Under the U.S. Housing Act of 1937, as amended, Congress created the public housing program to provide decent and safe rental housing for eligible low-income families, the elderly, and persons with disabilities. HUD provides subsidies for operating and maintaining public housing units through the Operating Fund. HUD also provides funds to modernize and develop public housing units through the Capital Fund. Public housing agencies administer these formula grant programs on HUD’s behalf. In using these funds, the agencies are responsible for ensuring that the housing is affordable to eligible low-income households. In 1992, Congress established the Urban Revitalization Demonstration Program, commonly known as HOPE VI, which provides grants to housing agencies to rehabilitate or rebuild severely distressed public housing. The Single Audit Act, as amended, requires state and local governments and nonprofit organizations that expend $500,000 or more in federal awards in a fiscal year to have either a single audit or a program-specific audit. Under a single audit, the auditor must report its opinion on the presentation of the entity’s financial statements and schedule of federal expenditures, and on compliance with applicable laws, regulations, and provisions of contracts or grant agreements that could have a direct and material effect on the financial statements and, when applicable, on any major program of the audited entity. The auditor must also report the results of its review and testing of internal control related to the financial statements and major programs as well as a schedule of any audit findings and questioned costs. Public housing agencies subject to the act must submit audit reports to HUD and to the Federal Audit Clearinghouse. Single audit is a key assurance process used by HUD in its oversight of public housing agencies. Single auditors are required by the act to identify and test programs for compliance with specific program requirements and report identified findings (or the lack thereof), which can include those of inappropriate use and mismanagement of funds. HUD’s Real Estate Assessment Center (REAC), which is responsible for reviewing housing agencies’ financial data, began tracking the status of single audit findings in 2007 using the Monitoring and Planning System (MAPS) Audit Tracking Module. Through this tracking system, HUD monitors the resolution of audit findings. HUD maintains an additional system, the Audit Resolution and Corrective Action Tracking System (ARCATS), to monitor the status of management and financial findings issued by our or OIG’s recommendations. HUD’s PHAS is another key oversight process. While single audits may identify specific instances of inappropriate use or mismanagement of public housing funds, PHAS was developed to evaluate the overall condition of housing agencies and measure performance in major operational areas of the public housing program. These include financial condition, management operations, and physical condition of the housing agencies’ public housing programs as well as resident satisfaction with the programs (see fig. 1). The Financial Assessment Subsystem (FASS) component score is based on six financial data analyses that HUD has determined to be key in evaluating housing agencies’ financial condition. These include the following: the current ratio, which measures the housing agency’s ability to cover its short-term obligations; the months expendable funds balance ratio, which measures the housing agency’s reserves for unexpected expenses; the tenant receivables outstanding, which measures how well the housing agency manages rent collections; the occupancy loss, which measures how well the housing agency maximizes its revenue by renting out vacant units; the expense management, which measures whether the housing agency has adequate cost controls to manage expenses; and the net income, which measures whether the housing agency is spending more than it makes. Housing agencies with scores of less than 60 percent in either the overall PHAS score (less than 60 points out of a total 100 points) or in any one of the major subcomponents, including the FASS (less than 18 points out of 30 points), are designated as substandard performers, also known as troubled. For example, points may be deducted from housing agencies’ FASS scores if the six financial analyses indicate that housing agencies are experiencing overall financial difficulties that may threaten the stability of the housing agency. According to HUD officials, although housing agencies’ financial data are usually audited, REAC analysts also review financial data to ensure the accuracy of information that is used to calculate the FASS scores. For example, REAC analysts examine specific line items in the financial data, investigate changes or discrepancies in amounts reported, and review auditors’ notes. HUD field offices establish mechanisms to identify and correct deficiencies if a housing agency is designated as a troubled performer in either the PHAS overall score or the FASS subcomponent. Such mechanisms may include the development of an improvement plan or a memorandum of agreement. If technical assistance and sanctions fail to result in significant improvement within a year, the housing agency is referred to the HUD Enforcement Center, which may institute proceedings to place the agency in receivership and remove failed agency management. Receiverships generally result from long-standing, severe, and persistent management problems that have led to the deterioration of the public housing stock. Single audits, HUD’s primary tool for overseeing the use of public housing funds, are intended to, among other things, promote sound financial management by serving as a key accountability mechanism in the oversight and monitoring of recipients’ use of federal funds. Single audits provide federal agencies with information on the use of federal funds, internal control deficiencies, and compliance with federal program requirements. The Single Audit Act that mandated the audits does not require the auditors to perform procedures that focus specifically on all federal programs that housing agencies administer. Instead, auditors are to select and closely audit “major” programs administered by the recipient of the funds—typically large or risky programs—for compliance with specific program requirements, including the appropriate use of funds. In addition to single audits, OIG selects various housing agencies to audit as part of its oversight of HUD’s public housing program. HUD’s strategic goals for its public housing program call for the department to resolve issues identified by these audits and improve its management of internal controls to, among other things, eliminate fraud, waste, and abuse. However, both HUD’s quality assurance office and a recent study conducted by PCIE have identified problems with single audits of housing agencies. OIG also identified problems with single audits after conducting detailed reviews of housing agency operations as part of its oversight process. Both OIG’s audits and quality assurance reviews by HUD have, in some cases, resulted in disciplinary action for single auditors. HUD quality control reviews cover housing agency audits as well as audits of other entities that receive HUD financial assistance. According to data from HUD’s Quality Assurance Subsystem, 52 of the 247 quality assurance reviews it conducted between 2000 and 2008 resulted in referrals for firms auditing entities receiving HUD funding. According to HUD, many of these included public housing agency audits. Examples of problem public housing agency audits include the following: Single audits for the Miami-Dade Housing Authority (MDHA) did not identify significant instances of inappropriate use and mismanagement of funds. In 2006, a media investigation provided extensive coverage of problems with public housing funds at the agency. HUD stated that MDHA’s single audits should have alerted the department to these problems, but they did not. Instead, HUD stated that it learned about the allegations of misuse and mismanagement of funds from the Miami Herald newspaper in 2006. In response to these allegations, HUD ordered a detailed review and new single audit of the housing agency that found serious and pervasive financial and management problems, including deficiencies in financial management, mismanagement of development funds, and several apparent conflicts of interest. MDHA went into receivership in 2007, with HUD taking possession and control of all of MDHA’s activities, including public housing. In 2007, OIG found that the Dallas Housing Authority had inaccurate, unreliable, and altered records. Further, OIG noted that the firm conducting the 2006 single audit had failed to meet professional auditing standards. State authorities took disciplinary action against the auditing firm in 2007. According to HUD, the Dallas Housing Authority engaged this firm after it had removed an earlier auditing firm that had identified problems with the housing agencies’ financial management. Also in June 2007, PCIE issued its Report on National Single Audit Sampling Project, which concluded that there were problems with audit quality that needed to be addressed and made recommendations. Specifically, PCIE reviewed a nationwide sample of 208 out of more than 38,000 single audits performed on various grant recipients that were submitted for the period between April 1, 2003, and March 31, 2004. According to the HUD OIG, the PCIE sample included single audits of 11 housing agencies, of which 6 were determined to be unacceptable, 1 was found to have limited reliability, and 4 were determined to be acceptable, but with deficiencies. In a 2007 GAO testimony at a congressional hearing on the PCIE study, we noted that problems with the quality of single audits were unacceptable and that we were concerned that audits were not being conducted in accordance with professional standards and requirements. We also noted that such audits could mislead users of audit reports, causing them to incorrectly conclude that agencies were in compliance with program requirements or did not have weaknesses in internal controls when in fact such problems might exist but had gone undetected. However, we also noted continued support for single audits as a key oversight mechanism over federal awards. Compounding the problems with the quality of audits is the fact that many housing agencies’ public housing programs may not have to undergo the detailed major program compliance testing that could potentially uncover inappropriate use and mismanagement of public housing funds.