Objectives, Scope, and Methodology

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. HUD Has Identified Sources of Errors but Lacks Complete and Reliable Estimates of Improper Subsidies for Every Source

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 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. Estimated Errors by Program Administrators Declined by 39 Percent between Fiscal Years 2000 and 2003

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. 5). For the public housing program, HUD did not  attempt to estimate billing errors. 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. 6). Furthermore, although HUD conducted over 700 RIM reviews, it did not  collect complete or consistent information from these reviews. 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. HUD Plans to Implement a New Income Verification System but Must First Address Data Security Concerns

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. Once the system is implemented, property owners will be able to  access earned income data from a secure Web site. HUD Will Rely on PBCAs to Address Its Monitoring Effort under RHIIP

HUD plans to rely on PBCAs to monitor property owners’ compliance with  HUD’s policies for determining rent subsidies. 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. The October 2004 meeting concluded with HUD considering performing  more extensive analysis of the various approaches to simplifying its  policies for determining rent subsidies.
Why GAO Did This Study

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.

What GAO Found

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.