Rural Housing Service: Efforts to Identify and Reduce Improper Rental Assistance Payments Could Be Enhanced
Published: 2012-05-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.
section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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.
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),  agencies are required to estimate annual amounts improperly paid and to  report these estimates and actions taken to reduce them. The Improper  Payments Elimination and Recovery Act of 2010 (IPERA) amended IPIA  and, among other things, expanded requirements for recovering  overpayments.(OMB) prescribes guidance for agencies to use in implementing IPIA, as  amended.
The Director of the Office of Management and Budget  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.  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.
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.
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). 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.
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.
subsections: section_title: Background
subsections: section_title: RHS’s Rental Assistance Program
paragraphs: 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. 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.
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  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. 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.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.
section_title: RHS Has Identified and Reduced Certain Types of Payment Errors, but Its Reported Error Rate May Understate the Magnitude of the Problem
paragraphs: 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.
subsections: section_title: RHS Has Identified Improper Payments Caused by Two Types of Errors
paragraphs: 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. 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.
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.
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. 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.
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.
section_title: RHS Reported That Its Estimated Error Rate Declined from Fiscal Years 2007 through 2010
paragraphs: 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. 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  2010 payments—$9 million is the equivalent of annual subsidy payments  to more than 2,300 households.
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.
section_title: RHS’s Estimates of Improper Payments May Be Understated for Several Reasons
paragraphs: 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.
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. 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   The President’s budget for fiscal year 2013 contains proposed  1988.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.
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  and benefits databases, including those maintained by SSA.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.
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 single- tenant 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. 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.
A 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.
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. 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.
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 cost- effective 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.
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  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.
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,  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.
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.
section_title: RHS Uses Required Statistical Methods for Estimating Improper Payments but Has Not Fully Met Reporting, Reduction, and Recovery Requirements
paragraphs: 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.
subsections: section_title: RHS Has Complied with Estimating Requirements and Implemented Corrective Actions, but Its Reporting on Improper Payments Has Been Incomplete
paragraphs: 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. 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.
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  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.
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  “ State Offices with improper payment errors develop a corrective  action plan. The plan includes procedures to train field staff, borrowers,  and property manager 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. In April 2012, RHS officials told us they were  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 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   These databases—which constitute the “Do Not Pay List”—can  System.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.
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  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.
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.
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,  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. 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.
USDA plans to implement a recovery auditing program by hiring a  contractor.  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.In March 2011, USDA issued a request for proposals (RFP) to solicit the  broader range of recovery auditing services required by IPERA. However,  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.
section_title: HUD’s Efforts Illustrate Potential Benefits and Challenges of Data Matching
paragraphs: 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.
subsections: section_title: Data Matching Has Helped HUD to Identify and Reduce Improper Payments Due to Unreported Tenant Income
paragraphs: 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.studies. HUD’s initial quality-control study examined payments in fiscal   HUD refers to these studies as quality control  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).
Like 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. 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.
HUD had agreements with about two dozen states by the end of 2004. in the Computer Matching and Privacy Protection Act of 1988. 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.
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. 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. 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.
Program 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. 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.
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). 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.
As 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.
section_title: Data Matching Has Helped HUD Terminate Assistance for Deceased Tenants and Correct Inaccurate Identifying Information
paragraphs: 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.
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  tenants who do not match SSA records.fell from about 100,000 in January 2009 to less than 30,000 in February  2012.
section_title: Developing and Implementing the Data Matching System Has Required Significant Time and Resources
paragraphs: 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  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 project- based 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.
section_title: Conclusions
paragraphs: 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  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.
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 batch- processing 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.
section_title: Matter for Congressional Consideration
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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.
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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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.
subsections: section_title: Sources and Magnitude of Improper Payments
paragraphs: 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.
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. 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.
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  database of sampled payments were sufficiently reliable for purposes of  our analysis.
section_title: Compliance with Requirements Concerning Improper Payments
paragraphs: 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  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.
section_title: Potential Lessons Learned from HUD
paragraphs: 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  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.
section_title: Appendix II: Comments from the Department of Agriculture
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.