HUD Rental Assistance: Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
Published: 2005-02-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2003, the Department of Housing and Urban Development (HUD) paid about $28 billion to help some 5 million low-income tenants afford decent rental housing. HUD has three major programs: the Housing Choice Voucher (voucher) and public housing programs, administered by public housing agencies; and project-based Section 8, administered by private property owners. As they are in every year, some payments were too high or too low, for several reasons. To assess the magnitude and reasons for these errors, HUD established the Rental Housing Integrity Improvement Project (RHIIP). In response to a congressional request, GAO examined the sources and magnitude of improper rent subsidy payments HUD has identified and the steps HUD is taking to address them, including efforts to simplify the process of determining rent subsidies.
section_title: What GAO Found
paragraphs: HUD has identified three sources of errors contributing to improper rent subsidy payments: (1) incorrect subsidy determinations by program administrators, (2) unreported tenant income, and (3) incorrect billing. HUD has attempted to estimate the amounts of improper subsidies attributable to each source but has developed reliable estimates for only the first--and likely largest--source. HUD paid an estimated $1.4 billion in gross improper subsidies (consisting of $896 million in overpayments and $519 million in underpayments) in fiscal year 2003 as a result of program administrator errors--a 39 percent decline from HUD's fiscal year 2000 (baseline) estimate. GAO estimates that the amount of net overpayments could have subsidized another 56,000 households with vouchers in 2003. HUD has made several efforts under RHIIP to address improper rent subsidies for its public housing and voucher programs. Rental Integrity Monitoring (RIM) reviews by HUD's field offices--on-site assessments of public housing agencies' compliance with policies for determining rent subsidies--are a key part of the initiative. However, GAO found that resource constraints and a lack of clear guidance from HUD headquarters hampered the reviews and that the field offices did not collect complete and consistent data, limiting HUD's ability to analyze and make use of the results. HUD has not incorporated RIM reviews into its routine oversight activities. HUD expects that a second effort, a Web-based tenant income verification system, will avoid an estimated $6 billion in improper subsidies over 10 years, but the system is not yet fully implemented. HUD has undertaken RHIIP efforts for its project-based Section 8 programs but faces several challenges. HUD has improved its policies and guidance for property owners. The agency also plans to give owners access to the Web-based income verification system by the end of 2006. HUD plans to rely more extensively on contractors to monitor property owners' compliance with its policies for determining subsidies. According to HUD, the complexity of the existing policies contributes to the difficulties program administrators have in determining rent subsidies correctly. For example, program administrators must assess tenants' eligibility for 44 different income exclusions and deductions. However, simplification will likely require statutory changes by Congress and affect the rental payments of many tenants. HUD is considering various approaches to simplifying policies for determining rent subsidies but has not conducted a formal study to inform policymakers on this issue.

section_title: Letter
paragraphs: This report responds to your request that we evaluate issues related to  improper rent subsidy payments in the Department of Housing and Urban  Development’s (HUD) housing assistance programs. Specifically, this  report examines (1) the sources and magnitude of improper payments that  HUD has identified, (2) the actions HUD is taking under its Rental Housing  Integrity Improvement Project (RHIIP) to reduce improper payments in the  Housing Choice Voucher (voucher) and public housing programs and the  status of these initiatives, (3) the actions HUD is taking under RHIIP to  reduce improper payments in its project-based Section 8 programs and the  status of these initiatives, and (4) the status and potential impact of HUD’s  efforts to reduce the risk of improper payments by simplifying the subsidy  determination process. This report includes recommendations to the HUD  Secretary.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to interested  Members of Congress and Congressional Committees. We will also send  copies to the HUD Secretary and make copies available to others upon  request. In addition, this report will be available at no charge on the GAO  Web site at http://www.gao.gov.
This report was prepared under the direction of Steven Westley, Assistant  Director. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or woodd@gao.gov or Mr. Westley at (202)  512-6221 or westleys@gao.gov. Major contributors to this report are listed  in appendix IV.
subsections: section_title: Introduction
paragraphs: In fiscal year 2003, the Department of Housing and Urban Development  (HUD) expended about $28 billion in rental assistance—about 75 percent  of the department’s total expenditures—to help almost 5 million low- income tenants afford decent housing. HUD provides rental assistance  through three major programs: Housing Choice Vouchers (vouchers),  public housing, and several project-based Section 8 programs. These  programs reduce tenants’ rental payments by providing subsidies to  owners of private properties, the public housing agencies (PHA)  responsible for government-owned developments, or both. Because these  subsidies involve complicated calculations and program rules, the process  of determining them is prone to errors. In response to growing concerns  about improper rental assistance payments, in fiscal year 2001 HUD  established the Rental Housing Integrity Improvement Project (RHIIP),  which is designed to address the causes of these errors and ensure that  only eligible people receive subsidies.
This report discusses (1) the sources and magnitude of improper payments  that HUD has identified, (2) the actions HUD is taking under RHIIP to  reduce improper payments in the voucher and public housing programs  and the status of these initiatives, (3) the actions HUD is taking under  RHIIP to reduce improper payments in its project-based programs and the  status of these initiatives, and (4) the status and potential impact of HUD’s  efforts to reduce the risk of improper payments by simplifying the subsidy  determination process.
subsections: section_title: HUD’s Rental Assistance Programs Vary in Size and Are Administered Differently
paragraphs: HUD’s voucher, public housing, and project-based assistance programs  share the common mission of making housing affordable to low-income  households. The subsidies these programs provide are not an entitlement.  Typically, the number of low-income households eligible for assistance  exceeds the number of subsidized units and vouchers that is available.  Specifically, HUD estimated that in 1999 about a quarter of all households  eligible for housing assistance received it. HUD’s programs are  administered differently and vary in the number of households they assist  and the amount of funding they receive.
The voucher program, which local PHAs administer on HUD’s behalf, is  HUD’s largest rental assistance program. The program, authorized under  Section 8 of the United States Housing Act of 1937, as amended, provides  housing vouchers that eligible individuals and families can use to rent  houses or apartments in the private housing market from property owners  participating in the program. Voucher holders are responsible for finding  suitable housing, which must meet HUD’s housing quality standards. In  fiscal year 2003, the program assisted about 2 million households (42  percent of all households receiving HUD housing assistance) and had  outlays of $13.4 billion (47 percent of HUD’s total rental assistance  outlays). In general, only households with very low incomes—those with  incomes that are less than or equal to 50 percent of area median income  (AMI)—are eligible for vouchers. In addition, the legislation requires that at  least 75 percent of new participants in the voucher program have extremely  low incomes—that is, their incomes must be at or below 30 percent of  AMI. Voucher holders generally pay 30 percent of their adjusted monthly  income toward rent, and the PHA receives HUD subsidies to pay the  remainder of the rent to the property owners. The subsidies in the voucher  program are tenant based—that is, they are tied to the household rather  than to the rental unit. The approximately 2,500 PHAs that administer the  voucher program are responsible for ensuring that tenants meet program  eligibility requirements and that tenant subsidies are calculated properly.  PHAs are also required to develop written policies and procedures to  administer the program according to HUD regulations.
Under the public housing program authorized by United States Housing Act  of 1937, as amended, HUD subsidized the development, operation, and  modernization of government-owned properties, which are currently  managed by some 3,300 PHAs. In fiscal year 2003, HUD’s public housing  program assisted 1.2 million households (25 percent of households  receiving housing assistance) and had outlays of $7.1 billion (25 percent of  HUD’s total rental assistance outlays). To be eligible for public housing, a  household must be low income—that is, have an income that is less than or  equal to 80 percent of AMI—and the legislation stipulates that at least 40  percent of new residents have extremely low incomes—less than or equal  to 30 percent of AMI. As in the voucher program, public housing tenants  generally pay 30 percent of their adjusted monthly income on rent. HUD  pays subsidies to the PHAs for the remainder to cover the difference  between the PHAs’ operating costs and rental receipts. In contrast to the  voucher program, the subsidies in the public housing program are project  based—that is, they are tied to the unit, and tenants receive assistance only  when they live in units eligible for subsidies. PHAs are responsible for  ensuring that tenants are eligible for public housing, that tenant subsidies  are calculated properly, and that the PHAs’ policies and procedures  conform to HUD’s regulations.
Under a variety of project-based Section 8 programs authorized by the  Housing and Community Development Act of 1974, as amended, HUD has  subsidized rents with multiyear rental assistance payments, which have  often been combined with construction subsidies from other HUD  programs. These programs included the New Construction, Substantial  Rehabilitation, Loan Management Set-Aside, Property Disposition, and  Moderate Rehabilitation programs. Before project-based Section 8  programs, HUD had provided rental assistance through Rent Supplement  and Section 236 Rental Assistance Payment programs. For ease of  presentation, this report refers to all of these rental assistance programs as  project-based Section 8. Property owners and managers for about 22,000  subsidized properties currently participate in these programs. In fiscal year  2003, HUD’s project-based programs assisted 1.6 million households (33  percent of all households receiving assistance from HUD) and had outlays  of $7.7 billion (27 percent of HUD’s total rental assistance outlays). As in  HUD’s other rental assistance programs, households receiving project- based Section 8 assistance generally pay 30 percent of their adjusted  income toward rent and HUD pays a subsidy—in this case to property  owners and managers—for the remainder of the rent. In general, only  households with low incomes are eligible for HUD project-based Section 8  assistance, and at least 40 percent of new residents must have extremely  low incomes. Private property owners and managers have similar  requirements to PHAs for administering the project-based Section 8  program—they must ensure that tenants meet program eligibility  requirements and that tenant subsidies are calculated correctly.  They also  must develop administrative policies and procedures that are consistent  with HUD’s regulations.
section_title: HUD’s Oversight of Program Administrators Varies among Programs
paragraphs: HUD’s oversight of program administrators varies depending on the  program (see fig. 1). For vouchers and public housing, HUD field offices  provide oversight of the PHAs that administer the programs. Field office  staff conduct on-site reviews and analysis of PHAs’ operations. Field  offices are also responsible for confirming the accuracy of information  PHAs submit to HUD’s performance rating systems for vouchers and public  housing: the Section 8 Management Assessment Program (SEMAP) and  Public Housing Assessment System (PHAS), respectively. Both SEMAP and  PHAS provide HUD managers with performance measures in key program  areas, such as program management and the physical condition of  properties.
For HUD’s Section 8 project-based programs, contract administrators are  responsible for overseeing individual Section 8 properties and ensuring  that properties are in compliance with HUD’s policies. The administrators  conduct on-site reviews of property owners’ tenant information files,  process monthly payment vouchers, respond to health and safety issues,  and renew rental assistance contracts. Currently, there are three different  types of contract administrators: performance-based contract  administrators, “traditional” contract administrators, and HUD field office  staff (see chap. 4).
section_title: Tenant Rents under Rental Assistance Programs Are Generally Based on Income
paragraphs: Subsidies under HUD’s rental assistance programs are generally based on  tenant households’ adjusted annual income, or gross income less any  exclusions and deductions. Laws and HUD regulations provide for 44  different types of income exclusions and deductions. Of these, HUD’s  regulations cite 20 income sources, such as income from minors, student  financial aid, and qualifying employment training programs, which are  excluded when determining households’ eligibility to receive assistance  and calculating tenants’ rent. Nineteen other income sources qualify as  exclusions under various statutes. For example, Earned Income Tax Credit  refund payments received on or after January 1, 1991, are excluded, as is  income from participating in AmeriCorps. A complete list and descriptions  of these exclusions appear in appendix II.
In addition to these 39 income exclusions, program administrators must  also apply five income deductions, which reduce the amount of income  that can be considered in calculating tenants’ rent. Legislation specifies  the following five deductions from annual income:  a standard amount ($480) for each dependent;  a standard amount ($400) for elderly or disabled family members;  unreimbursed child care expenses that are necessary for a family  member to remain employed;  the sum of the following to the extent that it exceeds 3 percent of annual   certain unreimbursed medical expenses for elderly or disabled family   certain unreimbursed attendant care and auxiliary apparatus  expenses necessary for a disabled family member to be employed;  and  other deductions from annual income as determined by program  administrator.
Once program administrators have collected information from tenants on  income and applicable exclusions and deductions, HUD policy requires  that program administrators independently verify this information (third- party verification). To obtain third-party verification, program  administrators must directly contact employers, welfare offices, health  care providers, and others to ensure that the information tenants have  reported is accurate and complete. However, third-party verification on its  own may not identify all income not reported (intentionally or otherwise)  by tenants. The program administrator must maintain all verified  information in the tenant’s file.
After verifying tenants’ income information, program administrators must  compute the amounts tenants pay in rent. HUD regulations define these  payments as the highest of the following amounts: (1) 30 percent of a  family’s monthly adjusted income—that is monthly income after  exclusions or deductions; (2) 10 percent of the family’s gross monthly  income—that is, monthly income before exclusions or deductions; or (3)  the applicable minimum monthly rent, which is typically between $0 and  $50. Generally, the amount paid by low- and very-low- income tenants is  not enough to cover the entire rent for a unit or, for public housing, to  cover operating costs. As a result, for vouchers and project-based Section  8, HUD generally covers the difference between the unit’s rent and the  tenant’s rental payment in the form of a housing assistance payment. For  public housing, HUD pays the PHA an operating subsidy to cover the  difference between the PHA’s operating costs and rental receipts. In this  report, we refer to both types of payments as rent subsidies.
section_title: HUD Established RHIIP to Respond to Ongoing Problems with Improper Rent Subsidy Payments
paragraphs: RHIIP was created as a Secretarial Initiative in the spring of 2001 to ensure  that the right benefits go to the right people. RHIIP was set up as a direct  result of HUD’s analysis of data it collected on improper subsidy payments  in fiscal year 2000. For the first time, HUD managers had access to  statistically valid estimates of the extent, severity, costs, and sources of  subsidy errors for vouchers, public housing, and project-based Section 8  nationwide. The results of the analysis were issued in a June 2001 report,  Quality Control for Rental Assistance Subsidies Determinations. The  report focused on subsidy errors made by program administrators but did  not attempt to determine if the tenants supplied accurate and complete  income information. In February 2002, HUD completed a separate  evaluation to determine rental assistance errors caused by unreported  tenant income. The study matched incomes tenants reported with income  information from Internal Revenue Service and Social Security  Administration databases. The results of these studies are examined  further in chapter 2.
Evaluations by GAO and HUD’s Office of Inspector General (OIG) have  identified long-standing problems with HUD’s monitoring of program  administrators responsible for making rent subsidy determinations. In  2001, GAO designated HUD’s rental housing programs as high risk for  waste, fraud, and abuse because the department could not ensure that only  eligible households received housing subsidies or that the households  received the correct amounts. Also, HUD’s OIG reported on material  weaknesses in HUD’s monitoring of program administrators in its financial  audits of the department since 1996. The OIG found that these weaknesses had adversely affected HUD’s ability to ensure that program administrators  were correctly calculating housing subsidies.
RHIIP’s goal is to reduce the incidence and dollar amount of improper rent  subsidies by 50 percent in fiscal year 2005 compared with fiscal year 2000,  with interim goals of a 15 percent reduction by fiscal year 2003 and a 30  percent reduction by fiscal year 2004. RHIIP’s performance goals are  largely drawn from The President’s Management Agenda, Fiscal Year  2002, which established nine agency-specific goals to improve federal  management and performance.
To accomplish RHIIP’s goals, HUD has initiated the following three  program-level efforts to reduce improper subsidy payments (see chapters 3  and 4):  Increased monitoring of program administrators to evaluate whether  subsidy calculations are correct, third-party verification of information  provided by tenants is sufficient, quality control procedures are  adequate, and tenant files are complete;  Income verification to allow PHAs or property owners to compare  tenant income information, as reported by federal and state agencies,  with the information reported by the tenant; and  Additional training and guidance to provide HUD staff and program  administrators with the tools necessary to understand the complex  requirements for determining subsidies determination.
HUD also initiated the following two overarching efforts under RHIIP:  Error measurement to develop estimates of the magnitude of improper  rent subsidy payments for all three programs and to assess progress in  meeting RHIIP’s goals (see chapter 2); and   Simplification of rent subsidy policies to develop approaches to  reduce complexity of program rules that have resulted in an error-prone  process (see chapter 5).
To further assist its efforts under RHIIP, HUD has set up a RHIIP advisory  group responsible for advising HUD’s principal staff on improper rental  assistance payments and to provide support for planning and implementing  corrective actions that will reduce the risk of improper payments to an  acceptable level. The advisory group is composed of representatives from,  among others, HUD’s program management and research offices. Members  of the advisory group meet on a weekly basis to discuss progress and  coordinate efforts.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) the sources and magnitude of  improper rental assistance payments that HUD has identified, (2) the  actions HUD is taking under RHIIP to reduce improper rental assistance  payments in the voucher and public housing programs and the status of  these initiatives, (3) the actions HUD is taking under RHIIP to reduce  improper payments in the project-based Section 8 program and the status  of these initiatives, and (4) the status and potential impact of HUD’s efforts  to reduce the risk of improper payments by simplifying the subsidy  determination process. The scope of this work was limited to HUD’s rental  assistance programs under Housing Choice Vouchers, public housing, and  project-based Section 8.
To determine the sources and magnitude of improper rental assistance  payments identified by HUD, we obtained fiscal year 2000 data on program  administrator errors that HUD collected for its 2001 Quality Control for  Rental Assistance Subsidies Determination report and similar data for  fiscal year 2003. We tested the reliability of both data files and found them  reliable for the purposes of this report. We estimated the total amount of  improper rent subsidies for all three housing programs. Our estimated  totals generally agreed with those in HUD’s fiscal year 2003 and 2004  Performance and Accountability Report. We also estimated improper rent  subsidies per household. To illustrate the impact of improper rent  subsidies, we estimated the number of households that could have received  assistance under the voucher programs by dividing the estimated total net  improper rent subsidy overpayments (i.e., total estimated subsidy  overpayments minus total estimate subsidy underpayments) by the average  cost of a voucher (including administrative costs) in fiscal year 2003.  Appendix I contains detailed results of our analyses. We reviewed HUD  notices, guidebooks, and reports, including HUD’s 2001 Quality Control for  Rental Assistance Subsidies Determinations and HUD’s 2003 and 2004  Performance and Accountability Report. We interviewed HUD  headquarters officials from the Office of Public and Indian Housing (for the  vouchers and public housing programs), the Office of Housing (for project- based Section 8 programs), and the Office of Policy Development and  Research. We also reviewed reports by and interviewed officials from  HUD’s OIG.
To describe the actions HUD is taking under RHIIP to reduce improper  payments in the public housing and voucher programs and the status of  these initiatives, we analyzed RHIIP status reports and schedules, obtained  and reviewed relevant HUD policies and procedures, and interviewed  officials at HUD headquarters and seven field offices responsible for the  two rental assistance programs—Baltimore, Maryland; Boston,  Massachusetts; Chicago, Illinois; Los Angeles, California; Miami, Florida;  New York City, New York; and San Francisco, California. We selected these  field offices based on the volume of rent subsidies they oversee and to  achieve some geographic distribution. Together, these field offices oversaw  about $7.8 billion in rent subsidies payments in fiscal year 2003, or 55  percent of the total. We also met with 14 of the largest PHAs responsible for  administering the public housing and voucher programs in the HUD field  office jurisdictions we visited and interviewed groups that represent state  and local housing agencies and tenants. To assess HUD’s implementation of  Rental Integrity Monitoring reviews and public housing authorities’  progress in reducing improper rental assistance payments, we obtained  and reviewed HUD policies, procedures, and training materials on  conducting these reviews, analyzed all 31 rental integrity monitoring  reviews from 13 of the largest public housing authorities in the country, and  reviewed HUD’s quality assurance reviews of HUD field office  performance.
To describe the actions HUD is taking under RHIIP to reduce improper  payments in its project-based Section 8 programs and the status of these  initiatives, we interviewed officials from HUD headquarters and at six HUD  field offices responsible for these programs—Boston, Massachusetts;  Chicago, Illinois; Los Angeles, California; New York City, New York;  Philadelphia, Pennsylvania; and San Francisco, California. We also selected  these field offices based on the volume of rent subsidies they oversee and  to achieve some geographic distribution. Together, these field offices  oversaw about $8.5 billion in rent subsidies payments in fiscal year 2003, or  47 percent of the total. We met with the four performance-based contract  administrators responsible for administering project-based Section 8  contracts in these HUD field office locations. We also obtained and  reviewed HUD policies and procedures related to the implementation of  RHIIP initiatives and RHIIP status reports.
To determine the status and impact of HUD’s effort to simplify the subsidy  determination process, we reviewed relevant laws and HUD regulations.  We also estimated the potential impact on tenant rents under possible  approaches using data HUD had collected for the update to its 2001 report,  Quality Control for Rental Assistance Subsidies Determinations.  Specifically, we compared the difference between the amount of rent paid  by tenants (as identified in HUD’s data) and the amount tenants would pay  under the two simplification approaches. We interviewed officials at HUD  headquarters and field offices and at state and local agencies that  administer HUD’s rental assistance programs.
We also met with industry groups representing state and local housing  agencies and tenants. These groups include the National Association of  Housing and Redevelopment Organization, National Leased Housing  Association, Public Housing Authorities Directors Association, and  Massachusetts Union of Public Housing Tenants.
We conducted our work from February to December 2004 in accordance  with generally accepted government auditing standards.
section_title: HUD Has Identified Sources of Errors but Lacks Complete and Reliable Estimates of Improper Subsidies for Every Source
paragraphs: As part of the Rental Housing Integrity Improvement Project’s (RHIIP)  error measurement effort, the Department of Housing and Urban  Development (HUD) identified three sources of errors that resulted in  improper rent subsidy payments: (1) incorrect rent subsidy determinations  made by program administrators (program administrator errors), (2)  unreported tenant income, and (3) incorrect billing or distribution of  subsidy payments (billing errors). HUD conducted separate studies to look  at the amount of improper rent subsidies attributable to each source of  error for vouchers, public housing, and project-based Section 8 but was  able to develop reliable estimates of dollar errors for only one of the three  sources—errors made by program administrators in determining rent  subsidies—for fiscal years 2000 and 2003. HUD paid an estimated $1.4  billion in gross improper subsidies in fiscal year 2003 as a result of such  errors. This amount represents a decrease of 39 percent since fiscal year  2000. HUD officials stated that this decline cannot be attributed entirely to  RHIIP because many of the activities under the RHIIP initiative were in  their early stages of implementation in 2003. However, HUD officials  indicated that their communications with program administrators about  the importance of addressing improper payments probably led to voluntary  compliance with HUD’s policies for determining rent subsidies and likely  contributed to the reduction in improper payments. HUD reported that the  department paid an estimated $191 million in fiscal year 2003 in gross  improper rent subsidies due to unreported tenant income—an 80 percent  reduction compared with fiscal year 2000. However, our analysis indicates  that this figure is not reliable because of the small sample size it was based  on and because meaningful comparisons between the 2000 and 2003  estimates cannot be made owing to differences in the methodologies used  to calculate them. Finally, HUD does not have a complete and reliable  estimate of billing errors for either fiscal year 2000 or 2003.
subsections: section_title: HUD Has Attempted to Estimate the Improper Subsidies Caused by Each Identified Source of Error
paragraphs: HUD has identified three basic sources of errors that have resulted in  improper rent subsidy payments: (1) program administrator errors, (2)  unreported tenant income, and (3) billing errors. HUD conducted separate  studies of each type of error to assess the magnitude of the problem and  the progress that has been made in reducing them.
subsections: section_title: HUD Identified Three Basic Sources of Errors That Cause Improper Subsidies
paragraphs: HUD identified three basic sources of errors that resulted in improper rent  subsidy payments. Program administrator errors are the broadest because,  as figure 2 shows, this type of error can affect nearly all the critical  dimensions of the process for determining rent subsidies. Program  administrators are responsible for collecting information on household  income, expenses, and composition to determine tenants’ eligibility to  receive housing assistance and the size of the subsidies. In performing their  work, program administrators may incorrectly determine rent subsidies by,  for example, making calculation and transcription errors or misapplying  allowed income exclusions and deductions required by HUD policies.
Errors that result from unreported tenant income occur when tenants do  not report an income source (either for themselves or another household  member) to program administrators. According to HUD, these errors do  not include cases in which the tenants reported all sources of income but  not the correct amounts. HUD classifies these discrepancies as program  administrator errors because program administrators are required to verify  tenants’ income amounts through third parties, such as employers and  public assistance agencies. Unreported income errors generally occur early  in the process for determining rent subsidies, when the tenant first submits  income information to program administrators (fig. 2). Although some  tenants may not disclose all income sources in order to qualify for  assistance and to increase the rent subsidies they receive, tenants may also  fail to report income sources unintentionally if program administrators  provide unclear instructions.
Finally, billing errors occur at the very end of the process for determining  rent subsidies (fig. 2). The procedures used by program administrators to  bill HUD for subsidy payments vary for each of the three rental assistance  programs, and as a result the specific types of mistakes that lead to billing  errors can also vary. However, in general, billing errors arise when  discrepancies exist between the amount of a rent subsidy determined by  the program administrator and the amount that is actually billed to and  paid by HUD. Billing errors can also include accounting discrepancies  between amounts paid by HUD and a property’s bank statements and  accounting records.
section_title: Estimating Improper Rent Subsidies Resulting from Each Source of Error Is an Important Effort under RHIIP
paragraphs: As part of its error measurement effort under RHIIP, HUD planned to  estimate improper rent subsidies attributable to each source of error.  According to HUD, this effort was to allow the department to assess the  magnitude of improper rent subsidies and the progress made in meeting  RHIIP’s goal of reducing improper subsidies. To develop these estimates,  HUD conducted separate studies on improper rent subsidies attributable to  each source of error for fiscal years 2000 and 2003. (Information on the  methodology and reliability of these studies is discussed later in this  chapter.) About two years after HUD began estimating improper rent  subsidies, Congress passed the Improper Payments Information Act of  2002, which mandated that federal agencies submit annual estimates of  improper payments for at-risk programs. According to HUD, the  department plans to continue updating its estimates in subsequent years in  order to comply with the requirements of the act. HUD has reported its  estimates in its annual audited financial statements and performance and  accountability reports.
There are a number of ways to describe the size and magnitude of improper  rent subsidies. One way is simply the dollar difference between the actual  rent subsidy HUD paid and the “correct” rent subsidy—that is, the amount  of subsidy that would have been paid on behalf of the tenant if no errors  had occurred. The dollar amount erroneously paid can be either positive or  negative because errors can reflect subsidy overpayments or  underpayments. The gross dollar error or gross improper payment  reflects the sum of the absolute value of the subsidy overpayments and  underpayments—that is, the total of all erroneously paid funds. Office of  Management and Budget guidance recommends using the gross improper  payment measure to indicate the overall accuracy of the income and rent  determination process. A second indicator, net dollar error or net  improper payment, takes into account whether the difference between the  actual and correct rent subsidy amounts is positive or negative. This  measure is a useful way of expressing the impact of errors on actual  program expenditures because it accounts for the offsetting effect of  subsidy over- and underpayments.
section_title: Estimates of Improper Subsidies Due to Errors by Program Administrators Appear Reasonably Accurate and Show a Decline
paragraphs: To assess the accuracy of subsidy determinations made by program  administrators, HUD collected data for fiscal years 2000 and 2003. HUD  paid an estimated $1.4 billion in gross improper rent subsidies (consisting  of an estimated $896 million in overpayments and $519 million in  underpayments) as a result of such errors in fiscal year 2003. This amount  represents a 39 percent reduction compared with fiscal year 2000. The  voucher program accounted for about half of the fiscal year 2003 errors,  and the public housing and project-based Section 8 programs each  accounted for about a quarter. Between fiscal years 2000 and 2003, each of  the rental assistance programs experienced substantial decreases in  program administrator errors—50 percent for public housing and more  than 30 percent for both vouchers and project-based Section 8. Despite  these reductions, the data show an estimated $377 million net subsidy  overpayment in fiscal year 2003 that reduced the amount of funds available  to assist other families with housing needs. We estimate that HUD could  have provided vouchers to 56,000 additional households in fiscal year 2003  with this amount.
subsections: section_title: HUD Conducted a Study to Estimate Program Administrator Errors
paragraphs: As part of its Quality Control for Rental Assistance Subsidies  Determinations study for fiscal year 2000, HUD collected data on the  subsidy determinations made by program administrators. HUD  subsequently repeated the study, using data for fiscal year 2003. Each study  collected data on over 2,400 randomly selected households participating in  the voucher, public housing, and project-based Section 8 programs. The  methodology involved reviewing tenant files, interviewing a sample of  tenants to gather income information, verifying all sources of reported  income, and recalculating rents and subsidies. HUD estimated the subsidy  errors by identifying the sum of the discrepancies between the actual rent  subsidies calculated by program administrators and the amounts  calculated by the quality control study staff. The results were projected to  the entire population of assisted households to develop a national estimate  of total improper rent subsidies. Our analysis of the documentation and the  data collected indicates that these studies provide a reasonably accurate  estimate of subsidy determination errors made by program administrators.
section_title: Estimated Errors by Program Administrators Declined by 39 Percent between Fiscal Years 2000 and 2003
paragraphs: Our analysis of data that HUD gathered for its quality control study  indicates that HUD made an estimated $1.4 billion in gross improper rent  subsidies in fiscal year 2003 as a result of errors made by program  administrators—about 39 percent less than the estimated $2.3 billion in  fiscal year 2000. The voucher program accounted for the largest share of  this amount—about 52 percent, or $731 million. Public housing and project- based Section 8 accounted for 22 percent ($316 million) and 26 percent  ($369 million), respectively. Appendix I contains more detailed information  on the amount of improper rent subsidies presented in this chapter.
Each of the rental assistance programs experienced substantial reductions  in gross program administrator error—50 percent for public housing, 35  percent for vouchers, and 32 percent for project-based Section 8 (fig. 3).  These reductions exceeded HUD’s interim RHIIP goal of reducing improper  rent subsidies resulting from these errors by 15 percent by fiscal year 2003.  According to HUD, the reductions in gross improper subsidies cannot be  attributed entirely to RHIIP. Many of the initiatives under RHIIP, such as the  RIM reviews and the income verification system, were too early in their  implementation to have had any direct impact on the reductions. However,  HUD officials stated that its communications with program administrators  about the importance of addressing improper rent subsidies and program  administrators’ anticipation of increased monitoring by HUD probably led  to voluntary improvements in internal control activities (such as increased  supervisory reviews, testing of files, and staff training) and likely  contributed to these reductions. In addition, some PHAs we interviewed  had already begun improving their controls before RHIIP was established.  Estimates of improper subsidies in future years may show whether further  reductions can be made and sustained as the RHIIP initiative matures.
Overall, we estimate that the median gross subsidy error per household  was about $33 per month ($396 annually) for all the rental assistance  programs (fig. 4). In addition to having the highest total gross rent subsidy  error in fiscal year 2003, the voucher program had the highest median gross  subsidy error per household, about $41 per month. The comparable figures  for project-based Section 8 and public housing were $27 and $29 per  month, respectively.
The median dollar error per household for all the rental assistance  programs decreased by about 18 percent, or $7, between fiscal years 2000  and 2003. The median dollar error per household for vouchers and public  housing decreased by 27 percent and 24 percent, respectively, over that  time period. Although the median for project-based Section 8 did not  change, suggesting no improvement, the program experienced significant  decreases in gross subsidy error for households that had the largest error in  fiscal year 2000.
section_title: Estimated Improper Subsidies Due to Program Administrator Errors Remain Significant
paragraphs: Because of program administrator errors, HUD paid an estimated $377  million in net subsidy overpayments in fiscal year 2003, reducing the  amount of funds that were available to assist additional households with  housing needs. This amount reflects the difference between $896 million in  estimated subsidy overpayments and $519 million in estimated subsidy  underpayments (fig. 5). Total estimated subsidy overpayments have  decreased by 64 percent since fiscal year 2000.
As discussed earlier, calculating net improper rent subsidies permits  estimates of the errors’ impact on actual program expenditures because the  calculation accounts for the offsetting effects of estimated subsidy over-  and underpayments. Because the overpayments exceeded the  underpayments in fiscal year 2003, HUD was not able to use an estimated  $377 million of its funding to assist needy low-income households. We  evaluated the impact of the estimate on the number of households that  could have been served if this amount had been available to subsidize  eligible households with new vouchers. Based on the average national  subsidy cost of subsidizing a voucher—about $6,720 annually, including  administrative costs—we determined that HUD could have provided an  additional 56,000 households nationwide with vouchers in fiscal year  2003—nearly the same number of households that are currently assisted  with vouchers in the Los Angeles, California, area.
section_title: Fiscal Year 2003 Estimate of Improper Subsidies Due to Unreported Tenant Income Is Not Reliable
paragraphs: HUD has developed a methodology to estimate the amount of rent  subsidies the department has paid improperly due to tenants who did not  report all sources of earned income to program administrators. Based on  this methodology, HUD estimated that the department paid $191 million in  fiscal year 2003 in gross improper rent subsidies due to unreported tenant  income, but our analysis found that this figure was not reliable because of  the small number of tenant files with unreported income that were used to  make the estimate. In addition, significant differences in the methodology  used to calculate the fiscal year 2000 and 2003 estimates means that any  comparison between the estimates would be invalid. Finally, HUD’s  methodology does not capture other potential types of unreported income,  a limitation that would be difficult to overcome.
subsections: section_title: Estimates of Fiscal Year 2000 and 2003 Subsidy Errors from Unreported Tenant Income Are Not Comparable
paragraphs: HUD developed a methodology to estimate the amounts of rent subsidies  the department paid improperly in fiscal years 2000 and 2003 because  tenants did not report all sources of earned income to program  administrators. HUD’s methodology identified unreported income sources  by comparing the information reported by tenants in the quality control  study database with the information reported by employers in federal wage  and income databases. HUD first identified households that appeared not  to have reported an income source and then took various steps to screen  out “false positives” resulting from definitional and timing differences. For  example, HUD program staff eliminated those cases involving unreported  income sources, such as income from minors or training programs, that  should be excluded from family income under HUD’s policies. HUD also  eliminated cases if third-party verification showed that the income fell  outside the period covered by the program administrator’s most recent  income examination.
However, the methodologies used for fiscal years 2000 and 2003 have two  significant differences, and as a result any comparison between the two  estimates would not be valid. First, according to HUD, individuals who  conducted the study for fiscal year 2003 did substantially more follow-up  work to reconcile discrepancies in income sources than those conducting  the study for fiscal year 2000. As a result, the fiscal year 2000 estimate  probably included more “false positives” and overstated the amount of  improper rent subsidies HUD paid. Second, HUD officials stated that the  staff used to conduct the study for fiscal year 2000 had less experience with  housing programs than the staff used for the later study. The officials said  that, as a result, the staff from the earlier study may not have known  enough about HUD’s program policies to reliably determine whether  tenants had or had not reported all of their income sources.
section_title: Fiscal Year 2003 Dollar Estimate Is Not Reliable
paragraphs: While HUD’s Performance and Accountability Report for Fiscal Year 2004  states that the department paid an estimated $191 million in fiscal year 2003  in gross improper rent subsidies due to unreported tenant income, this  figure is not reliable because the number of tenant files with unreported  income that were used to make the estimate was small. Specifically, HUD  identified 30 tenant files, or 1.2 percent of the 2,401 tenant files in the  sample, with at least one unreported income source. HUD officials agreed  that because of the small number of files used for the estimate and the large  variances in the amounts of income that tenants did not report, the margin  of error was so large that the estimate was not meaningful—that is, the  actual amount of improper rent subsidies for this source of error could  have been as low as zero or many times higher than HUD’s estimate. HUD  officials stated that, even though the estimate may not be meaningful, the  low incidence of tenants who did not report all sources of income could  indicate that unreported income sources may not be a major problem.  However, they also recognized that the low incidence is somewhat  counterintuitive, given that tenants have an incentive to conceal income  from program administrators, and it is possible that the methodology may  not be adequately capturing the full extent of this problem. HUD indicated  that to obtain a more precise estimate of dollar error would require a  considerably larger sample, but that doing so would be difficult and costly.
HUD also stated in its Performance and Accountability Report for Fiscal  Year 2004 that gross improper rent subsidies from unreported income  decreased by 80 percent from fiscal year 2000 to 2003. HUD recognized in  the report that the apparently significant reduction was partly due to  improvements in its methodology. However, as discussed previously, any  comparison between the two estimates is not valid because of the  limitations of the fiscal year 2003 estimate and the significant differences in  the methodologies used for the two years.
section_title: HUD’s Methodology Does Not Account for Possible Fraud but Addressing This Limitation Would Be Difficult
paragraphs: Neither of HUD’s fiscal year 2000 and 2003 estimates of improper rent  subsidies from unreported tenant income accounts for the different types  of problems that may exist with unreported tenant income, but overcoming  this limitation would be difficult. According to HUD, because the study’s  scope was limited to identifying sources of income that tenants did not  report, the study did not evaluate differences in the amount of income  reported by a tenant’s employer (and entered in the quality control study  database) and the amount reported in the new hires database. As a result,  HUD could not account for those tenants who may have colluded with their  employers to underreport their income to program administrators. Some  program administrators we interviewed stated that they believe such  collusion may be a problem, but no systematic data are available to confirm  how widespread it might be. In addition, HUD’s methodology does not  account for cash income that tenants received but failed to report to  program administrators. Some program administrators we met with said  unreported cash income could be widespread but that data are not  available to confirm the extent of the problem. Although collusion and  unreported cash income are potentially significant problems, it is not likely  that there is any satisfactory way of quantifying their extent. Furthermore,  HUD officials do not believe that there is an effective way of accounting for  these problems in its methodology.
section_title: HUD’s Estimate of Improper Subsidies Due to Billing Errors Is Incomplete
paragraphs: HUD did not produce complete and reliable estimates of the amount of  billing errors in fiscal years 2000 and 2003 for the voucher, public housing,  or project-based Section 8 programs. HUD attempted to estimate fiscal  year 2000 billing errors for the voucher program and initially found about  $1.5 billion in improper rent subsidies. However, after reviewing the  results, HUD managers questioned both the study’s validity and whether  staff involved in the study had sufficient knowledge of program policies  and accounting practices that pertain to the billing process. As a result,  HUD sent program experts to conduct additional fieldwork to confirm the  estimate. The experts reexamined approximately $1.2 billion of the total  $1.5 billion in estimated billing errors, found that the estimate was  unsupportable, and reduced it by over 80 percent. Given the questionable  and incomplete nature of the original billing error study for vouchers, HUD  determined that the results were inconclusive and unacceptable as a  baseline error estimate. For the public housing program, HUD did not  attempt to estimate billing errors. HUD has begun to develop and  implement a methodology to establish a statistically valid baseline of billing  errors for fiscal year 2003 for vouchers and public housing. According to  HUD, this effort will be completed by September 2005.
For project-based Section 8, HUD estimated that approximately $100  million in gross improper rent subsidies were paid as a result of erroneous  amounts billed to HUD and disbursed to private property owners in fiscal  year 2003. This estimate was based on a small sample of 150 properties, and  the concentration of errors in a small number of properties resulted in a  large margin of error. However, according to HUD, the estimated amount of  improper payments due to billing errors is relatively modest even at the  high end of the error range. In its Performance and Accountability Report  for Fiscal Year 2004, HUD acknowledged that it would need a sample six  times larger to obtain normally accepted levels of estimation accuracy.
section_title: Agency Comments and Our Evaluation
paragraphs: In addition to providing technical comments that we incorporated where  appropriate, HUD stated that our draft report did not fully present the  impact of HUD’s efforts under RHIIP. For example, HUD stated that the  draft report did not recognize the department’s outreach, guidance, and  training efforts as contributing factors to the reduction in estimated  improper payments. The draft report discussed HUD’s efforts under RHIIP,  including guidance, training, and various outreach activities. The draft  report also reflected the comments of HUD officials that program  administrators’ anticipation of increased oversight and monitoring by HUD  probably led to voluntary improvements in their performance. We added  language to the final report to incorporate HUD’s view that these efforts  contributed to the reduction. While we believe that HUD’s view is  reasonable, the specific extent to which these efforts contributed to the  reduction in estimated improper payments is not known.
HUD disagreed with the draft report’s finding that the department has  complete and reliable estimates only for one source of error. In particular,  HUD described as “misleading” our statement that its fiscal year 2003  estimates of improper rent subsidies attributable to unreported tenant  income and billing errors were unreliable because they were based on  samples too small to produce accurate results, and questioned the need to  measure these errors more precisely. HUD also said that the estimated  “incidence of cases” where a tenant household did not report at least one  source of income was 1.2 percent and that there was a 95 percent  likelihood that the true incidence of such cases was between 0.1 and 2  percent. We do not believe that our draft report—which focused on the  estimated dollar amount of improper payments due to unreported income  rather than the estimated number of households with unreported income— was misleading. As the report stated, the margins of error for HUD’s  estimates of the dollar amount of improper payments were many times  larger than the estimates themselves. Furthermore, HUD itself  acknowledged in its comment letter that a much larger sample would be  necessary to make a more precise dollar estimate. Accordingly, we made  no changes to this finding. The draft report did not intend to criticize HUD’s  sampling methodology or suggest that HUD attempt to make more precise  estimates, which, as HUD indicated, could be difficult and costly. In  addition, the report recognized that the problems with the reliability of the  estimates were due partly to the small number of households with  unreported income in HUD’s samples. We revised the report language  where appropriate to further clarify this point.
section_title: HUD Is Addressing Improper Payments for Public Housing and Vouchers, but Implementation Problems Hampered Efforts
paragraphs: The Department of Housing and Urban Development (HUD) has made  several program-level efforts under the Rental Housing Integrity  Improvement Project (RHIIP) initiative to address improper rent subsidies  for its public housing and voucher programs. However, several factors  hampered HUD’s implementation of these efforts. First, HUD instituted on- site Rental Integrity Monitoring (RIM) reviews to assess public housing  agencies’ (PHA) compliance with HUD’s policies for determining rent  subsidies, but these reviews, which are not a regular part of HUD’s PHA  oversight activities, were poorly implemented due to, among other things, a  lack of clear policies and procedures. Second, HUD began implementing a  new Web-based tenant income verification system, which is expected to  significantly reduce tenant underreporting of income despite having some  limitations. Finally, the training and guidance HUD provided to PHAs on its  policies for determining rent subsidies were not consistently adequate or  timely.
As shown in table 1, each of these efforts attempts to address sources of  errors discussed in chapter 2 (i.e., program administrator, unreported  tenant income, and billing error) that contribute to improper rent subsidies  in the voucher and public housing programs. However, none of these  efforts directly addresses billing errors. As noted previously, HUD does not  have complete and reliable information on the extent to which billing  errors are a problem for these two programs.
subsections: section_title: HUD Supplemented Monitoring of PHAs with On-site Reviews but Had Problems Implementing Them
paragraphs: According to HUD officials, RIM reviews are the first comprehensive  reviews of PHAs’ tenant information files in more than 20 years. However,  inadequate staff resources and competing work demands kept some HUD  field offices from issuing reports in a timely manner or completing all of  their other PHA oversight responsibilities. These and other factors have  prevented HUD from determining the impact of its RIM review effort.  Recognizing the importance of regular monitoring of PHAs, HUD is  considering implementing some type of on-site monitoring of PHAs’  subsidy determinations on a permanent basis.
subsections: section_title: HUD Implemented RIM Reviews Under RHIIP to Address Monitoring Weaknesses
paragraphs: To address weaknesses in monitoring and help reduce PHA errors in rent  subsidy calculations, in June 2002 HUD field office staff began conducting  RIM reviews as part of the RHIIP initiative. RIM reviews are on-site  evaluations of PHA procedures for collecting and verifying income  information from tenants and for calculating subsidies. HUD’s Rental  Integrity Monitoring Guide (RIM Guide)—the department’s manual for  conducting RIM reviews—instructs field office staff to (1) review a sample  of tenant files and recalculate the tenant’s rent subsidy, based on  information in the tenant file, to identify any subsidy miscalculations made  by the PHA and (2) assess the PHA’s written policies and procedures to  determine the underlying causes of these miscalculations. According to the  RIM Guide, the field offices are required to report their overall findings— for example, violations of HUD policies, such as misapplied deductions and  lack of third-party verification of tenant income—in writing to PHAs, along  with a list of specific subsidy calculation errors they identified. The field  offices must also track PHAs’ progress in addressing findings and  correcting errors and provide technical assistance to PHAs, as needed. If a  PHA fails to implement corrective actions or rectify errors found during a  RIM review, HUD can sanction the PHA by withholding the voucher  administrative fee or the public housing operating subsidy. HUD requires  that the written report be sent to the PHA within 30 to 45 days of the end of the review. HUD field office staff completed 722 RIM reviews— the first of two rounds of reviews—between June 2002 and September 2003  (fig. 6).
In April 2003, HUD began conducting a second round of RIM reviews at  selected PHAs to confirm whether (1) the calculation errors identified  during the first round of RIM reviews had been corrected, (2) those PHAs  that were required to implement corrective action plans to address findings  from previous RIM reviews had done so, and (3) the implementation of  corrective action plans led to a reduction in subsidy calculation errors.  From April 2003 through October 2004, HUD field offices conducted  second-round RIM reviews at 363 PHAs (fig. 6).
According to HUD and officials at several PHAs we met with, HUD did not  routinely oversee subsidy determinations for public housing and voucher  programs at PHAs before the RIM reviews began in 2002. According to  HUD, prior to 1980 the department reviewed, among other things, PHAs’  management of their properties and their compliance with HUD policies  and procedures. These reviews included an assessment of PHAs’ subsidy  determinations but not at the same level of detail as RIM reviews. Starting  in the early 1980s and continuing through the 1990s, HUD did little to  oversee the subsidy determination process at PHAs and instead focused its  resources primarily on assessing the PHAs’ physical and financial  condition.
Starting in 1998, HUD increased its oversight of the voucher and public  housing programs by creating two management and performance  assessment systems. The Public Housing Assessment System (PHAS)  evaluates four aspects of PHAs’ operations—physical condition, financial  condition, management operations, and resident satisfaction—but does not  include an indicator for subsidy determinations. In contrast, the Section 8  Management Assessment Program (SEMAP) includes an indicator that  requires PHAs that administer voucher programs to self-certify to HUD  annually that they have correctly determined each household’s adjusted  annual income—the basis for calculating rent subsidies. However,  according to HUD, the limited scope of the reviews (SEMAP confirmatory  reviews) field offices perform does not adequately ensure that PHAs’ self- certifications are accurate. In most cases, the sample used to confirm a  PHA’s self-certification with SEMAP requirements is smaller than the  sample reviewed as part of a RIM review. In addition, while PHAs selected for SEMAP confirmatory reviews are generally limited to those that are  moving into or out of “troubled” status, RIM reviews cover a broader range  of PHAs.
section_title: Resource, Policy, and Compliance Problems at Field Offices Hampered RIM Reviews
paragraphs: Inadequate resources and noncompliance with review policies and  procedures affected field offices’ efforts to implement RIM reviews. We  examined 31 RIM review reports for 13 of the largest PHAs and HUD’s  quality assurance reviews—evaluations of the field offices’ RIM reviews— of eight field offices. Our examination showed that limited resources and  lack of clear and timely guidance from HUD headquarters contributed to  inconsistencies in the way field offices interpreted the department’s  policies and conducted RIM reviews.
subsections: section_title: Some Field Offices Had Difficulty Conducting RIM Reviews Because of Staff Limitations
paragraphs: Officials from most of the HUD field offices we met with said that they did  not have enough staff to conduct all of their first-round RIM reviews within  the 5- to 7- month period established by HUD and still fulfill their other  oversight responsibilities. Also, several HUD quality assurance reports  showed that field offices had limited staff to perform the reviews. As a  result of these resource constraints, some field offices had to use staff with  little or no experience in monitoring PHAs to perform RIM reviews, issue  their RIM review reports late, and postpone other monitoring activities  such as inspections of troubled properties.
The number of staff assigned to RIM reviews and the number of reviews  per staff member varied among the seven field offices we contacted. For  example, we found that the number of first-round RIM reviews per staff  member ranged from 0.8 in New York City to 3.5 in San Francisco (table 2).  The average figure for all seven field offices was two RIM reviews per staff  person. Notwithstanding other factors—such as the size of the PHA  reviewed—that might have affected the ability of field offices to meet RIM  review timing requirements, we found that those field offices with a low  ratio of staff to reviews were likely to issue their reports after the 30- to 45- day deadline.
Recognizing that some field offices were having difficulty completing their  RIM reviews within the 5- to 7-month time frame, HUD alleviated the  burden at some of the field offices by assigning contractors or staff from  other field offices to complete or assist with second-round reviews. For  example, according to HUD, contractors completed 60 percent of the  second-round RIM reviews assigned to the San Francisco field office. In  addition, HUD relieved field offices of certain other oversight  responsibilities to give them time to complete the RIM reviews within the  required time frame. For example, HUD reduced the number of SEMAP  confirmatory reviews field offices had to complete and allowed them to  combine RIM and SEMAP reviews at larger PHAs.
section_title: HUD Did Not Always Provide or Clarify Policies in a Timely Manner
paragraphs: HUD did not provide clear, timely policies for RIM reviews. In some cases,  the lack of clear and timely policies resulted in inconsistencies in the way  field offices interpreted the department’s policies and conducted RIM  reviews. The following are some examples of these inconsistencies:   HUD did not clarify whether its policy on the use of outdated tenant  income information applied to data obtained through HUD’s income  verification system. The RIM Guide states that PHAs should not use  documentation that is more than 90 to 120 days old to verify tenant- reported incomes. HUD policy also requires that PHAs use data from  HUD’s income verification system if they have access to it. However, in  conducting RIM reviews, some HUD field offices cited PHAs for not  using data from this system, even though the PHAs had determined that  the data were more than 120 days old.
HUD changed its definition of a “systemic finding” while the RIM  reviews were under way. Although HUD had initially defined a systemic  finding as an error (such as a misapplied deduction) that represented 30  percent or more of the total errors identified at one PHA, the  department later redefined the term to mean violations of policy that  were made “consistently,” leaving the interpretation of “consistently” up  to the field offices. Based on the RIM review reports we examined, we  found that field offices had different interpretations. For example, one  field office interpreted “consistent” as errors found in 15 percent or  more of the files, while another field office interpreted it as errors found  in 30 percent or more of the files.
As of December 2004, HUD had not developed a policy on the extent to  which PHAs should correct the calculation errors found in their tenant  files. As a result, the field offices we spoke with had varying  requirements, with resulting variations in the amounts of time and  resources PHAs expended to address the errors. For example,  according to the PHAs we spoke with, some field offices required that  PHAs review and correct all of their tenant files for errors—in one case  17,000 files—while others required PHAs to correct only the files that  HUD examined during the RIM reviews.
HUD did not issue a policy on how to address PHAs’ disagreements with  RIM review findings until May 2004, over 8 months after completing the  first round of reviews and 13 months after the field offices began  conducting the second round of reviews. Prior to the release of this  policy, the field offices had each handled PHAs’ disagreements  differently.
section_title: Field Offices Did Not Always Follow Policies and Procedures for Conducting RIM Reviews and Communicating Findings
paragraphs: Our review of 31 RIM review reports completed by seven of HUD’s field  offices showed that the field offices did not consistently follow policies and  procedures when conducting RIM reviews, analyzing the results of those  reviews, and communicating the results of the reviews to PHAs.  Specifically, we found that these field offices, contrary to HUD guidance,  did not consistently provide appropriate support for each observation and  finding—for example, by describing the problem, the reason for it, and its  impact. Similarly, HUD’s quality assurance reviews of field offices’ RIM  reviews revealed that several offices either had not supported their report  findings or had failed to provide written reports to the PHAs.
The RIM review reports we reviewed also did not demonstrate that the field  offices we visited had a clear understanding of the difference between  observations and findings. HUD had defined observations as deficiencies in  performance that were not based on a regulatory or statutory requirement  but that should be brought to the attention of the PHA. HUD defined  findings as conditions that were not in compliance with handbook,  regulatory, or statutory requirements. Fifteen of the 31 RIM review reports  we reviewed mischaracterized one or more “findings” as “observations” or  vice versa. Properly classifying findings and observations is important  because HUD policy requires PHAs to implement comprehensive  corrective actions for findings but not for observations.
Finally, HUD’s RIM Guide stipulated that the field offices must provide a  written report to the PHA no more than 30 days after the RIM review  ended, but 18 of the 31 RIM review reports we reviewed were not released within the 30-day time frame. One PHA told us that it did not receive a  report until 5 months after the completion of the RIM review and then only  after PHA officials called HUD to request it.
section_title: HUD Could Not Analyze RIM Data Because It Was Incomplete and Inconsistent
paragraphs: Incomplete and inconsistent data kept HUD from analyzing the results of  RIM reviews to assess improvements in PHAs’ calculations of tenant  subsidies and provide targeted oversight and technical assistance to PHAs  to help them address specific errors. When the RIM reviews started in 2002,  the department designed a database to collect information on the results of  the RIM reviews, including the total amount of subsidy overpayments and  underpayments, as well as the efforts PHAs had made to improve policies  and procedures. According to HUD guidance, field offices must submit a  report on subsidy calculation errors and systemic findings for each PHA to  HUD headquarters within 30 days of receiving the PHA’s response to the  RIM review report. However, as of November 2004, HUD had not entered  data in many of the fields in the database. HUD officials attributed this  problem to field offices that did not submit the data in a timely manner and  to a lack of personnel to manage data collection and entry tasks.
Even if the database were complete, HUD would not be able to perform a  meaningful analysis of the RIM review data for most PHAs because of the  changes it made to the criteria for selecting PHAs and tenant files. Because  of these changes, HUD does not have comparable first- and second-round  RIM review data for about 70 percent of the PHAs that it reviewed. Figure 7  shows the specific reasons why the data for PHAs were not comparable for  the two rounds.
section_title: HUD Has Not Made RIM Reviews Permanent
paragraphs: HUD is considering conducting additional rounds of RIM reviews sometime  in 2005 but has not made any decisions on how it will determine which  PHAs should be reviewed and how often these reviews should be  conducted. Currently, RIM reviews are not a regular part of HUD’s PHA  oversight activities. HUD had initially intended to review each PHA one or  two times to identify weaknesses in their policies and procedures for  making subsidy determinations. According to HUD officials, they had not  planned to implement routine monitoring of PHAs’ subsidy determination  processes. However, HUD officials said that, based on the results of the  RIM reviews, they recognize that routine monitoring of PHAs may be  necessary to mitigate the risk of improper rent subsidies in the future. As a  result, the department is now considering making permanent some type of  on-site monitoring of PHAs’ subsidy determinations. For example, HUD  officials said that they are considering incorporating RIM reviews into the  existing performance measurement systems or conducting reviews at high- risk PHAs every 2 or 3 years. However, according to these officials, budget  and staff resources will ultimately determine the extent to which the  department is able to monitor PHAs in the future.
section_title: HUD’s New System for Verifying Tenants’ Incomes Has Limitations
paragraphs: To address tenant underreporting of income, HUD has implemented a new  Internet-based income verification system that allows PHAs to compare  income information they receive from tenants with income information  employers report to government agencies. According to HUD officials, the  system is intended not only to help PHAs detect unreported incomes but  also to provide them with a more convenient and accurate way to verify  tenant-reported information. HUD estimates that the system will yield  savings of approximately $6 billion over a 10-year period for all of its rental  assistance programs. Currently, the data in the system, which HUD  obtained through agreements with state wage and income collection  agencies, are available to 2,366 PHAs in 22 states. HUD continues to work  to provide access for the PHAs in the remaining 28 states. To increase the  effectiveness and efficiency of its income verification effort, HUD intends  to replace the data from the individual state agencies with similar data from  a single source, the National Directory of New Hires—a database  containing quarterly federal and state wage data, quarterly unemployment  data, and monthly new hire data reported by employers to state agencies  and compiled by the Department of Health and Human Services. Congress  passed legislation in January 2004 that grants HUD the authority to request  and obtain data from this directory. In addition, HUD officials told us that  Social Security income information, which PHAs currently access through  an existing system, will eventually be accessible through this new system.
According to HUD, regardless of the data source used, the income  verification system does not capture unreported cash income and certain  types of wages that may not be required to be reported to state agencies. In  addition, income from unauthorized tenants (i.e., tenants who are not on  the lease but who live in the apartment and help pay the rent) is not  captured. However, some PHAs have developed ways to capture these  types of income and recover improper subsidy payments. For example,  several PHAs we spoke with have fraud detection units, and several have  partnered with state and local agencies, including departments of labor and  human services, to obtain welfare and other wage information.
Although officials of most of the 14 PHAs we contacted said that they  welcomed new tools such as the income verification system that would  help them verify tenant incomes and more accurately determine tenant  subsidies, several also expressed concerns that the wage and income data  were too old to verify tenant income. HUD policy states that data used to  verify income must be no more than 120 days old (or about 4 months) on  the date of the tenant’s certification or recertification of eligibility. HUD  estimates that the income verification data are approximately 3 months  old. However, due to large caseloads—sometimes as many as 750 tenants  per caseworker—the PHAs generally begin collecting tenant income  information 3 to 4 months prior to conducting an annual meeting to  recertify the tenant’s eligibility for housing assistance and recalculate the  rent subsidy amount. As a result, verification data can be up to 6 months  old on the date of recertification. HUD officials told us that they are aware  of this problem and are working with the Department of Health and Human  Services to improve the timeliness of the data in the National Directory of  New Hires.
section_title: HUD’s Training and Guidance for PHAs Was Not Always Adequate or Timely
paragraphs: HUD provided training and guidance to PHAs on topics such as how to  calculate subsidies, improve quality control procedures, and comply with  third-party income verification requirements, but these efforts were not  always adequate or timely. For example, although HUD sponsored training  for PHAs in January and February of 2004 in order to prepare PHAs for RIM  reviews, the training took place after all of the first-round RIM reviews and  54 (15 percent) of the second-round RIM reviews had been completed (fig.  8). This training addressed program basics, including how to interview  prospective tenants, verify tenant income information, and calculate rents.  It also provided guidance to PHAs on developing policies and procedures  that would prevent future subsidy calculation errors. According to some  PHAs, had the training been held prior to the RIM reviews, they would have  been better able to understand the basis for the RIM review findings and  the corrective actions needed to address them. In addition, all of the 14  PHAs we spoke with said that they had sent a limited number of staff to the  training because, for example, HUD had held only two training sessions— one in California and one in Florida. Some PHAs said that they did not have  sufficient travel funds to send their staff to these locations.
In addition to training, HUD provided technical assistance through a  contractor to PHAs that were deemed high risk on the basis of their  performance in the first round of RIM reviews. According to a HUD official,  10 PHAs received technical assistance from the contractor between  October 2002 and April 2004. The technical assistance focused on areas  such as organizing tenant files, verifying tenant incomes, and calculating  rent subsidies.
Finally, HUD updated or developed guidance for PHAs on how to correctly  calculate rent subsidies and reduce errors. However, some of this guidance  was released late in the RIM review process, contradicted other guidance,  or did not provide enough information. For example, HUD did not revise its  public housing guidebook—PHAs’ basic program reference—to reflect  changes in program regulations until June 2003, a year after the RIM  reviews began. In addition, HUD did not reconcile minor discrepancies  between the voucher and public housing guidebooks on acceptable forms  of third-party income verification until it issued detailed instructions on  HUD’s income verification policies in March 2004.
section_title: Conclusion
paragraphs: Until recently, HUD did little oversight of PHA’s subsidy determinations for  the voucher and public housing programs. Although introducing SEMAP  and PHAS in the late 1990s allowed HUD to better oversee PHAs’  performance, SEMAP provides only limited monitoring of PHAs’  compliance with HUD’s policies for determining rent subsidies, and PHAS  provides none at all. HUD began implementing RIM reviews in 2002 but has  not made the reviews a permanent part of its oversight activities. In the  absence of regular monitoring, HUD cannot determine the extent to which  individual PHAs comply with its policies for determining rent subsidies.  Furthermore, although HUD conducted over 700 RIM reviews, it did not  collect complete or consistent information from these reviews. As a result,  HUD cannot assess PHAs’ performance over time or identify those that  have made errors in determining subsidies and thus may require additional  oversight and technical assistance. Further, the lack of complete and  consistent information on the results of RIM reviews limits HUD’s ability to  identify the factors that contribute the most to improper subsidy  determinations and target its corrective efforts.
section_title: Recommendations for Executive Action
paragraphs: To enhance HUD’s ability to reduce improper subsidies in its public  housing and voucher programs, we recommend that the HUD Secretary  take the following two actions: (1) make regular monitoring of PHAs’  compliance with HUD’s policies for determining rent subsidies a  permanent part of HUD’s oversight activities and (2) collect complete and  consistent information from these monitoring efforts and use it to help  focus corrective actions where needed.
section_title: Agency Comments and Our Evaluation
paragraphs: HUD agreed with our recommendation that the department regularly  monitor PHAs’ compliance with its policies for determining rent subsidies  for the public housing and voucher programs and collect information from  these monitoring efforts. HUD said that it recently updated its RHIIP plan  to address this recommendation. However, in addition to providing  technical comments that we incorporated where appropriate, HUD  commented that the draft report did not adequately recognize the increase  in HUD’s monitoring resulting from the RIM reviews or acknowledge that  the scale of its monitoring efforts depends on the level of budgetary  resources it receives. Specifically, HUD commented that the steady  downsizing of the department’s staffing over the past decade had caused  HUD to rely on remote monitoring systems, risk-based monitoring  practices, and voluntary compliance by third-party program administrators.  Our draft report stated that the RIM reviews represented a significant  increase in HUD’s monitoring of PHAs compared with its efforts over the  previous 20 years. Further, the draft report recognized that budget  resources will ultimately determine the extent to which the department is  able to monitor PHAs.
section_title: HUD Is Improving Oversight of Rent Subsidy Determinations for Project-Based Section 8, but Challenges Remain
paragraphs: The Department of Housing and Urban Development (HUD) has taken  steps to implement Rental Housing Integrity Improvement Project (RHIIP)  efforts for its project-based Section 8 programs but also faces several  challenges. First, HUD has improved its policies and guidance for its  project-based Section 8 programs and trained property owners, contract  administrators, and HUD field office staff on their administrative and  oversight responsibilities. However, a key part of the guidance calling for  contract administrators to collect information on improper rent subsidies  at each property was not widely followed partly because the data collection  effort was not mandatory and duplicated some contract administrators’  existing procedures. Second, to improve verification of tenant income,  HUD has gained access to a national database of employment and wage  information. But HUD will not be able to use the database for its  project-based Section 8 programs until at least fiscal year 2006 because of  data security issues surrounding the disclosure of tenant income  information to private property owners. Finally, to implement RHIIP’s  monitoring effort, HUD plans to rely on performance-based contract  administrators (PBCA) to monitor property owners’ compliance with  HUD’s subsidy determination policies. HUD’s requirements for PBCAs call  for extensive monitoring of the process for determining subsidies, but HUD  may face challenges in ensuring that PBCAs follow these requirements.
As shown in table 3, these efforts collectively attempt to address the  sources of errors discussed in chapter 2 (i.e., program administrator,  unreported tenant income, and billing errors) that contribute to improper  rent subsidies in the project-based Section 8 programs.
subsections: section_title: HUD Has Improved Guidance and Training, but a Key Element of the Guidance Was Not Widely Followed
paragraphs: As part of RHIIP, HUD improved its project-based Section 8 guidance and  training for property owners, contract administrators, and HUD field staff  in order to improve their understanding of HUD’s policies for determining  rent subsidies. Although HUD’s new monitoring guidance called for  contract administrators to collect information on improper rent subsidies  at each property, compliance with this guidance was limited.
subsections: section_title: HUD Provided New Guidance and Training on the Subsidy Determination Process
paragraphs: HUD’s handbook for project-based Section 8 sets forth the requirements  and procedures that property owners must follow in administering these  programs, including determining rent subsides. In May 2003, HUD revised  this handbook to reflect regulatory and policy changes that have occurred  since the last significant revision in 1995. The 2003 revision included  updated information on tenant screening, eviction, and citizenship  requirements, as well as a new method of estimating future medical  expenses. Officials at four PBCAs and five HUD field offices we contacted  generally agreed that the revised handbook represented a significant  improvement over the previous one. To supplement the handbook, HUD  established various resources, such as field office RHIIP coordinators, and  a Web-based “help desk” that allows HUD to respond to questions about  program policies submitted by HUD field office staff, contract  administrators, and property owners. HUD also provided additional  information on proper rent subsidy determinations and the RHIIP initiative.  For example, HUD issued “fact sheets” on the rent determination process  for property owners and tenants, which described tenants’ rights and  responsibilities regarding income disclosure and third-party verification of  income. HUD also issued periodic newsletters that included a description  of the status of the initiative.
In August 2003, HUD issued a new monitoring guide to help contract  administrators improve their oversight of property owners’ subsidy  determinations. HUD intended the guide to provide contract administrators  with a consistent approach for identifying and recording errors in subsidy  determinations during management and occupancy reviews. Management  and occupancy reviews are detailed assessments of a property’s  management, physical and financial condition, and compliance with  program policies and procedures, including policies concerning the  eligibility of tenants and accuracy of subsidy determinations. However, the  new guide was not mandatory, and the contract administrators we  contacted—including PBCAs and HUD field offices—said that they used  the guide to varying degrees. HUD is currently revising its management and  occupancy review policies, which include detailed procedures for  assessing rent subsidy determinations. According to HUD, the revised  policies, unlike the monitoring guide, will be mandatory for contract  administrators. The revised policies are currently under departmental  review, and the date of their implementation is uncertain.
HUD accompanied these efforts with training for property owners,  contract administrators, and HUD field offices on the updated handbook  and new monitoring guide. HUD-sponsored training was primarily targeted  to HUD field office staff and contract administrators and, according to  HUD, nearly 2,000 individuals participated in 45 training sessions on HUD’s  revised program handbook from June through December 2003. In addition,  nearly 700 HUD staff and contract administrator personnel attended a  satellite broadcast session on the revised program handbook and the new  monitoring guide. Reaction to the HUD-sponsored training from the four  PBCAs and five HUD field offices we spoke with was generally positive.  Most of the PBCAs and HUD field offices indicated that HUD had done a  satisfactory job of using training to emphasize the importance of properly  determining rent subsidies.
In addition to HUD-sponsored training, private training organizations,  including professional training companies and housing industry groups,  offered courses on project-based Section 8 program policies. For example,  according to HUD, property owners, contract administrators, and HUD  staff attended sessions on the revised program handbook, which covers  HUD’s policies for determining rent subsidies. HUD officials stated that  sessions on HUD’s program policies occur regularly. On the basis of a  survey of major training organizations, the department estimated that  nearly 10,000 property owners and contract administrators attended such  sessions from June through December 2003.
section_title: Guidance for Collecting Data Was Not Widely Followed
paragraphs: To monitor property owners’ compliance with HUD’s policies, HUD  planned to collect information from contract administrators on the types  and frequency of errors property owners made in determining subsidies. In  the monitoring guide issued in August 2003, HUD recommended that  contract administrators record subsidy errors identified during  management and occupancy reviews and monthly voucher payment  reviews in a uniform “tracking log.” However, for several reasons, the  tracking log was not widely used. First, because the log was part of HUD’s  recommended guidance and, therefore, not mandatory, HUD could not  require contract administrators to use it. Second, according to some PBCA  and HUD officials, some contract administrators found the log duplicative  because they were already collecting much of the information, although  not in a uniform manner. Finally, some HUD and PBCA officials said that  the tracking log was problematic because errors caught during the voucher  review process were generally rectified before property owners were paid  and should not have been recorded on the log as subsidy errors.
As noted previously, HUD is in the process of revising mandatory  procedures for contract administrators to use in identifying and recording  subsidy errors during management and occupancy reviews. According to  HUD, the revised procedures will require contract administrators to collect  uniform information on subsidy errors, as the tracking log was intended to  do. Because these revised procedures apply only to management and  occupancy reviews, they will not cover information on subsidy  errors—including program administrator errors—found during monthly  payment voucher reviews, which PBCAs already track separately.
section_title: HUD Plans to Implement a New Income Verification System but Must First Address Data Security Concerns
paragraphs: HUD plans to implement a Web-based income verification system for  project-based Section 8, a key effort under RHIIP, after it addresses data  security concerns. According to HUD, income verification systems are a  critical component of the department’s efforts to reduce improper subsidy  payments because these systems provide property owners with  information necessary to independently check the accuracy of the incomes  tenants report and identify any income source not reported by the tenant.  As discussed in chapter 3, Congress granted HUD access to the National  Directory of New Hires (new hires) database to verify tenant incomes in its  rental assistance programs, including its project-based Section 8 programs,  and required that HUD demonstrate to the Department of Health and  Human Services that all necessary steps had been taken to prevent the  inappropriate disclosure of information from the database before program  administrators are given access.
To alleviate concerns about releasing sensitive information to private  property owners, HUD will initially make the data available only to public  housing agencies (PHA) and confirm that the system is secure. If the  Department of Health and Human Services is satisfied with HUD’s security  precautions, HUD plans to make the data from the new hires database  available to private owners of project-based Section 8 properties by fiscal  year 2006. Once the system is implemented, property owners will be able to  access earned income data from a secure Web site. In addition, HUD  officials told us that Social Security income information, which property  owners can currently access through an existing system, will eventually be  accessible through the new system.
section_title: HUD Will Rely on PBCAs to Address Its Monitoring Effort under RHIIP
paragraphs: HUD plans to rely on PBCAs to monitor property owners’ compliance with  HUD’s policies for determining rent subsidies. For the past several years,  HUD has been transferring contract administration responsibilities for  project-based Section 8 properties from HUD field offices to the PBCAs  but, due to resource constraints, has had difficulty monitoring the nearly  6,300 properties that are still the responsibility of field office staff.  Although HUD’s requirements for PBCAs call for extensive monitoring of  the subsidy determination process, HUD may face challenges in ensuring  that PBCAs follow these requirements. Finally, HUD has continued to work  with contract administrators and property owners to improve the  completeness of tenant income information in a database used, among  other things, to monitor property owners’ subsidy calculations.
subsections: section_title: HUD Plans to Continue Transferring Contract Administration Responsibilities to PBCAs Because of Resource Constraints
paragraphs: In 2000, prior to the start of RHIIP, HUD began transferring the  administration of project-based Section 8 contracts from HUD field offices  to PBCAs. As of October 2004, HUD’s project-based Section 8 program  consisted of about 21,900 properties, and HUD had transferred contracts  for about 11,800 of these properties to PBCAs. As of the same date,  according to HUD, field offices served as contract administrators for about  6,300 properties, including 2,200 properties to be transferred to PBCAs  sometime in fiscal year 2005 and about 4,100 properties with contracts that  HUD will competitively source to a new contract administrator by the end  of fiscal year 2005. HUD also plans to transfer about 3,800 additional  properties to PBCAs that are currently the responsibility of “traditional”  (i.e., not performance-based) contractors as these properties’ contracts  come up for renewal.
HUD has transferred contract administration responsibilities to PBCAs  because its field offices lack the resources to adequately monitor  properties. HUD requires PBCAs to perform annual management and  occupancy reviews for all of their assigned properties and conduct monthly  reviews of all payment vouchers submitted by property owners. In  contrast, HUD field offices are not conducting the same level of monitoring  for all of their 6,300 properties. For example, HUD conducted management  and occupancy reviews for about 1,800, or approximately 30 percent, of  these 6,300 properties in fiscal year 2004. According to HUD, the field  offices did not perform annual management and occupancy reviews for all  of these properties because of insufficient staff and funding. HUD policy  also requires review of monthly payment vouchers for their properties.  However, HUD’s Office of Inspector General (OIG) reported in its audit of  HUD’s fiscal years 2002 and 2003 financial statements that the field offices  were performing monthly voucher reviews for only about 2 percent of the  vouchers for their assigned properties.
According to HUD, traditional contract administrators also have generally  not conducted management and occupancy reviews each year for all of  their properties or routinely reviewed monthly vouchers submitted by  property owners. HUD officials we contacted also said that although the  department required that the traditional contractors perform management  and occupancy reviews and voucher reviews, their contracts (unlike those  with PBCAs) did not specify how frequently. HUD officials stated that,  similar to HUD field offices, traditional contract administrators had  concentrated their monitoring efforts on troubled properties. In fiscal year  2004, traditional contract administrators conducted management and  occupancy reviews for 900, or 24 percent, of their assigned properties.  HUD does not have data on the number of payment vouchers reviewed for  properties with traditional contract administrators.
section_title: HUD Will Rely on PBCAs to Monitor Process for Determining Subsidies
paragraphs: By transferring more of its project-based Section 8 properties to PBCAs,  HUD plans to increase oversight of these properties and meet RHIIP’s goal  of reducing improper rent subsidy payments. According to HUD, the  ongoing PBCA initiative precluded the need for HUD to implement a  monitoring process for its project-based Section 8 programs similar to the  Rental Integrity Monitoring (RIM) reviews for the voucher and public  housing programs. HUD officials also said that, because of limited  resources and the large number of project-based Section 8 properties, the  field offices would not have been able to carry out a monitoring effort as  extensive as the RIM reviews. (About 22,000 property owners administer  project-based Section 8 programs, compared with about 3,300 PHAs that  administer vouchers and public housing.)
As noted previously, PBCAs are responsible for performing annual  management and occupancy reviews for all of their assigned properties and  monthly reviews of all payment vouchers. As part of these reviews, PBCAs  are required to determine whether the owners have properly calculated  subsidy determinations and independently verified tenant-reported  information. As of October 2004, about 11,800 properties were assigned to  PBCAs, and over 90 percent of these properties received a management  and occupancy review. In reviewing payment vouchers, PBCAs must  ensure that the tenant information in HUD’s databases is consistent with  the requested payment amount. When errors are found, the PBCA must  correct the voucher by the amount of the error.
To ensure that the PBCAs meet HUD’s performance standards, HUD has  developed a comprehensive oversight program. Specifically, HUD field  office staff are required to review status reports provided by the PBCAs,  conduct annual compliance reviews, and use the results of these reviews to  determine the compensation PBCAs should receive. Implementing these  oversight measures could pose challenges for HUD. For example, the OIG  reported in its fiscal year 2004 financial statement audit of HUD that two of  the four PBCAs it reviewed were not consistently verifying whether the  project owner had properly calculated subsidy amounts and independently verified tenant-reported information. In addition, prior GAO work has  shown that HUD has often not provided adequate oversight of contractors,  a factor that in 2003 led us to designate acquisitions management as one of  HUD’s major management challenges.
section_title: HUD Has Strengthened Monitoring Efforts by Ensuring That Program Administrators Report Comprehensive Tenant Data to HUD
paragraphs: According to HUD, ensuring the completeness of tenant data by enforcing  HUD’s data reporting policy is a critical component of RHIIP that will  enable the department to reduce the amount of improper rent subsidies.  Contract administrators use HUD’s Tenant Rental Assistance Certification  System (TRACS) to monitor property owners, including identifying  discrepancies between owners’ payment voucher requests and the rent  subsidy information. To perform their monitoring function effectively,  contract administrators must ensure that property owners submit complete  and accurate data in TRACS, as required by HUD policy.
Since RHIIP began, HUD has improved the completeness of tenant data in  TRACS. Specifically, according to HUD, the percentage of units in TRACS  for which owners reported tenant income information (i.e., the reporting  rate) increased from 88 percent in December 2003 to about 95 percent in  October 2004. Properties with contracts administered by PBCAs had a  higher average reporting rate, as of October 2004—over 95 percent—than  properties administered by HUD field offices or traditional contract  administrators. This is because PBCAs perform monthly voucher reviews  for all payments and thus must ensure that the information in TRACS is  complete. As of that same date, HUD field offices and traditional contract  administrators, which conduct fewer payment voucher reviews, had  average reporting rates of 85 and 75 percent, respectively.
HUD has continued to work with contract administrators and property  owners to improve TRACS information by enforcing the data reporting  policy. In October 2004, HUD began notifying property owners that the  department would withhold subsidy payments if tenant information was  not provided for at least 85 percent of tenants. According to HUD, the  department suspended subsidy payments for 10 noncompliant property  owners in November 2004 and expects to suspend payments for another  1,800 owners in December 2004.
section_title: Agency Comments and Our Evaluation
paragraphs: HUD concurred with our finding that guidance for collecting data on the  types and frequency of errors property owners made in determining  subsidies was not widely followed and stated that it would revise its  contracts with PBCAs to address this issue. HUD disagreed with a  recommendation in our draft report that the department analyze data it has  collected on program administrator errors by differentiating among types  of contract administrators and use this information to determine whether  additional efforts to reduce this source of error are needed in the  project-based Section 8 programs. HUD’s letter characterized our  recommendation as “expand the process” to provide for separate error  rates, noting that sample sizes would need to be tripled to permit  statistically valid comparisons, and questioning whether such an effort  would be cost-beneficial. Recognizing HUD’s increasing use of PBCAs, our  recommendation concerned only data that HUD had already collected and  was not intended to expand the scope of future data collections. In light of  HUD’s comments on the insufficiency of its existing data, we did not  include this recommendation in our final report.
Noting the relationship between its ability to monitor and the level of  resources it is provided, HUD stated that it “remains to be seen” whether  requested resources will be provided to achieve comparable monitoring  levels of program administrators for all of its project-based assistance  programs. We agree that budget resources will ultimately determine the  extent of HUD’s monitoring. Further, prior GAO work has shown that HUD  has not always provided adequate oversight of program intermediaries, a  contributing factor to our designation of the department’s rental assistance  programs as a high-risk area.
section_title: HUD is Considering Approaches for Simplifying Rent Subsidy Policies, but these Approaches Need More Study
paragraphs: As part of the Rental Housing Integrity Improvement Project (RHIIP), the  Department of Housing and Urban Development (HUD) is considering  ways to simplify its policies for determining rent subsidies. HUD has met  with program administrators and other interested groups to discuss  simplification approaches. However, HUD has not conducted a formal  study on the impact of these approaches on tenant rental payments and  program costs. According to HUD, a major reason for subsidy calculation  errors is the complexity of the existing policies. For example, program  administrators must determine tenants’ eligibility for 44 different income  exclusions and deductions to determine their rent payments and subsidies.  One key concern is the impact that simplification could have on how much  tenants pay in rent. Specifically, some tenants could end up paying a larger  share of their income toward rent if the income deductions and exclusions  that currently provide additional rent relief to them are eliminated,  although others could pay less under certain approaches. In addition, the  transition to simplified policies could create confusion among program  administrators and tenants in the short-term.
subsections: section_title: HUD Is in the Initial Stages of Considering Approaches for Simplification of Rent Subsidy Policies and Has Not Conducted Formal Study of These Approaches
paragraphs: As one of its efforts under RHIIP, and as mandated by The President’s  Management Agenda for Fiscal Year 2002, HUD is considering various  approaches for statutory, regulatory, and administrative streamlining and  simplification of its policies for determining rent subsidies. According to  HUD, simplification is a key part of the department’s long-term strategy for  reducing the risk of improper rent subsidies that result from the complexity  of HUD’s current policies. As of December 2004, however, HUD had not  officially proposed any approach to simplification for all of its rental  assistance programs. HUD intends to formulate a proposal early in  calendar year 2005 after it meets with industry stakeholders. Because most  of HUD’s policies for determining rent subsidies have a basis in statute,  major changes to these policies would likely require congressional action.
In order to reform program administration and control rising subsidy costs,  HUD proposed legislative changes for the voucher program in its fiscal year  2004 and 2005 budget proposals through the Housing Assistance for Needy  Families and the Flexible Voucher program, respectively. These two  initiatives called for simplification of the voucher program’s policies,  including those for determining rent subsidies. Specifically, the initiatives  would have provided administering agencies with the flexibility to  determine their own rent policies. However, Congress did not include  either of these initiatives in HUD’s appropriations acts.
In October 2004, HUD met with various program administrators and  industry and tenant groups to discuss different approaches for simplifying  HUD’s policies for determining rent subsidies and to gauge the extent to  which program stakeholders support simplification. According to HUD,  most of the participants agreed on the need for simplification and  discussed how best to meet this goal. HUD field office staff, program  administrators, and industry groups that we spoke with also generally  agreed on the need for simplification. Specifically, all of the HUD field  office staff we interviewed supported some form of simplification, and  nearly all of the 14 program administrators we interviewed also supported  simplification, but many were concerned about the impact on existing  tenants. The major industry groups we met with were also supportive of  simplification.
The October 2004 meeting concluded with HUD considering performing  more extensive analysis of the various approaches to simplifying its  policies for determining rent subsidies. However, HUD has not determined  when it will begin performing this analysis. Although prior to this meeting  HUD staff had conducted preliminary internal analyses of the impact of  certain simplification approaches on tenant rental payments and program  costs, as of December 2004, HUD has not conducted a formal study on the  possible impact of policy changes for consideration by policymakers.
section_title: HUD’s Current Policies for Determining Rent Subsidies Are Complex
paragraphs: A 2001 HUD study characterized HUD’s policies for determining rent  subsidies as “detailed, complex, sometimes ambiguous, and subject to  relatively frequent legislative changes.” HUD field offices, program  administrators, and industry groups we interviewed frequently cited the  complexity of these policies as a concern and identified it as a major  obstacle in reducing improper rent subsidies. For example, HUD’s current  policies include 44 income exclusions and deductions that program  administrators must consider when determining rent subsidies and tenants’  rental payments. The purpose of some of these income exclusions and  deductions is to provide additional relief to certain tenants, such as elderly  and disabled households with large medical expenses, by reducing the  amount they contribute toward rent. Other income exclusions exist to  counteract potential work disincentives—for example, increasing income  resulting in higher tenant rental payments—in housing assistance  programs.
As an example, some HUD field office staff and program administrators we  spoke with cited the earned income disallowance as a complex income  exclusion. The earned income disallowance was initially established in  1990 by the Cranston-Gonzalez National Affordable Housing Act (Pub. L.  No. 101-625) and was revised in 1998 by the Quality Housing and Work  Responsibility Act (Pub. L. No. 105-276). The disallowance policy provides  special treatment to families whose earned income increases as a result of  (1) employment of a family member who was previously unemployed for  one or more years or (2) participation of a family member in a family self- sufficiency or other job training program. Families that qualify under these  provisions are not subject to increases in their rental payments (that  usually occur if their incomes grow for other reasons) for a 12-month  period known as the “full exclusion period.” The rent may be increased  during the following 12-month period, called the “phase-in period,” but the  increase may not be greater than 50 percent of the amount of the full rent  increase that would occur otherwise. After completion of both the full  exclusion and phase-in periods, tenant rent increases by the full amount.  However, low-income tenants often have jobs with little security—that is,  they move in and out of employment and training programs and their  income may vary considerably from job to job. To account for this, HUD  developed additional administrative guidelines. For instance, during the  full exclusion and phase-in periods, the months for which a family can  claim the disallowance do not need to be consecutive. Consequently, a  household member can become unemployed and stop claiming the  disallowance and then become reemployed in a later month and begin  claiming the disallowance again. However, keeping track of when tenants  are employed and the amount by which the income increased is difficult  and adds a significant burden on program administrators.
The process for determining rent subsidies is further complicated by the  difficulty some program administrator staff may have in understanding and  implementing HUD’s program requirements. According to multiple field  office staff, program administrators, and industry groups we met with,  program administrator staff responsible for calculating rent subsidies are  often poorly paid, have large caseloads, and have limited education. These  factors can contribute to misapplication of program policies that result in  errors in subsidy calculations. In addition, these same groups commented  that these types of positions have high turnover, and as a result it is difficult  for program administrators to retain knowledgeable and experienced staff.
section_title: Simplifying the Process for Determining Rent Subsidies Could Affect Tenants and Pose Implementation Challenges
paragraphs: As noted previously, HUD is considering various approaches for statutory,  regulatory, and administrative streamlining and simplification of its subsidy  determination policies. Regardless of the approach HUD ultimately adopts,  a major concern is the effect that policy simplification will have on tenant  rental payments. It is possible that tenants’ rental payments could decrease  under certain simplification approaches. However, tenants could also see  rent increases if, all other things being equal, the income deductions and  exclusions that currently provide additional rent relief to them are  eliminated. In addition, simplification of HUD’s policies for determining  rent subsidies could be difficult to implement and could create confusion  among program administrators and tenants in the short-term.
subsections: section_title: HUD is Considering Three Basic Approaches to Simplifying Policies
paragraphs: HUD is currently considering three basic approaches to simplifying its  subsidy determination policies: (1) income-based rents, (2) tiered flat rents,  and (3) mixed approaches. Descriptions of these three approaches follow:  Under an income-based approach, the tenant rental payment is set at a  certain percentage of the tenant’s income. The rent subsidy covers the  difference between the contract rent for the unit (or the operating cost  for a public housing unit) and the amount that the tenant pays. A  simplified income-based approach could involve a limited number of  exclusions or deductions or none at all. For example, one approach  could involve tenants paying 30 percent of their gross income in rent  with qualifying tenants receiving standard deductions for special needs.  A different approach HUD has considered would allow elderly, disabled,  and working families to pay 27 percent of their gross income in rent  while all others pay 30 percent. No other deductions or exclusions  would be used in determining the subsidy amount under this approach.
Under a tiered flat rent system, tenant rents would be calculated for  several income bands—for example, low, very low, and extremely low  income—and tenants would not see their rents adjusted as their  incomes changed provided that their incomes remain within the same  tier. This option is somewhat similar to that used at properties  developed with Low-Income Housing Tax Credit assistance. Under the  tax credit program, property owners reserve some of their units for  tenants at or below certain income limits—either 50 or 60 percent of the  area’s median gross income. The owners must restrict tenant rents in  these units to 30 percent of the income limit, adjusted for the number of  bedrooms.
Under a mixed approach, HUD would give program administrators  various rent structures to choose from, including income-based rents  and tiered flat rents. This approach would give program administrators  the flexibility to choose the method that best fits their community  demographics and other factors. Currently, HUD’s Moving-to-Work  demonstration program allows participating public housing agencies  (PHA) to obtain exemptions from certain public housing and voucher  program rules, including those related to the calculation of rent  subsidies, and to design and test various approaches to providing and  administering housing assistance. As long as the PHA serves  substantially the same number of households that it served under the  public housing and voucher programs, the PHA is free to design its own  rent structure for its tenants. HUD plans to study PHAs’ experiences  under the Moving-to-Work demonstration as a possible model for  simplifying its policies.
section_title: Simplification of Policies May Significantly Affect Rents for Some Tenants and May Be Difficult to Implement
paragraphs: Regardless of which simplification approach is ultimately adopted, a major  concern of program stakeholders is the effect that policy simplification will  have on tenant rent burdens. Although changes to policies could result in  some tenants paying less in rent, some tenants could end up paying more in  rent if, all other things being equal, the current system of income  exclusions and deductions that provides additional rent relief were  eliminated. To illustrate, we analyzed the potential effects of using a simple  income-based approach in which tenant rents are set at 30 percent of gross  income. Based on our analysis of HUD’s data for fiscal year 2003, we found  that tenants would see their rent go up by an average of $30 per month  ($360 annually), or 16 percent. About 10 percent of these households would  see their rents go up by at least $72 per month (or $864 annually).
Elderly and disabled households and large families who currently benefit  the most from HUD’s exclusions and deductions would be hit the hardest  by the elimination of these income adjustments. To take these households  into account, we also estimated the average change in tenant rents using an  approach in which elderly, disabled, and working families would pay 27  percent of their gross income in rent, all others would pay 30 percent, and  no other deductions or exclusions would apply. Again using HUD’s tenant  data from fiscal year 2003, our analysis showed that this option would  increase tenant rents, on average, by $16 per month ($192 annually), or 12  percent. About half of current tenants would see modest increases of less  than $10 per month, and around one-quarter could see increases of at least  $28 per month. In addition, the rents for about 25 percent of the tenants  would remain unchanged or decrease under this approach. A more detailed  study by HUD would be necessary to determine the impact of the other  policy simplification approaches on tenants’ rental payments as well as on  program costs.
Simplification of HUD’s policies for determining rent subsidies may be  difficult to implement and will have a direct impact on how program  administrators conduct their work. Depending on the magnitude of  program changes, program administrators—over the approximately 22,000  property owners and 3,000 PHAs–will have to retrain staff, update written  procedures and administrative plans, and make potentially costly  modifications to their software applications. Program administrators will  also have to perform tenant outreach to explain changes to existing and  new tenants. If HUD determines that these tenants would be protected  from any increases in rent that result from simplified policies, program  administrators would have to deal with the difficulties of treating existing  and new tenants under different sets of policies. Furthermore, gradually  phasing in rent increases for existing tenants would add additional  complexities to the administration of the programs and require extensive  regulatory guidance from HUD. These changes would likely take time and  involve some trial-and-error before they are fully implemented. It is  possible, at least in the short-term, that transitioning to simplified policies  for determining rent subsidies would result in confusion among program  administrator staff and errors in calculating rent subsidies. This problem is  more likely if the changes made to program policies are comprehensive,  requiring extensive retraining of staff. Because HUD is in its early stages of  developing a policy simplification strategy and has not conducted a formal  study of these issues, it is not possible to describe how HUD intends to  address these difficulties.
section_title: Conclusion
paragraphs: Although part of HUD’s long-term strategy to reduce the risk of improper  rent subsidy payments under RHIIP involves simplifying statutory and  regulatory policies for determining rent subsidies, the department has not  conducted a formal study of possible simplification approaches. According  to HUD and program administrators, existing policies are difficult to  implement and have made the process prone to error. Many of these  policies are intended to provide additional relief to tenants by reducing  their rents under certain circumstances. However, HUD must weigh the  degree of relief these policies provide against the administrative burden  they create and the increased risk of error they generate. Because most  current policies stem from specific statutes, simplifying them would likely  require congressional action. In order to inform potential debate on this  issue, policymakers will need to fully understand how simplification could  affect the amount of rent subsidy errors, program administrators’  workload, tenants’ rental payments, and program costs. Regardless of the  simplification approach that is adopted, HUD will face many difficulties in  implementing the necessary policy changes. In particular, HUD will need to  promote an efficient transition and assist program administrators in  making the necessary adjustments to their procedures.
section_title: Recommendations for Executive Action
paragraphs: To ensure that HUD’s rental assistance programs are administered  effectively and that policymakers have sufficient information with which to  consider potential simplification approaches, we recommend that the HUD  Secretary study the possible impact of alternative strategies for simplifying  program policies on subsidy errors, tenant rental payments, program  administrators’ workload, and program costs. As part of the study, HUD  should determine how it intends to implement proposed changes and  indicate how the department would help tenants transition from the old to  the new rent structures.
section_title: Agency Comments and Our Evaluation
paragraphs: HUD stated that our draft report did not mention legislative initiatives in its  fiscal year 2004 and 2005 budget justifications—the Housing Assistance for  Needy Families and the Flexible Voucher programs—to simplify the  voucher program’s policies for determining rent subsidies. These two  initiatives were primarily intended to reform the funding mechanism for  and the administration of the voucher program but also would have  allowed administering agencies the discretion to define their policies on  tenant eligibility and for determining rent subsidies. We included a  description of these two initiatives in our final report.
HUD did not respond directly to our recommendation that the department  study the impact of simplifying policies for determining rent subsidies but  said that the report incorrectly stated that HUD has not conducted formal  studies on or otherwise considered the effects of its program simplification  proposals. HUD also stated that all of its proposals for simplifying subsidy  determination policies had undergone extensive analysis. Our draft report  did not state that HUD had not considered the effects of program  simplification and, in fact, cited HUD’s efforts to analyze simplification  approaches. Further, during the course of our review and in its technical  comments on our draft report, the department provided us only an internal  analysis of a single simplification approach, which, according to HUD, it is  no longer considering. Moreover, HUD has not issued a study of any  simplification proposal that analyzes the impact of simplification, explains  how HUD intends to implement proposed changes and help tenants  transition from the old to the new rent structures, and is available to  policymakers. Because simplifying HUD’s policies for determining rent  subsidies will likely require legislative changes, we continue to believe that  a formal study will be essential to informing congressional decision  making.