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, and the number of low-income households eligible for assistance exceeds the number of subsidized units or vouchers that are available. These programs are administered differently and vary in the number of households they assist and the amount of funding they receive. The voucher program, which approximately 2,500 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. In fiscal year 2003, the program assisted about 2 million households (42 percent of all HUD- assisted households) and had outlays of about $13 billion. In general, only households with very low incomes—less than or equal to 50 percent of area median income—are eligible for vouchers. Under the public housing program authorized by the United States Housing Act of 1937, as amended, HUD has 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 (one-quarter of all households receiving housing assistance) and had outlays of about $7 billion. 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 area median income. Under a variety of project-based Section 8 programs authorized by the Housing and Community Development Act of 1974, as amended, HUD subsidizes rents at certain multifamily housing developments, which had often received construction subsidies from other HUD programs, with rental assistance payments disbursed under multiyear contracts. 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 (one-third of all HUD-assisted households) and had outlays of roughly $8 billion. In general, only households with low incomes are eligible for HUD project-based Section 8 assistance. HUD’s oversight of the program administrators varies, depending on the program. For vouchers and public housing, HUD field offices provide oversight of PHAs that administer the programs. Field office staff conduct on-site reviews and analysis of PHAs’ operations. For HUD’s Section 8 project-based programs, contract administrators—which include both private contractors and HUD field offices—are responsible for overseeing and ensuring that Section 8 properties are in compliance with HUD’s policies. HUD created RHIIP in the spring of 2001 to assess the magnitude of and reasons for improper payments in its rental housing assistance programs. RHIIP was set up as a direct result of HUD’s analysis of data it collected on improper subsidy payments in fiscal year 2000. The analysis, which HUD issued in a June 2001 report, focused on subsidy errors made by program administrators but did not attempt to determine if the tenants had supplied accurate and complete income information. In 2002, HUD completed a separate evaluation to determine the magnitude of rental assistance errors caused by unreported tenant income. The study matched tenants’ reported incomes with income data from the Internal Revenue Service and the Social Security Administration. 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. To meet this goal, HUD has initiated several program-specific and overarching efforts. HUD has identified three basic sources of errors that have resulted in improper rent subsidy payments and has conducted separate studies for each of these sources to assess the magnitude of the problem and the progress that has been made in meeting RHIIP’s goal of reducing improper subsidies. However, these studies have not provided reliable estimates of the amount of improper subsidies from each source. As part of RHIIP, HUD identified three basic sources of errors that resulted in improper rent subsidy payments: (1) program administrator errors, (2) unreported tenant income, and (3) billing errors. Program administrator errors are the broadest category of errors because, as figure 1 shows, they can affect nearly all of the critical dimensions of the process for determining rent subsidies. In performing their work, program administrators may incorrectly determine rent subsidies by, for example, making calculation and transcription errors or by misapplying 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 their own or another household member’s, to program administrators. These errors generally occur early in the process when the tenant first submits income information to program administrators (see fig. 1). 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 about the sources of income they must disclose. Finally, billing errors occur at the very end of the process (see fig. 1). The procedures program administrators use 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 rent subsidy the program administrator determines and the amount 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. To determine the amounts of improper rent subsidies resulting from program administrator errors, HUD collected data on more than 2,400 randomly selected households participating in the voucher, public housing, and project-based Section 8 programs for fiscal years 2000 and 2003. Our analysis of the documentation and data collected indicated that these studies provided a reasonably accurate estimate of subsidy determination errors made by program administrators. Data from the fiscal year 2003 study show that the department paid an estimated $1.4 billion in gross improper rent subsidies (representing $896 million in overpayments and $519 million in underpayments) as a result of program administrator errors in fiscal year 2003—a 39 percent decrease from fiscal year 2000. The voucher program accounted for about one-half of the total reduction, while public housing and project-based Section 8 each accounted for roughly one-quarter. Because the overpayments exceeded the underpayments, HUD was not able to use an estimated $377 million of its funding to assist needy low-income households. On the basis of the average national subsidy cost of a voucher in 2003—about $6,720, including administrative costs—we estimated that HUD could have provided an additional 56,000 households nationwide with vouchers in fiscal year 2003, nearly the same number of households that currently receive vouchers in the Los Angeles, California, area. Each of the rental assistance programs experienced substantial reductions in gross program administrator error between fiscal years 2000 and 2003— 50 percent for public housing, 35 percent for vouchers, and 32 percent for project-based Section 8 (see fig. 2). These reductions exceeded HUD’s interim RHIIP goal of reducing improper rent subsidies by 15 percent by fiscal year 2003 for this source of error. Many of the initiatives under RHIIP were too recent 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 had probably led to voluntary improvements in internal control activities and likely contributed to these reductions. Future estimates of improper subsidies may show whether further reductions can be made and sustained as the RHIIP initiative matures. For the other two sources of errors—unreported tenant income and billing errors—HUD did not produce complete or reliable estimates for all three programs for fiscal years 2000 and 2003. HUD estimated that the department paid $191 million in fiscal year 2003 in gross improper rent subsidies due to unreported tenant income. However, the small number of files that formed the basis for the estimate and the large variances in the amounts of income tenants did not report resulted in a margin of error so large that the estimate is not meaningful. As a result, the actual amount of improper rent subsidies for this source of error could be as low as zero or many times higher than HUD’s estimate. Despite problems with the estimate, HUD reported that gross improper rent subsidies due to unreported income decreased by 80 percent from fiscal years 2000 to 2003. However, we believe that any comparison between the two estimates is not valid because of the limitations of the fiscal year 2003 estimate and significant differences in the methodology used for each year. HUD also did not produce a complete and reliable estimate of the amount of billing error in fiscal year 2000 for any of the three programs. For fiscal year 2003, HUD has begun to implement a methodology for estimating billing error for vouchers and public housing. For project-based Section 8, HUD estimated approximately $100 million in billing errors for fiscal year 2003, although the small sample size and the concentration of errors in a small number of properties resulted in a large margin of error. HUD has undertaken three separate efforts under RHIIP to address improper rent subsidies for its public housing, voucher, and project-based Section 8 programs.