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Report to the Chairman, Subcommittee on Housing and Community 
Opportunity, Committee on Financial Services, House of Representatives: 

February 2005: 

HUD Rental Assistance: 

Progress and Challenges in Measuring and Reducing Improper Rent 
Subsidies: 

GAO-05-224: 

GAO Highlights: 

Highlights of GAO-05-224, a report to the Chairman, Subcommittee on 
Housing and Community Opportunity, Committee on Financial Services, 
House of Representatives

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. 

What GAO Recommends: 

GAO makes recommendations designed to improve HUD’s oversight of the 
process for determining rental subsidies in its housing assistance 
programs. GAO also recommends that HUD study the potential impacts of 
alternatives for simplifying the rent determination process. HUD agreed 
with GAO’s recommendations to improve its program oversight but said 
that the report did not fully present the significance and impact of 
HUD’s efforts under RHIIP. 

www.gao.gov/cgi-bin/getrpt?GAO-05-224. 

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact David G. Wood at (202) 512-8678 or 
woodd@gao.gov. 

[End of section]

Contents: 

Letter: 

Executive Summary: 

Purpose: 

Background: 

Results in Brief: 

Principal Findings: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Chapter 1: Introduction: 

HUD's Rental Assistance Programs Vary in Size and Are Administered 
Differently: 

HUD's Oversight of Program Administrators Varies among Programs: 

Tenant Rents under Rental Assistance Programs Are Generally Based on 
Income: 

HUD Established RHIIP to Respond to Ongoing Problems with Improper Rent 
Subsidy Payments: 

Objectives, Scope, and Methodology: 

Chapter 2: HUD Has Identified Sources of Errors but Lacks Complete and 
Reliable Estimates of Improper Subsidies for Every Source: 

HUD Has Attempted to Estimate the Improper Subsidies Caused by Each 
Identified Source of Error: 

Estimates of Improper Subsidies Due to Errors by Program Administrators 
Appear Reasonably Accurate and Show a Decline: 

Fiscal Year 2003 Estimate of Improper Subsidies Due to Unreported 
Tenant Income Is Not Reliable: 

HUD's Estimate of Improper Subsidies Due to Billing Errors Is 
Incomplete: 

Agency Comments and Our Evaluation: 

Chapter 3: HUD Is Addressing Improper Payments for Public Housing and 
Vouchers, but Implementation Problems Hampered Efforts: 

HUD Supplemented Monitoring of PHAs with On-site Reviews but Had 
Problems Implementing Them: 

HUD's New System for Verifying Tenants' Incomes Has Limitations: 

HUD's Training and Guidance for PHAs Was Not Always Adequate or Timely: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Chapter 4: HUD Is Improving Oversight of Rent Subsidy Determinations 
for Project-Based Section 8, but Challenges Remain: 

HUD Has Improved Guidance and Training, but a Key Element of the 
Guidance Was Not Widely Followed: 

HUD Plans to Implement a New Income Verification System but Must First 
Address Data Security Concerns: 

HUD Will Rely on PBCAs to Address Its Monitoring Effort under RHIIP: 

Agency Comments and Our Evaluation: 

Chapter 5: HUD is Considering Approaches for Simplifying Rent Subsidy 
Policies, but these Approaches Need More Study

HUD Is in the Initial Stages of Considering Approaches for 
Simplification of Rent Subsidy Policies and Has Not Conducted Formal 
Study of These Approaches: 

HUD's Current Policies for Determining Rent Subsidies Are Complex: 

Simplifying the Process for Determining Rent Subsidies Could Affect 
Tenants and Pose Implementation Challenges: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Data Tables: 

Appendix II: Information on HUD's Policies for Determining Rent 
Subsidies: 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Staff Acknowledgments: 

Tables: 

Table 1: Summary of HUD's Efforts to Address Sources of Errors for the 
Voucher and Public Housing Programs: 

Table 2: Ratio of Staff to RIM Reviews, Selected HUD Field Offices: 

Table 3: Summary of HUD's Efforts to Address Sources of Errors for 
Project-Based Section 8 Programs: 

Table 4: Estimated Total Gross Improper Rent Subsidies Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Table 5: Estimated Gross Improper Rent Subsidies per Household 
Attributable to Program Administrator Error, Fiscal Year 2003: 

Table 6: Estimated Subsidy Overpayments Attributable to Program 
Administrator Error, Fiscal Year 2003: 

Table 7: Estimated Subsidy Overpayment per Household Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Table 8: Estimated Subsidy Underpayments Attributable to Program 
Administrator Error, Fiscal Year 2003: 

Table 9: Estimated Subsidy Underpayments per Household Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Table 10: Estimated Dollar and Percent Change in Rent under 30 Percent 
of Gross Income Simplification Proposal, Fiscal Year 2003: 

Table 11: Estimated Dollar Change in Rent under 30 Percent of Gross 
Income Simplification Proposal, Fiscal Year 2003: 

Table 12: Estimated Average Dollar and Percent Change in Rent under 
HUD's "27/30" Simplification Proposal, Fiscal Year 2003: 

Table 13: Estimated Dollar Change in Rent under HUD's "27/30" 
Simplification Proposal, Fiscal Year 2003: 

Figures: 

Figure 1: HUD's Oversight Structure of Rental Assistance Programs: 

Figure 2: Process for Determining Rent Subsidies: 

Figure 3: Estimated Gross Improper Rent Subsidies Due to Program 
Administrator Error, Fiscal Years 2000 and 2003: 

Figure 4: Median Monthly Gross Improper Rent Subsidy per Household Due 
to Program Administrator Errors, Fiscal Years 2000 and 2003: 

Figure 5: Estimated Rent Subsidy Overpayments and Underpayments Due to 
Errors Made by Program Administrators, Fiscal Year 2003: 

Figure 6: Timing of First-and Second-Round RIM Reviews: 

Figure 7: Percentage of PHAs without Comparable Data for First-and 
Second-Round RIM Reviews: 

Figure 8: Timing of Training and RIM Reviews: 

Figure 9: Earned Income Allowance Timeline (Full Exclusion and Phase-In 
Periods Over Consecutive Months): 

Figure 10: Excerpt from HUD Family Report: 

Abbreviations: 

AMI: area median income: 

EID: earned income disallowance: 

HUD: Department of Housing and Urban Development: 

OIG: Office of Inspector General: 

PBCA: performance-based contract administrator: 

PHA: public housing agency: 

PHAS: Public Housing Assessment System: 

PHMAP: Public Housing Management Assessment Program: 

RHIIP: Rental Housing Integrity Improvement Project: 

RIM: Rental Integrity Monitoring: 

SEMAP: Section 8 Management Assessment Program: 

TRACS: Tenant Rental Assistance Certification Program: 

Letter February 18, 2005: 

The Honorable Robert W. Ney: 
Chairman, Subcommittee on Housing and Community Opportunity: 
Committee on Financial Services: 
House of Representatives: 

Dear Mr. Chairman: 

This report responds to your request that we evaluate issues related to 
improper rent subsidy payments in the Department of Housing and Urban 
Development's (HUD) housing assistance programs. Specifically, this 
report examines (1) the sources and magnitude of improper payments that 
HUD has identified, (2) the actions HUD is taking under its Rental 
Housing Integrity Improvement Project (RHIIP) to reduce improper 
payments in the Housing Choice Voucher (voucher) and public housing 
programs and the status of these initiatives, (3) the actions HUD is 
taking under RHIIP to reduce improper payments in its project-based 
Section 8 programs 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. 
This report includes recommendations to the HUD Secretary. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested Members of Congress and Congressional Committees. We will 
also send copies to the HUD Secretary and make copies available to 
others upon request. In addition, this report will be available at no 
charge on the GAO Web site at [Hyperlink, http://www.gao.gov]. 

This report was prepared under the direction of Steven Westley, 
Assistant Director. If you or your staff have any questions about this 
report, please contact me at (202) 512-8678 or [Hyperlink, 
woodd@gao.gov] or Mr. Westley at (202) 512-6221 or w [Hyperlink, 
westleys@gao.gov]. Major contributors to this report are listed in 
appendix IV. 

Sincerely yours,

Signed by: 

David G. Wood: 
Director, Financial Markets and Community Investment: 

[End of section]

Executive Summary: 

Purpose: 

The Department of Housing and Urban Development (HUD) expended about 
$28 billion in fiscal year 2003 for rent subsidies to public housing 
agencies (PHA) and property owners to make rents affordable to about 5 
million low-income tenants. These subsidies accounted for almost 75 
percent of the department's total expenditures. Yet every year HUD 
makes improper payments under these programs because it cannot ensure 
that tenant rental payments and subsidies are calculated correctly. 
Because of their vulnerability to waste, fraud, and abuse, GAO has 
designated HUD's rental assistance programs as high risk since early 
2001.[Footnote 1] In addition, the President's Management Agenda for 
Fiscal Year 2002 identified HUD's rental assistance programs as one of 
nine program areas that had severe management challenges and that 
needed immediate reform.[Footnote 2] In response to these assessments, 
HUD established the Rental Housing Integrity Improvement Project 
(RHIIP) to increase accountability and reduce improper subsidy 
payments. 

The Chairman of the House Subcommittee on Housing and Community 
Opportunity, Committee on Financial Services, asked GAO to examine 
HUD's efforts to reduce improper rental assistance payments in its 
voucher, public housing, and project-based Section 8 programs. 
Specifically, this report discusses (1) the sources and magnitude of 
improper payments that HUD has identified, (2) the actions HUD is 
taking under RHIIP to reduce improper 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 its 
project-based Section 8 programs 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. To address these objectives, GAO obtained and analyzed data on 
improper payments that HUD collected for fiscal years 2000 and 2003. We 
also interviewed officials from HUD's headquarters and field offices, 
PHAs, and contract administrators; examined laws, regulations, 
policies, and guidance related to subsidy determinations; and reviewed 
relevant HUD reports and studies. Chapter 1 provides the details of our 
scope and methodology. We conducted our work between February and 
December 2004 in accordance with generally accepted government auditing 
standards. 

Background: 

HUD offers assistance to low-income renters through three major 
programs: voucher, public housing, and project-based Section 8. Under 
each program, HUD makes up the difference between a unit's monthly 
rental cost (or, for public housing, the operating cost) and the 
tenant's payment, which is generally equal to 30 percent of the 
tenant's adjusted monthly income. PHAs administer the voucher and 
public housing programs, and private property owners administer the 
project-based Section 8 programs. These program administrators are 
responsible for ensuring that tenants meet HUD's eligibility criteria 
and for accurately determining rent subsidies. 

HUD established RHIIP in 2001 with a goal of reducing the estimated 
dollar amount of improper rent subsidies by 50 percent from fiscal 
years 2000 (baseline year) to 2005. To accomplish this goal, HUD 
initiated three program-level efforts designed to (1) increase 
monitoring of program administrators, (2) establish an income 
verification system that allows PHAs and property owners to compare 
income information reported by tenants with income information from 
government agencies, and (3) providing additional training and guidance 
for program administrators. HUD also initiated two overarching efforts 
under RHIIP that are aimed at measuring the amount of improper 
subsidies and simplifying rent subsidy policies. 

Results in Brief: 

HUD has identified three sources of errors that result in improper rent 
subsidy payments: (1) incorrect 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 identify the amount 
of improper rent subsidies attributable to each source of error but has 
developed reliable estimates for only one of the three sources--program 
administrator errors--for fiscal years 2000 and 2003. HUD paid an 
estimated $1.4 billion in gross improper subsidies (the sum of both 
overpayments and underpayments) in fiscal year 2003 as a result of such 
errors. While this amount represents a 39 percent decrease in such 
errors since fiscal year 2000, HUD officials stated that the decline 
cannot be attributed entirely to RHIIP because many of the key efforts 
were in the early stages of implementation in 2003. HUD does not have 
reliable estimates for unreported tenant income or billing errors. 

HUD has made several program-level efforts under the RHIIP initiative 
to address improper rent subsidies for its public housing and voucher 
programs. An important part of these efforts was the Rental Integrity 
Monitoring (RIM) review, HUD's on-site assessment of PHAs' compliance 
with the department's policies for determining rent subsidies that were 
conducted from 2002 to 2004. However, these reviews, while important, 
were hampered by implementation problems, including a lack of clear 
policies and procedures. Further, HUD has not incorporated the reviews 
into its routine oversight activities. While HUD has established a 
database to track the results of RIM reviews, the data are incomplete 
and inconsistent, limiting their usefulness in analyzing the results of 
the assessments and measuring improvements in PHAs' determinations of 
rent subsidies. HUD has begun implementing a new Web-based tenant 
income verification system, which is expected to reduce improper rent 
subsidies due to tenant underreporting of income. HUD lacks a reliable 
estimate of improper payments attributable to billing errors in these 
programs and, as of December 2004, did not have an effort in place 
specifically to address billing errors. 

HUD has undertaken RHIIP efforts for its project-based Section 8 
programs but faces several challenges. First, HUD has improved its 
policies and guidance for property owners. However, a key part of the 
guidance calling for contract administrators to collect information on 
improper rent subsidies at each property was not widely followed partly 
because the data collection effort was not mandatory and duplicated 
some contract administrators' existing procedures. Second, it plans to 
implement a new Web-based income verification system but not until 
fiscal year 2006 after it has taken necessary security precautions 
against improper disclosure of income information. Finally, HUD plans 
to rely on performance-based contract administrators (PBCA) to monitor 
property owners' compliance with department policies for calculating 
subsidies. Although HUD's requirements for PBCAs call for extensive 
monitoring of the subsidy determination process, HUD may face 
challenges in ensuring that PBCAs follow these requirements. 

According to HUD, the complexity of the existing policies is one of the 
reasons program administrators have difficulty calculating rent 
subsidies correctly. HUD is considering ways to simplify its policies 
for determining rent subsidies and is meeting with program 
administrators and other interested groups to discuss possible 
approaches. Currently, three potential approaches to simplifying 
policies for determining subsidies are being examined: (1) basing rents 
on tenants' income but using few or no exclusions or deductions, (2) 
setting flat rents for different income tiers, and (3) a mixed 
approach. Changes to current policies for determining rent subsidies 
could result in higher rents for some tenants and lower rents for 
others. For example, some tenants might be required to pay more if 
certain income exclusions and deductions for which they currently 
qualify are eliminated. In addition, implementing simplified policies 
could be difficult, creating confusion among program administrators and 
tenants in the short term. 

Principal Findings: 

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

To determine the amounts of improper rent subsidies resulting from 
program administrator errors, HUD collected data on more than 2,400 
randomly selected households participating in the voucher, public 
housing, and project-based Section 8 programs for fiscal years 2000 and 
2003. GAO's analysis of the documentation and data collected indicated 
that these studies provide a reasonably accurate estimate of the 
subsidy determination errors that the program administrators made. Data 
from the fiscal year 2003 study showed that the department paid an 
estimated $1.4 billion in gross improper rent subsidies (representing 
$896 million in overpayments and $519 million in underpayments) as a 
result of program administrator errors in fiscal year 2003--a 39 
percent decrease from fiscal year 2000.[Footnote 3] GAO estimates that, 
if these errors had not occurred, HUD could have provided vouchers to 
56,000 additional households in fiscal year 2003--approximately the 
same number of households that receive vouchers in the Los Angeles, 
California, area. 

For the other two sources of errors, HUD did not produce complete or 
reliable estimates for all three programs for fiscal years 2000 and 
2003. More specifically, HUD's fiscal year 2003 estimate of improper 
rent subsidies attributable to unreported tenant income was unreliable 
because it was based on a sample that was too small to produce a more 
precise dollar estimate. Also, significant differences in the 
methodologies HUD used to make the fiscal year 2000 and 2003 estimates 
suggest that any comparison between the estimates would be invalid. 
Furthermore, HUD has had difficulty making an accurate estimate of 
billing errors for the project-based Section 8 programs for fiscal year 
2003 and does not plan to make estimates for the voucher and public 
housing programs until September 2005. However, according to HUD, the 
low incidence of unreported income and billing errors identified in its 
studies indicate that these two sources of errors are likely small 
relative to program administrator error. 

Although HUD Has Taken Action to Reduce Improper Rent Subsidies in the 
Public Housing and Voucher Programs, Implementation Problems Have 
Hampered Its Efforts: 

HUD has undertaken several efforts under RHIIP to address improper rent 
subsidies for its public housing and voucher programs. These efforts 
addressed two of the three sources of errors--program administrator 
errors and unreported tenant income. As of December 2004, HUD did not 
have an effort in place specifically to address billing errors. 

To increase monitoring of PHAs' subsidy determinations, HUD field 
office staff completed RIM reviews at 722 PHAs between June 2002 and 
September 2003. From April 2003 through October 2004, the field offices 
conducted additional reviews at 363 PHAs to determine whether the PHAs 
had corrected problems identified during the original reviews. However, 
GAO found that the RIM reviews were hampered by implementation 
difficulties. For example, officials at several HUD field offices 
reported that they did not have enough staff to perform RIM reviews in 
a timely manner. Additionally, field offices did not always follow 
policies and procedures for conducting reviews--for instance, by not 
adequately supporting findings in their RIM review reports. Further, 
problems with a database containing information on RIM reviews 
prevented HUD from analyzing the results of the reviews to assess 
improvements in PHAs' calculations of tenant subsidies and provide 
technical assistance to PHAs. Specifically, HUD staff did not always 
enter information in the database because, according to HUD officials, 
field offices had not submitted the data in a timely manner and 
headquarters lacked staff to manage data collection and entry tasks. 
Although RIM reviews are not a regular part of HUD's oversight 
activities, HUD is considering permanent on-site monitoring of PHAs' 
subsidy determinations but has not yet decided whether to implement it. 

HUD has implemented a Web-based income verification system and has 
provided training and guidance for PHAs. HUD expects that the income 
verification system will help PHAs detect underreported and unreported 
tenant income and yield an estimated $6 billion in savings for all of 
its programs over a 10-year period. HUD has provided more training and 
guidance to PHAs on topics such as how to calculate subsidies and 
improve quality control procedures. However, these efforts have not 
always been adequate or timely. For example, although HUD sponsored 
training on its subsidy determination policies in early 2004 to prepare 
PHAs for RIM reviews, the training was held after most RIM reviews had 
been completed. Had the training been held prior to the RIM reviews, 
PHAs might have been better able to understand the basis for the RIM 
review findings and the corrective actions needed to address them. 

HUD Has Made Efforts to Strengthen Oversight of Rent Subsidy 
Determinations in Project-Based Section 8, but Challenges Remain: 

HUD has begun to implement efforts under RHIIP that address all three 
sources of errors in its project-based Section 8 programs, but the 
department faces several challenges in carrying out these initiatives. 
First, HUD has improved its policies and guidance for its project-based 
Section 8 programs. However, contract administrators have not always 
followed a key part of the guidance that called for them to collect 
information on improper rent subsidies at each property because the 
data collection effort was not mandatory and duplicated some contract 
administrators' existing procedures. Second, HUD plans to use the same 
Web-based income verification system it is implementing for its voucher 
and public housing programs for its project-based Section 8 programs. 
Because HUD must resolve security concerns about improper disclosure of 
tenant income information to private property owners, the system will 
not be used for the project-based Section 8 programs until fiscal year 
2006. 

Finally, HUD plans to rely on PBCAs to monitor property owners' 
compliance with HUD's policies for determining rent subsidies. For the 
past several years, HUD has been transferring responsibility for 
overseeing property owners to PBCAs from other types of contract 
administrators. HUD has transferred contract administration 
responsibilities to PBCAs because its field offices lack the resources 
to adequately monitor properties. HUD requires PBCAs to perform 
extensive annual reviews of properties' operations, including reviewing 
owners' rent subsidy calculations. To ensure that the PBCAs meet HUD's 
performance standards, HUD has developed a comprehensive oversight 
program. Implementing these oversight measures, however, could pose 
challenges for HUD. 

HUD Is Considering Simplifying Policies for Determining Rent Subsidies, 
but the Effects of These Changes Require Further Study: 

As part of RHIIP, HUD is considering ways to simplify its policies for 
determining rent subsidies but has not formulated a specific proposal. 
According to HUD, the complexity of the existing policies contributes 
to errors in determining subsidies. For example, program administrators 
currently must determine tenants' eligibility for 44 different income 
exclusions and deductions in order to calculate rent payments and 
subsidies. HUD is considering several approaches for simplifying rent 
subsidy policies, including: 

* an income-based approach that would set tenants' rents at a 
percentage of income, possibly with a limited number of exclusions and 
deductions or none at all;

* a tiered flat-rent system that would establish tenants' rents for 
several income bands and eliminate the need to readjust rents because 
of income changes, provided the changes were within the same band; and: 

* a mixed approach that would give program administrators various rent 
structures to choose from, including income-based and tiered flat 
rents. 

Adopting any simplification approach would represent a change from 
current policies. Because most of HUD's policies have a basis in 
statute, major changes are likely to require congressional action. 
Under any simplification approach, many tenants' rental payments could 
be affected, with some tenants paying higher rents and others paying 
lower rents--for example, if the current system of income deductions 
and exclusions is altered or eliminated, some tenants could end up 
paying more in rent. HUD staff have conducted a preliminary analysis of 
the impact of some simplification approaches on tenants' rental 
payments and program costs. However, the department has not conducted a 
formal study on the impact of policy changes to inform policymakers on 
this issue. 

Recommendations for Executive Action: 

To ensure that HUD continues to reduce improper subsidies in its public 
housing and voucher programs, we recommend that the HUD Secretary make 
regular monitoring of PHAs' compliance with HUD's policies for 
determining rent subsidies as a permanent part of HUD's oversight 
activities. Also, we recommend that the Secretary study the potential 
impacts on tenant rental payments and program costs of alternative 
strategies for simplifying program policies. 

Agency Comments and Our Evaluation: 

We provided HUD with a draft of this report for review and comment. HUD 
provided general comments in a letter from the Deputy Secretary, which 
are discussed in detail at the end of chapters 2, 3, 4, and 5. The 
letter is printed in appendix III. The department also provided 
technical comments that we incorporated where appropriate. 

HUD stated that our draft report did not fully present the impact of 
HUD's efforts under RHIIP. For example, HUD said that the draft report 
did not recognize the department's outreach, guidance, and training 
efforts as contributing factors to the reduction in estimated improper 
payments. Although the draft report discussed these efforts, we added 
language to the final report to incorporate HUD's view that these 
efforts contributed to the reduction. HUD also disagreed with the draft 
report's finding that the department has complete and reliable 
estimates only for one source of error. Because HUD's estimates for two 
of the three sources of errors had margins of error greater than the 
estimates themselves and, for billing errors, only covered project- 
based Section 8, we made no changes to this finding in the final 
report. HUD concurred with our finding that guidance for collecting 
data on the types and frequency of errors property owners made in 
determining subsidies was not widely followed and stated that it would 
revise its contracts with PBCAs to address this issue. 

HUD agreed with and has taken steps to implement our recommendation 
that the department regularly monitor PHAs' compliance with its 
policies for determining rent subsidies for the public housing and 
voucher programs and collect information from these monitoring efforts 
HUD disagreed with our recommendation to conduct additional analysis of 
data on program administrator errors for the project-based Section 8 
program because existing data were insufficient to make a statistically 
valid estimate of error by type of contract administrator. Given that 
HUD's existing data would not readily allow HUD to perform this 
analysis, we did not include this recommendation in our final report. 
HUD did not respond directly to our recommendation that the department 
formally study the impact of proposed changes for simplifying its rent 
subsidy policies but said that its prior simplification proposals had 
undergone extensive analysis. Our draft report discussed HUD's efforts 
to analyze simplification approaches. During the course of our review, 
and in its technical comments on our draft report, the department 
provided us only an internal analysis of a single simplification 
approach, which, according to HUD, it is no longer considering. Because 
simplifying HUD's policies for determining rent subsidies will likely 
require legislative changes, we continue to believe that a formal study 
will be essential to informing congressional decision making. 

[End of section]

Chapter 1: Introduction: 

In fiscal year 2003, the Department of Housing and Urban Development 
(HUD) expended about $28 billion in rental assistance--about 75 percent 
of the department's total expenditures--to help almost 5 million low- 
income tenants afford decent housing. HUD provides rental assistance 
through three major programs: Housing Choice Vouchers (vouchers), 
public housing, and several project-based Section 8 programs. These 
programs reduce tenants' rental payments by providing subsidies to 
owners of private properties, the public housing agencies (PHA) 
responsible for government-owned developments, or both. Because these 
subsidies involve complicated calculations and program rules, the 
process of determining them is prone to errors. In response to growing 
concerns about improper rental assistance payments, in fiscal year 2001 
HUD established the Rental Housing Integrity Improvement Project 
(RHIIP), which is designed to address the causes of these errors and 
ensure that only eligible people receive subsidies. 

This report discusses (1) the sources and magnitude of improper 
payments that HUD has identified, (2) the actions HUD is taking under 
RHIIP to reduce improper 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 its project-based 
programs 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's Rental Assistance Programs Vary in Size and Are Administered 
Differently: 

HUD's voucher, public housing, and project-based assistance programs 
share the common mission of making housing affordable to low-income 
households. The subsidies these programs provide are not an 
entitlement. Typically, the number of low-income households eligible 
for assistance exceeds the number of subsidized units and vouchers that 
is available. Specifically, HUD estimated that in 1999 about a quarter 
of all households eligible for housing assistance received it. HUD's 
programs are administered differently and vary in the number of 
households they assist and the amount of funding they receive. 

The voucher program, which local PHAs administer on HUD's behalf, is 
HUD's largest rental assistance program. The program, authorized under 
Section 8 of the United States Housing Act of 1937, as amended, 
provides housing vouchers that eligible individuals and families can 
use to rent houses or apartments in the private housing market from 
property owners participating in the program. Voucher holders are 
responsible for finding suitable housing, which must meet HUD's housing 
quality standards. In fiscal year 2003, the program assisted about 2 
million households (42 percent of all households receiving HUD housing 
assistance) and had outlays of $13.4 billion (47 percent of HUD's total 
rental assistance outlays). In general, only households with very low 
incomes--those with incomes that are less than or equal to 50 percent 
of area median income (AMI)--are eligible for vouchers. In addition, 
the legislation requires that at least 75 percent of new participants 
in the voucher program have extremely low incomes--that is, their 
incomes must be at or below 30 percent of AMI.[Footnote 4] Voucher 
holders generally pay 30 percent of their adjusted monthly income 
toward rent, and the PHA receives HUD subsidies to pay the remainder of 
the rent to the property owners. The subsidies in the voucher program 
are tenant based--that is, they are tied to the household rather than 
to the rental unit. The approximately 2,500 PHAs that administer the 
voucher program are responsible for ensuring that tenants meet program 
eligibility requirements and that tenant subsidies are calculated 
properly.[Footnote 5] PHAs are also required to develop written 
policies and procedures to administer the program according to HUD 
regulations. 

Under the public housing program authorized by United States Housing 
Act of 1937, as amended, HUD subsidized the development, operation, and 
modernization of government-owned properties, which are currently 
managed by some 3,300 PHAs. In fiscal year 2003, HUD's public housing 
program assisted 1.2 million households (25 percent of households 
receiving housing assistance) and had outlays of $7.1 billion (25 
percent of HUD's total rental assistance outlays).[Footnote 6] To be 
eligible for public housing, a household must be low income--that is, 
have an income that is less than or equal to 80 percent of AMI--and the 
legislation stipulates that at least 40 percent of new residents have 
extremely low incomes--less than or equal to 30 percent of 
AMI.[Footnote 7] As in the voucher program, public housing tenants 
generally pay 30 percent of their adjusted monthly income on rent. HUD 
pays subsidies to the PHAs for the remainder to cover the difference 
between the PHAs' operating costs and rental receipts. In contrast to 
the voucher program, the subsidies in the public housing program are 
project based--that is, they are tied to the unit, and tenants receive 
assistance only when they live in units eligible for subsidies. PHAs 
are responsible for ensuring that tenants are eligible for public 
housing, that tenant subsidies are calculated properly, and that the 
PHAs' policies and procedures conform to HUD's regulations. 

Under a variety of project-based Section 8 programs authorized by the 
Housing and Community Development Act of 1974, as amended, HUD has 
subsidized rents with multiyear rental assistance payments, which have 
often been combined with construction subsidies from other HUD 
programs. These programs included the New Construction, Substantial 
Rehabilitation, Loan Management Set-Aside, Property Disposition, and 
Moderate Rehabilitation programs. Before project-based Section 8 
programs, HUD had provided rental assistance through Rent Supplement 
and Section 236 Rental Assistance Payment programs. For ease of 
presentation, this report refers to all of these rental assistance 
programs as project-based Section 8. Property owners and managers for 
about 22,000 subsidized properties currently participate in these 
programs. In fiscal year 2003, HUD's project-based programs assisted 
1.6 million households (33 percent of all households receiving 
assistance from HUD) and had outlays of $7.7 billion (27 percent of 
HUD's total rental assistance outlays). As in HUD's other rental 
assistance programs, households receiving project-based Section 8 
assistance generally pay 30 percent of their adjusted income toward 
rent and HUD pays a subsidy--in this case to property owners and 
managers--for the remainder of the rent. In general, only households 
with low incomes are eligible for HUD project-based Section 8 
assistance, and at least 40 percent of new residents must have 
extremely low incomes. Private property owners and managers have 
similar requirements to PHAs for administering the project-based 
Section 8 program--they must ensure that tenants meet program 
eligibility requirements and that tenant subsidies are calculated 
correctly.[Footnote 8] They also must develop administrative policies 
and procedures that are consistent with HUD's regulations. 

HUD's Oversight of Program Administrators Varies among Programs: 

HUD's oversight of program administrators varies depending on the 
program (see fig. 1). For vouchers and public housing, HUD field 
offices provide oversight of the PHAs that administer the programs. 
Field office staff conduct on-site reviews and analysis of PHAs' 
operations. Field offices are also responsible for confirming the 
accuracy of information PHAs submit to HUD's performance rating systems 
for vouchers and public housing: the Section 8 Management Assessment 
Program (SEMAP) and Public Housing Assessment System (PHAS), 
respectively. Both SEMAP and PHAS provide HUD managers with performance 
measures in key program areas, such as program management and the 
physical condition of properties. 

Figure 1: HUD's Oversight Structure of Rental Assistance Programs: 

[See PDF for image] 

[End of figure] 

For HUD's Section 8 project-based programs, contract administrators are 
responsible for overseeing individual Section 8 properties and ensuring 
that properties are in compliance with HUD's policies. The 
administrators conduct on-site reviews of property owners' tenant 
information files, process monthly payment vouchers, respond to health 
and safety issues, and renew rental assistance contracts. Currently, 
there are three different types of contract administrators: performance-
based contract administrators, "traditional" contract administrators, 
and HUD field office staff (see chap. 4).[Footnote 9]

Tenant Rents under Rental Assistance Programs Are Generally Based on 
Income: 

Subsidies under HUD's rental assistance programs are generally based on 
tenant households' adjusted annual income, or gross income less any 
exclusions and deductions. Laws and HUD regulations provide for 44 
different types of income exclusions and deductions. Of these, HUD's 
regulations cite 20 income sources, such as income from minors, student 
financial aid, and qualifying employment training programs, which are 
excluded when determining households' eligibility to receive assistance 
and calculating tenants' rent.[Footnote 10] Nineteen other income 
sources qualify as exclusions under various statutes. For example, 
Earned Income Tax Credit refund payments received on or after January 
1, 1991, are excluded, as is income from participating in 
AmeriCorps.[Footnote 11] A complete list and descriptions of these 
exclusions appear in appendix II. 

In addition to these 39 income exclusions, program administrators must 
also apply five income deductions, which reduce the amount of income 
that can be considered in calculating tenants' rent.[Footnote 12] 
Legislation specifies the following five deductions from annual income: 

* a standard amount ($480) for each dependent;

* a standard amount ($400) for elderly or disabled family members;

* unreimbursed child care expenses that are necessary for a family 
member to remain employed;

* the sum of the following to the extent that it exceeds 3 percent of 
annual income: 

* certain unreimbursed medical expenses for elderly or disabled family 
members and: 

* certain unreimbursed attendant care and auxiliary apparatus expenses 
necessary for a disabled family member to be employed; and: 

* other deductions from annual income as determined by program 
administrator. 

Once program administrators have collected information from tenants on 
income and applicable exclusions and deductions, HUD policy requires 
that program administrators independently verify this information 
(third-party verification). To obtain third-party verification, program 
administrators must directly contact employers, welfare offices, health 
care providers, and others to ensure that the information tenants have 
reported is accurate and complete. However, third-party verification on 
its own may not identify all income not reported (intentionally or 
otherwise) by tenants. The program administrator must maintain all 
verified information in the tenant's file. 

After verifying tenants' income information, program administrators 
must compute the amounts tenants pay in rent. HUD regulations define 
these payments as the highest of the following amounts: (1) 30 percent 
of a family's monthly adjusted income--that is monthly income after 
exclusions or deductions; (2) 10 percent of the family's gross monthly 
income--that is, monthly income before exclusions or deductions; or (3) 
the applicable minimum monthly rent, which is typically between $0 and 
$50.[Footnote 13] Generally, the amount paid by low-and very-low-income 
tenants is not enough to cover the entire rent for a unit or, for 
public housing, to cover operating costs. As a result, for vouchers and 
project-based Section 8, HUD generally covers the difference between 
the unit's rent and the tenant's rental payment in the form of a 
housing assistance payment. For public housing, HUD pays the PHA an 
operating subsidy to cover the difference between the PHA's operating 
costs and rental receipts. In this report, we refer to both types of 
payments as rent subsidies. 

HUD Established RHIIP to Respond to Ongoing Problems with Improper Rent 
Subsidy Payments: 

RHIIP was created as a Secretarial Initiative in the spring of 2001 to 
ensure that the right benefits go to the right people. RHIIP was set up 
as a direct result of HUD's analysis of data it collected on improper 
subsidy payments in fiscal year 2000. For the first time, HUD managers 
had access to statistically valid estimates of the extent, severity, 
costs, and sources of subsidy errors for vouchers, public housing, and 
project-based Section 8 nationwide. The results of the analysis were 
issued in a June 2001 report, Quality Control for Rental Assistance 
Subsidies Determinations. The report focused on subsidy errors made by 
program administrators but did not attempt to determine if the tenants 
supplied accurate and complete income information. In February 2002, 
HUD completed a separate evaluation to determine rental assistance 
errors caused by unreported tenant income. The study matched incomes 
tenants reported with income information from Internal Revenue Service 
and Social Security Administration databases. The results of these 
studies are examined further in chapter 2. 

Evaluations by GAO and HUD's Office of Inspector General (OIG) have 
identified long-standing problems with HUD's monitoring of program 
administrators responsible for making rent subsidy determinations. In 
2001, GAO designated HUD's rental housing programs as high risk for 
waste, fraud, and abuse because the department could not ensure that 
only eligible households received housing subsidies or that the 
households received the correct amounts.[Footnote 14] Also, HUD's OIG 
reported on material weaknesses in HUD's monitoring of program 
administrators in its financial audits of the department since 1996. 
The OIG found that these weaknesses had adversely affected HUD's 
ability to ensure that program administrators were correctly 
calculating housing subsidies.[Footnote 15]

RHIIP's goal is to reduce the incidence and dollar amount of improper 
rent subsidies by 50 percent in fiscal year 2005 compared with fiscal 
year 2000, with interim goals of a 15 percent reduction by fiscal year 
2003 and a 30 percent reduction by fiscal year 2004. RHIIP's 
performance goals are largely drawn from The President's Management 
Agenda, Fiscal Year 2002, which established nine agency-specific goals 
to improve federal management and performance.[Footnote 16]

To accomplish RHIIP's goals, HUD has initiated the following three 
program-level efforts to reduce improper subsidy payments (see chapters 
3 and 4): 

* Increased monitoring of program administrators to evaluate whether 
subsidy calculations are correct, third-party verification of 
information provided by tenants is sufficient, quality control 
procedures are adequate, and tenant files are complete;

* Income verification to allow PHAs or property owners to compare 
tenant income information, as reported by federal and state agencies, 
with the information reported by the tenant; and: 

* Additional training and guidance to provide HUD staff and program 
administrators with the tools necessary to understand the complex 
requirements for determining subsidies determination. 

HUD also initiated the following two overarching efforts under RHIIP: 

* Error measurement to develop estimates of the magnitude of improper 
rent subsidy payments for all three programs and to assess progress in 
meeting RHIIP's goals (see chapter 2);[Footnote 17] and: 

* Simplification of rent subsidy policies to develop approaches to 
reduce complexity of program rules that have resulted in an error-prone 
process (see chapter 5).[Footnote 18]

To further assist its efforts under RHIIP, HUD has set up a RHIIP 
advisory group responsible for advising HUD's principal staff on 
improper rental assistance payments and to provide support for planning 
and implementing corrective actions that will reduce the risk of 
improper payments to an acceptable level. The advisory group is 
composed of representatives from, among others, HUD's program 
management and research offices. Members of the advisory group meet on 
a weekly basis to discuss progress and coordinate efforts. 

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. The scope of this work was limited to 
HUD's rental assistance programs under Housing Choice Vouchers, public 
housing, and project-based Section 8. 

To determine the sources and magnitude of improper rental assistance 
payments identified by HUD, we obtained fiscal year 2000 data on 
program administrator errors that HUD collected for its 2001 Quality 
Control for Rental Assistance Subsidies Determination report and 
similar data for fiscal year 2003. We tested the reliability of both 
data files and found them reliable for the purposes of this report. We 
estimated the total amount of improper rent subsidies for all three 
housing programs. Our estimated totals generally agreed with those in 
HUD's fiscal year 2003 and 2004 Performance and Accountability Report. 
We also estimated improper rent subsidies per household. To illustrate 
the impact of improper rent subsidies, we estimated the number of 
households that could have received assistance under the voucher 
programs by dividing the estimated total net improper rent subsidy 
overpayments (i.e., total estimated subsidy overpayments minus total 
estimate subsidy underpayments) by the average cost of a voucher 
(including administrative costs) in fiscal year 2003. Appendix I 
contains detailed results of our analyses. We reviewed HUD notices, 
guidebooks, and reports, including HUD's 2001 Quality Control for 
Rental Assistance Subsidies Determinations and HUD's 2003 and 2004 
Performance and Accountability Report. We interviewed HUD headquarters 
officials from the Office of Public and Indian Housing (for the 
vouchers and public housing programs), the Office of Housing (for 
project-based Section 8 programs), and the Office of Policy Development 
and Research. We also reviewed reports by and interviewed officials 
from HUD's OIG. 

To describe the actions HUD is taking under RHIIP to reduce improper 
payments in the public housing and voucher programs and the status of 
these initiatives, we analyzed RHIIP status reports and schedules, 
obtained and reviewed relevant HUD policies and procedures, and 
interviewed officials at HUD headquarters and seven field offices 
responsible for the two rental assistance programs--Baltimore, 
Maryland; Boston, Massachusetts; Chicago, Illinois; Los Angeles, 
California; Miami, Florida; New York City, New York; and San Francisco, 
California. We selected these field offices based on the volume of rent 
subsidies they oversee and to achieve some geographic distribution. 
Together, these field offices oversaw about $7.8 billion in rent 
subsidies payments in fiscal year 2003, or 55 percent of the total. We 
also met with 14 of the largest PHAs responsible for administering the 
public housing and voucher programs in the HUD field office 
jurisdictions we visited and interviewed groups that represent state 
and local housing agencies and tenants. To assess HUD's implementation 
of Rental Integrity Monitoring reviews and public housing authorities' 
progress in reducing improper rental assistance payments, we obtained 
and reviewed HUD policies, procedures, and training materials on 
conducting these reviews, analyzed all 31 rental integrity monitoring 
reviews from 13 of the largest public housing authorities in the 
country, and reviewed HUD's quality assurance reviews of HUD field 
office performance. 

To describe the actions HUD is taking under RHIIP to reduce improper 
payments in its project-based Section 8 programs and the status of 
these initiatives, we interviewed officials from HUD headquarters and 
at six HUD field offices responsible for these programs--Boston, 
Massachusetts; Chicago, Illinois; Los Angeles, California; New York 
City, New York; Philadelphia, Pennsylvania; and San Francisco, 
California. We also selected these field offices based on the volume of 
rent subsidies they oversee and to achieve some geographic 
distribution. Together, these field offices oversaw about $8.5 billion 
in rent subsidies payments in fiscal year 2003, or 47 percent of the 
total. We met with the four performance-based contract administrators 
responsible for administering project-based Section 8 contracts in 
these HUD field office locations.[Footnote 19] We also obtained and 
reviewed HUD policies and procedures related to the implementation of 
RHIIP initiatives and RHIIP status reports. 

To determine the status and impact of HUD's effort to simplify the 
subsidy determination process, we reviewed relevant laws and HUD 
regulations. We also estimated the potential impact on tenant rents 
under possible approaches using data HUD had collected for the update 
to its 2001 report, Quality Control for Rental Assistance Subsidies 
Determinations. Specifically, we compared the difference between the 
amount of rent paid by tenants (as identified in HUD's data) and the 
amount tenants would pay under the two simplification approaches. We 
interviewed officials at HUD headquarters and field offices and at 
state and local agencies that administer HUD's rental assistance 
programs. 

We also met with industry groups representing state and local housing 
agencies and tenants. These groups include the National Association of 
Housing and Redevelopment Organization, National Leased Housing 
Association, Public Housing Authorities Directors Association, and 
Massachusetts Union of Public Housing Tenants. 

We conducted our work from February to December 2004 in accordance with 
generally accepted government auditing standards. 

[End of section]

Chapter 2: 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 subsidies in 
fiscal year 2003 as a result of such errors.[Footnote 20] This amount 
represents a decrease of 39 percent since fiscal year 2000. HUD 
officials stated that this decline cannot be attributed entirely to 
RHIIP because many of the activities under the RHIIP initiative were in 
their early stages of implementation in 2003. However, HUD officials 
indicated that their communications with program administrators about 
the importance of addressing improper payments probably led to 
voluntary compliance with HUD's policies for determining rent subsidies 
and likely contributed to the reduction in improper payments. HUD 
reported that the department paid an estimated $191 million in fiscal 
year 2003 in gross improper rent subsidies due to unreported tenant 
income--an 80 percent reduction compared with fiscal year 2000. 
However, our analysis indicates that this figure is not reliable 
because of the small sample size it was based on and because meaningful 
comparisons between the 2000 and 2003 estimates cannot be made owing to 
differences in the methodologies used to calculate them. Finally, HUD 
does not have a complete and reliable estimate of billing errors for 
either fiscal year 2000 or 2003. 

HUD Has Attempted to Estimate the Improper Subsidies Caused by Each 
Identified Source of Error: 

HUD has identified three basic sources of errors that have resulted in 
improper rent subsidy payments: (1) program administrator errors, (2) 
unreported tenant income, and (3) billing errors. HUD conducted 
separate studies of each type of error to assess the magnitude of the 
problem and the progress that has been made in reducing them. 

HUD Identified Three Basic Sources of Errors That Cause Improper 
Subsidies: 

HUD identified three basic sources of errors that resulted in improper 
rent subsidy payments. Program administrator errors are the broadest 
because, as figure 2 shows, this type of error can affect nearly all 
the critical dimensions of the process for determining rent subsidies. 
Program administrators are responsible for collecting information on 
household income, expenses, and composition to determine tenants' 
eligibility to receive housing assistance and the size of the 
subsidies. In performing their work, program administrators may 
incorrectly determine rent subsidies by, for example, making 
calculation and transcription errors or misapplying allowed income 
exclusions and deductions required by HUD policies. 

Errors that result from unreported tenant income occur when tenants do 
not report an income source (either for themselves or another household 
member) to program administrators. According to HUD, these errors do 
not include cases in which the tenants reported all sources of income 
but not the correct amounts. HUD classifies these discrepancies as 
program administrator errors because program administrators are 
required to verify tenants' income amounts through third parties, such 
as employers and public assistance agencies. Unreported income errors 
generally occur early in the process for determining rent subsidies, 
when the tenant first submits income information to program 
administrators (fig. 2). Although some tenants may not disclose all 
income sources in order to qualify for assistance and to increase the 
rent subsidies they receive, tenants may also fail to report income 
sources unintentionally if program administrators provide unclear 
instructions. 

Finally, billing errors occur at the very end of the process for 
determining rent subsidies (fig. 2). The procedures used by program 
administrators to bill HUD for subsidy payments vary for each of the 
three rental assistance programs, and as a result the specific types of 
mistakes that lead to billing errors can also vary. However, in 
general, billing errors arise when discrepancies exist between the 
amount of a rent subsidy determined by the program administrator and 
the amount that is actually billed to and paid by HUD. Billing errors 
can also include accounting discrepancies between amounts paid by HUD 
and a property's bank statements and accounting records. 

Figure 2: Process for Determining Rent Subsidies: 

[See PDF for image]

[End of figure]

Estimating Improper Rent Subsidies Resulting from Each Source of Error 
Is an Important Effort under RHIIP: 

As part of its error measurement effort under RHIIP, HUD planned to 
estimate improper rent subsidies attributable to each source of error. 
According to HUD, this effort was to allow the department to assess the 
magnitude of improper rent subsidies and the progress made in meeting 
RHIIP's goal of reducing improper subsidies. To develop these 
estimates, HUD conducted separate studies on improper rent subsidies 
attributable to each source of error for fiscal years 2000 and 2003. 
(Information on the methodology and reliability of these studies is 
discussed later in this chapter.) About two years after HUD began 
estimating improper rent subsidies, Congress passed the Improper 
Payments Information Act of 2002, which mandated that federal agencies 
submit annual estimates of improper payments for at-risk 
programs.[Footnote 21] According to HUD, the department plans to 
continue updating its estimates in subsequent years in order to comply 
with the requirements of the act. HUD has reported its estimates in its 
annual audited financial statements and performance and accountability 
reports. 

There are a number of ways to describe the size and magnitude of 
improper rent subsidies. One way is simply the dollar difference 
between the actual rent subsidy HUD paid and the "correct" rent 
subsidy--that is, the amount of subsidy that would have been paid on 
behalf of the tenant if no errors had occurred. The dollar amount 
erroneously paid can be either positive or negative because errors can 
reflect subsidy overpayments or underpayments.[Footnote 22] The gross 
dollar error or gross improper payment reflects the sum of the absolute 
value of the subsidy overpayments and underpayments--that is, the total 
of all erroneously paid funds.[Footnote 23] Office of Management and 
Budget guidance recommends using the gross improper payment measure to 
indicate the overall accuracy of the income and rent determination 
process. A second indicator, net dollar error or net improper payment, 
takes into account whether the difference between the actual and 
correct rent subsidy amounts is positive or negative. This measure is a 
useful way of expressing the impact of errors on actual program 
expenditures because it accounts for the offsetting effect of subsidy 
over-and underpayments. 

Estimates of Improper Subsidies Due to Errors by Program Administrators 
Appear Reasonably Accurate and Show a Decline: 

To assess the accuracy of subsidy determinations made by program 
administrators, HUD collected data 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. This amount represents a 39 percent reduction compared with 
fiscal year 2000. The voucher program accounted for about half of the 
fiscal year 2003 errors, and the public housing and project-based 
Section 8 programs each accounted for about a quarter. Between fiscal 
years 2000 and 2003, each of the rental assistance programs experienced 
substantial decreases in program administrator errors--50 percent for 
public housing and more than 30 percent for both vouchers and project- 
based Section 8. Despite these reductions, the data show an estimated 
$377 million net subsidy overpayment in fiscal year 2003 that reduced 
the amount of funds available to assist other families with housing 
needs. We estimate that HUD could have provided vouchers to 56,000 
additional households in fiscal year 2003 with this amount. 

HUD Conducted a Study to Estimate Program Administrator Errors: 

As part of its Quality Control for Rental Assistance Subsidies 
Determinations study for fiscal year 2000, HUD collected data on the 
subsidy determinations made by program administrators. HUD subsequently 
repeated the study, using data for fiscal year 2003. Each study 
collected data on over 2,400 randomly selected households participating 
in the voucher, public housing, and project-based Section 8 programs. 
The methodology involved reviewing tenant files, interviewing a sample 
of tenants to gather income information, verifying all sources of 
reported income, and recalculating rents and subsidies. HUD estimated 
the subsidy errors by identifying the sum of the discrepancies between 
the actual rent subsidies calculated by program administrators and the 
amounts calculated by the quality control study staff. The results were 
projected to the entire population of assisted households to develop a 
national estimate of total improper rent subsidies. Our analysis of the 
documentation and the data collected indicates that these studies 
provide a reasonably accurate estimate of subsidy determination errors 
made by program administrators. 

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.[Footnote 24] The voucher program accounted 
for the largest share of this amount--about 52 percent, or $731 
million. Public housing and project-based Section 8 accounted for 22 
percent ($316 million) and 26 percent ($369 million), respectively. 
Appendix I contains more detailed information on the amount of improper 
rent subsidies presented in this chapter. 

Each of the rental assistance programs experienced substantial 
reductions in gross program administrator error--50 percent for public 
housing, 35 percent for vouchers, and 32 percent for project-based 
Section 8 (fig. 3). These reductions exceeded HUD's interim RHIIP goal 
of reducing improper rent subsidies resulting from these errors by 15 
percent by fiscal year 2003.[Footnote 25] According to HUD, the 
reductions in gross improper subsidies cannot be attributed entirely to 
RHIIP. Many of the initiatives under RHIIP, such as the RIM reviews and 
the income verification system, were too early in their implementation 
to have had any direct impact on the reductions. However, HUD officials 
stated that its communications with program administrators about the 
importance of addressing improper rent subsidies and program 
administrators' anticipation of increased monitoring by HUD probably 
led to voluntary improvements in internal control activities (such as 
increased supervisory reviews, testing of files, and staff training) 
and likely contributed to these reductions. In addition, some PHAs we 
interviewed had already begun improving their controls before RHIIP was 
established. Estimates of improper subsidies in future years may show 
whether further reductions can be made and sustained as the RHIIP 
initiative matures. 

Figure 3: Estimated Gross Improper Rent Subsidies Due to Program 
Administrator Error, Fiscal Years 2000 and 2003: 

[See PDF for image]

[End of figure]

Overall, we estimate that the median gross subsidy error per household 
was about $33 per month ($396 annually) for all the rental assistance 
programs (fig. 4).[Footnote 26] In addition to having the highest total 
gross rent subsidy error in fiscal year 2003, the voucher program had 
the highest median gross subsidy error per household, about $41 per 
month. The comparable figures for project-based Section 8 and public 
housing were $27 and $29 per month, respectively. 

Figure 4: Median Monthly Gross Improper Rent Subsidy per Household Due 
to Program Administrator Errors, Fiscal Years 2000 and 2003: 

[See PDF for image]

[End of figure]

The median dollar error per household for all the rental assistance 
programs decreased by about 18 percent, or $7, between fiscal years 
2000 and 2003. The median dollar error per household for vouchers and 
public housing decreased by 27 percent and 24 percent, respectively, 
over that time period. Although the median for project-based Section 8 
did not change, suggesting no improvement, the program experienced 
significant decreases in gross subsidy error for households that had 
the largest error in fiscal year 2000. 

Estimated Improper Subsidies Due to Program Administrator Errors Remain 
Significant: 

Because of program administrator errors, HUD paid an estimated $377 
million in net subsidy overpayments in fiscal year 2003, reducing the 
amount of funds that were available to assist additional households 
with housing needs. This amount reflects the difference between $896 
million in estimated subsidy overpayments and $519 million in estimated 
subsidy underpayments (fig. 5). Total estimated subsidy overpayments 
have decreased by 64 percent since fiscal year 2000. 

Figure 5: Estimated Rent Subsidy Overpayments and Underpayments Due to 
Errors Made by Program Administrators, Fiscal Year 2003: 

[See PDF for image] 

[End of figure] 

As discussed earlier, calculating net improper rent subsidies permits 
estimates of the errors' impact on actual program expenditures because 
the calculation accounts for the offsetting effects of estimated 
subsidy over-and underpayments. Because the overpayments exceeded the 
underpayments in fiscal year 2003, HUD was not able to use an estimated 
$377 million of its funding to assist needy low-income households. We 
evaluated the impact of the estimate on the number of households that 
could have been served if this amount had been available to subsidize 
eligible households with new vouchers. Based on the average national 
subsidy cost of subsidizing a voucher--about $6,720 annually, including 
administrative costs--we determined that HUD could have provided an 
additional 56,000 households nationwide with vouchers in fiscal year 
2003--nearly the same number of households that are currently assisted 
with vouchers in the Los Angeles, California, area. 

Fiscal Year 2003 Estimate of Improper Subsidies Due to Unreported 
Tenant Income Is Not Reliable: 

HUD has developed a methodology to estimate the amount of rent 
subsidies the department has paid improperly due to tenants who did not 
report all sources of earned income to program administrators. Based on 
this methodology, HUD estimated that the department paid $191 million 
in fiscal year 2003 in gross improper rent subsidies due to unreported 
tenant income, but our analysis found that this figure was not reliable 
because of the small number of tenant files with unreported income that 
were used to make the estimate. In addition, significant differences in 
the methodology used to calculate the fiscal year 2000 and 2003 
estimates means that any comparison between the estimates would be 
invalid. Finally, HUD's methodology does not capture other potential 
types of unreported income, a limitation that would be difficult to 
overcome. 

Estimates of Fiscal Year 2000 and 2003 Subsidy Errors from Unreported 
Tenant Income Are Not Comparable: 

HUD developed a methodology to estimate the amounts of rent subsidies 
the department paid improperly in fiscal years 2000 and 2003 because 
tenants did not report all sources of earned income to program 
administrators. HUD's methodology identified unreported income sources 
by comparing the information reported by tenants in the quality control 
study database with the information reported by employers in federal 
wage and income databases. HUD first identified households that 
appeared not to have reported an income source and then took various 
steps to screen out "false positives" resulting from definitional and 
timing differences. For example, HUD program staff eliminated those 
cases involving unreported income sources, such as income from minors 
or training programs, that should be excluded from family income under 
HUD's policies. HUD also eliminated cases if third-party verification 
showed that the income fell outside the period covered by the program 
administrator's most recent income examination. 

However, the methodologies used for fiscal years 2000 and 2003 have two 
significant differences, and as a result any comparison between the two 
estimates would not be valid. First, according to HUD, individuals who 
conducted the study for fiscal year 2003 did substantially more follow- 
up work to reconcile discrepancies in income sources than those 
conducting the study for fiscal year 2000. As a result, the fiscal year 
2000 estimate probably included more "false positives" and overstated 
the amount of improper rent subsidies HUD paid. Second, HUD officials 
stated that the staff used to conduct the study for fiscal year 2000 
had less experience with housing programs than the staff used for the 
later study. The officials said that, as a result, the staff from the 
earlier study may not have known enough about HUD's program policies to 
reliably determine whether tenants had or had not reported all of their 
income sources. 

Fiscal Year 2003 Dollar Estimate Is Not Reliable: 

While HUD's Performance and Accountability Report for Fiscal Year 2004 
states that the department paid an estimated $191 million in fiscal 
year 2003 in gross improper rent subsidies due to unreported tenant 
income, this figure is not reliable because the number of tenant files 
with unreported income that were used to make the estimate was small. 
Specifically, HUD identified 30 tenant files, or 1.2 percent of the 
2,401 tenant files in the sample, with at least one unreported income 
source. HUD officials agreed that because of the small number of files 
used for the estimate and the large variances in the amounts of income 
that tenants did not report, the margin of error was so large that the 
estimate was not meaningful--that is, the actual amount of improper 
rent subsidies for this source of error could have been as low as zero 
or many times higher than HUD's estimate. HUD officials stated that, 
even though the estimate may not be meaningful, the low incidence of 
tenants who did not report all sources of income could indicate that 
unreported income sources may not be a major problem. However, they 
also recognized that the low incidence is somewhat counterintuitive, 
given that tenants have an incentive to conceal income from program 
administrators, and it is possible that the methodology may not be 
adequately capturing the full extent of this problem. HUD indicated 
that to obtain a more precise estimate of dollar error would require a 
considerably larger sample, but that doing so would be difficult and 
costly. 

HUD also stated in its Performance and Accountability Report for Fiscal 
Year 2004 that gross improper rent subsidies from unreported income 
decreased by 80 percent from fiscal year 2000 to 2003. HUD recognized 
in the report that the apparently significant reduction was partly due 
to improvements in its methodology. However, as discussed previously, 
any comparison between the two estimates is not valid because of the 
limitations of the fiscal year 2003 estimate and the significant 
differences in the methodologies used for the two years. 

HUD's Methodology Does Not Account for Possible Fraud but Addressing 
This Limitation Would Be Difficult: 

Neither of HUD's fiscal year 2000 and 2003 estimates of improper rent 
subsidies from unreported tenant income accounts for the different 
types of problems that may exist with unreported tenant income, but 
overcoming this limitation would be difficult. According to HUD, 
because the study's scope was limited to identifying sources of income 
that tenants did not report, the study did not evaluate differences in 
the amount of income reported by a tenant's employer (and entered in 
the quality control study database) and the amount reported in the new 
hires database. As a result, HUD could not account for those tenants 
who may have colluded with their employers to underreport their income 
to program administrators. Some program administrators we interviewed 
stated that they believe such collusion may be a problem, but no 
systematic data are available to confirm how widespread it might be. In 
addition, HUD's methodology does not account for cash income that 
tenants received but failed to report to program administrators. Some 
program administrators we met with said unreported cash income could be 
widespread but that data are not available to confirm the extent of the 
problem. Although collusion and unreported cash income are potentially 
significant problems, it is not likely that there is any satisfactory 
way of quantifying their extent. Furthermore, HUD officials do not 
believe that there is an effective way of accounting for these problems 
in its methodology. 

HUD's Estimate of Improper Subsidies Due to Billing Errors Is 
Incomplete: 

HUD did not produce complete and reliable estimates of the amount of 
billing errors in fiscal years 2000 and 2003 for the voucher, public 
housing, or project-based Section 8 programs. HUD attempted to estimate 
fiscal year 2000 billing errors for the voucher program and initially 
found about $1.5 billion in improper rent subsidies. However, after 
reviewing the results, HUD managers questioned both the study's 
validity and whether staff involved in the study had sufficient 
knowledge of program policies and accounting practices that pertain to 
the billing process. As a result, HUD sent program experts to conduct 
additional fieldwork to confirm the estimate. The experts reexamined 
approximately $1.2 billion of the total $1.5 billion in estimated 
billing errors, found that the estimate was unsupportable, and reduced 
it by over 80 percent. Given the questionable and incomplete nature of 
the original billing error study for vouchers, HUD determined that the 
results were inconclusive and unacceptable as a baseline error 
estimate. For the public housing program, HUD did not attempt to 
estimate billing errors. HUD has begun to develop and implement a 
methodology to establish a statistically valid baseline of billing 
errors for fiscal year 2003 for vouchers and public housing. According 
to HUD, this effort will be completed by September 2005. 

For project-based Section 8, HUD estimated that approximately $100 
million in gross improper rent subsidies were paid as a result of 
erroneous amounts billed to HUD and disbursed to private property 
owners in fiscal year 2003. This estimate was based on a small sample 
of 150 properties, and the concentration of errors in a small number of 
properties resulted in a large margin of error. However, according to 
HUD, the estimated amount of improper payments due to billing errors is 
relatively modest even at the high end of the error range. In its 
Performance and Accountability Report for Fiscal Year 2004, HUD 
acknowledged that it would need a sample six times larger to obtain 
normally accepted levels of estimation accuracy. 

Agency Comments and Our Evaluation: 

In addition to providing technical comments that we incorporated where 
appropriate, HUD stated that our draft report did not fully present the 
impact of HUD's efforts under RHIIP. For example, HUD stated that the 
draft report did not recognize the department's outreach, guidance, and 
training efforts as contributing factors to the reduction in estimated 
improper payments. The draft report discussed HUD's efforts under 
RHIIP, including guidance, training, and various outreach activities. 
The draft report also reflected the comments of HUD officials that 
program administrators' anticipation of increased oversight and 
monitoring by HUD probably led to voluntary improvements in their 
performance. We added language to the final report to incorporate HUD's 
view that these efforts contributed to the reduction. While we believe 
that HUD's view is reasonable, the specific extent to which these 
efforts contributed to the reduction in estimated improper payments is 
not known. 

HUD disagreed with the draft report's finding that the department has 
complete and reliable estimates only for one source of error. In 
particular, HUD described as "misleading" our statement that its fiscal 
year 2003 estimates of improper rent subsidies attributable to 
unreported tenant income and billing errors were unreliable because 
they were based on samples too small to produce accurate results, and 
questioned the need to measure these errors more precisely. HUD also 
said that the estimated "incidence of cases" where a tenant household 
did not report at least one source of income was 1.2 percent and that 
there was a 95 percent likelihood that the true incidence of such cases 
was between 0.1 and 2 percent. We do not believe that our draft report-
-which focused on the estimated dollar amount of improper payments due 
to unreported income rather than the estimated number of households 
with unreported income--was misleading. As the report stated, the 
margins of error for HUD's estimates of the dollar amount of improper 
payments were many times larger than the estimates themselves. 
Furthermore, HUD itself acknowledged in its comment letter that a much 
larger sample would be necessary to make a more precise dollar 
estimate. Accordingly, we made no changes to this finding. The draft 
report did not intend to criticize HUD's sampling methodology or 
suggest that HUD attempt to make more precise estimates, which, as HUD 
indicated, could be difficult and costly. In addition, the report 
recognized that the problems with the reliability of the estimates were 
due partly to the small number of households with unreported income in 
HUD's samples. We revised the report language where appropriate to 
further clarify this point. 

[End of section]

Chapter 3: HUD Is Addressing Improper Payments for Public Housing and 
Vouchers, but Implementation Problems Hampered Efforts: 

The Department of Housing and Urban Development (HUD) has made several 
program-level efforts under the Rental Housing Integrity Improvement 
Project (RHIIP) initiative to address improper rent subsidies for its 
public housing and voucher programs. However, several factors hampered 
HUD's implementation of these efforts. 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. Second, HUD began 
implementing a new Web-based tenant income verification system, which 
is expected to significantly reduce tenant underreporting of income 
despite having some limitations. Finally, the training and guidance HUD 
provided to PHAs on its policies for determining rent subsidies were 
not consistently adequate or timely. 

As shown in table 1, each of these efforts attempts to address sources 
of errors discussed in chapter 2 (i.e., program administrator, 
unreported tenant income, and billing error) that contribute to 
improper rent subsidies in the voucher and public housing programs. 
However, none of these efforts directly addresses billing errors. As 
noted previously, HUD does not have complete and reliable information 
on the extent to which billing errors are a problem for these two 
programs. 

Table 1: Summary of HUD's Efforts to Address Sources of Errors for the 
Voucher and Public Housing Programs: 

HUD effort: Rent Integrity Monitoring; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: No. 

HUD effort: Income verification; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: No. 

HUD effort: Training; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: No. 

HUD effort: Revised and updated program guidance; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: No. 

Source: GAO. 

[End of table]

HUD Supplemented Monitoring of PHAs with On-site Reviews but Had 
Problems Implementing Them: 

According to HUD officials, RIM reviews are the first comprehensive 
reviews of PHAs' tenant information files in more than 20 years. 
However, inadequate staff resources and competing work demands kept 
some HUD field offices from issuing reports in a timely manner or 
completing all of their other PHA oversight responsibilities. These and 
other factors have prevented HUD from determining the impact of its RIM 
review effort. Recognizing the importance of regular monitoring of 
PHAs, HUD is considering implementing some type of on-site monitoring 
of PHAs' subsidy determinations on a permanent basis. 

HUD Implemented RIM Reviews Under RHIIP to Address Monitoring 
Weaknesses: 

To address weaknesses in monitoring and help reduce PHA errors in rent 
subsidy calculations, in June 2002 HUD field office staff began 
conducting RIM reviews as part of the RHIIP initiative. RIM reviews are 
on-site evaluations of PHA procedures for collecting and verifying 
income information from tenants and for calculating subsidies. HUD's 
Rental Integrity Monitoring Guide (RIM Guide)--the department's manual 
for conducting RIM reviews--instructs field office staff to (1) review 
a sample of tenant files and recalculate the tenant's rent subsidy, 
based on information in the tenant file, to identify any subsidy 
miscalculations made by the PHA and (2) assess the PHA's written 
policies and procedures to determine the underlying causes of these 
miscalculations. According to the RIM Guide, the field offices are 
required to report their overall findings--for example, violations of 
HUD policies, such as misapplied deductions and lack of third-party 
verification of tenant income--in writing to PHAs, along with a list of 
specific subsidy calculation errors they identified. The field offices 
must also track PHAs' progress in addressing findings and correcting 
errors and provide technical assistance to PHAs, as needed. If a PHA 
fails to implement corrective actions or rectify errors found during a 
RIM review, HUD can sanction the PHA by withholding the voucher 
administrative fee or the public housing operating subsidy.[Footnote 
27] HUD requires that the written report be sent to the PHA within 30 
to 45 days of the end of the review. HUD field office staff completed 
722 RIM reviews--the first of two rounds of reviews--between June 2002 
and September 2003 (fig. 6).[Footnote 28]

In April 2003, HUD began conducting a second round of RIM reviews at 
selected PHAs to confirm whether (1) the calculation errors identified 
during the first round of RIM reviews had been corrected, (2) those 
PHAs that were required to implement corrective action plans to address 
findings from previous RIM reviews had done so, and (3) the 
implementation of corrective action plans led to a reduction in subsidy 
calculation errors. From April 2003 through October 2004, HUD field 
offices conducted second-round RIM reviews at 363 PHAs (fig. 
6).[Footnote 29]

Figure 6: Timing of First-and Second-Round RIM Reviews: 

[See PDF for image] 

[End of figure] 

According to HUD and officials at several PHAs we met with, HUD did not 
routinely oversee subsidy determinations for public housing and voucher 
programs at PHAs before the RIM reviews began in 2002. According to 
HUD, prior to 1980 the department reviewed, among other things, PHAs' 
management of their properties and their compliance with HUD policies 
and procedures. These reviews included an assessment of PHAs' subsidy 
determinations but not at the same level of detail as RIM reviews. 
Starting in the early 1980s and continuing through the 1990s, HUD did 
little to oversee the subsidy determination process at PHAs and instead 
focused its resources primarily on assessing the PHAs' physical and 
financial condition. 

Starting in 1998, HUD increased its oversight of the voucher and public 
housing programs by creating two management and performance assessment 
systems. The Public Housing Assessment System (PHAS)[Footnote 30] 
evaluates four aspects of PHAs' operations--physical condition, 
financial condition, management operations, and resident satisfaction-
-but does not include an indicator for subsidy determinations.[Footnote 
31] In contrast, the Section 8 Management Assessment Program (SEMAP) 
includes an indicator that requires PHAs that administer voucher 
programs to self-certify to HUD annually that they have correctly 
determined each household's adjusted annual income--the basis for 
calculating rent subsidies. However, according to HUD, the limited 
scope of the reviews (SEMAP confirmatory reviews) field offices perform 
does not adequately ensure that PHAs' self-certifications are accurate. 
In most cases, the sample used to confirm a PHA's self-certification 
with SEMAP requirements is smaller than the sample reviewed as part of 
a RIM review. In addition, while PHAs selected for SEMAP confirmatory 
reviews are generally limited to those that are moving into or out of 
"troubled" status, RIM reviews cover a broader range of PHAs.[Footnote 
32]

Resource, Policy, and Compliance Problems at Field Offices Hampered RIM 
Reviews: 

Inadequate resources and noncompliance with review policies and 
procedures affected field offices' efforts to implement RIM reviews. We 
examined 31 RIM review reports for 13 of the largest PHAs and HUD's 
quality assurance reviews--evaluations of the field offices' RIM 
reviews--of eight field offices. Our examination showed that limited 
resources and lack of clear and timely guidance from HUD headquarters 
contributed to inconsistencies in the way field offices interpreted the 
department's policies and conducted RIM reviews. 

Some Field Offices Had Difficulty Conducting RIM Reviews Because of 
Staff Limitations: 

Officials from most of the HUD field offices we met with said that they 
did not have enough staff to conduct all of their first-round RIM 
reviews within the 5-to 7-month period established by HUD and still 
fulfill their other oversight responsibilities. Also, several HUD 
quality assurance reports showed that field offices had limited staff 
to perform the reviews. As a result of these resource constraints, some 
field offices had to use staff with little or no experience in 
monitoring PHAs to perform RIM reviews, issue their RIM review reports 
late, and postpone other monitoring activities such as inspections of 
troubled properties. 

The number of staff assigned to RIM reviews and the number of reviews 
per staff member varied among the seven field offices we 
contacted.[Footnote 33] For example, we found that the number of first- 
round RIM reviews per staff member ranged from 0.8 in New York City to 
3.5 in San Francisco (table 2). The average figure for all seven field 
offices was two RIM reviews per staff person. Notwithstanding other 
factors--such as the size of the PHA reviewed--that might have affected 
the ability of field offices to meet RIM review timing requirements, we 
found that those field offices with a low ratio of staff to reviews 
were likely to issue their reports after the 30-to 45-day deadline. 

Table 2: Ratio of Staff to RIM Reviews, Selected HUD Field Offices: 

HUD field office: San Francisco; 
Number of HUD field office staff conducting RIM reviews: 11; 
Number of first-round RIM reviews: 39; 
Number of RIM reviews per staff member: 3.5. 

HUD field office: Baltimore; 
Number of HUD field office staff conducting RIM reviews: 9[A]; 
Number of first-round RIM reviews: 27; 
Number of RIM reviews per staff member: 3. 

HUD field office: Los Angeles; 
Number of HUD field office staff conducting RIM reviews: 9; 
Number of first-round RIM reviews: 24; 
Number of RIM reviews per staff member: 2.7. 

HUD field office: Boston; 
Number of HUD field office staff conducting RIM reviews: 30; 
Number of first-round RIM reviews: 44; 
Number of RIM reviews per staff member: 1.5. 

HUD field office: Miami; 
Number of HUD field office staff conducting RIM reviews: 12; 
Number of first-round RIM reviews: 17; 
Number of RIM reviews per staff member: 1.4. 

HUD field office: Chicago; 
Number of HUD field office staff conducting RIM reviews: 16; 
Number of first-round RIM reviews: 17; 
Number of RIM reviews per staff member: 1.1. 

HUD field office: New York; 
Number of HUD field office staff conducting RIM reviews: 18; 
Number of first-round RIM reviews: 14; 
Number of RIM reviews per staff member: 0.8. 

HUD field office: Average; 
Number of HUD field office staff conducting RIM reviews: 15; 
Number of first-round RIM reviews: 26; 
Number of RIM reviews per staff member: 2.0. 

Source: HUD. 

[A] Baltimore field office officials told us that they generally used 
four staff to conduct RIM reviews but that for some PHAs they used 
additional staff. As a result, the number of RIM reviews per staff 
member may be understated for Baltimore. 

[End of table]

Recognizing that some field offices were having difficulty completing 
their RIM reviews within the 5-to 7-month time frame, HUD alleviated 
the burden at some of the field offices by assigning contractors or 
staff from other field offices to complete or assist with second-round 
reviews. For example, according to HUD, contractors completed 60 
percent of the second-round RIM reviews assigned to the San Francisco 
field office. In addition, HUD relieved field offices of certain other 
oversight responsibilities to give them time to complete the RIM 
reviews within the required time frame. For example, HUD reduced the 
number of SEMAP confirmatory reviews field offices had to complete and 
allowed them to combine RIM and SEMAP reviews at larger PHAs. 

HUD Did Not Always Provide or Clarify Policies in a Timely Manner: 

HUD did not provide clear, timely policies for RIM reviews. In some 
cases, the lack of clear and timely policies resulted in 
inconsistencies in the way field offices interpreted the department's 
policies and conducted RIM reviews. The following are some examples of 
these inconsistencies: 

* HUD did not clarify whether its policy on the use of outdated tenant 
income information applied to data obtained through HUD's income 
verification system.[Footnote 34] The RIM Guide states that PHAs should 
not use documentation that is more than 90 to 120 days old to verify 
tenant-reported incomes. HUD policy also requires that PHAs use data 
from HUD's income verification system if they have access to it. 
However, in conducting RIM reviews, some HUD field offices cited PHAs 
for not using data from this system, even though the PHAs had 
determined that the data were more than 120 days old. 

* HUD changed its definition of a "systemic finding" while the RIM 
reviews were under way. Although HUD had initially defined a systemic 
finding as an error (such as a misapplied deduction) that represented 
30 percent or more of the total errors identified at one PHA, the 
department later redefined the term to mean violations of policy that 
were made "consistently," leaving the interpretation of "consistently" 
up to the field offices. Based on the RIM review reports we examined, 
we found that field offices had different interpretations. For example, 
one field office interpreted "consistent" as errors found in 15 percent 
or more of the files, while another field office interpreted it as 
errors found in 30 percent or more of the files. 

* As of December 2004, HUD had not developed a policy on the extent to 
which PHAs should correct the calculation errors found in their tenant 
files. As a result, the field offices we spoke with had varying 
requirements, with resulting variations in the amounts of time and 
resources PHAs expended to address the errors. For example, according 
to the PHAs we spoke with, some field offices required that PHAs review 
and correct all of their tenant files for errors--in one case 17,000 
files--while others required PHAs to correct only the files that HUD 
examined during the RIM reviews. 

* HUD did not issue a policy on how to address PHAs' disagreements with 
RIM review findings until May 2004, over 8 months after completing the 
first round of reviews and 13 months after the field offices began 
conducting the second round of reviews. Prior to the release of this 
policy, the field offices had each handled PHAs' disagreements 
differently. 

Field Offices Did Not Always Follow Policies and Procedures for 
Conducting RIM Reviews and Communicating Findings: 

Our review of 31 RIM review reports completed by seven of HUD's field 
offices showed that the field offices did not consistently follow 
policies and procedures when conducting RIM reviews, analyzing the 
results of those reviews, and communicating the results of the reviews 
to PHAs. Specifically, we found that these field offices, contrary to 
HUD guidance, did not consistently provide appropriate support for each 
observation and finding--for example, by describing the problem, the 
reason for it, and its impact. Similarly, HUD's quality assurance 
reviews of field offices' RIM reviews revealed that several offices 
either had not supported their report findings or had failed to provide 
written reports to the PHAs. 

The RIM review reports we reviewed also did not demonstrate that the 
field offices we visited had a clear understanding of the difference 
between observations and findings. HUD had defined observations as 
deficiencies in performance that were not based on a regulatory or 
statutory requirement but that should be brought to the attention of 
the PHA. HUD defined findings as conditions that were not in compliance 
with handbook, regulatory, or statutory requirements. Fifteen of the 31 
RIM review reports we reviewed mischaracterized one or more "findings" 
as "observations" or vice versa. Properly classifying findings and 
observations is important because HUD policy requires PHAs to implement 
comprehensive corrective actions for findings but not for observations. 

Finally, HUD's RIM Guide stipulated that the field offices must provide 
a written report to the PHA no more than 30 days after the RIM review 
ended, but 18 of the 31 RIM review reports we reviewed were not 
released within the 30-day time frame.[Footnote 35] One PHA told us 
that it did not receive a report until 5 months after the completion of 
the RIM review and then only after PHA officials called HUD to request 
it. 

HUD Could Not Analyze RIM Data Because It Was Incomplete and 
Inconsistent: 

Incomplete and inconsistent data kept HUD from analyzing the results of 
RIM reviews to assess improvements in PHAs' calculations of tenant 
subsidies and provide targeted oversight and technical assistance to 
PHAs to help them address specific errors. When the RIM reviews started 
in 2002, the department designed a database to collect information on 
the results of the RIM reviews, including the total amount of subsidy 
overpayments and underpayments, as well as the efforts PHAs had made to 
improve policies and procedures. According to HUD guidance, field 
offices must submit a report on subsidy calculation errors and systemic 
findings for each PHA to HUD headquarters within 30 days of receiving 
the PHA's response to the RIM review report. However, as of November 
2004, HUD had not entered data in many of the fields in the database. 
HUD officials attributed this problem to field offices that did not 
submit the data in a timely manner and to a lack of personnel to manage 
data collection and entry tasks. 

Even if the database were complete, HUD would not be able to perform a 
meaningful analysis of the RIM review data for most PHAs because of the 
changes it made to the criteria for selecting PHAs and tenant files. 
Because of these changes, HUD does not have comparable first-and second-
round RIM review data for about 70 percent of the PHAs that it 
reviewed. Figure 7 shows the specific reasons why the data for PHAs 
were not comparable for the two rounds. 

Figure 7: Percentage of PHAs without Comparable Data for First-and 
Second-Round RIM Reviews: 

[See PDF for image] 

[End of figure] 

HUD Has Not Made RIM Reviews Permanent: 

HUD is considering conducting additional rounds of RIM reviews sometime 
in 2005 but has not made any decisions on how it will determine which 
PHAs should be reviewed and how often these reviews should be 
conducted. Currently, RIM reviews are not a regular part of HUD's PHA 
oversight activities. HUD had initially intended to review each PHA one 
or two times to identify weaknesses in their policies and procedures 
for making subsidy determinations. According to HUD officials, they had 
not planned to implement routine monitoring of PHAs' subsidy 
determination processes. However, HUD officials said that, based on the 
results of the RIM reviews, they recognize that routine monitoring of 
PHAs may be necessary to mitigate the risk of improper rent subsidies 
in the future. As a result, the department is now considering making 
permanent some type of on-site monitoring of PHAs' subsidy 
determinations. For example, HUD officials said that they are 
considering incorporating RIM reviews into the existing performance 
measurement systems or conducting reviews at high-risk PHAs every 2 or 
3 years. However, according to these officials, budget and staff 
resources will ultimately determine the extent to which the department 
is able to monitor PHAs in the future. 

HUD's New System for Verifying Tenants' Incomes Has Limitations: 

To address tenant underreporting of income, HUD has implemented a new 
Internet-based income verification system that allows PHAs to compare 
income information they receive from tenants with income information 
employers report to government agencies. According to HUD officials, 
the system is intended not only to help PHAs detect unreported incomes 
but also to provide them with a more convenient and accurate way to 
verify tenant-reported information. HUD estimates that the system will 
yield savings of approximately $6 billion over a 10-year period for all 
of its rental assistance programs. Currently, the data in the system, 
which HUD obtained through agreements with state wage and income 
collection agencies, are available to 2,366 PHAs in 22 states. HUD 
continues to work to provide access for the PHAs in the remaining 28 
states. To increase the effectiveness and efficiency of its income 
verification effort, HUD intends to replace the data from the 
individual state agencies with similar data from a single source, the 
National Directory of New Hires--a database containing quarterly 
federal and state wage data, quarterly unemployment data, and monthly 
new hire data reported by employers to state agencies and compiled by 
the Department of Health and Human Services. Congress passed 
legislation in January 2004 that grants HUD the authority to request 
and obtain data from this directory.[Footnote 36] In addition, HUD 
officials told us that Social Security income information, which PHAs 
currently access through an existing system, will eventually be 
accessible through this new system. 

According to HUD, regardless of the data source used, the income 
verification system does not capture unreported cash income and certain 
types of wages that may not be required to be reported to state 
agencies. In addition, income from unauthorized tenants (i.e., tenants 
who are not on the lease but who live in the apartment and help pay the 
rent) is not captured. However, some PHAs have developed ways to 
capture these types of income and recover improper subsidy payments. 
For example, several PHAs we spoke with have fraud detection units, and 
several have partnered with state and local agencies, including 
departments of labor and human services, to obtain welfare and other 
wage information. 

Although officials of most of the 14 PHAs we contacted said that they 
welcomed new tools such as the income verification system that would 
help them verify tenant incomes and more accurately determine tenant 
subsidies, several also expressed concerns that the wage and income 
data were too old to verify tenant income. HUD policy states that data 
used to verify income must be no more than 120 days old (or about 4 
months) on the date of the tenant's certification or recertification of 
eligibility.[Footnote 37] HUD estimates that the income verification 
data are approximately 3 months old. However, due to large caseloads-- 
sometimes as many as 750 tenants per caseworker--the PHAs generally 
begin collecting tenant income information 3 to 4 months prior to 
conducting an annual meeting to recertify the tenant's eligibility for 
housing assistance and recalculate the rent subsidy amount. As a 
result, verification data can be up to 6 months old on the date of 
recertification.[Footnote 38] HUD officials told us that they are aware 
of this problem and are working with the Department of Health and Human 
Services to improve the timeliness of the data in the National 
Directory of New Hires. 

HUD's Training and Guidance for PHAs Was Not Always Adequate or Timely: 

HUD provided training and guidance to PHAs on topics such as how to 
calculate subsidies, improve quality control procedures, and comply 
with third-party income verification requirements, but these efforts 
were not always adequate or timely. For example, although HUD sponsored 
training for PHAs in January and February of 2004 in order to prepare 
PHAs for RIM reviews, the training took place after all of the first- 
round RIM reviews and 54 (15 percent) of the second-round RIM reviews 
had been completed (fig. 8). This training addressed program basics, 
including how to interview prospective tenants, verify tenant income 
information, and calculate rents. It also provided guidance to PHAs on 
developing policies and procedures that would prevent future subsidy 
calculation errors. According to some PHAs, had the training been held 
prior to the RIM reviews, they would have been better able to 
understand the basis for the RIM review findings and the corrective 
actions needed to address them. In addition, all of the 14 PHAs we 
spoke with said that they had sent a limited number of staff to the 
training because, for example, HUD had held only two training sessions-
-one in California and one in Florida. Some PHAs said that they did not 
have sufficient travel funds to send their staff to these locations. 

Figure 8: Timing of Training and RIM Reviews: 

[See PDF for image] 

[End of figure] 

In addition to training, HUD provided technical assistance through a 
contractor to PHAs that were deemed high risk on the basis of their 
performance in the first round of RIM reviews. According to a HUD 
official, 10 PHAs received technical assistance from the contractor 
between October 2002 and April 2004. The technical assistance focused 
on areas such as organizing tenant files, verifying tenant incomes, and 
calculating rent subsidies. 

Finally, HUD updated or developed guidance for PHAs on how to correctly 
calculate rent subsidies and reduce errors. However, some of this 
guidance was released late in the RIM review process, contradicted 
other guidance, or did not provide enough information. For example, HUD 
did not revise its public housing guidebook--PHAs' basic program 
reference--to reflect changes in program regulations until June 2003, a 
year after the RIM reviews began.[Footnote 39] In addition, HUD did not 
reconcile minor discrepancies between the voucher and public housing 
guidebooks on acceptable forms of third-party income verification until 
it issued detailed instructions on HUD's income verification policies 
in March 2004. 

Conclusion: 

Until recently, HUD did little oversight of PHA's subsidy 
determinations for the voucher and public housing programs. Although 
introducing SEMAP and PHAS in the late 1990s allowed HUD to better 
oversee PHAs' performance, SEMAP provides only limited monitoring of 
PHAs' compliance with HUD's policies for determining rent subsidies, 
and PHAS provides none at all. HUD began implementing RIM reviews in 
2002 but has not made the reviews a permanent part of its oversight 
activities. In the absence of regular monitoring, HUD cannot determine 
the extent to which individual PHAs comply with its policies for 
determining rent subsidies. Furthermore, although HUD conducted over 
700 RIM reviews, it did not collect complete or consistent information 
from these reviews. As a result, HUD cannot assess PHAs' performance 
over time or identify those that have made errors in determining 
subsidies and thus may require additional oversight and technical 
assistance. Further, the lack of complete and consistent information on 
the results of RIM reviews limits HUD's ability to identify the factors 
that contribute the most to improper subsidy determinations and target 
its corrective efforts. 

Recommendations for Executive Action: 

To enhance HUD's ability to reduce improper subsidies in its public 
housing and voucher programs, we recommend that the HUD Secretary take 
the following two actions: (1) make regular monitoring of PHAs' 
compliance with HUD's policies for determining rent subsidies a 
permanent part of HUD's oversight activities and (2) collect complete 
and consistent information from these monitoring efforts and use it to 
help focus corrective actions where needed. 

Agency Comments and Our Evaluation: 

HUD agreed with our recommendation that the department regularly 
monitor PHAs' compliance with its policies for determining rent 
subsidies for the public housing and voucher programs and collect 
information from these monitoring efforts. HUD said that it recently 
updated its RHIIP plan to address this recommendation. However, in 
addition to providing technical comments that we incorporated where 
appropriate, HUD commented that the draft report did not adequately 
recognize the increase in HUD's monitoring resulting from the RIM 
reviews or acknowledge that the scale of its monitoring efforts depends 
on the level of budgetary resources it receives. Specifically, HUD 
commented that the steady downsizing of the department's staffing over 
the past decade had caused HUD to rely on remote monitoring systems, 
risk-based monitoring practices, and voluntary compliance by third- 
party program administrators. Our draft report stated that the RIM 
reviews represented a significant increase in HUD's monitoring of PHAs 
compared with its efforts over the previous 20 years. Further, the 
draft report recognized that budget resources will ultimately determine 
the extent to which the department is able to monitor PHAs. 

[End of section]

Chapter 4: HUD Is Improving Oversight of Rent Subsidy Determinations 
for Project-Based Section 8, but Challenges Remain: 

The Department of Housing and Urban Development (HUD) has taken steps 
to implement Rental Housing Integrity Improvement Project (RHIIP) 
efforts for its project-based Section 8 programs but also faces several 
challenges. 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. However, a key part of the guidance calling 
for contract administrators to collect information on improper rent 
subsidies at each property was not widely followed partly because the 
data collection effort was not mandatory and duplicated some contract 
administrators' existing procedures. Second, to improve verification of 
tenant income, HUD has gained access to a national database of 
employment and wage information.[Footnote 40] But HUD will not be able 
to use the database for its project-based Section 8 programs until at 
least fiscal year 2006 because of data security issues surrounding the 
disclosure of tenant income information to private property owners. 
Finally, to implement RHIIP's monitoring effort, HUD plans to rely on 
performance-based contract administrators (PBCA) to monitor property 
owners' compliance with HUD's subsidy determination policies. HUD's 
requirements for PBCAs call for extensive monitoring of the process for 
determining subsidies, but HUD may face challenges in ensuring that 
PBCAs follow these requirements. 

As shown in table 3, these efforts collectively attempt to address the 
sources of errors discussed in chapter 2 (i.e., program administrator, 
unreported tenant income, and billing errors) that contribute to 
improper rent subsidies in the project-based Section 8 programs. 

Table 3: Summary of HUD's Efforts to Address Sources of Errors for 
Project-Based Section 8 Programs: 

HUD effort: Provide training and update program policies and guidance; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: Yes. 

HUD effort: Income verification; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: No. 

HUD effort: Assignment of monitoring responsibilities to PBCAs; 
Sources of errors: Program administrator: Yes; 
Sources of errors: Unreported tenant income: Yes; 
Sources of errors: Billing: Yes. 

Source: GAO. 

[End of table]

HUD Has Improved Guidance and Training, but a Key Element of the 
Guidance Was Not Widely Followed: 

As part of RHIIP, HUD improved its project-based Section 8 guidance and 
training for property owners, contract administrators, and HUD field 
staff in order to improve their understanding of HUD's policies for 
determining rent subsidies. Although HUD's new monitoring guidance 
called for contract administrators to collect information on improper 
rent subsidies at each property, compliance with this guidance was 
limited. 

HUD Provided New Guidance and Training on the Subsidy Determination 
Process: 

HUD's handbook for project-based Section 8 sets forth the requirements 
and procedures that property owners must follow in administering these 
programs, including determining rent subsides.[Footnote 41] In May 
2003, HUD revised this handbook to reflect regulatory and policy 
changes that have occurred since the last significant revision in 1995. 
The 2003 revision included updated information on tenant screening, 
eviction, and citizenship requirements, as well as a new method of 
estimating future medical expenses. Officials at four PBCAs and five 
HUD field offices we contacted generally agreed that the revised 
handbook represented a significant improvement over the previous one. 
To supplement the handbook, HUD established various resources, such as 
field office RHIIP coordinators, and a Web-based "help desk" that 
allows HUD to respond to questions about program policies submitted by 
HUD field office staff, contract administrators, and property owners. 
HUD also provided additional information on proper rent subsidy 
determinations and the RHIIP initiative. For example, HUD issued "fact 
sheets" on the rent determination process for property owners and 
tenants, which described tenants' rights and responsibilities regarding 
income disclosure and third-party verification of income. HUD also 
issued periodic newsletters that included a description of the status 
of the initiative. 

In August 2003, HUD issued a new monitoring guide to help contract 
administrators improve their oversight of property owners' subsidy 
determinations. HUD intended the guide to provide contract 
administrators with a consistent approach for identifying and recording 
errors in subsidy determinations during management and occupancy 
reviews. Management and occupancy reviews are detailed assessments of a 
property's management, physical and financial condition, and compliance 
with program policies and procedures, including policies concerning the 
eligibility of tenants and accuracy of subsidy determinations.[Footnote 
42] However, the new guide was not mandatory, and the contract 
administrators we contacted--including PBCAs and HUD field offices-- 
said that they used the guide to varying degrees. HUD is currently 
revising its management and occupancy review policies, which include 
detailed procedures for assessing rent subsidy determinations.[Footnote 
43] According to HUD, the revised policies, unlike the monitoring 
guide, will be mandatory for contract administrators. The revised 
policies are currently under departmental review, and the date of their 
implementation is uncertain. 

HUD accompanied these efforts with training for property owners, 
contract administrators, and HUD field offices on the updated handbook 
and new monitoring guide. HUD-sponsored training was primarily targeted 
to HUD field office staff and contract administrators and, according to 
HUD, nearly 2,000 individuals participated in 45 training sessions on 
HUD's revised program handbook from June through December 2003. In 
addition, nearly 700 HUD staff and contract administrator personnel 
attended a satellite broadcast session on the revised program handbook 
and the new monitoring guide. Reaction to the HUD-sponsored training 
from the four PBCAs and five HUD field offices we spoke with was 
generally positive. Most of the PBCAs and HUD field offices indicated 
that HUD had done a satisfactory job of using training to emphasize the 
importance of properly determining rent subsidies. 

In addition to HUD-sponsored training, private training organizations, 
including professional training companies and housing industry groups, 
offered courses on project-based Section 8 program policies. For 
example, according to HUD, property owners, contract administrators, 
and HUD staff attended sessions on the revised program handbook, which 
covers HUD's policies for determining rent subsidies. HUD officials 
stated that sessions on HUD's program policies occur regularly. On the 
basis of a survey of major training organizations, the department 
estimated that nearly 10,000 property owners and contract 
administrators attended such sessions from June through December 2003. 

Guidance for Collecting Data Was Not Widely Followed: 

To monitor property owners' compliance with HUD's policies, HUD planned 
to collect information from contract administrators on the types and 
frequency of errors property owners made in determining subsidies. In 
the monitoring guide issued in August 2003, HUD recommended that 
contract administrators record subsidy errors identified during 
management and occupancy reviews and monthly voucher payment reviews in 
a uniform "tracking log."[Footnote 44] However, for several reasons, 
the tracking log was not widely used. First, because the log was part 
of HUD's recommended guidance and, therefore, not mandatory, HUD could 
not require contract administrators to use it. Second, according to 
some PBCA and HUD officials, some contract administrators found the log 
duplicative because they were already collecting much of the 
information, although not in a uniform manner.[Footnote 45] Finally, 
some HUD and PBCA officials said that the tracking log was problematic 
because errors caught during the voucher review process were generally 
rectified before property owners were paid and should not have been 
recorded on the log as subsidy errors. 

As noted previously, HUD is in the process of revising mandatory 
procedures for contract administrators to use in identifying and 
recording subsidy errors during management and occupancy reviews. 
According to HUD, the revised procedures will require contract 
administrators to collect uniform information on subsidy errors, as the 
tracking log was intended to do. Because these revised procedures apply 
only to management and occupancy reviews, they will not cover 
information on subsidy errors--including program administrator errors-
-found during monthly payment voucher reviews, which PBCAs already 
track separately. 

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. According to HUD, income verification systems 
are a critical component of the department's efforts to reduce improper 
subsidy payments because these systems provide property owners with 
information necessary to independently check the accuracy of the 
incomes tenants report and identify any income source not reported by 
the tenant. As discussed in chapter 3, Congress granted HUD access to 
the National Directory of New Hires (new hires) database to verify 
tenant incomes in its rental assistance programs, including its project-
based Section 8 programs, and required that HUD demonstrate to the 
Department of Health and Human Services that all necessary steps had 
been taken to prevent the inappropriate disclosure of information from 
the database before program administrators are given access. 

To alleviate concerns about releasing sensitive information to private 
property owners, HUD will initially make the data available only to 
public housing agencies (PHA) and confirm that the system is secure. If 
the Department of Health and Human Services is satisfied with HUD's 
security precautions, HUD plans to make the data from the new hires 
database available to private owners of project-based Section 8 
properties by fiscal year 2006. Once the system is implemented, 
property owners will be able to access earned income data from a secure 
Web site. In addition, HUD officials told us that Social Security 
income information, which property owners can currently access through 
an existing system, will eventually be accessible through the new 
system. 

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. For the past several 
years, HUD has been transferring contract administration 
responsibilities for project-based Section 8 properties from HUD field 
offices to the PBCAs but, due to resource constraints, has had 
difficulty monitoring the nearly 6,300 properties that are still the 
responsibility of field office staff. Although HUD's requirements for 
PBCAs call for extensive monitoring of the subsidy determination 
process, HUD may face challenges in ensuring that PBCAs follow these 
requirements. Finally, HUD has continued to work with contract 
administrators and property owners to improve the completeness of 
tenant income information in a database used, among other things, to 
monitor property owners' subsidy calculations. 

HUD Plans to Continue Transferring Contract Administration 
Responsibilities to PBCAs Because of Resource Constraints: 

In 2000, prior to the start of RHIIP, HUD began transferring the 
administration of project-based Section 8 contracts from HUD field 
offices to PBCAs. As of October 2004, HUD's project-based Section 8 
program consisted of about 21,900 properties, and HUD had transferred 
contracts for about 11,800 of these properties to PBCAs. As of the same 
date, according to HUD, field offices served as contract administrators 
for about 6,300 properties, including 2,200 properties to be 
transferred to PBCAs sometime in fiscal year 2005 and about 4,100 
properties with contracts that HUD will competitively source to a new 
contract administrator by the end of fiscal year 2005.[Footnote 46] HUD 
also plans to transfer about 3,800 additional properties to PBCAs that 
are currently the responsibility of "traditional" (i.e., not 
performance-based) contractors as these properties' contracts come up 
for renewal. 

HUD has transferred contract administration responsibilities to PBCAs 
because its field offices lack the resources to adequately monitor 
properties. HUD requires PBCAs to perform annual management and 
occupancy reviews for all of their assigned properties and conduct 
monthly reviews of all payment vouchers submitted by property owners. 
In contrast, HUD field offices are not conducting the same level of 
monitoring for all of their 6,300 properties. For example, HUD 
conducted management and occupancy reviews for about 1,800, or 
approximately 30 percent, of these 6,300 properties in fiscal year 
2004. According to HUD, the field offices did not perform annual 
management and occupancy reviews for all of these properties because of 
insufficient staff and funding. HUD policy also requires review of 
monthly payment vouchers for their properties. However, HUD's Office of 
Inspector General (OIG) reported in its audit of HUD's fiscal years 
2002 and 2003 financial statements that the field offices were 
performing monthly voucher reviews for only about 2 percent of the 
vouchers for their assigned properties.[Footnote 47]

According to HUD, traditional contract administrators also have 
generally not conducted management and occupancy reviews each year for 
all of their properties or routinely reviewed monthly vouchers 
submitted by property owners. HUD officials we contacted also said that 
although the department required that the traditional contractors 
perform management and occupancy reviews and voucher reviews, their 
contracts (unlike those with PBCAs) did not specify how 
frequently.[Footnote 48] HUD officials stated that, similar to HUD 
field offices, traditional contract administrators had concentrated 
their monitoring efforts on troubled properties. In fiscal year 2004, 
traditional contract administrators conducted management and occupancy 
reviews for 900, or 24 percent, of their assigned properties. HUD does 
not have data on the number of payment vouchers reviewed for properties 
with traditional contract administrators. 

HUD Will Rely on PBCAs to Monitor Process for Determining Subsidies: 

By transferring more of its project-based Section 8 properties to 
PBCAs, HUD plans to increase oversight of these properties and meet 
RHIIP's goal of reducing improper rent subsidy payments. According to 
HUD, the ongoing PBCA initiative precluded the need for HUD to 
implement a monitoring process for its project-based Section 8 programs 
similar to the Rental Integrity Monitoring (RIM) reviews for the 
voucher and public housing programs. HUD officials also said that, 
because of limited resources and the large number of project-based 
Section 8 properties, the field offices would not have been able to 
carry out a monitoring effort as extensive as the RIM reviews. (About 
22,000 property owners administer project-based Section 8 programs, 
compared with about 3,300 PHAs that administer vouchers and public 
housing.)

As noted previously, PBCAs are responsible for performing annual 
management and occupancy reviews for all of their assigned properties 
and monthly reviews of all payment vouchers. As part of these reviews, 
PBCAs are required to determine whether the owners have properly 
calculated subsidy determinations and independently verified tenant- 
reported information. As of October 2004, about 11,800 properties were 
assigned to PBCAs, and over 90 percent of these properties received a 
management and occupancy review.[Footnote 49] In reviewing payment 
vouchers, PBCAs must ensure that the tenant information in HUD's 
databases is consistent with the requested payment amount. When errors 
are found, the PBCA must correct the voucher by the amount of the 
error. 

To ensure that the PBCAs meet HUD's performance standards, HUD has 
developed a comprehensive oversight program. Specifically, HUD field 
office staff are required to review status reports provided by the 
PBCAs, conduct annual compliance reviews, and use the results of these 
reviews to determine the compensation PBCAs should receive. 
Implementing these oversight measures could pose challenges for HUD. 
For example, the OIG reported in its fiscal year 2004 financial 
statement audit of HUD that two of the four PBCAs it reviewed were not 
consistently verifying whether the project owner had properly 
calculated subsidy amounts and independently verified tenant-reported 
information.[Footnote 50] In addition, prior GAO work has shown that 
HUD has often not provided adequate oversight of contractors, a factor 
that in 2003 led us to designate acquisitions management as one of 
HUD's major management challenges.[Footnote 51]

HUD Has Strengthened Monitoring Efforts by Ensuring That Program 
Administrators Report Comprehensive Tenant Data to HUD: 

According to HUD, ensuring the completeness of tenant data by enforcing 
HUD's data reporting policy is a critical component of RHIIP that will 
enable the department to reduce the amount of improper rent subsidies. 
Contract administrators use HUD's Tenant Rental Assistance 
Certification System (TRACS) to monitor property owners, including 
identifying discrepancies between owners' payment voucher requests and 
the rent subsidy information. To perform their monitoring function 
effectively, contract administrators must ensure that property owners 
submit complete and accurate data in TRACS, as required by HUD policy. 

Since RHIIP began, HUD has improved the completeness of tenant data in 
TRACS. Specifically, according to HUD, the percentage of units in TRACS 
for which owners reported tenant income information (i.e., the 
reporting rate) increased from 88 percent in December 2003 to about 95 
percent in October 2004. Properties with contracts administered by 
PBCAs had a higher average reporting rate, as of October 2004--over 95 
percent--than properties administered by HUD field offices or 
traditional contract administrators. This is because PBCAs perform 
monthly voucher reviews for all payments and thus must ensure that the 
information in TRACS is complete. As of that same date, HUD field 
offices and traditional contract administrators, which conduct fewer 
payment voucher reviews, had average reporting rates of 85 and 75 
percent, respectively. 

HUD has continued to work with contract administrators and property 
owners to improve TRACS information by enforcing the data reporting 
policy. In October 2004, HUD began notifying property owners that the 
department would withhold subsidy payments if tenant information was 
not provided for at least 85 percent of tenants. According to HUD, the 
department suspended subsidy payments for 10 noncompliant property 
owners in November 2004 and expects to suspend payments for another 
1,800 owners in December 2004. 

Agency Comments and Our Evaluation: 

HUD concurred with our finding that guidance for collecting data on the 
types and frequency of errors property owners made in determining 
subsidies was not widely followed and stated that it would revise its 
contracts with PBCAs to address this issue. HUD disagreed with a 
recommendation in our draft report that the department analyze data it 
has collected on program administrator errors by differentiating among 
types of contract administrators and use this information to determine 
whether additional efforts to reduce this source of error are needed in 
the project-based Section 8 programs. HUD's letter characterized our 
recommendation as "expand[ing] the process" to provide for separate 
error rates, noting that sample sizes would need to be tripled to 
permit statistically valid comparisons, and questioning whether such an 
effort would be cost-beneficial. Recognizing HUD's increasing use of 
PBCAs, our recommendation concerned only data that HUD had already 
collected and was not intended to expand the scope of future data 
collections. In light of HUD's comments on the insufficiency of its 
existing data, we did not include this recommendation in our final 
report. 

Noting the relationship between its ability to monitor and the level of 
resources it is provided, HUD stated that it "remains to be seen" 
whether requested resources will be provided to achieve comparable 
monitoring levels of program administrators for all of its project- 
based assistance programs. We agree that budget resources will 
ultimately determine the extent of HUD's monitoring. Further, prior GAO 
work has shown that HUD has not always provided adequate oversight of 
program intermediaries, a contributing factor to our designation of the 
department's rental assistance programs as a high-risk area.[Footnote 
52]

[End of section]

Chapter 5: HUD is Considering Approaches for Simplifying Rent Subsidy 
Policies, but these Approaches Need More Study: 

As part of the Rental Housing Integrity Improvement Project (RHIIP), 
the Department of Housing and Urban Development (HUD) is considering 
ways to simplify its policies for determining rent subsidies. HUD has 
met with program administrators and other interested groups to discuss 
simplification approaches. 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. One key concern is the impact that simplification could have 
on how much tenants pay in rent. Specifically, some tenants could end 
up paying a larger share of their income toward rent if the income 
deductions and exclusions that currently provide additional rent relief 
to them are eliminated, although others could pay less under certain 
approaches. In addition, the transition to simplified policies could 
create confusion among program administrators and tenants in the short- 
term. 

HUD Is in the Initial Stages of Considering Approaches for 
Simplification of Rent Subsidy Policies and Has Not Conducted Formal 
Study of These Approaches: 

As one of its efforts under RHIIP, and as mandated by The President's 
Management Agenda for Fiscal Year 2002, HUD is considering various 
approaches for statutory, regulatory, and administrative streamlining 
and simplification of its policies for determining rent subsidies. 
According to HUD, simplification is a key part of the department's long-
term strategy for reducing the risk of improper rent subsidies that 
result from the complexity of HUD's current policies. As of December 
2004, however, HUD had not officially proposed any approach to 
simplification for all of its rental assistance programs. HUD intends 
to formulate a proposal early in calendar year 2005 after it meets with 
industry stakeholders. Because most of HUD's policies for determining 
rent subsidies have a basis in statute, major changes to these policies 
would likely require congressional action. 

In order to reform program administration and control rising subsidy 
costs, HUD proposed legislative changes for the voucher program in its 
fiscal year 2004 and 2005 budget proposals through the Housing 
Assistance for Needy Families and the Flexible Voucher program, 
respectively. These two initiatives called for simplification of the 
voucher program's policies, including those for determining rent 
subsidies. Specifically, the initiatives would have provided 
administering agencies with the flexibility to determine their own rent 
policies. However, Congress did not include either of these initiatives 
in HUD's appropriations acts. 

In October 2004, HUD met with various program administrators and 
industry and tenant groups to discuss different approaches for 
simplifying HUD's policies for determining rent subsidies and to gauge 
the extent to which program stakeholders support simplification. 
According to HUD, most of the participants agreed on the need for 
simplification and discussed how best to meet this goal. HUD field 
office staff, program administrators, and industry groups that we spoke 
with also generally agreed on the need for simplification. 
Specifically, all of the HUD field office staff we interviewed 
supported some form of simplification, and nearly all of the 14 program 
administrators we interviewed also supported simplification, but many 
were concerned about the impact on existing tenants. The major industry 
groups we met with were also supportive of simplification. 

The October 2004 meeting concluded with HUD considering performing more 
extensive analysis of the various approaches to simplifying its 
policies for determining rent subsidies. However, HUD has not 
determined when it will begin performing this analysis. Although prior 
to this meeting HUD staff had conducted preliminary internal analyses 
of the impact of certain simplification approaches on tenant rental 
payments and program costs, as of December 2004, HUD has not conducted 
a formal study on the possible impact of policy changes for 
consideration by policymakers. 

HUD's Current Policies for Determining Rent Subsidies Are Complex: 

A 2001 HUD study characterized HUD's policies for determining rent 
subsidies as "detailed, complex, sometimes ambiguous, and subject to 
relatively frequent legislative changes."[Footnote 53] HUD field 
offices, program administrators, and industry groups we interviewed 
frequently cited the complexity of these policies as a concern and 
identified it as a major obstacle in reducing improper rent subsidies. 
For example, HUD's current policies include 44 income exclusions and 
deductions that program administrators must consider when determining 
rent subsidies and tenants' rental payments. The purpose of some of 
these income exclusions and deductions is to provide additional relief 
to certain tenants, such as elderly and disabled households with large 
medical expenses, by reducing the amount they contribute toward rent. 
Other income exclusions exist to counteract potential work 
disincentives--for example, increasing income resulting in higher 
tenant rental payments--in housing assistance programs. 

As an example, some HUD field office staff and program administrators 
we spoke with cited the earned income disallowance as a complex income 
exclusion. The earned income disallowance was initially established in 
1990 by the Cranston-Gonzalez National Affordable Housing Act (Pub. L. 
No. 101-625) and was revised in 1998 by the Quality Housing and Work 
Responsibility Act (Pub. L. No. 105-276). The disallowance policy 
provides special treatment to families whose earned income increases as 
a result of (1) employment of a family member who was previously 
unemployed for one or more years or (2) participation of a family 
member in a family self-sufficiency or other job training 
program.[Footnote 54] Families that qualify under these provisions are 
not subject to increases in their rental payments (that usually occur 
if their incomes grow for other reasons) for a 12-month period known as 
the "full exclusion period." The rent may be increased during the 
following 12-month period, called the "phase-in period," but the 
increase may not be greater than 50 percent of the amount of the full 
rent increase that would occur otherwise. After completion of both the 
full exclusion and phase-in periods, tenant rent increases by the full 
amount. However, low-income tenants often have jobs with little 
security--that is, they move in and out of employment and training 
programs and their income may vary considerably from job to job. To 
account for this, HUD developed additional administrative guidelines. 
For instance, during the full exclusion and phase-in periods, the 
months for which a family can claim the disallowance do not need to be 
consecutive. Consequently, a household member can become unemployed and 
stop claiming the disallowance and then become reemployed in a later 
month and begin claiming the disallowance again. However, keeping track 
of when tenants are employed and the amount by which the income 
increased is difficult and adds a significant burden on program 
administrators. 

The process for determining rent subsidies is further complicated by 
the difficulty some program administrator staff may have in 
understanding and implementing HUD's program requirements. According to 
multiple field office staff, program administrators, and industry 
groups we met with, program administrator staff responsible for 
calculating rent subsidies are often poorly paid, have large caseloads, 
and have limited education. These factors can contribute to 
misapplication of program policies that result in errors in subsidy 
calculations. In addition, these same groups commented that these types 
of positions have high turnover, and as a result it is difficult for 
program administrators to retain knowledgeable and experienced staff. 

Simplifying the Process for Determining Rent Subsidies Could Affect 
Tenants and Pose Implementation Challenges: 

As noted previously, HUD is considering various approaches for 
statutory, regulatory, and administrative streamlining and 
simplification of its subsidy determination policies. Regardless of the 
approach HUD ultimately adopts, a major concern is the effect that 
policy simplification will have on tenant rental payments. It is 
possible that tenants' rental payments could decrease under certain 
simplification approaches. However, tenants could also see rent 
increases if, all other things being equal, the income deductions and 
exclusions that currently provide additional rent relief to them are 
eliminated. In addition, simplification of HUD's policies for 
determining rent subsidies could be difficult to implement and could 
create confusion among program administrators and tenants in the short- 
term. 

HUD is Considering Three Basic Approaches to Simplifying Policies: 

HUD is currently considering three basic approaches to simplifying its 
subsidy determination policies: (1) income-based rents, (2) tiered flat 
rents, and (3) mixed approaches. Descriptions of these three approaches 
follow: 

* Under an income-based approach, the tenant rental payment is set at a 
certain percentage of the tenant's income. The rent subsidy covers the 
difference between the contract rent for the unit (or the operating 
cost for a public housing unit) and the amount that the tenant pays. A 
simplified income-based approach could involve a limited number of 
exclusions or deductions or none at all. For example, one approach 
could involve tenants paying 30 percent of their gross income in rent 
with qualifying tenants receiving standard deductions for special 
needs. A different approach HUD has considered would allow elderly, 
disabled, and working families to pay 27 percent of their gross income 
in rent while all others pay 30 percent. No other deductions or 
exclusions would be used in determining the subsidy amount under this 
approach. 

* Under a tiered flat rent system, tenant rents would be calculated for 
several income bands--for example, low, very low, and extremely low 
income--and tenants would not see their rents adjusted as their incomes 
changed provided that their incomes remain within the same 
tier.[Footnote 55] This option is somewhat similar to that used at 
properties developed with Low-Income Housing Tax Credit assistance. 
Under the tax credit program, property owners reserve some of their 
units for tenants at or below certain income limits--either 50 or 60 
percent of the area's median gross income. The owners must restrict 
tenant rents in these units to 30 percent of the income limit, adjusted 
for the number of bedrooms. 

* Under a mixed approach, HUD would give program administrators various 
rent structures to choose from, including income-based rents and tiered 
flat rents. This approach would give program administrators the 
flexibility to choose the method that best fits their community 
demographics and other factors. Currently, HUD's Moving-to-Work 
demonstration program allows participating public housing agencies 
(PHA) to obtain exemptions from certain public housing and voucher 
program rules, including those related to the calculation of rent 
subsidies, and to design and test various approaches to providing and 
administering housing assistance.[Footnote 56] As long as the PHA 
serves substantially the same number of households that it served under 
the public housing and voucher programs, the PHA is free to design its 
own rent structure for its tenants. HUD plans to study PHAs' 
experiences under the Moving-to-Work demonstration as a possible model 
for simplifying its policies. 

Simplification of Policies May Significantly Affect Rents for Some 
Tenants and May Be Difficult to Implement: 

Regardless of which simplification approach is ultimately adopted, a 
major concern of program stakeholders is the effect that policy 
simplification will have on tenant rent burdens. Although changes to 
policies could result in some tenants paying less in rent, some tenants 
could end up paying more in rent if, all other things being equal, the 
current system of income exclusions and deductions that provides 
additional rent relief were eliminated. To illustrate, we analyzed the 
potential effects of using a simple income-based approach in which 
tenant rents are set at 30 percent of gross income.[Footnote 57] Based 
on our analysis of HUD's data for fiscal year 2003, we found that 
tenants would see their rent go up by an average of $30 per month ($360 
annually), or 16 percent. About 10 percent of these households would 
see their rents go up by at least $72 per month (or $864 annually). 

Elderly and disabled households and large families who currently 
benefit the most from HUD's exclusions and deductions would be hit the 
hardest by the elimination of these income adjustments. To take these 
households into account, we also estimated the average change in tenant 
rents using an approach in which elderly, disabled, and working 
families would pay 27 percent of their gross income in rent, all others 
would pay 30 percent, and no other deductions or exclusions would 
apply. Again using HUD's tenant data from fiscal year 2003, our 
analysis showed that this option would increase tenant rents, on 
average, by $16 per month ($192 annually), or 12 percent. About half of 
current tenants would see modest increases of less than $10 per month, 
and around one-quarter could see increases of at least $28 per month. 
In addition, the rents for about 25 percent of the tenants would remain 
unchanged or decrease under this approach. A more detailed study by HUD 
would be necessary to determine the impact of the other policy 
simplification approaches on tenants' rental payments as well as on 
program costs. 

Simplification of HUD's policies for determining rent subsidies may be 
difficult to implement and will have a direct impact on how program 
administrators conduct their work. Depending on the magnitude of 
program changes, program administrators--over the approximately 22,000 
property owners and 3,000 PHAs-will have to retrain staff, update 
written procedures and administrative plans, and make potentially 
costly modifications to their software applications. Program 
administrators will also have to perform tenant outreach to explain 
changes to existing and new tenants. If HUD determines that these 
tenants would be protected from any increases in rent that result from 
simplified policies, program administrators would have to deal with the 
difficulties of treating existing and new tenants under different sets 
of policies. Furthermore, gradually phasing in rent increases for 
existing tenants would add additional complexities to the 
administration of the programs and require extensive regulatory 
guidance from HUD. These changes would likely take time and involve 
some trial-and-error before they are fully implemented. It is possible, 
at least in the short-term, that transitioning to simplified policies 
for determining rent subsidies would result in confusion among program 
administrator staff and errors in calculating rent subsidies. This 
problem is more likely if the changes made to program policies are 
comprehensive, requiring extensive retraining of staff. Because HUD is 
in its early stages of developing a policy simplification strategy and 
has not conducted a formal study of these issues, it is not possible to 
describe how HUD intends to address these difficulties. 

Conclusion: 

Although part of HUD's long-term strategy to reduce the risk of 
improper rent subsidy payments under RHIIP involves simplifying 
statutory and regulatory policies for determining rent subsidies, the 
department has not conducted a formal study of possible simplification 
approaches. According to HUD and program administrators, existing 
policies are difficult to implement and have made the process prone to 
error. Many of these policies are intended to provide additional relief 
to tenants by reducing their rents under certain circumstances. 
However, HUD must weigh the degree of relief these policies provide 
against the administrative burden they create and the increased risk of 
error they generate. Because most current policies stem from specific 
statutes, simplifying them would likely require congressional action. 
In order to inform potential debate on this issue, policymakers will 
need to fully understand how simplification could affect the amount of 
rent subsidy errors, program administrators' workload, tenants' rental 
payments, and program costs. Regardless of the simplification approach 
that is adopted, HUD will face many difficulties in implementing the 
necessary policy changes. In particular, HUD will need to promote an 
efficient transition and assist program administrators in making the 
necessary adjustments to their procedures. 

Recommendations for Executive Action: 

To ensure that HUD's rental assistance programs are administered 
effectively and that policymakers have sufficient information with 
which to consider potential simplification approaches, we recommend 
that the HUD Secretary study the possible impact of alternative 
strategies for simplifying program policies on subsidy errors, tenant 
rental payments, program administrators' workload, and program costs. 
As part of the study, HUD should determine how it intends to implement 
proposed changes and indicate how the department would help tenants 
transition from the old to the new rent structures. 

Agency Comments and Our Evaluation: 

HUD stated that our draft report did not mention legislative 
initiatives in its fiscal year 2004 and 2005 budget justifications--the 
Housing Assistance for Needy Families and the Flexible Voucher 
programs--to simplify the voucher program's policies for determining 
rent subsidies. These two initiatives were primarily intended to reform 
the funding mechanism for and the administration of the voucher program 
but also would have allowed administering agencies the discretion to 
define their policies on tenant eligibility and for determining rent 
subsidies. We included a description of these two initiatives in our 
final report. 

HUD did not respond directly to our recommendation that the department 
study the impact of simplifying policies for determining rent subsidies 
but said that the report incorrectly stated that HUD has not conducted 
formal studies on or otherwise considered the effects of its program 
simplification proposals. HUD also stated that all of its proposals for 
simplifying subsidy determination policies had undergone extensive 
analysis. Our draft report did not state that HUD had not considered 
the effects of program simplification and, in fact, cited HUD's efforts 
to analyze simplification approaches. Further, during the course of our 
review and in its technical comments on our draft report, the 
department provided us only an internal analysis of a single 
simplification approach, which, according to HUD, it is no longer 
considering. Moreover, HUD has not issued a study of any simplification 
proposal that analyzes the impact of simplification, explains how HUD 
intends to implement proposed changes and help tenants transition from 
the old to the new rent structures, and is available to policymakers. 
Because simplifying HUD's policies for determining rent subsidies will 
likely require legislative changes, we continue to believe that a 
formal study will be essential to informing congressional decision 
making. 

[End of section]

Appendixes: 

Appendix I: Data Tables: 

This appendix contains the results of our analysis of the Department of 
Housing and Urban Development's (HUD) fiscal year 2003 data on improper 
rent subsidies resulting from errors made by program administrators, as 
described in chapter 2. This appendix also provides the results of our 
analysis of the impact of two proposals to simplify HUD's policies for 
determining rent subsidies on tenant rents. 

Information on Improper Rent Subsidies Resulting from Program 
Administrator Error: 

Tables 4 and 5 contain information on the estimated gross dollar amount 
of improper rent subsidies attributable to program administrator error 
in fiscal year 2003 for each HUD program.[Footnote 58] These tables 
show the sum total of both estimated overpayments and estimated 
underpayments. In contrast, tables 6 and 7 provide information on 
estimated overpayments alone, and tables 8 and 9 have information on 
estimated underpayments alone.[Footnote 59] We followed HUD's approach 
of not counting a discrepancy of $5 or less between the rent on file 
and the "correct rent" as an error. This was done to eliminate minor 
calculation discrepancies that have little impact on programwide 
subsidy errors. 

Table 4: Estimated Total Gross Improper Rent Subsidies Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Number of tenant files in sample: 447; 
Estimated dollar error: $316,107,576; 
Margin of error (95% confidence): ±$58,175,726. 

Program: Vouchers; 
Number of tenant files in sample: 568; 
Estimated dollar error: $730,955,871; 
Margin of error (95% confidence): $182,078,577. 

Program: Project-based Section 8; 
Number of tenant files in sample: 462; 
Estimated dollar error: $368,789,321; 
Margin of error (95% confidence): $75,105,022. 

Total (all programs); 
Number of tenant files in sample: 1,477; 
Estimated dollar error: $1,415,852,768; 
Margin of error (95% confidence): $185,371,036. 

Source: GAO. 

[End of table]

Table 5: Estimated Gross Improper Rent Subsidies per Household 
Attributable to Program Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Percentile: 10%: $8; 
Percentile: 25%: $12; 
Percentile: 50% (median): $29; 
Percentile: 75%: $93; 
Percentile: 90%: $162. 

Program: Vouchers; 
Percentile: 10%: $9; 
Percentile: 25%: $16; 
Percentile: 50% (median): $41; 
Percentile: 75%: $91; 
Percentile: 90%: $193. 

Program: Project-based Section 8; 
Percentile: 10%: $7; 
Percentile: 25%: $11; 
Percentile: 50% (median): $27; 
Percentile: 75%: $66; 
Percentile: 90%: $161. 

Program: Total (all programs); 
Percentile: 10%: $8; 
Percentile: 25%: $13; 
Percentile: 50% (median): $33; 
Percentile: 75%: $86; 
Percentile: 90%: $170. 

Source: GAO. 

[End of table]

Table 6: Estimated Subsidy Overpayments Attributable to Program 
Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Number of tenant files in sample: 255; 
Estimated dollar error: $198,822,140; 
Margin of error (95% confidence): ±$43,038,878. 

Program: Vouchers; 
Number of tenant files in sample: 310; 
Estimated dollar error: $447,434,740; 
Margin of error (95% confidence): $120,874,596. 

Program: Project-based Section 8; 
Number of tenant files in sample: 257; 
Estimated dollar error: $250,232,869; 
Margin of error (95% confidence): $64,151,393. 

Program: Total (all programs); 
Number of tenant files in sample: 822; 
Estimated dollar error: $896,489,749; 
Margin of error (95% confidence): $131,973,665. 

Source: GAO. 

[End of table]

Table 7: Estimated Subsidy Overpayment per Household Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Percentile: 10%: $9; 
Percentile: 25%: $15; 
Percentile: 50% (median): $41; 
Percentile: 75%: $107; 
Percentile: 90%: $170. 

Program: Vouchers; 
Percentile: 10%: $10; 
Percentile: 25%: $18; 
Percentile: 50% (median): $44; 
Percentile: 75%: $102; 
Percentile: 90%: $248. 

Program: Project-based Section 8; 
Percentile: 10%: $9; 
Percentile: 25%: $15; 
Percentile: 50% (median): $33; 
Percentile: 75%: $96; 
Percentile: 90%: $209. 

Program: Total (all programs); 
Percentile: 10%: $9; 
Percentile: 25%: $16; 
Percentile: 50% (median): $40; 
Percentile: 75%: $102; 
Percentile: 90%: $211. 

Source: GAO. 

[End of table]

Table 8: Estimated Subsidy Underpayments Attributable to Program 
Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Number of tenant files in sample: 192; 
Estimated dollar error: $117,285,436; 
Margin of error (95% confidence): ±$36,747,257. 

Program: Vouchers; 
Number of tenant files in sample: 258; 
Estimated dollar error: $283,521,130; 
Margin of error (95% confidence): $88,835,202. 

Program: Project-based Section 8; 
Number of tenant files in sample: 205; 
Estimated dollar error: $118,556,452; 
Margin of error (95% confidence): $31,745,109. 

Program: Total (all programs); 
Number of tenant files in sample: 655; 
Estimated dollar error: $519,363,019; 
Margin of error (95% confidence): $95,571,528. 

Source: GAO. 

[End of table]

Table 9: Estimated Subsidy Underpayments per Household Attributable to 
Program Administrator Error, Fiscal Year 2003: 

Program: Public housing; 
Percentile: 10%: $8; 
Percentile: 25%: $11; 
Percentile: 50% (median): $23; 
Percentile: 75%: $77; 
Percentile: 90%: $135. 

Program: Vouchers; 
Percentile: 10%: $9; 
Percentile: 25%: $15; 
Percentile: 50% (median): $38; 
Percentile: 75%: $82; 
Percentile: 90%: $147. 

Program: Project-based Section 8; 
Percentile: 10%: $6; 
Percentile: 25%: $9; 
Percentile: 50% (median): $18; 
Percentile: 75%: $48; 
Percentile: 90%: $111. 

Program: Total (all programs); 
Percentile: 10%: $8; 
Percentile: 25%: $12; 
Percentile: 50% (median): $28; 
Percentile: 75%: $72; 
Percentile: 90%: $136. 

Source: GAO. 

[End of table]

Information on the Impact of Simplifying Rent Subsidy Policies on 
Tenant Rents: 

As an illustration of the potential effects of rent simplification 
approaches, we used HUD's fiscal year 2003 data to determine the impact 
on tenant rents by estimating how tenant rental payments would change 
(compared with current policies) under two specific scenarios. Tables 
10 and 11 show the impact of a change that would require all families 
to pay 30 percent of gross income toward rent. Tables 12 and 13 reflect 
the impact of the change that would require all elderly, disabled, and 
working families to pay 27 percent of gross income toward rent and all 
other families to pay 30 percent. 

Table 10: Estimated Dollar and Percent Change in Rent under 30 Percent 
of Gross Income Simplification Proposal, Fiscal Year 2003: 

Program: Public housing; 
Average dollar change in rent: $26; 
Average percentage change in rent: 16%. 

Program: Vouchers; 
Average dollar change in rent: $30; 
Average percentage change in rent: 15%. 

Program: Project-based Section 8; 
Average dollar change in rent: $33; 
Average percentage change in rent: 19%. 

Program: Total (all programs); 
Average dollar change in rent: $30; 
Average percentage change in rent: 16%. 

Source: GAO. 

[End of table]

Table 11: Estimated Dollar Change in Rent under 30 Percent of Gross 
Income Simplification Proposal, Fiscal Year 2003: 

Program: Public housing; 
Percentile: 10%: $0; 
Percentile: 25%: $10; 
Percentile: 50% (median): $13; 
Percentile: 75%: $36; 
Percentile: 90%: $64. 

Program: Vouchers; 
Percentile: 10%: $10; 
Percentile: 25%: $10; 
Percentile: 50% (median): $22; 
Percentile: 75%: $36; 
Percentile: 90%: $61. 

Program: Project-based Section 8; 
Percentile: 10%: $0; 
Percentile: 25%: $10; 
Percentile: 50% (median): $18; 
Percentile: 75%: $41; 
Percentile: 90%: $88. 

Program: Total (all programs); 
Percentile: 10%: $0; 
Percentile: 25%: $10; 
Percentile: 50% (median): $21; 
Percentile: 75%: $36; 
Percentile: 90%: $72. 

Source: GAO. 

[End of table]

Table 12: Estimated Average Dollar and Percent Change in Rent under 
HUD's "27/30" Simplification Proposal, Fiscal Year 2003: 

Program: Public housing; 
Average dollar change in rent: $12; 
Average percentage change in rent: 12%. 

Program: Vouchers; 
Average dollar change in rent: $13; 
Average percentage change in rent: 10%. 

Program: Project-based Section 8; 
Average dollar change in rent: $23; 
Average percentage change in rent: 16%. 

Program: Total (all programs); 
Average dollar change in rent: $16; 
Average percentage change in rent: 12%. 

Source: GAO. 

[End of table]

Table 13: Estimated Dollar Change in Rent under HUD's "27/30" 
Simplification Proposal, Fiscal Year 2003: 

Program: Public housing; 
Percentile: 10%: -$34; 
Percentile: 25%: -$1; 
Percentile: 50% (median): $10; 
Percentile: 75%: 24; 
Percentile: 90%: $54. 

Program: Vouchers; 
Percentile: 10%: -$28; 
Percentile: 25%: -$4; 
Percentile: 50% (median): $10; 
Percentile: 75%: $24; 
Percentile: 90%: $49. 

Program: Project-based Section 8; 
Percentile: 10%: -21; 
Percentile: 25%: $10; 
Percentile: 50% (median): $11; 
Percentile: 75%: $36; 
Percentile: 90%: $82. 

Program: Total (all programs); 
Percentile: 10%: -$27; 
Percentile: 25%: $0; 
Percentile: 50% (median): $10; 
Percentile: 75%: $28; 
Percentile: 90%: $62. 

Source: GAO. 

[End of table]

[End of section]

Appendix II: Information on HUD's Policies for Determining Rent 
Subsidies: 

As discussed in chapter 5, the Department of Housing and Urban 
Development's (HUD) policies for determining rent subsidies are complex 
and require program administrators to collect comprehensive personal 
information from tenants. This appendix describes the policies and 
procedures related to the process for determining tenant rental 
payments--the basis for calculating rent subsidy amounts. Specifically, 
we identified four key steps in determining tenant rental payments: 
program administrators must (1) gather information on tenants, (2) 
verify information that tenants report, (3) determine tenants' 
eligibility for income exclusions and deductions, and (4) calculate 
tenant rental payments. 

Step One: Gather Information on Tenants: 

Program administrators must obtain comprehensive information on 
tenants' household composition, sources of income, assets, public 
assistance, and expenses. This information allows program 
administrators to determine tenants' gross household incomes, their 
eligibility for income exclusions and deductions, and their rental 
payments. If program administrators do not request all the required 
information from tenants, they cannot make correct subsidy 
determinations. Following are examples from HUD guidance of the typical 
questions that program administrators should ask tenants: 

* Does any household member receive full-or part-time earnings from any 
type of employment, including self-employment?

* Has anyone in your household started a new job or had an increase in 
earnings? If yes: (a) Is this a person with a disability? (b) Has this 
person been unemployed for one year or longer? (c) Is this person 
participating in any type of economic self-sufficiency program? (d) Has 
this person received welfare benefits in the past 6 months?

* Does any household member receive cash, tips, bonuses, commissions, 
or any type of compensation, worker's compensation, or severance pay?

* Does any household member receive child support or alimony?

* Does any household member receive welfare benefits or any other 
public assistance?

* Does any household member receive income from any assets, including 
interest on checking or savings accounts and interest or dividends on 
stocks or bonds?

* Does any household member receive Social Security or supplemental 
security income benefits?

* Does anyone outside your household pay for any of your household 
bills or living expenses? Or does anyone in your household receive 
money from someone outside your household to pay bills or living 
expenses?

* Does anyone in your household participate in a job training program?

* Does anyone in your family receive any type of income, money, or 
financial support from any sources other than the ones asked about?

* Does any household member have a checking or savings account?

* Does any household member own stocks or bonds?

* Does any household member have child care expenses for a child 12 
years or under?

* Is any portion of the child care expenses reimbursed by any person or 
agency?

* Do you pay for a care attendant or for any equipment for any 
household member with disabilities that is necessary to permit that 
person or someone else in the household to work? Are these expenses 
reimbursed by a person or agency?

* Is any adult in your household a full-time student?

* Is any family member actively seeking work?

* Does any household member pay for Medicare?

* Is any household member paying on past medical bills or anticipate 
any medical expenses during the next 12 months that will not be 
reimbursed by any source outside the household?

* Does any household member pay for any type of medical insurance?

Step 2: Verify Information That Tenants Report: 

After gathering information from tenants, program administrators must 
verify the income, asset, and expense information that the tenant 
reports. According to HUD policy, program administrators should begin 
by obtaining, where possible, the highest level of verification--that 
is, verification from an independent third party, such as government 
income databases or written statements from employers, banks, and 
government agencies. When third-party verification cannot be obtained, 
program administrators can use a lower level of verification, such as 
reviewing documents supplied by tenants. However, in such cases, 
program administrators must document in the tenant's file why other 
forms of verification were not used. HUD has outlined the following 
guidelines for verifying tenant asset and income information: 

* Automated income verification system: Program administrators obtain 
this form of income verification through an independent source that 
systematically and uniformly maintains income information in 
computerized form for a large number of individuals. This form of 
verification includes information on Social Security income from HUD's 
Tenant Assessment Subsystem and earned income from state agencies and 
the Department of Health and Human Services' National Directory of New 
Hires. 

* Written third-party verification: Program administrators contact 
third-party sources, such an employer, a bank, a government agency, or 
a child care service provider, to obtain a written statement supporting 
the income and expenses that tenants report. Program administrators 
must receive the written statement directly from the independent 
source. If the tenant handles the written verification statement in any 
way, HUD policy no longer considers it third-party verification. 

* Oral third-party verification: Program administrators can verify 
income and expense information directly via telephone or an in-person 
meeting with the third-party source. Program administrator staff should 
document in the tenant file the date and time of the telephone call or 
meeting, the name of the person contacted and contact information, and 
the confirmed verified information. This verification method is 
commonly used when the independent source does not respond to the 
program administrator's request for written verification in a 
reasonable time frame (e.g., 10 business days). 

* Document review: Program administrators review original documents 
provided by tenants in support of their reported income, assets, and 
expenses. Program administrators can use this verification method only 
when third-party verification cannot be obtained. When the program 
administrators resort to reviewing tenant-provided documents, they must 
document in the tenant file why third-party verification was not 
obtained. 

* Tenant declaration: Program administrators may accept a notarized 
statement or affidavit from tenants declaring their income, assets, and 
expenses. As with a document review, program administrators must 
document in the tenant file why third-party verification was not 
obtained. 

Step 3: Determine Tenant Eligibility for Exclusions and Deductions: 

A tenant's rent is based on the family's anticipated gross annual 
income--that is, income from all sources received by the family head, 
spouse, and each additional family member who is 18 years or older-- 
less applicable exclusions and deductions. We identified 44 exclusions 
and deductions from tenant income, most of which were statutorily based 
(e.g., deductions for elderly and disabled households are mandated by 
the United States Housing Act of 1937, as amended). These exclusions 
and deductions are described below. 

Federally mandated exclusions cited in 66 Fed. Reg. 20318, April 20, 
2001, are as follows: 

1. The value of the allotment provided to an eligible household under 
the Food Stamp Act of 1977. 

2. Payments to volunteers under the Domestic Volunteers Services Act of 
1973. 

3. Payments received under the Alaska Native Claims Settlement Act. 

4. Income derived from certain submarginal land of the United States 
that is held in trust for certain Indian tribes. 

5. Payments or allowances made under the Department of Health and Human 
Services Low-Income Home Energy Assistance program. 

6. Payments received under programs funded under the Job Training 
Partnership Act/Workforce Investment Act of 1998. 

7. Income derived from the disposition of funds to the Grand River Band 
of Ottawa Indians. 

8. The first $2,000 of per capita shares received from judgment funds 
awarded by the Indian Claims Commission or the U.S. Claims Court, the 
interests of individual Indian in trust or restricted lands, including 
the first $2,000 per year of income received by individual Indians from 
funds derived from interests held in such trust or restricted lands. 

9. Amounts of scholarships funded under Title IV of the Higher 
Education Act of 1965, including awards under federal work-study 
programs or under the Bureau of Indian Affairs student assistance 
programs. 

10. Payments received from programs funded under Title V of the Older 
Americans Act of 1985. 

11. Payments received on or after January 1, 1989, from the Agent 
Orange Settlement Fund or any other fund established pursuant to the 
settlement in In Re Agent-product liability litigation. 

12. Payments received under the Maine Indian Claims Settlement Act of 
1980. 

13. The value of any child care provided or arranged (or any amount 
received as payment for such care or reimbursement for costs incurred 
for such care) under the Child Care and Development Block Grant Act of 
1990. 

14. Earned income tax credit refund payments received on or after 
January 1, 1991. 

15. Payments by the Indian Claims Commission to the Confederated Tribes 
and Bands of Yakima Indian Nation or the Apache Tribe of Mescalero 
Reservation. 

16. Allowances, earnings, and payments to AmeriCorps participants under 
the National and Community Service Act of 1990. 

17. Any allowance paid under the provisions of 38 U.S.C. 1805 to a 
child suffering from spina bifida who is the child of a Vietnam 
veteran. 

18. Any amount of crime victim compensation (under the Victims of Crime 
Act) received through crime victim assistance (or payment or 
reimbursement of the cost of such assistance) as determined under the 
Victims of Crime Act because of the commission of a crime against the 
applicant under the Victims of Crime Act. 

19. Allowances, earnings, and payments to individuals participating in 
programs under the Workforce Investment Act of 1998. 

Exclusions cited in 24 C.F.R. 5.609(c) are as follows: 

20. Income from employment of children (including foster children) 
under the age of 18 years. 

21. Payments received for the care of foster children or foster adults 
(usually persons with disabilities, unrelated to the tenant family, who 
are unable to live alone). 

22. Lump-sum additions to family assets, such as inheritances, 
insurance payments (including payments under health and accident 
insurance and worker's compensation), capital gains and settlement for 
personal or property losses. 

23. Amounts received by the family that are specifically for, or in 
reimbursement of, the cost of medical expenses for any family member. 

24. Income of a live-in aide. 

25. The full amount of student financial assistance paid directly to 
the student or the educational institution. 

26. The special pay to a family member serving in the armed forces who 
is exposed to hostile fire. 

27. Amounts received under training programs funded by HUD. 

28. Amounts received by a person with a disability that are disregarded 
for a limited time for purposes of supplemental security income 
eligibility and benefits because they are set aside for use under a 
Plan to Attain Self-Sufficiency. 

29. Amounts received by a participant in other publicly assisted 
programs that are specifically for or in reimbursement of out-of-pocket 
expenses incurred (special equipment, clothing, transportation, child 
care, etc.) and that are made solely to allow participation in a 
specific program. 

30. Amounts received under a resident service stipend. A resident 
service stipend is a modest amount (not to exceed $200 per month) 
received by a resident for performing a service for the program 
administrator, on a part-time basis, that enhance the quality of life 
in the development. 

31. Incremental earnings and benefits resulting to any family member 
from participating in qualifying state or local employment training 
programs and training of a family member as resident management staff. 
Amounts excluded by this provision must be received under employment 
training programs with clearly defined goals and objectives and are 
excluded only for the period during which the family member 
participates in the employment training program. 

32. Temporary, nonrecurring, or sporadic income (including gifts). 

33. Reparation payments paid by a foreign government pursuant to claims 
filed under the laws of that government by persons who were persecuted 
during the Nazi era. 

34. Earnings in excess of $480 for each full-time student 18 years or 
older (excluding head of household and spouse). 

35. Adoption assistance payments in excess of $480 per adopted child. 

36. Deferred periodic amounts from supplemental security income and 
Social Security benefits that are received in a lump sum amount or in 
prospective monthly amounts. 

37. Amounts received by the family in the form of refunds or rebates 
under state or local law for property taxes paid on the dwelling unit. 

38. Amounts paid by a state agency to a family with a member who has a 
developmental disability and is living at home to offset the cost of 
services and equipment needed to keep the developmentally disabled 
family member at home. 

Deductions cited in 24 C.F.R. 5.611 are as follows: 

39. $480 for each dependent. 

40. $400 for any elderly family or disabled family. 

41. The sum of the following, to the extent the sum exceeds 3 percent 
of annual income: 

a. unreimbursed medical expenses of an elderly family or disabled 
family;

b. unreimbursed reasonable attendant care and auxiliary apparatus 
expenses for each member of the family who is a person with 
disabilities, to the extent necessary to enable any member of the 
family (including the member who is a person with disabilities) to be 
employed. 

42. Any reasonable child care expenses necessary to enable a member of 
the family to be employed or to further his or her education. 

43. Program administrators may adopt additional deductions from annual 
income. These deductions must be set forth in the written policies of 
the program administrator. 

Earned income disallowance (EID) for public housing and voucher tenants 
cited 24 C.F.R. 960.255 and 24 C.F.R. 5.617 are as follows: 

44. The disallowance policy provides special treatment to families 
whose earned income increased as a result of (1) employment of a family 
member who was previously unemployed for one or more years and (2) 
participation of a family member in a family self-sufficiency or other 
job training program. In addition, families who received assistance 
through the Temporary Assistance for Needy Family program and their 
earned income increased within the previous 6 months can also qualify 
for the disallowance. In addition, unlike the public housing program, 
the voucher program also requires that the disallowance be restricted 
to household members with disabilities. Families that qualify under 
these provisions are not subject to increases in their rental 
contributions due to higher income from employment or job training for 
a 12-month period (full exclusion period). The rent may be increased 
during the following 12-month period (phase-in period) but the increase 
may not be greater than 50 percent of the amount of the full rent 
increase that would be otherwise applicable. After completion of both 
the full exclusion and phase-in periods, tenant rent increases by the 
full amount (fig. 9). Tenants can claim the disallowance over 
nonconsecutive months if their employment status changes, but HUD 
imposes a lifetime limit of 48 months starting on the date of the 
initial exclusion. 

Figure 9: Earned Income Allowance Timeline (Full Exclusion and Phase-In 
Periods Over Consecutive Months): 

[See PDF for image] 

[End of figure] 

Step 4: Calculate the Tenant Rental Payments Using Verified 
Information: 

Finally, after obtaining all the required information and determining 
which exclusions and deductions the tenant is eligible to receive, the 
program administrator can calculate the tenant rental payment. 
According to HUD regulations, tenants must contribute the greater of 
the following toward rent for a subsidized unit: 

* 30 percent of a family's monthly adjusted income, or monthly income 
less exclusion and deductions;

* 10 percent of the family's gross monthly income, or monthly income 
before exclusions and deductions; or: 

* the applicable minimum rent, which is typically between $0 and $50, 
as determined by the program administrator. 

Using verified tenant income information, program administrators must 
complete the family report.[Footnote 60] In addition to information on 
household members' names, birthdates, and Social Security numbers, the 
family report also contains forms that program administrators use to 
calculate tenant rental payments. Figure 10 is an excerpt from the 
family report that illustrates some of the calculations and analysis 
that program administrators must perform. 

Figure 10: Excerpt from HUD Family Report: 

[See PDF for image] 

[End of figure] 

[End of section]

Appendix III: Comments from the Department of Housing and Urban 
Development: 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: 
THE DEPUTY SECRETARY:
WASHINGTON, DC 20410-0050:

February 8, 2005:

David G. Wood:
Director, Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW:
Washington, DC 20548:

Dear Mr.Wood:

Thank you for the opportunity to provide the Department's written 
comments on the U.S. Government Accountability Office's draft report on 
"HUD Rental Assistance - Progress and Challenges in Measuring and 
Reducing Improper Rent Subsidies" (GAO-05-224). HUD's rental housing 
assistance programs were separately placed on GAO's list of designated 
"high-risk" federal programs in January 2001, and the draft report 
served as a primary input to GAO's January 26, 2005 issuance of its 
biennial "High-Risk Series - An Update" (GAO-05-207). HUD agrees with 
GAO's retention of the high-risk designation for the rental housing 
assistance programs and with GAO's summary conclusion that:

...HUD has demonstrated commitment to and progress in addressing 
weaknesses identified in its high-risk program areas; however, some of 
HUD's corrective actions are in the early stages of implementation, and 
additional steps are needed to resolve on-going problems.

However, the draft report does not fully and properly present the 
nature and significance of many of HUD's Rental Housing Integrity 
Improvement Project (RHIIP) activities. Therefore, HUD requests that 
GAO reconsider some of its draft findings and conclusions or put them 
in proper context in terms of their actual value in further reducing 
the risk of improper payments. Please consider the following general 
comments, as well as the separately provided matrix of detailed 
comments and technical corrections, in presenting a final report that 
is more accurate, balanced, and on point with addressing the stated 
objective of assessing the adequacy of HUD's actions to identify and 
address the sources and magnitude of improper payments in the rental 
housing assistance programs.

HUD Corrective Actions to Reduce Improper Payments:

Outreach, Guidance, Training, and Other Activity Reducing Improper 
Payments in 2003:

HUD's rental housing assistance programs are administered by 4,500 
public housing agencies (PHAs) and 22,000 multifamily housing property 
owners or management agents. Through these program partners, the 
Department has been working to address the causes of improper payments 
in those programs. An initial focus of the RHIIP effort was to reach 
out and communicate the nature and significance of the improper payment 
problem to HUD's program partners, housing industry groups, and tenant 
advocacy groups and to solicit their support in developing and 
implementing corrective actions to reduce improper payments. As 
previously recognized in GAO's January 2003 high-risk program 
assessment, early RHIIP efforts also focused on providing better 
program guidance and training to program administrators, tenant 
beneficiaries, and HUD monitoring staff. HUD finds the draft report 
remiss in its failure to recognize the Department's outreach, guidance, 
and training efforts as contributing factors to the reduction of 
improper payments through increased voluntary compliance by program 
administrators and tenant beneficiaries.

HUD believes its outreach, guidance, and training activities played a 
significant contributing role in the 2003 evidence of a 50 percent 
reduction from the 2000 baseline estimate of $3.2 billion in gross 
annual improper payments due to errors in program administrator subsidy 
determinations and tenant reporting of income. Other factors 
contributing to this reduction included increased monitoring by 
performance-based contract administrators (PBCAs) in the Section 8 
Project-Based Assistance Program; early impacts of the rental integrity 
monitoring (RIM) efforts in the Public Housing and Section 8 Voucher 
Programs; promotion and initiation of improved computer matching 
efforts for tenant income verification; and improvements to the process 
for measuring the impacts of undisclosed tenant income sources. While 
HUD agrees with GAO's conclusion that some of these later corrective 
actions were not fully implemented or were in early stages at the time 
of the 2003 error measurement update, they nevertheless had an apparent 
impact on improving program compliance in 2003 and hold great promise 
for further improper payment reductions upon full implementation.

Increasing and improving Program Monitoring Activity:

HUD's PBCA and RIM initiatives were undertaken to address decades-old 
inadequacies in HUD's monitoring and oversight of billings and of 
income, rent, and subsidy determinations in its rental housing 
assistance programs. HUD believes its increased monitoring efforts to 
date have been highly beneficial in improving program administrator 
compliance and performance and reducing the risk of improper payments. 
While HUD generally agrees with GAO's findings on the need for greater 
standardization and consistency in the execution of the Department's 
monitoring processes, the final report should put those findings in the 
proper context of the significant overall increase in HUD's monitoring 
of the rental assistance programs in the past several years and the 
value of those efforts in improving program administration and reducing 
improper payments.

GAO's final report should also acknowledge that the design and level of 
HUD's ongoing program monitoring efforts are directly related to the 
level of annual budgetary resources provided to HUD to establish and 
sustain an ongoing monitoring capacity. HUD's Fiscal Year (FY) 2005 
funding supports less staffing, travel, and contracting for program 
monitoring activity than was available in FY 2004. The steady 
downsizing of HUD's staffing over the past decade has necessitated that 
the Department increasingly rely on remote monitoring systems, risk- 
based monitoring practices, and voluntary compliance by third-party 
program administrators.

In the case of the PBCA initiative, HUD was given sufficient budgetary 
resources for an annual onsite compliance monitoring review and a 
review of 100 percent of subsidy payment vouchers submitted under 
Section 8 project-based assistance contracts covered by PBCAs. HUD 
attributes the relatively low billing error rate and the 2003 
reductions in other project-based assistance error components to its 
expanded use of PBCAs, which was the only significant explanatory 
variable from prior error measurement efforts in 1993 and 2000. While 
HUD plans to provide a comparable level of monitoring to its other 
project-based assistance program activity and has requested the 
budgetary resources to do so, it remains to be seen whether these 
resources will be provided and sustained. If not, HUD will have to 
devise other, less comprehensive methods of monitoring its project- 
based assistance to private owners of low-income housing. HUD is 
rewriting its PBCA contract requirements and will address GAO's issue 
that more consistent reporting of monitoring results is needed as a 
basis for measuring, analyzing, and resolving compliance and 
performance problems.

HUD's initial RIM reviews were targeted at the 490 largest PHAs that 
together receive 80 percent of the funds from the Public Housing and 
Section 8 Voucher programs of the Office of Public and Indian Housing's 
(PIH). These were intended to be one-time baseline and follow up 
reviews of the larger PHAs' performance of income, rent, and subsidy 
determinations, because HUD lacks the capacity to sustain this level of 
RIM reviews on an annual basis without adversely affecting PIH's other 
program delivery and monitoring responsibilities. However, HUD's FY 
2005 Management Plan guidance conveyed HUD's plans to resume the 
conduct of RIM reviews as part of HUD's normal oversight activities in 
FY 2006. These would follow a targeted FY 2005 focus on follow-up and 
enforcement actions on the results of the initial RIM review effort.

In its future RIM reviews, HUD plans to utilize PIH's limited 
monitoring capacity to perform RIM reviews on the 490 largest PHAs on a 
cyclical basis, along with review of an annual random selection of 
smaller PHAs. The frequency of the RIM review cycle will depend on 
PIH's staff resource level. HUD's recently updated RHIIP plan addresses 
GAO's recommendation on the need to collect complete and consistent 
information from its monitoring efforts to help focus corrective 
actions. In addition, the Congress provided PIH with 75 additional full-
time equivalent (FTE) positions to improve controls over budgeting and 
accounting for the Section 8 Voucher Program. Use of those additional 
resources should also further reduce the risk of improper payments.

Program Simplification Efforts:

The draft report does not adequately characterize the work HUD has done 
in developing proposals to simplify policies for rent subsidy 
determinations that would reduce the risk of improper payments. The 
report fails to mention three legislative initiatives that were 
proposed in HUD's FY 2004 and FY 2005 budget justifications, the 
Housing Assistance for Needy Families proposal, Flexible Voucher 
proposal and Freedom To House initiative. Each of these proposals 
included rent subsidy simplification. Although none of these 
initiatives were enacted as part of HUD's appropriations, each had been 
vetted through the Department and through the Office of Management and 
Budget (OMB) and reflected the Department's strong interest in pursuing 
simplification. As part of its FY 2006 budget, HUD will propose several 
initiatives to simplify rent subsidy determinations.

The draft report incorrectly states that HUD has not conducted formal 
studies on or otherwise considered the effects of its program 
simplification change proposals. To the contrary, all of HUD's 
proposals with respect to simplifying rent subsidy determinations have 
undergone extensive analysis by the Department's Office of Policy 
Development and Research (PD&R) and program staff. Nevertheless, HUD 
agrees with GAO's conclusions that major policy changes would require 
statutory action by the Congress. HUD also agrees that changes to the 
current system of income deductions and exclusions would likely affect 
many tenants' rental payments, with some tenants paying higher rent and 
others paying lower rent than they do under the current program 
structure. Given that such policy changes are beyond HUD's control, the 
Department remains focused on improving management controls to reduce 
risks in the existing program structures, while continuing to consider 
and advance program simplification proposals with program stakeholders.

Efforts to Identify the Sources and Magnitude of Improper Payments:

HUD's efforts to measure the sources and magnitude of improper payments 
in its rental housing assistance programs are costly and burdensome to 
implement for HUD, as well as for its program administrators and tenant 
beneficiaries. HUD's measurement efforts to date have been designed and 
deployed as needed to guide corrective actions, to reduce the risk of 
improper payments, and to measure the general success of those 
activities. The draft report correctly states that HUD has identified 
three general sources of improper payments in its rental housing 
assistance programs-program administrator subsidy determination error, 
tenant income reporting error, and billing or payment error. However, 
HUD disagrees with the draft report's conclusion that HUD has complete 
and reliable estimates only for the program administrator subsidy 
determination component. The Department also disagrees with the 
implication that HUD lacks information for program decision-making on 
risk reduction efforts for the other identified error components. 
Regarding the draft report's conclusions that HUD should measure 
certain types of errors and the impacts of corrective actions in 
greater detail or more precisely, the Department questions the 
necessity and cost-benefit of such efforts.

The draft finds that HUD's FY 2003 estimate of improper rent subsidies 
attributable to unreported tenant income was unreliable because it was 
based on a sample that was too small to produce an accurate result. 
That finding is misleading and should be put in the proper context.

HUD used the same sampling methodology for measuring unreported tenant 
income in 2003 as was used and accepted by GAO and HUD's Office of 
Inspector General in 2000. HUD's FY 2003 sample consisted of over 5,500 
tenants in the 2,401 subsidized households included in the 
statistically valid sample for the review of the program administrator 
subsidy determinations accepted by GAO. HUD identified 30 of the 2,401 
tenant households surveyed as having at least one unreported income 
source. The estimated incidence of cases in error was 1.2 percent. 
There is a 95 percent likelihood that the true incidence of error was 
in the 0.1 to 2.0 percent range. The $191 million dollar error estimate 
also has a relatively high confidence interval range, which is partly a 
function of the distribution of errors and partly due to the small 
number of errors. To obtain a precise estimate of dollar error would 
require a much larger and more expensive sample. Since HUD anticipates 
that full implementation of its Enterprise Income Verification computer 
matching system will eliminate any reasonably detectable underreporting 
of income, HUD does not believe that the cost of a survey large enough 
to measure this error more accurately is necessary or advisable.

The draft report's discussion of HUD's estimation of billing error in 
the Project-Based Assistance programs is also misleading and in need of 
clarification. The report ignores three points: (1) the error found was 
difficult to measure because it was so small; (2) the sample size used 
followed OMB guidelines on measuring improper payments, which were 
partly intended to avoid excessive sampling costs; and (3) many of the 
"errors" identified were due to the study's protocols, which did not 
resolve situations where funds paid could not be fully tracked because 
they had been commingled with other activities or projects under 
allowed procedures. Funds that could not be fully tracked were 
classified as discrepancies and reported as billing errors in this 
study, although it is unlikely that most were actually errors that 
adversely affected HUD or the program. HUD intends to add procedures to 
future billing studies that are almost certain to eliminate a 
significant portion of the discrepancies reported in this year's study. 
HUD does need to complete the ongoing billing error measurement effort 
for the Public Housing and Section 8 Voucher Programs to determine the 
nature and extent of any problems that need to be resolved. Even so, 
PIH is already taking action to improve controls over billings in those 
programs, such as establishing the Office of Voucher Quality Assurance.

While the draft report accepted the methodology and results of HUD's 
process for estimating program administrator subsidy determination 
error, the report recommends that HUD expand the process for the 
Project-Based Assistance programs to provide for separate error rates 
for activities respectively monitored by PBCAs, traditional Contract 
Administrators, and HUD staff. Such an effort would be far more costly, 
because sample sizes would need to be at least tripled to permit 
statistically valid comparisons. Unless HUD is unsuccessful in its 
efforts to provide all Project-Based Assistance program activity with 
the same level of monitoring provided by the PBCAs, such an action does 
not seem necessary or cost-beneficial. Even then, an aggregate estimate 
might still be acceptable, if the overall error continues to show a 
strong downward trend towards an acceptable level, commensurate with 
the implementation of HUD's corrective actions. Rather than expand the 
costly separate error measurement efforts, HUD prefers to consider 
GAO's recommendations to better capture its ongoing monitoring results 
as a basis for measuring, analyzing, and addressing problems in the 
administration of the rental housing assistance programs.

I appreciate GAO's efforts to assure a full and accurate assessment of 
all relevant facts in arriving at valid conclusions on the nature and 
significance of HUD's rental housing assistance program risks and the 
adequacy of HUD's corrective actions and plans to better manage those 
risks. I have requested HUD's staff to meet with GAO on an ongoing 
basis to help insure that to the fullest extent possible the Department 
addresses all of the criteria that led to GAO's "high-risk" 
determination. If your staff has any questions on our comments, please 
have them contact James M. Martin, Assistant Chief Financial Officer 
for Financial Management, on (202) 708-0614, extension 3706.

Sincerely,

Signed by: 

Roy A. Bernardi: 
Deputy Secretary: 

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

David G. Wood (202) 512-8678; 
Steven Westley (202) 512-6221: 

Staff Acknowledgments: 

In addition to the individuals named above, Daniel Garcia-Diaz, Cory 
Roman, and Rose Schuville made key contributions to this report. Also 
contributing to this report were Carl Barden, Emily Chalmers, John T. 
McGrail, Marc W. Molino, Terry Richardson, and Jerry Sandau. 

(250173): 

FOOTNOTES

[1] GAO, Major Management Challenges and Program Risks: Department of 
Housing and Urban Development, GAO-01-248 (Washington, D.C.: January 
2001). 

[2] Office of Management and Budget, The President's Management Agenda, 
Fiscal Year 2002 (Washington, D.C.: August 2001). 

[3] The margin of error at the 95 percent level of confidence for the 
estimated $1.4 billion in gross improper subsidies is ±$185 million. 
The margins of error for the estimated $896 million in overpayments and 
$519 million in underpayments are ±$132 million and $±96 million, 
respectively. 

[4] See 42 U.S.C. 1437n(b)(1). 

[5] These 2,500 PHAs are among the approximately 3,300 that administer 
federal housing programs on behalf of HUD. 

[6] This figure includes both operating and capital subsidies. 

[7] See 43 U.S.C. 1437n(a)(2). 

[8] The only exception to this is the Section 8 Moderate Rehabilitation 
program, which is administered by PHAs rather than property owners or 
managers. 

[9] Performance-based contract administrators receive an incentive fee 
if they perform above a minimum quality level as determined by HUD, and 
their fees are reduced if they perform below it. 

[10] See 24 C.F.R. 5.609. 

[11] HUD periodically identifies these federally mandated exclusions 
from income in the Federal Register. See 66 Fed. Reg. 20318 (Apr. 20, 
2001) for the most recent listing. 

[12] See 24 C.F.R. 5.611. 

[13] See 24 C.F.R. 5.628. For project-based Section 8 properties, the 
minimum rent is $25 per month. 

[14] GAO, Major Management Challenges and Program Risks: Department of 
Housing and Urban Development, GAO-03-103 (Washington, D.C.: January 
2003) and GAO-01-248. 

[15] Office of Inspector General, Department of Housing and Urban 
Development, Additional Details to Supplement Our Report on the U.S. 
Department of Housing and Urban Development's (HUD) Fiscal Year 2004 
Financial Statements (Washington, D.C.: November 2004). 

[16] Office of Management and Budget, The President's Management 
Agenda, Fiscal Year 2002 (Washington, D.C.: July 2001). 

[17] The Improper Payments Information Act of 2002 (Pub. L. No. 107- 
300) also required HUD to report its estimate of improper rent 
subsidies annually. 

[18] The President's Management Agenda also urged HUD to work with 
stakeholders to simplify program rules where necessary. 

[19] At the time of our field work, HUD had not assigned project-based 
Section 8 contracts to a performance-based contract administrator in 
either Illinois or Northern California. 

[20] Appendix I provides the margins of error for all estimates of 
improper rent subsidies attributable to program administrator errors. 

[21] Pub. L. No. 107-300, Nov. 26, 2002. 

[22] See Office of Management and Budget's guidance "Improper Payments 
Information Act of 2002 (Pub. L. No. 107-300)."

[23] Absolute value is the magnitude of a number irrespective of 
whether it is positive or negative. For example, the sum of the 
absolute values of -2 and 2 is 4. 

[24] We followed HUD's approach by not counting a discrepancy of $5 or 
less between the rent in the tenant's file and the "correct rent" as an 
error in order to eliminate minor discrepancies that have little impact 
on programwide subsidy errors. Including all errors (anything greater 
than $0) would increase the fiscal year 2003 estimate of program 
administrator errors by less than $18 million, or about 1 percent. In 
addition, our estimates of such errors for fiscal year 2003 agree with 
those published in HUD's Performance and Accountability Report for 
Fiscal Year 2004. 

[25] RHIIP's quantitative goal for reducing improper rent subsidies 
also applies to the other sources of error. 

[26] Gross improper subsidies per household are limited to those 
households with erroneous subsidies. Those households with no errors 
are not included in the calculation. 

[27] Notice PIH 2003-34, Rental Integrity Monitoring Disallowed Costs 
and Sanctions Under the Rental Housing Integrity Improvement Project 
Initiative, Dec. 19, 2003. 

[28] HUD conducted the first round of RIM reviews in two phases. 
Between June 2002 and March 2003, HUD staff completed 376 RIM reviews 
(phase 1 of the first round). Between March and September 2003, HUD 
staff selected another 490 PHAs for review (144 from phase 1 and 346 
additional PHAs--together, phase 2 of the first round). 

[29] Only those PHAs that were part of phase 2 of the first round of 
RIM reviews received second-round RIM reviews. According to HUD, some 
of these PHAs received two second-round RIM reviews--one for the 
voucher program and one for the public housing program. Other PHAs-- 
either those with only one program or those with two programs, but only 
one that required a second-round RIM review--received one second-round 
RIM review. As a result, the number of PHAs that received second-round 
RIM reviews is smaller than the total number of second-round reviews. 

[30] PHAS replaced the Public Housing Management Assessment Program 
(PHMAP) in 1998. Implemented in 1992, PHMAP was designed to evaluate 
PHAs' management performance. Under PHMAP, PHAs were given scores of 
high, standard, or troubled based on self-certified information 
submitted by PHAs to HUD. 

[31] Under PHAS, HUD may sanction PHAs for poor performance and 
noncooperation with the department in addressing problems. For example, 
HUD may place restrictions and conditions on PHA expenditures or 
suspend or remove PHA officials. See GAO, Public Housing: New 
Assessment System Holds Potential for Evaluating Performance, GAO-02- 
282 (Washington, D.C: Mar. 15, 2002). 

[32] Each year, HUD assigns each PHA a rating for each of the 
individual SEMAP indicators and an overall performance rating of high, 
standard, or troubled. If a PHA is assigned an overall rating of 
troubled, HUD will conduct an on-site review at that PHA to assess the 
magnitude and seriousness of the problem. Troubled PHAs are also 
required to implement corrective action plans and receive additional 
HUD monitoring to ensure improvement in program management. Under 
Notice 2003-34, HUD can reduce a PHA's SEMAP score if a RIM review does 
not support the PHA's self-certification that it has correctly 
determined adjusted annual income for each household. If the reduced 
score places the PHA in troubled status, HUD may also impose additional 
sanctions. PHAS uses a similar rating system in which HUD assigns PHAs 
individual scores for each of the components and an overall composite 
rating; however, because PHAS does not assess PHAs' subsidy 
determinations, HUD cannot reduce PHAS scores under Notice 2003-34. 

[33] HUD does not have criteria for the number of staff required to 
conduct a RIM review. 

[34] HUD's income verification system is a Web-based application that 
allows PHAs to compare Social Security income information reported by 
tenants with information reported by the Social Security 
Administration. This system is currently available to all PHAs. The 
income verification system will be expanded to allow PHAs to compare 
earned income information reported by tenants with information that 
employers report to government agencies. HUD is in the process of 
expanding the income verification system, and it is currently available 
to PHAs in a limited number of states. Income verification is discussed 
later in this chapter. 

[35] In a later memorandum, dated April 28, 2003, HUD instructed field 
offices to provide written reports to PHAs no more than 45 days after 
the RIM review ended, conflicting with the requirement in the RIM 
Guide. If we use the 45-day time frame, 13 of the 31 RIM reports we 
reviewed (about 42 percent) were issued late. 

[36] Consolidated Appropriations Act, 2004, Pub. L. No. 108-199, Jan. 
23, 2004. 

[37] Program administrators must certify incomes and eligibility for 
assistance when households first apply for assistance and at least 
annually thereafter. 

[38] This problem affects recertifications, not initial certifications, 
because information in HUD's income verification system is limited to 
tenants who are already receiving housing assistance. 

[39] The guidebook covers a range of issues, including admitting 
applicants to programs, calculating subsidies, and terminating leases. 

[40] The database will also be used for HUD's public housing and 
voucher programs. 

[41] HUD Handbook 4350.3 REV-1, "Occupancy Requirements of Subsidized 
Multifamily Housing Programs," May 2003. 

[42] Prior to the guide's issuance, HUD's procedures for conducting 
management and occupancy reviews were not sufficiently detailed to 
identify and record information on improper rent subsidies, leading 
some PBCAs and field offices to develop their own detailed procedures. 

[43] HUD Handbook 4350.1 REV-1, "Multifamily Asset Management and 
Project Servicing," January 1996. 

[44] Contract administrators review monthly payment voucher requests 
from property owners to verify, among other things, that the amount of 
the payment for each tenant is correct and that the request does not 
include payment for any units that are not eligible for Section 8 
rental assistance. 

[45] PBCAs' contracts with HUD require that they collect this 
information but do not specify how this information should be collected 
and in what form. 

[46] Currently, HUD cannot transfer to PBCAs contracts for 
approximately 4,100 properties that fall under several programs: the 
Section 202 Supportive Housing for the Elderly, Section 811 Supportive 
Housing for Persons With Disabilities, Rent Supplement, and Rental 
Assistance Payment. According to HUD, the department cannot transfer 
these contracts because program legislation does not allow appropriated 
program funds to pay fees for contract administration by third-party 
entities. HUD announced in April 2004 that it would competitively 
source the administration of these contracts and determine the most 
cost-effective way of administering them. Under Office of Management 
and Budget policy, federal employees (including HUD field office staff) 
can compete with private sector employees to provide contract 
administration services. According to HUD, after the department 
determines the most cost-effective contract administrator, it will seek 
new budget authority to pay for these services. 

[47] U.S. Department of Housing and Urban Development, Office of 
Inspector General, Audit of the U.S. Department of Housing and Urban 
Development Financial Statements for Fiscal Years 2003 and 2002, 2004- 
FO-0003 (Washington, D.C.: December 2003). 

[48] HUD pays PBCAs an incentive fee if they perform above a minimum 
quality level as determined by HUD or reduces their fee if they perform 
below it. Unlike for PBCAs, HUD pays traditional contract 
administrators a fixed fee for their services. 

[49] In fiscal year 2004, 879 properties that were assigned to PBCAs 
did not receive a management and occupancy review. According to HUD, 
these properties were not reviewed primarily because they were assigned 
to PBCAs in the last 6 months of the fiscal year, and PBCAs have 12 
months to review newly assigned properties. 

[50] U.S. Department of Housing and Urban Development, Office of 
Inspector General, Additional Details to Supplement Our Report on the 
U.S. Department of Housing and Urban Development's Fiscal Year 2004 
Financial Statements, 2005-FO-0003 (Washington, D.C.: November 2004). 

[51] GAO-03-103. 

[52] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

[53] U.S. Department of Housing and Urban Development, Quality Control 
for Rental Assistance Subsidies Determinations (Washington, D.C.: June 
2001). 

[54] Eligible families can also qualify for the disallowance if they 
are, or were within the previous 6 months, assisted by the Temporary 
Assistance for Needy Families program and their earned income 
increased. In addition, unlike the public housing program, the voucher 
program restricts the disallowance to families whose income increases 
due to the employment or increased earnings of a household member with 
disabilities. 

[55] Tenant rents, however, could change for other reasons, such as 
annual adjustments for inflation. 

[56] Authorized under the Omnibus Consolidated Rescissions and 
Appropriations Act of 1996 (Pub. L. No. 104-134), the purpose of the 
Moving-to-Work demonstration program is to: (1) reduce costs and 
achieve greater cost-effectiveness in the public housing and voucher 
programs, (2) give incentives to families with children to become 
economically self-sufficient, and (3) increase housing choices for low 
income families. 

[57] We conducted this analysis to illustrate the potential 
implications of specific simplification approaches, not to draw 
conclusions about simplification of rent policies generally. Small 
changes in the assumptions used in our analysis could yield 
significantly different results. 

[58] The estimate for the voucher program includes a very small number 
of Section 8 Moderate Rehabilitation units, which, like vouchers, are 
administered by public housing agencies. 

[59] We also show the percentile distribution of values appearing in 
multiple tables in this appendix. These percentiles indicate what 
percentage of households had values equal to or less than the value 
shown in the table. For example, in table 5, 25 percent of households 
had dollar errors of $13 or less for all programs. (Another way of 
interpreting this would be that 75 percent of households had dollar 
errors greater than $13.)

[60] HUD Form 50058 is used for public housing and vouchers and Form 
50059 for project-based Section 8. 

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