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 Has Identified and Reduced Certain Types of Payment Errors, but Its Reported Error Rate May Understate the Magnitude of the Problem

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 Identified Improper Payments Caused by Two Types of Errors

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. RHS Reported That Its Estimated Error Rate Declined from Fiscal Years 2007 through 2010

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. RHS’s Estimates of Improper Payments May Be Understated for Several Reasons

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. 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. SSA benefits data. In 2005,  USDA’s Office of the Inspector General (OIG) recommended that  RHS draft legislation that would give RHS access to federal income  and benefits databases, including those maintained by SSA.However, RHS officials told us they had been focused on getting  statutory access to the New Hires database and had not worked on  developing legislation for accessing SSA benefits data. However, RHS did not submit the change to  OMB for review. RHS Uses Required Statistical Methods for Estimating Improper Payments but Has Not Fully Met Reporting, Reduction, and Recovery Requirements

RHS has complied with requirements for using statistically valid methods  to estimate improper payments and has implemented a number of  corrective actions to help address the causes of payment errors. With respect to the accountability issue, OMB guidance requires agencies  to describe the steps they have taken and plan to take to hold agency  managers accountable for reducing and recovering improper payments. HUD took several years to develop and implement a data  matching system and provides guidance, training, and technical  assistance to system users. Data Matching Has Helped HUD to Identify and Reduce Improper Payments Due to Unreported Tenant Income

HUD uses data matching to help identify and reduce improper rental  assistance payments caused by unreported tenant income, also referred  to as income reporting error. According to HUD, HUD staff audit program  administrators quarterly to confirm that they have stopped making  payments on behalf of deceased individuals. By  matching tenant information to these data sources, HUD has been  able to identify, and take actions to reduce and recover, substantial  amounts of improper payments caused by unreported income and  payments to deceased tenants. Although adopting the  $100 threshold was a major change from RHS’s previous method,  RHS did not submit the change to OMB, which is responsible for  approving agency methodologies for estimation. As a result, RHS  lacks assurance that its current approach is appropriate. RHS has not fully implemented steps to hold agency managers  accountable for reducing and recovering improper payments and has  not reported on these accountability steps in USDA’s PAR. As a  result, RHS is not fully complying with OMB guidance and may be  limiting the effectiveness of its actions to address payment errors. In its written comments, USDA said it generally agreed with the  recommendations in our report, but it did not comment on specific  recommendations. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) the extent to which the Rural Housing  Service (RHS) has examined the sources and magnitude of improper  rental assistance payments; (2) the extent to which RHS has complied  with applicable requirements and guidance for estimating, reporting,  reducing, and recovering improper payments; and (3) potential lessons  RHS could learn from the Department of Housing and Development’s  (HUD) efforts that have helped to identify and reduce improper rental  assistance payments. We also interviewed RHS and OMB officials  about RHS’s efforts to comply with improper payments requirements and  guidance. To assess RHS’s use of required or recommended techniques to reduce  and recover improper payments, we reviewed guidance contained in  OMB Circular A-123, a 2010 presidential memorandum on ensuring  payment accuracy through a “Do Not Pay List,” and provisions in IPIA, as  amended by the Improper Payments Elimination and Recovery Act of  2010 (IPERA).
Why GAO Did This Study

RHS, an agency within USDA, paid property owners about $1 billion in fiscal year 2011 to help more than 270,000 low-income rural tenants afford rental housing. Each year, some of RHSs rental subsidy payments are improperthat is, too high or too low. Federal requirements regarding improper payments are set forth in statute and in OMB guidance. GAO was asked to review (1) the extent to which RHS has examined the sources and magnitude of improper rental assistance payments, (2) RHSs compliance with requirements and guidance concerning improper payments, and (3) potential lessons RHS could learn from HUD efforts to identify and reduce improper rental assistance payments. To do this work, GAO analyzed agency data and documents; reviewed statutes and guidance; and interviewed RHS, HUD, and OMB officials.

What GAO Found

The Rural Housing Service (RHS) has identified improper rental assistance payments caused by certain sources of errors, but its reported error rate (total amount improperly paid divided by program outlays) may understate the magnitude of the problem. RHS has identified improper payments resulting from inaccurate calculations of tenant subsidies and incomplete supporting documents. From fiscal years 2007 through 2010, RHS reduced its reported error rate from 3.95 percent (representing $35 million in errors) to 1.48 percent (representing $15 million in errors). However, these figures may be understated because RHS has not estimated improper payments due to unreported tenant income, and it lacks the authority to match tenant data to federal income data for this purpose. These data include the Department of Health and Human Services (HHS) New Hires database and the Social Security Administrations (SSA) data on benefits payments. RHS has proposed legislation to gain access to the HHS data but not the SSA data. Additionally, RHS has not recently estimated payment processing errors and has not strictly adhered to procedures for classifying payments as improper. Further, in 2008, RHS began excluding improper payments of less than $100 from its estimated error rates. However, it did not submit this change to the Office of Management and Budget (OMB), which is responsible for approving agency methodologies for estimation. As a result, RHS lacks assurance that its approach is appropriate.
RHS uses required statistical methods for estimating improper payments but has not fully met requirements for reporting on, reducing, and recovering such payments. Consistent with the Improper Payments Information Act of 2002, as amended, and OMB guidance, RHS examines a statistically valid sample of payments and generates estimates with an acceptable level of precision. RHS also has reported required information, such as actions to address payment errors. However, RHS did not fully comply with the requirement to implement and report steps for holding agency managers accountable for reducing improper payments. In addition, although OMB cites data matching as a way to reduce payment errors, RHS has not used data already available from SSA to detect payments made on behalf of deceased tenants. Further, RHS has yet to institute a recovery audit program in accordance with the Improper Payments Elimination and Recovery Act of 2010, although it plans to do so sometime in 2012. These shortcomings negatively affect the integrity of RHSs subsidy payments.
The Department of Housing and Urban Developments (HUD) use of data matching to reduce improper payments in its rental assistance programs illustrates the potential benefits and challenges of this technique for RHS. HUD developed a web-based system that allows authorized HUD staff and program administrators (e.g., public housing agencies) to match tenant information to HHSs New Hires database and SSA benefits data. According to HUD, the system has helped to reduce income reporting errors and has contributed to a more than threefold decline in total improper payments from fiscal years 2000 through 2010. Negotiating a data-sharing agreement with one agency and fully implementing the data matching system took several years. Additionally, HUD provides extensive guidance, training, and technical assistance to program administrators to help ensure effective use of the system.

What GAO Recommends

To help reduce improper payments caused by unreported tenant income, GAO suggests that Congress should consider authorizing RHS access to HHSs New Hires database and recommends that RHS develop proposed legislation to gain access to SSA benefits data. GAO also recommends that USDA submit RHSs method for estimating improper payments to OMB for review and that RHS take steps to consistently apply procedures for classifying payments as improper, examine improper payments made on behalf of deceased tenants or caused by payment processing errors, and hold agency managers accountable for reducing improper payments. USDA said it generally agreed with GAOs recommendations.