Multifamily Housing: Implementation of Fiscal Year 2003 Requirements Concerning Housing Choice Voucher Administrative Fees
Published: 2004-11-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Housing and Urban Development (HUD) received $12.9 billion in fiscal year 2003 for the Housing Choice Voucher Program, which helps about 2 million low-income families pay rent for privately owned housing. This amount included $1.1 billion in administrative fee payments to the public housing agencies that administer the program for HUD. In the Consolidated Appropriations Resolution of 2003, Congress included provisions to address a concern that housing agencies may have received more in fees than they needed to run the program. Housing agencies were directed to report to HUD their available reserves as of January 31, 2003. HUD was directed to reduce the fees agencies would receive if these levels were too high and recapture some excess fees. The conference report accompanying the Consolidated Appropriations Act of 2004 directed GAO to review compliance with these provisions. This report discusses (1) the extent to which housing agencies complied with the requirement to report to HUD their available administrative fee reserves as of January 31, 2003; (2) how these reported reserves compared with reserves reported in earlier fiscal years and possible reasons for any declines; (3) the extent to which HUD made required reductions to fiscal year 2003 fees; and (4) the extent to which HUD has recaptured excess fiscal year 2003 administrative fees.
section_title: What GAO Found
paragraphs: By the end of calendar year 2004, HUD expects to have finished implementing most of the provisions in the Consolidated Appropriations Resolution of 2003 that address the administrative fees housing agencies receive under the Housing Choice Voucher Program. As of September 2004, all but 5 of the 2,477 housing agencies had reported their available administrative fee reserves as of January 31, 2003. The reported amounts totaled $587 million, or about $211 million (26 percent) less than the average $798 million that housing agencies had reported in fiscal years 1999 to 2002. GAO found several reasons for this decline. For example, the 2003 resolution allowed housing agencies to deduct from their January 2003 reported amounts funds that were not "available." Some housing agencies deducted obligated or committed funds they considered unavailable, although they normally include these funds in the reserve amounts they report at their fiscal year ends. Further, between the end of their fiscal year 2002 and the January reporting date, some housing agencies obligated some of their reserves for expenses not related to the Housing Choice Voucher Program, as was permitted by HUD regulations. By December 2004, HUD plans to have completed most of the required reductions to the estimated fiscal year 2003 administrative fees of 180 housing agencies, a total of about $37.8 million. As required by the 2003 resolution, HUD identified housing agencies whose fees would be reduced based on the difference between their available January 2003 reserve balances and 105 percent of the fees they earned in federal fiscal year 2002. HUD has not recaptured any excess 2003 administrative fees but expects to have made some of the required recaptures by December 2004.

section_title: Letter
paragraphs: The Department of Housing and Urban Development (HUD) received $12.9  billion in fiscal year 2003 appropriations to help about 2 million low-income  families nationwide pay rent for privately owned housing through the  Housing Choice Voucher Program. About $1.1 billion of this amount was  designated for administrative fee payments to the approximately 2,500  public housing agencies that administer the program for HUD. The fee  payments, which are intended to compensate the housing agencies for  administrative activities such as finding property owners to participate in  the program, inspecting rental units, and determining family eligibility, are  not based on actual incurred expenses, but rather on a formula that takes  into account the number of vouchers administered. The difference between  the fees earned and expenses incurred are recorded annually in the  administrative fee reserve, which shows the accumulated gains and losses  housing agencies incur over time. Housing agencies can use their  administrative fee reserves for the voucher program and other  housing-related expenses.
In the Consolidated Appropriations Resolution of 2003, Congress  addressed a concern that housing agencies may have been provided more  in fees than necessary to effectively run the Housing Choice Voucher  Program, as indicated by the large amounts of some housing agencies’  administrative fee reserves. Specifically, the 2003 resolution included  provisions requiring the housing agencies to report to HUD their  administrative fee reserves available as of January 31, 2003, and requiring  HUD to:   withhold administrative fees for fiscal year 2003 from agencies that did  not report their January 2003 reserves;   reduce the administrative fees paid in fiscal year 2003 to any agency  whose reserve amount was more than an established limit; and   recapture any fees paid in fiscal year 2003 that exceeded housing  agencies’ actual administrative expenses.
However, the conference report accompanying the Consolidated  Appropriations Act of 2004 raised concerns that neither HUD nor the  housing agencies had fully complied with the requirements in the 2003  resolution. This concern was based largely on the fact that some of the  reported January 2003 reserves were far lower than had been expected.  The conference report directed GAO to review compliance with the  provisions of the 2003 resolution. Accordingly, this report:  shows the extent to which housing agencies complied with the  requirement to report to HUD their administrative fee reserves available  as of January 31, 2003;  compares housing agencies’ reported available reserves as of January  31, 2003, with reserves reported in earlier fiscal years and discusses  possible reasons for any declines;  examines the extent to which HUD reduced fiscal year 2003  administrative fee payments, as required, in light of housing agencies’  reported reserves; and  shows the extent to which HUD recaptured excess fiscal year 2003  administrative fees, as required.
To meet our objectives, we reviewed relevant laws and HUD guidance,  compared HUD data on the January 2003 reported amounts with reserves  reported in prior fiscal years, and interviewed officials from HUD’s Office  of Public and Indian Housing and Financial Management Center. We also  visited 5 housing agencies to review financial documents related to their  administrative fee reserves and to interview staff involved in calculating  their reserves. We selected these 5 agencies from the 10 that showed the  largest differences between their January 2003 reported reserves and their  average reported reserves for fiscal years 1999 to 2002. In addition, we  interviewed officials from several housing industry associations and spoke  with private-sector accountants these associations cited as experts in  housing agency accounting. We did not perform a financial audit of the  housing agencies’ administrative fee reserves. We conducted our work  from January through September 2004 in Los Angeles and Orange County,  California; Broward County, Florida; Needham, Massachusetts; Newark,  New Jersey; New York, New York; and Washington, D.C., in accordance  with generally accepted government auditing standards. Our scope and  methodology are discussed in greater detail in appendix I.
subsections: section_title: Background
paragraphs: The federal government’s Housing Choice Voucher Program helps  very-low-income families, the elderly, and the disabled pay for housing in the private market. The program, which has been operating for about 30  years, provides housing vouchers that individuals and families can use to  rent houses or apartments in the private housing market if property owners  participate in the program. Voucher holders are responsible for finding  suitable housing, which must meet the health and safety standards set by  the local housing agency. Voucher holders generally pay about 30 percent  of their household income on the rent and utilities and the housing agency  pays the remainder in subsidies that are paid directly to the property  owners.
The administrative fees housing agencies earn are not tied to the actual  expenses of operating the Housing Choice Voucher Program. Rather, the  fees are based on a formula that takes into account the number of months  that each voucher is actually in use (i.e., is used to pay for a rental unit  under lease). The amounts used to calculate federal fiscal year 2003 fees  were set in the Federal Register on May 6, 2003. In addition, housing  agencies may also earn additional special administrative fees—for  example, the “hard-to-house” fee for certain clients, such as persons with  disabilities, who require help in locating housing.
Administrative fee payments are based on estimates of voucher use and are  reconciled with actual earned amounts at the end of each housing agency’s  fiscal year. Housing agencies’ fiscal years are grouped into four cycles  ending in March, June, September, and December that allow HUD to more  easily complete the fiscal-year-end settlement process, which generally is  completed a few months after the close of a housing agency’s fiscal year.  HUD projects leasing activity annually based on data the housing agencies  submit and provides the agencies with monthly disbursements that are  based on these projections. HUD uses the fiscal-year-end settlement  process to reconcile the administrative fees disbursed to housing agencies  with fees earned based on actual voucher use. For example, if the fees a  housing agency earns exceed the projected amounts that HUD disbursed  during the housing agency’s fiscal year, HUD pays the difference once the  settlement process is completed. Conversely, if the fees a housing agency  earns are less than the amount it was paid during its fiscal year, HUD  offsets future fee payments by the amount of the difference.
Housing agencies can use their administrative fee reserves both for  expenses associated with the voucher program and other expenses.  However, housing agencies must use their reserves for any actual  administrative expenses that exceed the total amount HUD provides for  each housing agency fiscal year. In addition, housing agencies are allowed  to use administrative fee reserves accumulated prior to fiscal year 2004  appropriations “for other housing purposes permitted by state and local  law,” provided that the agencies have adequately administered the Housing  Choice Voucher Program. For example, some housing agencies we visited  had used their reserves to offset expenses incurred from rehabilitating or  producing affordable housing units, while others had used their reserves to  offset expenses from their public housing programs. In the Consolidated  Appropriations Act of 2004, Congress limited the uses of the administrative  fees earned in fiscal year 2004 to the provision of Housing Choice Voucher  Program rental assistance and related development activities.
The amount of the administrative fee reserve is calculated based on  housing agency accounting data and does not necessarily represent cash  reserves. Housing agencies determine the amount of their administrative  fee reserve by calculating the difference (either gain or loss) between the  fees they earned that year and the expenses they actually incurred, and  adding that amount to (or subtracting it from) its last fiscal-year-end  amount. They also deduct amounts used for nonprogram expenses. In  calculating their reserves, housing agencies may deduct amounts equal to  noncash assets procured with administrative fee reserves. For example, if a  housing agency were to purchase a vehicle for program purposes, it could  deduct the purchase amount when calculating the year-end balance for that  year. However, a housing agency may include amounts equal to noncash  assets in their total reported reserve. Housing agencies report their total  administrative fee reserves to HUD as a part of the fiscal-year-end  settlement process.
section_title: Almost All Housing Agencies Reported Their Available Reserves, but Agencies Interpreted the Reporting Requirement Differently
paragraphs: Almost all of the housing agencies that were required to report their  available administrative fee reserves as of January 31, 2003, have done so.  However, because HUD did not define the term “available” used in the 2003  Appropriations Resolution, housing agencies may have interpreted the  term—and thus calculated their reserves—differently. Although the five  housing agencies we visited determined their reserves in a manner  consistent with HUD’s guidance, we found differences in their  methodologies.
subsections: section_title: Almost All Housing Agencies Reported January 2003 Reserves
paragraphs: As of September 2004, all but 5 of the 2,477 housing agencies required to  report their available administrative fee reserves as of January 31, 2003,  had done so. The 2003 Appropriations Resolution instructed HUD to collect  these reserves data from each housing agency administering the Housing  Choice Voucher Program. Although housing agencies had until April 9,  2003, to report their reserves, HUD officials said they did not track which  housing agencies met that deadline. However, they said that, as directed,  HUD withheld 2003 administrative fees from housing agencies until they  reported. The officials said that HUD continued to withhold 2003  administrative fees from the 5 housing agencies that had not yet reported  their reserves.
The five housing agencies we visited calculated their reserves available as  of January 31, 2003, in a manner consistent with HUD’s instructions. As  directed, they began with their last fiscal-year-end reserve amounts and  employed year-end closing procedures to bring the reserves current as of  January 31, 2003. The five housing agencies had different fiscal years,  however. For example, to meet this requirement the New York City  Housing Authority had to update its reserve from its fiscal year ending  December 31, 2002, while the Newark Housing Authority had to update its  reserve from its fiscal year ending March 31, 2002. The five housing  agencies we visited first added estimated fees earned and other income,  such as interest income, earned since their most recent fiscal year end.  They then deducted program expenses, such as staff salaries, incurred up  to the January 2003 reporting date. In addition, all of the housing agencies  deducted amounts used for housing purposes other than the Housing  Choice Voucher Program, an action allowed under HUD regulations. For  example, officials from the Broward County Housing Authority deducted  $1.5 million (13 percent of its average reserve from 1999 to 2002) from its  administrative fee reserves to offset the cost of installing air conditioning in  public housing units. Finally, officials from two of the housing agencies  deducted obligated amounts from their reported reserves. For example,  officials from the New York City Housing Authority deducted slightly over  $6 million (8 percent of its average reserve from 1999 to 2002) from the  agency’s reported reserve for two housing-related development projects.
section_title: Housing Agencies Interpreted “Available” Reserves Differently Due to a Lack of HUD Guidance
paragraphs: Because HUD did not define the term “available” used in the 2003  Appropriations Resolution, housing agencies interpreted the term  differently and thus may not have reported consistently defined reserve  amounts to HUD. HUD’s regular fiscal-year-end closing procedures  require housing agencies to report their total reserves. Therefore, reporting  only their “available” reserves was a new requirement for housing agencies.  HUD program officials did not elaborate on the 2003 Appropriations  Resolution’s language. In the guidance it provided housing agencies  regarding the 2003 resolution, HUD simply emphasized the word  “available” with bold and italics several times throughout the instructions.  Officials from HUD’s Office of General Counsel told us that legally  obligated funds were not “available” amounts.
The lack of a clear definition of “available” resulted in two interpretive  issues. First, three of the housing agencies we visited deducted from their  “available” reserves amounts committed (but not yet obligated) for  anticipated expenses. For example, Orange County Housing Authority  officials deducted almost $900,000 (5 percent of its average reserve from  1999 to 2002) that the agency had committed for fraud investigation  services for the Housing Choice Voucher Program in future fiscal years.  Similarly, officials at the Housing Authority of the City of Los Angeles  deducted over $8 million (15 percent of its average reserve from 1999 to  2002) from its reported reserve for an expected shortfall in public housing  subsidies. HUD’s guidance did not indicate whether these amounts should  or should not have been deducted from their “available” reserves.
Second, two housing agencies differed on whether to include noncash  assets in their reported reserves. Officials from the Newark Housing  Authority did not deduct amounts representing noncash assets, including  computers and vehicles, from their January 2003 reported reserve.  According to these officials, they included those amounts in the reported  reserve because they include noncash assets in the amount they report to  HUD at their fiscal year end. In contrast, officials from the Orange County  Housing Authority deducted amounts from their reported reserve for  noncash assets—primarily notes receivable from loans they had made to  help developers build affordable housing. These officials told us that they  did not consider these amounts to be “available” because the loans had not  yet been repaid.
section_title: Some Housing Agencies’ Available January 2003 Reserves Were Lower Than Previously Reported Reserves for Several Reasons
paragraphs: Housing agencies’ total reported reserves available as of January 31, 2003,  were about 26 percent less than the average total reserves reported by the  agencies for fiscal years 1999 to 2002. Declines in the amounts reported by  10 housing agencies, including the 5 we visited, represented 82 percent of  this difference. Officials from HUD, housing agencies, and housing industry  groups cited several explanations for the difference.
subsections: section_title: A Small Number of Housing Agencies Were Responsible for Most of the Difference
paragraphs: The total of all the housing agencies’ reported reserves available as of  January 31, 2003, was $587 million, about $211 million (26 percent) lower  than the average total reserves of $798 million for fiscal years 1999 to  2002. Of those housing agencies whose January 2003 available reserves  were different from their average reserves from 1999 to 2002, 984 (41  percent) housing agencies reported available reserve amounts that were  lower than their average year-end amounts, but a small number of housing  agencies was largely responsible for the overall difference (fig. 1). Of  housing agencies that reported lower amounts, most (69 percent) showed a  decline of less than $100,000, while only about 8 percent had declines of  over $500,000. Specifically, the 10 housing agencies with the largest  declines represented 82 percent ($173 million) of the decline in total  reserves; of these, the 5 we visited represented 61 percent ($129 million) of  the total difference. In contrast, most housing agencies (59 percent)  reported amounts that were higher than their average reserves from 1999 to  2002.
The total amount of reserves reported by agencies at fiscal year ends varied  from fiscal year to fiscal year. For example, the total reserves went from  $753 million in fiscal year 1999 to $825 million in fiscal year 2000 but fell  from $888 million in 2001 to $725 million in 2002 (fig. 2). Over a third of  the total decline between 2001 and 2002 was attributable to the New York  City Housing Authority, which used $58 million to cover deficits in public  housing programs sponsored by their state and city governments.
section_title: January 2003 Available Reserves Were Lower for Several Reasons
paragraphs: We found several reasons for the difference in reported reserve amounts.  First, officials from HUD, housing industry associations, and some housing  agencies we visited told us that the different reporting requirement was in  part responsible for the lower reported amounts. As previously discussed,  the January 2003 requirement was for “available” reserves, a term that  some housing agencies interpreted as excluding funds that had been  obligated or committed. The regular year-end reporting requirement was  (and is) for total reserves, including amounts the housing agency had either  obligated or committed. As a result, the January 2003 reserves for some  housing agencies fell from the previous year-end levels—in some cases,  dramatically. For example, officials from the Broward County Housing  Authority deducted from the agency’s January 2003 reported reserve  $9.5 million (80 percent of its average reserve from 1999 to 2002) that it had  committed for the redevelopment of a public housing site.
Second, some housing agencies obligated some of their reserves for  expenses not related to the Housing Choice Voucher Program, as was  permitted by HUD regulations. Of the five housing agencies we visited,  two had used their reserves for projects or expenses not related to the  Housing Choice Voucher Program between the end of their fiscal year 2002  and the January 2003 reporting date. For example, officials from the  Newark Housing Authority deducted about $3.4 million (47 percent of its  average reserve from 1999 to 2002) from its reserve for security services at  their housing developments.
Third, a new accounting requirement may have contributed to the decline  in the total reported amount, but housing agency officials said that this  effect was likely small. Beginning in 2001, housing agencies began  implementing applicable provisions of the Governmental Accounting  Standards Board Statement No. 34, Basic Financial Statements—and  Management’s Discussion and Analysis—for State and Local  Governments. The statement directed housing agencies to deduct from  their reserves certain liabilities that they had not been required to deduct  before, such as employees’ unused compensated leave. The largest  agencies were required to implement this standard in June 2001. Other  agencies were not required to implement the standard until June 2003.  According to some housing agency officials, the effect of this accounting  requirement was relatively small. For example, officials at the Housing  Authority of the City of Los Angeles deducted almost $4 million (7 percent  of its average reserve from 1999 to 2002) from its reported reserve as a  result of the conversion to this accounting standard.
section_title: HUD Is Reducing Estimated Administrative Fees by About $37.8 Million
paragraphs: By December 2004, HUD plans to have completed most of the required  reductions to the estimated fiscal year 2003 administrative fees of 180  housing agencies, a total of about $37.8 million. As required by the 2003  Appropriations Resolution, HUD identified housing agencies whose fees  should be reduced because their reported January 2003 reserves exceeded  105 percent of the fees they earned in federal fiscal year 2002. HUD made  about $27.4 million in reductions to housing agencies’ estimated  administrative fees over the course of calendar year 2003 (the Housing  Choice Voucher Program’s fiscal year). HUD plans to make most of the  remaining reductions by December 2004 through the housing agencies’  fiscal-year-end settlements.
subsections: section_title: HUD Identified 180 Housing Agencies That Should Receive Reductions
paragraphs: To implement the reductions required in the 2003 Appropriations  Resolution, HUD needed information on each housing agency’s available  administrative fee reserves as of January 31, 2003, and on the fees each  housing agency earned in fiscal year 2002. According to HUD attorneys,  HUD interpreted the term “fiscal year 2002” in the 2003 resolution to mean  federal fiscal year 2002. Because HUD generally collects information on  fees earned based on the housing agency fiscal year, it had to estimate the  amounts for federal fiscal year 2002 for all agencies except those with fiscal  years that ended in September. As shown in figure 3, HUD used a  combination of data to estimate fees housing agencies earned in federal  fiscal year 2002.
Using these estimates and housing agencies’ reported January 2003  reserves, HUD determined which housing agencies should receive less in  administrative fees and the amounts of the reductions. HUD identified 180  housing agencies whose fiscal year 2003 administrative fees should be  reduced because their available reserves as of January 31, 2003, exceeded  105 percent of the fees they earned in federal fiscal year 2002. The total  reduction for each agency was the lower of (a) the difference between its  January 2003 reserve and 105 percent of the fees it earned in federal fiscal  year 2002, or (b) the total administrative fees the housing agency would  earn in fiscal year 2003. HUD did not reduce the fees of some housing  agencies by the full difference between their January 2003 reserves and 105  percent of the fees earned in federal fiscal year 2002, because the 2003  resolution did not require HUD to make reductions to housing agencies’  administrative fees that exceeded the amounts they earned in fiscal year  2003. Figure 4 shows, for three possible scenarios, how HUD determined  the reduction, if any, in a housing agency’s fiscal year 2003 fees. In the first  scenario, no reduction would be made, because the reserves were less than  the 105 percent level; the housing agency would receive all of the fiscal  year 2003 fees it earned. In the second scenario, the reduction would equal  the full difference between the January 2003 reserves and the 105 percent  level, and the housing agency would receive the remainder of its fiscal year  2003 administrative fees. In the third scenario, the reduction would equal  the full amount of the housing agency’s fiscal year 2003 fees, and the  housing agency would not receive any administrative fees.
section_title: HUD Reduced Administrative Fees in Two Stages
paragraphs: As noted previously, HUD normally makes monthly disbursements to  housing agencies based on projections of their earnings for each month,  and reconciles these disbursements with the agencies’ actual earnings  during the fiscal-year-end settlement process. To implement the  reductions required by the 2003 Appropriations Resolution, HUD estimated  each agency’s total reduction (as described above) and the estimated  monthly reduction, based on the total fees earned in federal fiscal year 2002  divided by 12. Using these amounts, HUD reduced some housing agencies’  monthly payments over the course of calendar year 2003 (also the fiscal  year for the Housing Choice Voucher Program) and will make any  remaining reductions during the housing agencies’ fiscal-year-end  settlement process.
In the first stage of reductions, HUD lowered the monthly disbursements  for the housing agencies’ estimated administrative fees by a total of about  $27.4 million between September and December 2003. Although HUD  began calculating reductions in May 2003, HUD did not apply any  reductions to fee disbursements until September 2003, after housing  agencies’ budgets were revised. The September payments reflected up to  5 months of estimated monthly reductions (May through September), even  if the reduction affected not only the administrative fees but also the  payments for tenants’ housing assistance. In contrast, fees for October  through December 2003 were reduced by no more than the estimated  monthly reduction. According to HUD officials, HUD initially stopped  reductions with the December 2003 payment after 8 months of estimated  monthly reductions because of uncertainty about applying the 2003  Appropriations Resolution retroactively to January through April 2003, the  first 4 months of the Housing Choice Voucher Program fiscal year.
Although HUD has already made these estimated reductions, it must  complete the housing agencies’ fiscal-year-end settlements to determine  the actual amount of fees to which reductions should be applied. HUD will  not have the data to calculate the actual reductions for all housing agencies  until after December 2004 (when the September 2004 fiscal-year-end  settlements are due), because housing agencies whose fiscal years ended in  June and September received reduced payments over the course of two of  their fiscal years, as illustrated in figure 5. The actual reductions might be  higher or lower than the estimated amounts, depending on each agency’s  actual voucher use.
HUD will implement a second stage of reductions because its general  counsel determined that the reductions should apply to the entire period  during which fiscal year 2003 appropriations were used. In July 2004, HUD  developed procedures to make adjustments to housing agencies’ January,  February, March, and April 2004 payments using the fiscal-year-end  settlement process. HUD will use actual fees earned to determine the  amount of additional reductions to be made to the fees of housing agencies  whose fees have not been reduced by the full amount required by the 2003  Appropriations Resolution. HUD estimated that these additional 4 months  of administrative fee reductions would total about $10.4 million, bringing  the total reduction to about $37.8 million. As shown in figure 6, most  housing agencies will receive total reductions of less than $250,000. By  December 2004, HUD plans to have completed reductions for the majority  of housing agencies.
section_title: HUD Expects to Have Recaptured Some Excess 2003 Administrative Fees by December 2004
paragraphs: The 2003 Appropriations Resolution required HUD to recapture from  housing agencies administrative fees that they earned in fiscal year 2003  that exceeded administrative expenses, except for an amount necessary to  maintain a reserve equal to 5 percent of the fees earned in the Housing  Choice Voucher Program fiscal year 2003. HUD began processing  recaptures in July 2004, but had not completed any at the time of our  review.
During the fiscal-year-end settlement process, HUD will review housing  agencies’ actual earned fees (including any reductions resulting from the  2003 Appropriations Resolution) and compare them with expenses incurred to determine any amounts that should be recaptured. According  to the provisions of the 2003 resolution, if a housing agency’s fiscal year  2003 fees did not exceed its fiscal year 2003 program expenses, it will not  be subject to any fee recaptures, regardless of the amount of its reserves.  However, if a housing agency’s fiscal year 2003 fees exceeded its fiscal year  2003 program expenses, HUD will compare the housing agency’s last  fiscal-year-end reserve with 5 percent of the fees it earned in fiscal year  2003. HUD will then recapture the entire difference or, if the agency has a  very low reserve, HUD will recapture an amount that will leave the housing  agency with a reserve equaling 5 percent of its fiscal year 2003 fees (fig. 7).  Thus, this provision prevented housing agencies from adding to their  reserves unless they had reserve amounts of less than 5 percent of their  fiscal year 2003 fees.
HUD has not yet recaptured any excess fiscal year 2003 administrative fees.  In July 2004, HUD began implementing the recapture process for the first  housing agencies for which data were available—those whose fiscal years  ended in December 2003. As with the reduction process, HUD will have all  the data needed to calculate recaptures following the receipt of September  2004 fiscal-year-end settlements. HUD plans to complete the recaptures for  the first group of housing agencies by December 2004. As of September  2004, HUD could not estimate the number of housing agencies that would  be affected or the total amount to be recaptured and could not give a date  when the process would be completed.
section_title: Agency Comments
paragraphs: HUD agreed with our findings and provided technical comments, which we  incorporated into this report as appropriate.
We are sending copies of this report to the Secretary of Housing and Urban  Development and will make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov. Please contact me at (202) 512-8678 if you or your staff  have any questions concerning this report. Key contributors to this report  are listed in appendix II.
section_title: Scope and Methodology
paragraphs: To meet our objectives, we reviewed relevant laws and HUD guidance,  analyzed HUD data, and interviewed officials from HUD’s Office of Public  and Indian Housing and Financial Management Center. We also visited five  housing agencies to review financial documents related to their reserves  and to interview staff involved in calculating the reserves. In addition, we  interviewed officials from several housing industry associations and spoke  with private-sector accountants these associations cited as experts in  housing agency accounting. We did not perform a financial audit of the  housing agencies’ administrative fee reserves.
To determine the extent to which housing agencies reported to HUD their  available administrative fee reserves as of January 31, 2003, we analyzed  data from HUD showing all of the housing agencies that had reported their  January 2003 reserves and the amounts they had reported. In addition, to  compare the January 2003 reserves with reserves reported in prior fiscal  years, we analyzed HUD data showing the fiscal-year-end reserves for the  housing agencies participating in the Housing Choice Voucher Program in  fiscal years 1999 to 2002. We reviewed the reliability of these data through  electronic data testing and interviews with HUD staff familiar with the  databases from which this information was extracted and determined that  the data were sufficiently reliable for the purposes of our report. We also  interviewed HUD officials from the Financial Management Center to  confirm the number of housing agencies that had not reported their  available reserves as of January 31, 2003. Because the January 2003  reporting date did not coincide with any other reporting requirements HUD  places on housing agencies, we could not validate the accuracy of the  January 2003 reported reserves.
To determine how housing agencies calculated their reserves as of January  31, 2003, and the possible reasons for declines in the reported amounts, we  selected 5 of the 10 housing agencies that had the largest differences  between the average of their reserves reported for fiscal years 1999 to 2002  and the amount they reported as of January 2003. To achieve some  geographic distribution, we selected sites in both the eastern and western  parts of the country. None of the 10 housing agencies with the largest  differences were located in the Midwest. The sites we selected were the  Housing Authority of the City of Los Angeles (California), the Orange  County Housing Authority (California), the Broward County Housing  Authority (Florida), the Newark Housing Authority (New Jersey), and the  New York City Housing Authority (New York). Prior to our site visits, we  sent each housing agency a data collection instrument on which they  documented how their reserves had changed from their last fiscal year end  to the January 2003 reporting date. During our site visits, we obtained  documentation to support the financial information recorded in the data  collection instrument and interviewed housing agency officials involved in  preparing financial information submitted to HUD. In addition, to  determine why the January 2003 amounts might have been lower than  previously reported amounts, we interviewed officials from HUD, the five  housing agencies, and several public housing industry associations, as well  as private-sector accountants working for housing agencies.
To determine the extent to which HUD reduced fiscal year 2003  administrative fees in light of the reported January 2003 reserves, we  obtained data from HUD showing all of the housing agencies subject to  reductions and the estimated amount of those reductions. We reviewed the  reliability of these data and determined that the data were sufficiently  reliable for the purposes of our report. To assess HUD’s processes and how  they related to the legislation, we reviewed applicable legislation, HUD  notices, and policies concerning administrative fees, as well as a  contractor’s analysis of HUD’s process for determining which housing  agencies were subject to a reduction in fees. We also interviewed HUD  officials regarding the implementation of the process.
To determine the extent to which HUD recaptured excess fiscal year 2003  administrative fees, we reviewed applicable legislation and HUD policies  regarding the recapture process. In addition, we interviewed HUD officials  regarding the implementation of the process.
We conducted our work from January through September 2004 in Los  Angeles and Orange County, California; Broward County, Florida;  Needham, Massachusetts; Newark, New Jersey; New York, New York; and  Washington, D.C., in accordance with generally accepted government  auditing standards.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, Daniel Blair, Christine Bonham,   Emily Chalmers, Eben Darling, David Dornisch, John McGrail,   Phillip McIntyre, Marc Molino, Gretchen Maier Pattison, and Mijo Vodopic  made key contributions to this report.