procedures and ensure that a 

thorough review of available databases with relevant information on 

eligibility occurs before the release of any federal funds. The 

memorandum states that, at a minimum, agencies should check SSA’s 

Death Master File, the General Services Administration’s Excluded 

Parties List System, the Department of the Treasury’s (Treasury) Debt 

Check Database, the HHS OIG’s List of Excluded Individuals/Entities, and 

HUD’s Credit Alert System or Credit Alert Interactive Voice Response 

System.20

RHS has used some of the techniques cited by OMB. For example, as 

part of their triennial supervisory visits to assisted properties, RHS local 

offices check the accuracy of rental subsidy calculations and the 

adequacy of supporting documentation for samples of tenant files. Also, 

as previously noted, RHS has reached agreements with 31 states that 

These databases—which constitute the “Do Not Pay List”—can 

help agencies determine if an individual or entity is ineligible for payments 

or payments made on their behalf. For example, SSA’s Death Master File 

contains information on deceased individuals who had Social Security 

numbers and whose deaths were reported to SSA.

 

20The Death Master File identifies deceased individuals; the Excluded Parties List System 

identifies suspended or debarred contractors; the Debt Check Database identifies 

individuals or entities that owe the federal government non-tax debt; the List of Excluded 

Individuals/Entities identifies individuals and business who have been excluded from 

participating in federal health care programs; and the Credit Alert System or Credit Alert 

Interactive Voice Response System identifies individuals who are in default or have had 

claims paid on direct or guaranteed federal loans, or are delinquent on other debts owed 

to federal agencies. 

RHS Has Not Fully Utilized 

Techniques for Reducing 

and Recovering Improper 

Payments

Reducing Improper Payments
 

Page 24 GAO-12-624 RHS Improper Payments

give RHS offices in those states the ability to match income information 

submitted by tenants to state wage data.

However, RHS has not used the “Do Not Pay” databases to check tenant 

eligibility before making rental assistance payments to property owners.21

The USDA representative said his office was in the process of entering 

into an online processing agreement with Treasury’s Bureau of Public 

Debt, which he indicated will require legal review by USDA’s Office of 

General Counsel. He also indicated that USDA was considering pursuing 

a batch processing agreement, which would require a separate 

agreement and legal review. Although RHS officials told us they had not 

considered the benefits of batch processing for the rental assistance 

program, a batch processing or continuous monitoring agreement would 

allow RHS to regularly check tenant records against the Death Master 

File or other applicable “Do Not Pay” databases. As previously discussed, 

RHS officials told us that they had not considered using the “Do Not Pay” 

databases for the rental assistance program because some of the 

databases do not contain information relevant to eligibility for rental 

assistance and because RHS lacks an automated method for checking 

rental assistance payments against the databases. Nevertheless, RHS 

officials acknowledged that some of the information was potentially 

useful. Additionally, a representative from USDA’s Office of the Chief 

Financial Officer said that USDA agencies currently check some of the 

“Do Not Pay” databases for some of their programs. The official noted 

that USDA was in the process of getting access to a Treasury web portal, 

which was established to meet the requirements of the President’s “Do 

Not Pay” memorandum. The web portal is intended to provide a single 

point through which federal agencies can access the “Do Not Pay” 

databases to help determine eligibility for a benefit, grant, or contract 

award. Treasury offers agencies three options for using the databases: 

(1) online access, which allows users to compare individual records 

against the “Do Not Pay” databases via an Internet browser; (2) batch 

processing, which allows users to send a file to Treasury to compare a 

large number of records against the databases at one time; and 

(3) continuous monitoring, which allows users to store files with Treasury 

and continuously compare the files against the databases.

 

21RHS officials indicated that they use some of the “Do Not Pay” databases to review 

prospective property owners as part of the approval process for RHS multifamily housing 

loans. 
 

Page 25 GAO-12-624 RHS Improper Payments

this matching against the Death Master File could help RHS identify 

instances in which rental assistance should be terminated or adjusted.

USDA has not yet instituted a recovery audit program to implement 

requirements included in IPERA and OMB implementing guidance. As a 

result, RHS does not currently have a recovery auditing capability. The 

process of identifying and recapturing overpayments is known as 

recovery auditing. IPERA placed increased emphasis on this process by 

requiring agencies to conduct recovery audits for each program and 

activity that expends more than $1 million, if conducting such audits is 

determined to be cost-effective. Previously, requirements for recovery 

audits were focused on payments to contractors and limited to agencies 

that entered into contracts with a total value in excess of $500 million in a 

fiscal year.22

USDA plans to implement a recovery auditing program by hiring a 

contractor.

IPERA decreased the threshold for when recovery audits are 

required to $1 million in annual outlays and expanded the scope of the 

audits to include grants, loans, benefits, and other assistance. IPERA 

allows federal agencies to hire private-sector contract auditors who 

receive a percentage of the overpayments they collect. OMB guidance 

states that agencies are to establish and report annual recovery targets, 

beginning with fiscal year 2011. However, as previously noted, USDA 

said in its fiscal year 2011 PAR that it was unable to report the amounts it 

expected to recover because it had not yet awarded a recovery audit

contract.

23 According to USDA, the agency previously procured 

recovery audits of contract payments through FedSource (an interagency 

contracting service that was run by Treasury), but in fiscal year 2010, 

FedSource closed out the procurement contract USDA had been using.24

 

22IPERA repealed most provisions of the Recovery Auditing Act (Section 831 of Pub. L. 

No. 107-107).

In March 2011, USDA issued a request for proposals (RFP) to solicit the 

broader range of recovery auditing services required by IPERA. However, 

23Although USDA does not have a recovery audit program, it does use authorities under 

the Debt Collection Improvement Act of 1996 (Pub. L. No. 104-134) to collect monies 

owed the agency. For example, from 2010 through 2011, RHS reports that it collected 

more than $1 million in excess rental assistance payments to property owners with RHS 

multifamily housing loans. 

24According to USDA, the agency issued task orders against the FedSource contract. 

Recovering Improper Payments
 

Page 26 GAO-12-624 RHS Improper Payments

USDA terminated the RFP process after determining the proposals it 

received did not meet the requirements of its payment recapture/recovery 

audit plan, which called for an auditing contractor that could cover the 

breadth of USDA programs and activities. USDA told us that the audit 

firms that responded to the RFP had experience in contract recovery 

auditing but lacked sufficient knowledge and experience for IPERA’s 

expanded focus on programs. As a result, USDA did not conduct any 

recovery audits in fiscal year 2011 and issued a second RFP in August 

2011 that specified the department’s broader needs. A USDA 

representative said that the department anticipated awarding a contract in 

fiscal year 2012 but that it was unclear whether the award would occur in 

time to report any recoveries in USDA’s fiscal year 2012 PAR.

HUD’s experience in addressing improper payments through data 

matching may help inform future RHS efforts. HUD has used data 

matching to estimate and reduce income reporting errors. HUD has also 

used this technique to terminate and recover assistance to deceased 

tenants. HUD took several years to develop and implement a data 

matching system and provides guidance, training, and technical 

assistance to system users.

HUD uses data matching to help identify and reduce improper rental 

assistance payments caused by unreported tenant income, also referred 

to as income reporting error. HUD has used this technique to annually 

estimate the magnitude of improper payments attributable to income 

reporting errors. HUD also has developed a web-based data matching 

tool that gives HUD program administrators (i.e., PHAs and property 

managers) the ability to determine whether tenants are reporting all 

sources of earned income. HUD attributes some of the overall decline in 

its gross improper payments to these efforts.

Like RHS, HUD conducts an annual study of improper payments in its 

rental assistance programs that examines a statistically valid sample of 

subsidy payments.25

 

25A HUD contractor carries out the study and documents the results in an annual report 

entitled Quality Control for Rental Assistance Subsidy Determinations. 

HUD refers to these studies as quality control 

studies. HUD’s initial quality-control study examined payments in fiscal 

HUD’s Efforts 

Illustrate Potential 

Benefits and 

Challenges of Data 

Matching 

Data Matching Has Helped 

HUD to Identify and 

Reduce Improper 

Payments Due to 

Unreported Tenant Income

Estimating Income Reporting 

Errors
 

Page 27 GAO-12-624 RHS Improper Payments

year 2000, and its most recent study examined payments made in fiscal 

year 2010. The quality-control studies provide a national estimate of 

gross improper payments in HUD’s three rental assistance programs and 

estimates for specific sources of payment errors, including income 

reporting errors, program administrator errors (similar to what RHS would 

call income calculation and insufficient documentation errors), and billing 

errors (similar to what RHS would call payment processing errors).26

To estimate improper payments due to income reporting errors, HUD 

developed a methodology that involves data matching. HUD’s 

methodology identifies unreported income sources by comparing 

information reported by tenants in the quality-control study’s sample with 

information reported by employers in federal databases. The tenantreported information comes primarily from HUD’s tenant databases that 

capture various household characteristics, including income, 

documentation from tenant files maintained by program administrators, 

and interviews with households.27 The study matches this information with 

information in HHS’s New Hires database and SSA benefits data using 

tenant Social Security numbers as the key common identifier.28

 

26HUD stated that it does not directly reexamine improper payments due to billing errors 

each year because the estimated amounts have been small relative to improper payments 

caused by other types of errors. However, HUD uses baseline estimates of billing errors to 

derive estimates for other years and includes billing errors in its annual estimates of 

improper rental assistance payments. 

As 

previously discussed, the New Hires database includes nationwide 

information on both wage and unemployment compensation. The study 

identifies households that, on the basis of the matching process, appear 

not to have reported an income source and then takes steps to screen out 

“false positives.” For example, the study eliminates those cases involving 

unreported income sources, such as income from live-in aides or 

dependents, which should be excluded from family income under HUD’s 

27Like RHS, HUD uses standardized electronic forms to collect information on tenants 

(e.g., income, family composition) for certifying and recertifying program eligibility and 

stores this information in databases. 

28SSA benefits include Social Security and Supplement Security Income benefits. For the 

fiscal year 2000 and 2003 studies, HUD staff performed the matching process using 

Internal Revenue Service and SSA databases. HUD stopped using the Internal Revenue 

Service data for matching purposes after it obtained access to the New Hires database. 

The contractor for the quality-control study currently uses the HUD web-based system 

discussed later in this section to conduct the matching to the New Hires database and 

SSA data.
 

Page 28 GAO-12-624 RHS Improper Payments

policies. Additionally, the study verifies any unreported income sources by 

mailing and calling employers and contacting an employment verification 

service. Finally, the study calculates the correct subsidy amount, based 

on both the reported and unreported sources of income, and computes 

the difference between the correct amount and the amount HUD actually 

paid to estimate the impact of unreported income on HUD’s improper 

payments.

HUD has developed and implemented a web-based tool called the EIV 

system that allows program administrators to compare income 

information reported by tenants with income information from government 

agencies through a secure Internet portal. EIV gives HUD program 

administrators the ability to independently check the accuracy of reported 

tenant incomes and identify any income source not disclosed by the 

tenant during mandatory annual and interim certifications of income.29

EIV’s data matching capabilities and its use by HUD program 

administrators have expanded over time. HUD began developing a 

precursor to EIV in 2004 and initially implemented a system that allowed 

PHAs to match tenant personal identifiers—Social Security number, last 

name, and date of birth—against state wage and employment databases, 

but only in states with which HUD had a matching agreement.30 To 

overcome this limitation, HUD received authority that same year under 

the Social Security Act, as amended, to enter into negotiations with HHS 

to conduct data matching to the New Hires database (which covers all 

states) and entered into an interagency agreement with HHS in 2005.31

 

29Interim recertifications occur when a tenant experiences a change in income or family 

composition between annual recertifications. Tenants must be recertified if their monthly 

income increases by $200 or more a month and can request a recertification if their 

income declines by any amount.

In 

accordance with this authority, HUD initially limited data access to PHAs 

and negotiated access for property managers after establishing a track 

record for using and protecting the data. HUD fully implemented the first 

version of EIV in late 2005, giving PHAs the ability to match to both the 

New Hires database and SSA benefits data for which HUD had already 

established a matching protocol in accordance with the process set forth 

30HUD had agreements with about two dozen states by the end of 2004. 

31Pub. L. No. 108-199, Jan. 23, 2004. 

Web-Based Data Matching 

System 
 

Page 29 GAO-12-624 RHS Improper Payments

in the Computer Matching and Privacy Protection Act of 1988.32 After 

reaching another agreement with HHS in 2007, HUD expanded access to 

EIV to property managers. HUD initially made the use of EIV voluntary for 

program administrators but issued a rule in December 2009 that made 

use of the system mandatory, effective January 31, 2010.33

EIV produces a number of reports that help program administrators to 

identify unreported income sources and thus help reduce rent subsidy 

overpayments. For example, the Income Discrepancy Report lists 

households whose wages, unemployment, or Social Security benefits 

income reported in EIV is $2,400 or more than the information reported by 

tenants to HUD. Program administrators must confirm any discrepancies 

by obtaining information directly from third parties, such as employers, 

and notify the tenant of the results of the third-party verification.34 When 

program administrators determine that a tenant underreported income, 

they must calculate the difference between the amount of rent the tenant 

should have paid and the amount the tenant actually paid back to the time 

the underreporting started. The tenant is obligated to reimburse the 

program administrator for this difference—potentially through a 

repayment agreement—and the program administrator is required to send 

the reimbursed funds to HUD.35

HUD has indicated that its data matching efforts to identify unreported 

tenant income have helped to reduce improper payments in the agency’s 

EIV also produces a New Hires Report 

that provides employment information on tenants who have started new 

jobs and, therefore, may have increased their incomes, within the last 6 

months. HUD requires tenants to report changes in income when the 

household’s income increases by $200 or more per month. The report 

allows program administrators to be proactive in reaching out to tenants 

to report the income changes so that their rents can be adjusted in a 

timely manner. Timely adjustments reduce the likelihood that the program 

administrator will make rent subsidy overpayments.

 

32According to HUD officials, before the development of EIV, program administrators 

accessed SSA benefits data through an existing HUD system. 

3324 C.F.R. § 5.233.

34Program administrators are limited to requesting third-party verification on income the 

tenant may have received during the past 5 years for which the tenant was assisted.

35Tenants who do not agree to repay amounts due are in noncompliance with their lease 

agreements and may be subject to termination of tenancy or other legal action. 

Impact of Using Data Matching 

to Identify Unreported Income
 

Page 30 GAO-12-624 RHS Improper Payments

rental assistance programs. HUD estimated that it paid $3.4 billion in 

gross improper rent subsidies in fiscal year 2000 (out of about $19 billion 

in outlays), prompting a HUD initiative called RHIIP to address the causes 

of payment errors. Under RHIIP, HUD established a goal of reducing the 

dollar amount of payment errors by 50 percent from fiscal years 2000 

through 2005. HUD estimated that it had reduced the dollar amount of 

gross improper payments to $1.5 billion in fiscal year 2005 (out of about 

$27 billion in outlays), a reduction of over 50 percent. For fiscal year 

2010, HUD’s most recent estimate, the corresponding amount of gross 

improper payments was $959 million (out of $33 billion in outlays), which 

represents a reduction of over 30 percent compared with the fiscal year 

2005 estimate.36

As previously discussed, HUD also estimates improper payments due to 

specific sources of payment errors, including income reporting errors. 

From fiscal years 2004 through 2010, HUD’s estimates of improper 

payments due to income reporting errors ranged from a high of $385 

million in fiscal year 2006 (accounting for 1.4 percent of program outlays) 

to a low of $203 million in fiscal year 2010 (accounting for 0.6 percent of 

program outlays).37 However, because of the limited number of 

unreported income cases in the quality-control study samples, the 

margins of error around the estimates for income reporting error are too 

large to know with statistical certainty that income reporting error has 

declined over time.38

 

36For its rental assistance programs, HUD reported gross error rates of 17.1 percent for 

fiscal year 2000, 5.4 percent for fiscal year 2005, and 2.9 percent for fiscal year 2010. 

These figures are not comparable to RHS’s reported error rates because HUD examines 

sources of errors (e.g., income reporting errors) that RHS does not.

37As we previously reported, HUD’s fiscal year 2000 estimate of income reporting errors is 

not comparable to estimates for other years because it used a different methodology. In 

addition, HUD’s subsequent estimate, which covered fiscal year 2003, had a margin of 

error so large that the estimate was not meaningful. See GAO-05-224. 

38HUD has indicated that obtaining a more precise estimate of income reporting error 

would require a considerably large sample but that doing so would be difficult and costly. 
 

Page 31 GAO-12-624 RHS Improper Payments

HUD initially created EIV to verify tenant income and identify unreported 

income, but it has expanded use of EIV to help monitor other aspects of 

its rental assistance programs. For example, each month HUD uses EIV 

to match tenant personal identifiers against SSA’s Death Master File. 

Through this matching process, HUD produces Deceased Tenant 

Reports, which contain the names of deceased members of tenant 

households and the dates the deaths occurred, when available. HUD 

makes these reports available to program administrators through EIV and 

requires them to access and act upon the reports on a regular basis. 

Program administrators must first confirm that an individual appearing in 

the report has died—for example, by contacting the head of household. 

Program administrators must then terminate assistance on behalf of 

deceased single-member households, ensure that larger households 

update information on family composition so the amount of rental 

assistance can be adjusted, and recover any rental assistance payments 

made after the tenant died. According to HUD, HUD staff audit program 

administrators quarterly to confirm that they have stopped making 

payments on behalf of deceased individuals. Additionally, in fiscal year 

2011, HUD indicated that HUD and PHAs recovered $3.5 million in 

improper payments made to deceased individuals as a result of the 

Deceased Tenant Reports.39

HUD also uses EIV to identify tenants for whom HUD’s records do not 

contain valid or accurate Social Security numbers. According to HUD, 

correct Social Security numbers are critical to the effective 

implementation of EIV because the numbers are one of the key personal 

identifiers used to match tenant information to HHS and SSA data. 

Through EIV, HUD provides program administrators with Failed 

Verification Reports that identify tenants whose personal identifying 

information does not match SSA’s records. Program administrators must 

follow up with tenants in the report to confirm the tenant’s Social Security 

number, date of birth, and last name; obtain documentation from the 

tenant to verify any discrepant personal identifiers; and correct any 

discrepant information in HUD’s tenant databases. HUD officials told us 

that these efforts, coupled with 2009 regulations that mandated use of 

EIV and strengthened HUD’s Social Security number disclosure and 

verification requirements, have substantially reduced the number of 

 

39According to HUD, the recovered amounts included payments made from fiscal years 

2007 through 2011.

Data Matching Has Helped 

HUD Terminate Assistance 

for Deceased Tenants and 

Correct Inaccurate 

Identifying Information
 

Page 32 GAO-12-624 RHS Improper Payments

tenants who do not match SSA records.40 According to HUD, this number 

fell from about 100,000 in January 2009 to less than 30,000 in February 

2012.

Although HUD has seen benefits from EIV, HUD’s experience also shows 

that developing and implementing such a system poses challenges. 

These challenges include obtaining data sharing agreements and making 

information technology investments; implementing regulations, guidance, 

and training to help ensure effective use of the system; and devoting staff 

to help ensure effective implementation of the system.

HUD devoted significant time and resources to develop EIV. As 

previously discussed, after receiving legislative authority to negotiate a 

data matching agreement with HHS, it took HUD 3 years to reach an 

agreement that provided data access for all HUD program administrators. 

HUD had to address a number of issues to alleviate HHS’s concerns 

about data security. For example, HUD had to ensure that (1) only 

authorized individuals and entities would have access to the HHS data, 

(2) HUD program administrators were accountable for safeguarding the 

data, and (3) HUD could track when the data were accessed and by 

whom. HUD officials estimated that developing EIV, which took place 

from approximately 2002 through 2007, cost several million dollars.

Additionally, HUD estimates that it has spent an average of about 

$700,000 annually over the last 3 or 4 years for system maintenance and 

development.

HUD has issued regulations and provided substantial guidance and 

training about implementing EIV. As previously noted, HUD issued 

regulations in 2009 that require program administrators to use EIV. The 

regulations allow HUD to impose penalties against program 

administrators who do not fully utilize EIV. HUD has also issued, and 

periodically updates, EIV user, administration, and security manuals. For 

example, the user manual gives program administrators instructions for 

navigating EIV and using the data available in the system to make rental 

subsidy determinations. The security manual sets forth policies and 

procedures for controlling access to EIV and monitoring system use. In 

addition, HUD periodically issues notices to program administrators that 

 

4024 C.F.R. § 5.216 and § 5.218.

Developing and 

Implementing the Data 

Matching System Has 

Required Significant Time 

and Resources
 

Page 33 GAO-12-624 RHS Improper Payments

provide detailed guidance on the use of the system and updates on 

HUD’s requirements. HUD disseminates these notices and other EIV user 

tips via a Listserv®. Further, HUD provides training and technical 

assistance to program administrators through in-person discussions, 

webcasts, and presentations at national and regional industry meetings. 

For example, HUD provides training by webcast at least once or twice a 

year and has an EIV help desk that can be reached via phone or e-mail.

HUD has staff who are devoted to implementing EIV. HUD’s Office of 

Public and Indian Housing has six headquarters staff dedicated full-time 

to reviewing EIV reports, monitoring program administrators’ utilization of 

EIV, and identifying and recovering improper rental assistance payments. 

The Office of Public and Indian Housing also has about 100 EIV 

coordinators in field offices across the country to provide technical 

assistance to PHAs, approve requests for access to EIV, and certify the 

designated EIV users on a semiannual basis. Similarly, HUD’s Office of 

Multifamily Housing (a component of the Office of Housing) has four staff 

who work part-time on providing EIV technical assistance, program 

guidance, and training for property managers. In addition, Office of 

Multifamily Housing staff and entities hired by HUD to administer projectbased Section 8 contracts review property owners’ and managers’ 

compliance with HUD’s EIV requirements as part of annual management 

and occupancy reviews of assisted properties.

Finally, HUD’s experience could potentially inform RHS’s future data 

matching efforts. As previously discussed, development and 

implementation of EIV involved numerous steps and has required an 

ongoing commitment of resources. Knowledge of HUD’s efforts may help 

RHS identify the critical tasks it will need to perform if it is able to gain 

access to federal income data. HUD’s experience also highlights the 

potential benefits to RHS of following through on a data matching 

program. These benefits include more complete estimates of payment 

errors and an enhanced ability to reduce and recover improper rental 

assistance payments.

Congress and the administration have taken a number of steps to help 

ensure the accuracy and integrity of federal payments. These include 

enacting IPIA and IPERA, developing guidance for implementing these 

laws, and issuing a directive on the use of payment eligibility databases. 

RHS’s rental assistance program is one of many federal programs subject 

to these requirements. RHS’s program serves over a quarter of a million 

low-income tenants and expended more than $1 billion in fiscal year 

Conclusions 
 

Page 34 GAO-12-624 RHS Improper Payments

2011. Because the program is not an entitlement, not all eligible 

households receive rental subsidies. As a result, subsidy overpayments 

effectively reduce the resources available to serve the program’s target 

population. Additionally, subsidy calculations can be complex and are 

based partly on information reported by tenants and collected by property 

managers. These factors underscore the importance of identifying, 

reducing, and recovering improper rental assistance payments so that the 

program can operate as efficiently and effectively as possible.

As required, RHS has made annual estimates of improper payments in its 

rental assistance program and has implemented corrective actions to help 

reduce such payments. However, RHS’s estimates may be understated 

for several reasons. In addition, RHS could do more to identify improper 

payments and strengthen accountability for reducing payment errors as 

follows:

• RHS is not measuring what may be a significant source of payment 

errors because it lacks statutory authority to use the New Hires 

database or SSA benefits data to identify unreported tenant income. 

Although RHS has drafted legislation that would give the agency 

access to the New Hires database and has submitted this legislation 

as part of the President’s most recent budget, it has not taken similar 

steps to obtain access to the SSA data. While HUD’s experience 

points to challenges that RHS may face in using these data—such as 

negotiating data-sharing agreements and developing appropriate 

systems, training, and guidance—it also demonstrates benefits. By 

matching tenant information to these data sources, HUD has been 

able to identify, and take actions to reduce and recover, substantial 

amounts of improper payments caused by unreported income and 

payments to deceased tenants.

• RHS’s exclusion of improper payments of less than $100 from its error 

estimates masks the full extent of payment errors in the rental 

assistance program. RHS has not provided a strong rationale for its 

$100 exclusion threshold. Further, the threshold may artificially keep 

the program’s error rate below the 1.5 percent level that will be in 

effect beginning in fiscal year 2013 and used to identify programs

susceptible to significant improper payments. Although adopting the 

$100 threshold was a major change from RHS’s previous method, 

RHS did not submit the change to OMB, which is responsible for 

approving agency methodologies for estimation. As a result, RHS 

lacks assurance that its current approach is appropriate.
 

Page 35 GAO-12-624 RHS Improper Payments

• RHS does not have a current estimate of improper payments caused 

by payment processing errors. As a result, RHS’s assumption that 

these errors are negligible may no longer be valid and may contribute 

to understatement of the overall error rate estimated for the rental 

assistance program.

• In RHS’s most recent improper payments audit, auditors classified 

some payments associated with undated Tenant Certification forms 

as proper, contrary to a written audit procedure. If the auditors had 

followed the written procedure, instead of the more flexible, unwritten 

procedure they did use, RHS’s estimated error rate would have been 

higher than reported. While the unwritten procedure may be 

reasonable, using this procedure reduces the transparency of the 

audit process and may increase the risk of inconsistent 

implementation across auditors.

• RHS has not taken advantage of SSA’s Death Master File as a tool 

for identifying improper payments. In contrast, HUD routinely performs 

matches against the Death Master File to identify and terminate 

payments made on behalf of deceased tenants and has used this 

information to recover several million dollars in improper payments. 

USDA is taking steps to use the Death Master File and other “Do Not 

Pay” databases through Treasury’s web portal, which offers a batchprocessing capability. Using this capability for the rental assistance 

program would enhance RHS’s ability to estimate improper payments 

and allow RHS to regularly check for improper payments made on 

behalf of deceased tenants.

• RHS has not fully implemented steps to hold agency managers 

accountable for reducing and recovering improper payments and has 

not reported on these accountability steps in USDA’s PAR. In 

addition, the PAR does not provide an assessment of whether RHS 

has the internal controls, human capital, and information systems to 

reduce improper rental assistance payments to targeted levels. As a 

result, RHS is not fully complying with OMB guidance and may be 

limiting the effectiveness of its actions to address payment errors. By 

correcting these shortcomings, RHS could strengthen accountability in 

the rental assistance program and better inform Congress and OMB 

of its efforts to ensure the accuracy and integrity of RHS’s payment 

process.
 

Page 36 GAO-12-624 RHS Improper Payments

Congress should consider amending Section 453(j) of the Social Security 

Act to grant RHS access to HHS’s New Hires database for purposes of 

verifying tenant incomes. If such access were granted, RHS would need 

to develop specific procedures with HHS to facilitate it.

To help estimate, reduce, and recover improper payments in the Section 

521 rental assistance program, we recommend that the Secretary of 

Agriculture take the following actions:

• Draft proposed legislation for congressional consideration that would 

grant RHS access to SSA benefits data for purposes of verifying 

tenant incomes.

• Submit RHS’s methodology for estimating improper payments, 

including use of the $100 exclusion threshold, to OMB for review.

• Consider examining payment processing errors as part of the next 

improper payments audit to provide more current information on 

whether these errors are significant.

• In conducting the annual improper payments audit, either count all 

payments made on behalf of tenants with signed but undated Tenant 

Certification forms as improper or revise the audit procedure to 

classify such payments as proper when an acceptable certification 

date can be imputed from other documents.

• Complete steps to use SSA’s Death Master File—potentially utilizing 

the batch-processing option offered through Treasury’s “Do Not Pay” 

web portal—to identify improper payments made on behalf of 

deceased tenants and use this capability in conducting the annual 

improper payments audit and for ongoing oversight of program 

payments.

• Complete steps to ensure that RHS managers are held accountable 

for reducing and recovering improper payments in the rental 

assistance program and include a discussion of the accountability 

steps in USDA’s PAR.

• Include a discussion in USDA’s PAR of whether RHS has the internal 

controls, human capital, information systems, and other infrastructure 

to reduce improper rental assistance payments to targeted levels.

Matter for 

Congressional 

Consideration 

Recommendations for 

Executive Action
 

Page 37 GAO-12-624 RHS Improper Payments

We provided a draft of this report to the Acting Director of OMB and the 

Secretaries of Agriculture and Housing and Urban Development for their 

review and comment. We received oral comments from OMB on May 18, 

2012. We received written comments from USDA’s Under Secretary for 

Rural Development. We also received technical comments from USDA, 

which we incorporated where appropriate. HUD did not provide 

comments on the draft report.

In their oral comments, OMB staff said a recommendation in our draft 

report that was directed to OMB would be better directed to USDA. Our 

draft report contained a recommendation that OMB review RHS’s 

methodology for estimating improper payments, including use of the $100 

exclusion threshold. Although OMB staff agreed that a reassessment of 

RHS’s methodology was appropriate, they said their process was to 

undertake such a reassessment only after an agency submitted its 

methodology to OMB for review. Therefore, we modified our 

recommendation to state that USDA submit RHS’s estimation 

methodology to OMB for review. We provided the modified 

recommendation to USDA in time for USDA to consider it in preparing 

written comments on our draft report.

In its written comments, USDA said it generally agreed with the 

recommendations in our report, but it did not comment on specific 

recommendations. USDA cited various actions RHS had taken, which we 

described in our draft report, to reduce improper rental assistance 

payments and secure access to HHS’s New Hires database. USDA also 

reiterated that RHS had no plans to abandon improper payments audits 

or seek an audit exemption from OMB even if the rental assistance 

program’s error rate falls below OMB’s reporting threshold. Additionally, 

USDA stated that it “appreciated GAO’s notation that the RHS IPIA error 

rate is lower than that of the U.S. Department of Housing and Urban 

Development, even including RHS’s errors under $100.” Although our 

draft report did contain RHS’s estimated error rate for fiscal year 2010 

(including and excluding errors less than $100) and a footnote in a 

separate section showing HUD’s estimated error rate for the same year, 

our report did not compare the error rates of the two agencies. Such 

comparisons are inappropriate because RHS’s error rate does not include 

sources of errors that HUD’s does include, such as income reporting 

errors and billing errors. In our final report, we added language to the 

footnote containing HUD’s error rate to emphasize this point.

Agency Comments 

and Our Evaluation
 

Page 38 GAO-12-624 RHS Improper Payments

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Secretary of Agriculture, the Secretary of 

Housing and Urban Development, the Acting Director of the Office of 

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

report will be available at no charge on the GAO website at 

http://www.gao.gov.

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

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

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III.

Mathew J. Scirè

Director, Financial Markets

 and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 39 GAO-12-624 RHS Improper Payments

Our objectives were to examine (1) the extent to which the Rural Housing 

Service (RHS) has examined the sources and magnitude of improper 

rental assistance payments; (2) the extent to which RHS has complied 

with applicable requirements and guidance for estimating, reporting, 

reducing, and recovering improper payments; and (3) potential lessons

RHS could learn from the Department of Housing and Development’s 

(HUD) efforts that have helped to identify and reduce improper rental 

assistance payments.

To determine the extent to which RHS has examined the sources of error 

for improper rental assistance payments, we reviewed RHS’s annual 

improper payments audits for fiscal years 2004 through 2010 (the most 

recent audit available at the time of our review) and the U.S. Department 

of Agriculture’s (USDA) Performance and Accountability Reports (PAR) 

for fiscal years 2007 through 2011, which summarize information from the 

improper payments audits. We reviewed RHS’s policies and procedures 

for determining and processing rental subsidy payments to identify steps 

in the subsidy process where improper payments can occur. We also 

reviewed provisions in the Improper Payments Information Act of 2002 

(IPIA), as amended, and Appendix C of Office of Management and 

Budget (OMB) Circular A-123 to determine the types of payments that 

should be classified as improper. To supplement our understanding of the 

sources of improper rental assistance payments, we interviewed RHS 

officials and representatives from the Council for Affordable Rural 

Housing and the National Affordable Housing Management Association.

To determine the extent to which RHS has examined the magnitude of 

improper rental assistance payments, we reviewed the improper 

payments audits and PARs cited previously. We used this information to 

analyze trends in RHS’s estimated gross improper payments and gross 

error rates from fiscal years 2007 through 2010. We focused on that time 

frame because RHS used a somewhat different methodology and had 

different types of personnel conducting the audits prior to that period. For 

example, the audit for fiscal year 2007 marked the point at which staff 

from RHS’s Centralized Servicing Center (CSC), rather than RHS field 

staff, began performing the audits. We also reviewed Appendix C of OMB 

Circular A-123 to determine OMB’s thresholds for identifying programs 

that are susceptible to significant improper payments. We compared 

RHS’s error estimates with the current OMB thresholds and the 

thresholds that will take effect in fiscal year 2013.

Appendix I: Objectives, Scope, and 

Methodology 

Sources and Magnitude of 

Improper Payments
Appendix I: Objectives, Scope, and 

Methodology 

Page 40 GAO-12-624 RHS Improper Payments

We performed a more detailed analysis of the payment errors found in the 

improper payments audit for fiscal year 2010 by obtaining and reviewing 

an RHS database containing the 666 randomly selected payments 

reviewed by CSC auditors. Among other things, the database included 

the dollar amount and types of errors, if any, that the auditors identified 

for each payment. We reviewed CSC’s written audit procedures and 

examined the extent to which CSC followed them, including criteria for 

classifying payments as improper. We also interviewed CSC officials 

about how they conducted the audit and their reasons for any deviations 

from written audit procedures. Additionally, we interviewed RHS officials 

about how they used the results of the audit to make programwide error 

estimates and their rationale for excluding payments of less that $100 

from these estimates. Using information in the database, we determined 

the proportions of improper payments that fell within different ranges, 

including above and below RHS’s $100 exclusion threshold and above 

and below HUD’s $5 exclusion threshold. We calculated what the 

estimated amount of gross improper payments and the gross error rate 

would have been for the rental assistance program if RHS had included 

all improper payments in its estimates and compared these figures with 

the ones RHS reported.1

To assess the reliability of the data in the database of 666 sampled 

payments, we conducted reasonableness checks, including tests for 

missing data and outliers, on key data elements that RHS used to 

estimate improper payments. In addition, we reviewed RHS 

documentation about the database and interviewed RHS staff responsible 

for maintaining the data. Because RHS drew the payment sample from 

RHS’s Multi-Family Information System, we also reviewed the processes 

RHS had in place to safeguard the accuracy and reliability of data in the 

system. On the basis of this review, we determined that the data in the 

We interviewed OMB officials about RHS’s 

exclusion threshold and the extent to which they had reviewed or 

provided guidance to RHS on its estimation methodology, including the 

threshold. We also reviewed IPIA provisions describing OMB’s 

responsibilities for reviewing agency estimation methodologies.

 

1

More specifically, to produce a programwide estimate without the $100 threshold, we 

calculated the absolute value of all improper payments in the payment sample and 

multiplied this amount by the number of times the sample size was represented in the total 

population of rental assistance payments. We divided the result by RHS’s total rental 

assistance outlays for fiscal year 2010 to estimate the gross error rate. 
Appendix I: Objectives, Scope, and 

Methodology

Page 41 GAO-12-624 RHS Improper Payments

database of sampled payments were sufficiently reliable for purposes of 

our analysis.

To determine the extent to which RHS complied with applicable 

requirements and guidance concerning improper payments, we reviewed 

provisions in IPIA, as amended; associated OMB guidance; and various 

RHS and USDA documents. To determine whether RHS met 

requirements for estimating improper payments, we reviewed Appendix C 

of OMB Circular A-123, which contains specific rules for sampling 

payments and the level of precision that error estimates must have. We 

compared these requirements with information presented in RHS’s 

improper payments audit for fiscal year 2010, the statistical sampling plan 

underlying the audit, and USDA’s fiscal year 2011 PAR. In addition, we 

reviewed the techniques and formulas RHS used to generate its fiscal 

year 2010 payment sample and produce estimates from the sample and 

found them to be statistically sound. To assess whether RHS met 

reporting requirements, we examined Appendix C of OMB Circular A-123, 

as well as OMB Circular A-136, which set forth specific information that 

agencies should include in their annual PARs about improper payments. 

We reviewed USDA’s fiscal year 2011 PAR to determine the extent to 

which it contained the required information. Because the reporting 

requirements call for agencies to identify corrective actions they have 

taken or plan to take, we also identified RHS corrective actions described 

in USDA’s PARs from fiscal years 2008 through 2011 and determined the 

status of those actions as of March 2012. We reviewed information 

regarding these corrective actions, including RHS correspondence, draft 

legislation, and other documents, as well as reporting by USDA’s Office of 

the Inspector General (OIG). We also interviewed RHS and OMB officials 

about RHS’s efforts to comply with improper payments requirements and 

guidance. 

To assess RHS’s use of required or recommended techniques to reduce 

and recover improper payments, we reviewed guidance contained in 

OMB Circular A-123, a 2010 presidential memorandum on ensuring

payment accuracy through a “Do Not Pay List,” and provisions in IPIA, as 

amended by the Improper Payments Elimination and Recovery Act of 

2010 (IPERA). We reviewed documentation—including USDA PARs, 

RHS improper payments audits, and USDA OIG reporting—describing 

the methods RHS has used to help reduce improper payments. We also 

interviewed RHS officials and a representative from USDA’s Office of the 

Chief Financial Officer about these methods, including the use of 

databases that constitute the “Do Not Pay List.” With regard to RHS’s 

Compliance with 

Requirements Concerning 

Improper Payments
Appendix I: Objectives, Scope, and 

Methodology

Page 42 GAO-12-624 RHS Improper Payments

recovery of improper payments, we reviewed USDA’s PAR for fiscal year 

2011, which contains a summary of USDA’s efforts to implement the 

recovery audit provisions in IPERA. We also reviewed USDA’s payment 

capture/recovery audit plan and fiscal year 2011 requests for proposals to 

solicit the services of a recovery auditing contractor. Finally, we 

interviewed RHS officials and a representative from USDA’s Office of the 

Chief Financial Officer about the status of establishing a recovery audit 

program in response to IPERA.

To determine the potential lessons RHS could learn from HUD’s efforts to 

reduce improper payments, we reviewed HUD’s quality-control studies of 

improper rental assistance payments (which are comparable to RHS’s 

improper payments audits) conducted for fiscal years 2000 through 2010. 

We also reviewed information in HUD’s PARs for fiscal years 2001 

through 2011, which summarize the results of these studies and describe 

HUD’s corrective actions to address the causes of improper payments. 

We used information from the PARs to examine trends in HUD’s 

estimated gross improper payments and gross error rate from fiscal years 

2000 through 2010. Additionally, we reviewed findings from our prior work 

on HUD’s efforts to reduce payment errors and interviewed officials from 

HUD’s Offices of Public and Indian Housing, Multifamily Housing, and 

Policy Development and Research about their more recent efforts.

Our work emphasized the benefits and challenges associated with HUD’s 

web-based Enterprise Income Verification System (EIV) because RHS 

lacks a comparable capability for verifying tenant incomes through data 

matching. To determine the specific benefits of EIV, we reviewed 

supplements to HUD’s quality-control studies that focus specifically on the 

data matching component of the studies and provide estimates of 

improper payments due to income reporting errors. We analyzed changes 

in HUD’s estimates of income reporting errors from fiscal years 2000 

through 2011. However, we could not draw statistically valid conclusions 

about the changes, because the small number of households in HUD’s 

samples with unreported income resulted in estimates with large margins 

of error. We also reviewed information on HUD’s use of EIV to identify 

and recover payments to deceased tenants and to correct inaccurate 

tenant identifying information. Additionally, we interviewed the HUD 

officials cited previously about the benefits they had seen from using the 

system to annually estimate improper payments and help ensure the 

integrity of rental assistance payments on an ongoing basis. To determine 

the challenges associated with developing and implementing EIV, we 

reviewed information from HUD about how EIV evolved, the agency’s 

Potential Lessons Learned 

from HUD
Appendix I: Objectives, Scope, and 

Methodology

Page 43 GAO-12-624 RHS Improper Payments

efforts to negotiate data matching agreements with the Department of 

Health and Human Services, estimated costs for developing and 

maintaining the system, and staff resources dedicated to implementing 

EIV and monitoring its use by program administrators. Further, we 

reviewed HUD regulations, guidance, manuals, and training materials that 

HUD developed to help implement EIV. Finally, we interviewed HUD 

officials about these various efforts.

We conducted this performance audit from July 2011 to May 2012 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: Comments from the Department 

of Agriculture

Page 44 GAO-12-624 RHS Improper Payments

Appendix II: Comments from the Department 

of Agriculture
Appendix II: Comments from the Department 

of Agriculture

Page 45 GAO-12-624 RHS Improper Payments
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 46 GAO-12-624 RHS Improper Payments

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov

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

Director), Jeremy Conley, Isidro Gomez, John Lord, John McGrail, Marc 

Molino, Dae Park, Jennifer Schwartz, Verginie Tarpinian, and Heneng Yu 

made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(250631)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (www.gao.gov). Each weekday afternoon, 

GAO posts on its website newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, 

go to www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations 

Public Affairs

Please Print on Recycled Paper.