105-18, June 12, 1997), which requested that GAO study HUD’s systems for budgeting and accounting for Section 8 rental assistance funds to determine whether HUD’s systems ensure that unexpended Section 8 funds do not reach unreasonable levels and that obligations are spent in a timely manner. Because our review focused on the unexpended balances for the existing portfolio of project-based rental assistance contracts, we did not examine HUD’s budget request for Section 8 contract renewals. Unexpended Section 8 Balances Totaled More Than $59 Billion

As of September 30, 1997, HUD had available about $59.1 billion in unexpended Section 8 project-based funds. These balances consisted of about $3 billion reserved for specific contracts but not yet obligated and about $.7 billion in unreserved funds that carried over into fiscal year 1998. Broadly stated, the funds are (1) obligated to specific Section 8 contracts, (2) reserved for specific Section 8 contracts, or (3) totally unobligated. The first category, called “undisbursed obligations,” is the amount of funds obligated to the Section 8 contracts but not yet disbursed. About $55.4 billion of the funding represents undisbursed obligations; about $3 billion represents funds that are unobligated but reserved; and about $.7 billion represents unobligated and unreserved funds. In the category of “other” programs, HUD had about $170 million in unobligated but reserved funds. In chapter 3, we discuss HUD’s efforts to identify unexpended balances that can be recaptured and used to help meet its future needs for Section 8 project-based funding. Annual Review of Unexpended Balances Is Limited by Weaknesses

HUD’s procedures for identifying and deobligating funds that are no longer needed to meet its contractual obligations do not ensure that all Section 8 project-based balances are evaluated each year and that excess balances are identified and deobligated in a timely manner. For example, we found that some offices did not perform annual reviews of unexpended balances, and some funds that were identified as no longer needed were not deobligated. Thus, invalid obligations are those obligations associated with expired or terminated contracts. More specifically, HUD requested $1.3 billion for contract amendments in fiscal year 1999, whereas more recent HUD analyses, which correct most of the problems we found in the BFS model and update information to reflect more current economic assumptions, indicate that at the end of fiscal year 1998, the Department will have about $1.5 billion in funding that could be used to meet fiscal year 1999 needs. This total includes the following amounts: $833 million in project-based amendment funding that, according to the budget director for the Office of Housing, was appropriated to the Department for fiscal year 1998, including amounts associated with properties funded under the capital advance program for the elderly and disabled; $133 million of Section 8 project-based amendment funds that were unobligated and unreserved at the end of fiscal year 1997 and were carried over for use in 1998; $517 million in project-based funding that we identified in chapter 2 as being no longer needed. While HUD uses a model to perform such analysis, we found a number of errors in the analysis it used for formulating its fiscal year 1999 budget request.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed the Department of Housing and Urban Development's (HUD) systems for budgeting and accounting for Section 8 rental assistance funds, focusing on whether the systems ensure that unexpended Section 8 project-based funds do not reach unreasonable levels and that obligations are spent in a timely manner.

What GAO Found

GAO noted that: (1) as of September 30, 1997, HUD's Section 8 project-based rental assistance program had about $59.1 billion in unexpended balances in three major categories: (a) undisbursed obligations--funds obligated to Section 8 contracts but not yet disbursed; (b) unobligated but reserved funds--balances reserved for specific rental assistance contracts but not yet obligated; and (c) unobligated and unreserved funds--funds that are neither obligated nor reserved for any specific contracts; (2) most of the unexpended balances--$55.4 billion--represent undisbursed obligations associated with approximately 31,000 rental assistance contracts; (3) in addition, at the end of fiscal year (FY) 1997, HUD had about $3 billion in unobligated funds that were reserved for but not yet obligated to specific contracts and about $.7 billion in unobligated and unreserved funds that were carried over for use in 1998; (4) while most of the unexpended balances are needed for HUD to fulfill its commitments to the Section 8 contracts for which the funds have been obligated or reserved, GAO found at least $517 million in unexpended balances that are no longer needed for such purposes and thus could be recaptured by HUD and used to help fund other Section 8 contracts; (5) HUD's procedures for identifying and deobligating funds that are no longer needed to meet its Section 8 contractual obligations are not effective; (6) specifically, the procedures do not ensure that all Section 8 project-based balances are evaluated each year and that any excess balances are identified and deobligated in a timely manner; (7) while HUD's program offices are responsible for reviewing unexpended balances each year to determine whether they are still needed or can be deobligated, GAO found that some offices did not perform annual reviews in 1997 and that some funds identified as being available for deobligation in earlier reviews were not deobligated; (8) in addition, GAO found errors in the process HUD used to identify and take into account unexpended balances when formulating its budget request for FY 1999; (9) as a result, HUD's FY 1999 request for $1.3 billion in amendment funding to cover shortfalls in existing Section 8 contracts was significantly overstated; and (10) more recent analyses that correct most of these errors and update the economic assumptions used indicate that HUD already has sufficient funding available to meet its amendment needs for FY 1999.