The Section 521 rental assistance program, authorized in 1974, is administered by RHS’s Multi-Family Housing Portfolio Management Division and its network of state and local offices. The program provides rental assistance for tenants living in properties created through RHS’s Multi-Family Direct Rural Rental Housing Loans and Multi-Family Housing Farm Labor Loans programs. These programs provide loans subsidized with interest rates as low as 1 percent to help build rental housing for rural residents and farm workers. Under the rental assistance program, eligible tenants pay up to 30 percent of their income toward the rent, and RHS pays the balance to the property owner. In fiscal year 2011, RHS paid $1.08 billion in subsidies to provide rental assistance to more than 270,000 households residing in 13,211 different properties. RHS pays the subsidies monthly to property owners through multiyear, renewable contracts. The Section 521 program is not an entitlement and, therefore, not all eligible households receive assistance. Section 521 rental subsidies are based on tenant households’ adjusted annual income—that is, gross income less any exclusions and deductions. For purposes of determining adjusted income, the Section 521 program follows the same regulations as HUD’s rental assistance programs. These regulations provide for over two dozen types of income exclusions and deductions. For example, income from minors, student financial aid, and qualifying employment training programs are excluded when determining households’ eligibility to receive assistance and calculating rental subsidies. Examples of income deductions include standard deductions for dependents ($480) and elderly and disabled family members ($400) and unreimbursed child care expenses that are necessary for a family member to remain employed. RHS requires property managers to certify the eligibility of assisted tenants at least annually. As shown in figure 1, property managers do so based on information from tenants on income and applicable exclusions and deductions. RHS policy requires property managers to independently verify this information with third parties. To obtain third-party verification, property managers must directly contact employers, welfare offices, health care providers, and others (depending on what information tenants provide) to ensure that the information is accurate and complete. Property managers must maintain documentation of verified information in the tenant’s file and input the information into a Tenant Certification form, which the tenant signs and dates. The property manager then submits the Tenant Certification form to RHS.tenants every year, and whenever a tenant’s income changes by $100 or more per month, or at the tenant’s request whenever the tenant’s income changes by at least $50 per month. RHS’s improper payments audits have identified rental assistance payments that were improper because of incorrectly calculated subsidy amounts and incomplete tenant file documentation. RHS has reported that these types of improper payments have declined since fiscal year 2007; however, RHS’s reported estimated error rate may be understated. Since 2005, RHS has conducted an annual improper payments audit that identifies sources of payment errors and estimates the magnitude of improper payments in RHS’s rental assistance program. To complete the annual audit, staff from RHS’s Centralized Servicing Center (CSC) examine a random sample of all rental assistance payments made in a given fiscal year. For each rental assistance payment in the sample, CSC staff request the associated tenant file from the property manager and review the file documentation to determine the correct amount of rental assistance that the property owner should have received for that tenant. The CSC staff then compare these calculations with the actual payments in RHS’s records to identify any discrepancies and provide RHS’s Multi-Family Housing Portfolio Division with a summary of the types and magnitude of errors found in the sample. RHS statisticians project the results of CSC’s calculations to the entire universe of rental assistance payments to develop a programwide estimate for improper payments. In recent years, RHS’s improper payments audits have identified rental assistance payments that were improper for two reasons: (1) the property manager incorrectly calculated the amount of tenant income on which the subsidy payment is based and (2) the tenant file did not contain sufficient documentation to support the subsidy payment. Incorrect income calculation. Property managers request rental assistance subsidies from RHS after determining tenants’ adjusted monthly incomes. This process involves collecting and verifying income information from tenants and subtracting applicable exclusions and deductions from the tenant’s gross income. The rent subsidy is the difference between 30 percent of the tenant’s adjusted monthly income and the USDA-approved rent for the unit. As previously noted, RHS regulations provide for numerous types of income exclusions and deductions. Due partly to the number and complexity of these exclusions and deductions, property managers sometimes make errors in calculating adjusted monthly incomes, leading to subsidy payments in the wrong amounts. Insufficient documentation. The primary documentation required for a payment to be considered proper is the Tenant Certification form, which should be signed and dated prior to the property manager’s subsidy request. Among other things, the certification documents a tenant’s income, assets, household composition, and disability status. Depending on the tenant’s circumstances, other required documents may include documentation of Social Security benefits and medical bills. If a tenant file does not have complete documentation, RHS auditors consider the entire subsidy payment to be improper. RHS reported a decline in its estimated gross error rate (gross improper payments divided by program outlays) from 3.95 percent in fiscal year 2007 to 1.48 percent in fiscal year 2010, the most recent year for which RHS has an estimate. As shown in table 1, this represented a decrease in the estimated dollar amount of gross improper payments from $35 million to $15 million over a period in which total program outlays increased by more than $130 million. The $15 million in estimated improper payments that RHS reported for fiscal year 2010 consisted of $12 million in overpayments and $3 million in underpayments, for a net estimated overpayment of $9 million. Assuming a monthly subsidy payment of $318—the average amount in RHS’s sample of fiscal year 2010 payments—$9 million is the equivalent of annual subsidy payments to more than 2,300 households. RHS’s estimated error rates of 1.39 percent for fiscal year 2009 and 1.48 percent for fiscal year 2010 are below the current IPIA threshold for programs considered susceptible to significant improper payments, but they are close to the revised threshold that will take effect in fiscal year 2013. As previously noted, IPIA, as amended, currently defines significant improper payments as those that exceed both 2.5 percent of program outlays and $10 million annually, or $100 million regardless of the percentage of program outlays. Agencies must estimate improper payments for susceptible programs using a statistically valid methodology and report these estimates to OMB each fiscal year. OMB implementing guidance for IPIA, as amended, will reduce the percentage threshold for susceptible programs from 2.5 percent to 1.5 percent starting in fiscal year 2013. A program with estimated improper payments below the percentage threshold for 2 consecutive years may request relief from the annual reporting requirement. Although RHS’s rental assistance program has been below the 2.5 percent threshold for the last 3 years, RHS has not requested relief from OMB on the annual reporting requirement. RHS officials told us they did not plan on requesting relief in the future because annually estimating improper payments and reporting the results has produced useful information that has helped RHS hold property managers accountable for compliance with program requirements. RHS’s estimated error rate may be understated because its improper payments audit does not examine some types of errors, excludes improper payments of less than $100 from its error rate estimates, and does not count all payments to tenants with undated certifications as improper. RHS’s annual audits do not examine three additional sources of payment errors and therefore may understate RHS’s error rate (see fig. 2). First, the audits do not check for an improper payment caused by a tenant not reporting all sources of income (intentionally or otherwise). RHS bases its rental subsidies, in part, on income information reported from tenants. RHS policy requires property managers to verify this information with third parties such as employers and welfare offices, but third-party verification may not identify all unreported income (for example, if a tenant discloses income from only one of two part-time jobs). If tenants do not report all of their sources of income, the rental subsidies calculated for the tenants may be too high and result in improper payments. RHS officials told us the improper payments audits do not examine unreported income because RHS does not have access to data that could readily identify unreported amounts. Two sources of such data are the Department of Health and Human Services’s (HHS) National Directory of New Hires (New Hires database) and the Social Security Administration’s (SSA) data on Social Security and Supplemental Security Income benefits as follows: New Hires database. This national database compiles information reported by employers to state workforce agencies and information from federal agencies. It contains information on newly hired employees, quarterly wage information for each job held by an employee, and unemployment insurance information on individuals who have received or applied for unemployment. In a prior report, we said that Congress should consider amending the Social Security Act to grant RHS access to the New Hires database for purposes of detecting unreported income. If such access were granted, RHS would have to develop a specific matching agreement with HHS, in accordance with the Computer Matching and Privacy Protection Act of The President’s budget for fiscal year 2013 contains proposed 1988.legislation that, if enacted, would give RHS this access. RHS currently has agreements with 31 states that give RHS offices in those states access to state wage data.