oversight

Rural Housing Service: Efforts to Identify and Reduce Improper Rental Assistance Payments Could Be Enhanced

Published by the Government Accountability Office on 2012-05-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




May 2012
             RURAL HOUSING
             SERVICE
             Efforts to Identify and
             Reduce Improper
             Rental Assistance
             Payments Could Be
             Enhanced




GAO-12-624
                                            May 2012

                                            RURAL HOUSING SERVICE
                                            Efforts to Identify and Reduce Improper Rental
                                            Assistance Payments Could be Enhanced
Highlights of GAO-12-624, a report to
congressional requesters




Why GAO Did This Study                      What GAO Found
RHS, an agency within USDA, paid            The Rural Housing Service (RHS) has identified improper rental assistance
property owners about $1 billion in         payments caused by certain sources of errors, but its reported error rate (total
fiscal year 2011 to help more than          amount improperly paid divided by program outlays) may understate the
270,000 low-income rural tenants            magnitude of the problem. RHS has identified improper payments resulting from
afford rental housing. Each year, some      inaccurate calculations of tenant subsidies and incomplete supporting
of RHS’s rental subsidy payments are        documents. From fiscal years 2007 through 2010, RHS reduced its reported error
improper—that is, too high or too low.      rate from 3.95 percent (representing $35 million in errors) to 1.48 percent
Federal requirements regarding              (representing $15 million in errors). However, these figures may be understated
improper payments are set forth in
                                            because RHS has not estimated improper payments due to unreported tenant
statute and in OMB guidance. GAO
                                            income, and it lacks the authority to match tenant data to federal income data for
was asked to review (1) the extent to
which RHS has examined the sources
                                            this purpose. These data include the Department of Health and Human Services’
and magnitude of improper rental            (HHS) New Hires database and the Social Security Administration’s (SSA) data
assistance payments, (2) RHS’s              on benefits payments. RHS has proposed legislation to gain access to the HHS
compliance with requirements and            data but not the SSA data. Additionally, RHS has not recently estimated payment
guidance concerning improper                processing errors and has not strictly adhered to procedures for classifying
payments, and (3) potential lessons         payments as improper. Further, in 2008, RHS began excluding improper
RHS could learn from HUD efforts to         payments of less than $100 from its estimated error rates. However, it did not
identify and reduce improper rental         submit this change to the Office of Management and Budget (OMB), which is
assistance payments. To do this work,       responsible for approving agency methodologies for estimation. As a result, RHS
GAO analyzed agency data and                lacks assurance that its approach is appropriate.
documents; reviewed statutes and
guidance; and interviewed RHS, HUD,         RHS uses required statistical methods for estimating improper payments but has
and OMB officials.                          not fully met requirements for reporting on, reducing, and recovering such
                                            payments. Consistent with the Improper Payments Information Act of 2002, as
What GAO Recommends                         amended, and OMB guidance, RHS examines a statistically valid sample of
To help reduce improper payments            payments and generates estimates with an acceptable level of precision. RHS
caused by unreported tenant income,         also has reported required information, such as actions to address payment
GAO suggests that Congress should           errors. However, RHS did not fully comply with the requirement to implement and
consider authorizing RHS access to          report steps for holding agency managers accountable for reducing improper
HHS’s New Hires database and                payments. In addition, although OMB cites data matching as a way to reduce
recommends that RHS develop                 payment errors, RHS has not used data already available from SSA to detect
proposed legislation to gain access to      payments made on behalf of deceased tenants. Further, RHS has yet to institute
SSA benefits data. GAO also                 a recovery audit program in accordance with the Improper Payments Elimination
recommends that USDA submit RHS’s           and Recovery Act of 2010, although it plans to do so sometime in 2012. These
method for estimating improper
                                            shortcomings negatively affect the integrity of RHS’s subsidy payments.
payments to OMB for review and that
RHS take steps to consistently apply
procedures for classifying payments as      The Department of Housing and Urban Development’s (HUD) use of data
improper, examine improper payments         matching to reduce improper payments in its rental assistance programs
made on behalf of deceased tenants or       illustrates the potential benefits and challenges of this technique for RHS. HUD
caused by payment processing errors,        developed a web-based system that allows authorized HUD staff and program
and hold agency managers                    administrators (e.g., public housing agencies) to match tenant information to
accountable for reducing improper           HHS’s New Hires database and SSA benefits data. According to HUD, the
payments. USDA said it generally            system has helped to reduce income reporting errors and has contributed to a
agreed with GAO’s recommendations.          more than threefold decline in total improper payments from fiscal years 2000
                                            through 2010. Negotiating a data-sharing agreement with one agency and fully
View GAO-12-624. For more information,
contact Mathew Scirè at (202) 512-8678 or
                                            implementing the data matching system took several years. Additionally, HUD
scirem@gao.gov.                             provides extensive guidance, training, and technical assistance to program
                                            administrators to help ensure effective use of the system.
                                                                                    United States Government Accountability Office
Contents


Letter                                                                                   1
               Background                                                                4
               RHS Has Identified and Reduced Certain Types of Payment Errors,
                 but Its Reported Error Rate May Understate the Magnitude of
                 the Problem                                                             8
               RHS Uses Required Statistical Methods for Estimating Improper
                 Payments but Has Not Fully Met Reporting, Reduction, and
                 Recovery Requirements                                                 17
               HUD’s Efforts Illustrate Potential Benefits and Challenges of Data
                 Matching                                                              26
               Conclusions                                                             33
               Matter for Congressional Consideration                                  36
               Recommendations for Executive Action                                    36
               Agency Comments and Our Evaluation                                      37

Appendix I     Objectives, Scope, and Methodology                                      39



Appendix II    Comments from the Department of Agriculture                             44



Appendix III   GAO Contact and Staff Acknowledgments                                    46



Tables
               Table 1: RHS Estimates of Gross Improper Rental Assistance
                        Payments and Error Rates, Fiscal Years 2007-2010               10
               Table 2: RHS Reporting on Improper Payments in Response to
                        OMB Requirements                                               19
               Table 3: Status of RHS Corrective Actions Regarding Improper
                        Rental Assistance Payments                                     22


Figures
               Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of
                        April 2012                                                       6
               Figure 2: Potential Sources of Payment Errors Examined and Not
                        Examined by RHS’s Improper Payments Audit, as of April
                        2012                                                           11


               Page i                                      GAO-12-624 RHS Improper Payments
Figure 3: Distribution of Improper Payments in RHS’s Sample of
         Fiscal Year 2010 Payments                                                        15
Figure 4: Estimated RHS Improper Rental Assistance Payments in
         Fiscal Year 2010 Including and Excluding Errors Less
         Than $100                                                                        16




Abbreviations

CSC               Centralized Servicing Center
EIV               Enterprise Income Verification System
HHS               Department of Health and Human Services
HUD               Department of Housing and Urban Development
IPERA             Improper Payments Elimination and Recovery Act of 2010
IPIA              Improper Payments Information Act of 2002
MFIS              Multi-Family Information System
NAHMA             National Affordable Housing Management Association
OIG               Office of the Inspector General
OMB               Office of Management and Budget
PAR               Performance and Accountability Report
PHA               public housing agency
RFP               request for proposals
RHIIP             Rental Housing Integrity Improvement Project
RHS               Rural Housing Service
SSA               Social Security Administration
USDA              U.S. Department of Agriculture




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Page ii                                               GAO-12-624 RHS Improper Payments
United States Government Accountability Office
Washington, DC 20548




                                   May 31, 2012

                                   The Honorable Charles Grassley
                                   Ranking Member
                                   Committee on the Judiciary
                                   United States Senate

                                   The Honorable Judy Biggert
                                   Chair
                                   Subcommittee on Insurance, Housing
                                     and Community Opportunity
                                   Committee on Financial Services
                                   House of Representatives

                                   The Honorable Shelley Moore Capito
                                   Chairwoman
                                   Subcommittee on Financial Institutions
                                     and Consumer Credit
                                   Committee on Financial Services
                                   House of Representatives

                                   In fiscal year 2011, the Rural Housing Service (RHS) of the U.S.
                                   Department of Agriculture (USDA) paid about $1.1 billion in subsidies
                                   under the Section 521 rental assistance program to help more than a
                                   quarter of a million very low- and low-income rural tenants afford decent
                                   rental housing. 1 The properties in which the tenants live were created
                                   through other RHS programs that provide low-interest loans for the
                                   development of multifamily housing. RHS pays rental subsidies to the
                                   owners of the properties to limit tenants’ rent payments to 30 percent of
                                   the household’s adjusted monthly income. However, each year, some of
                                   RHS’s subsidy payments are improper because they should not have
                                   been made or were made in an incorrect amount.

                                   Like other executive branch agencies, RHS is required to comply with
                                   requirements designed to enhance the accuracy and integrity of federal
                                   payments. Under the Improper Payments Information Act of 2002 (IPIA),



                                   1
                                    Very low income is defined as below 50 percent of the area median income; low income
                                   is from 50 to 80 percent of area median income.




                                   Page 1                                             GAO-12-624 RHS Improper Payments
agencies are required to estimate annual amounts improperly paid and to
report these estimates and actions taken to reduce them. 2 The Improper
Payments Elimination and Recovery Act of 2010 (IPERA) amended IPIA
and, among other things, expanded requirements for recovering
overpayments. 3 The Director of the Office of Management and Budget
(OMB) prescribes guidance for agencies to use in implementing IPIA, as
amended.

In prior work, we reported that the Department of Housing and Urban
Development (HUD), which paid over $32 billion in rental subsidies in
fiscal year 2010, had substantially reduced the amount of improper
payments in its three rental assistance programs. 4 Specifically, we
reported that HUD paid an estimated $3.4 billion in improper rent
subsidies in fiscal year 2000 but cut that amount to about $1.5 billion in
fiscal year 2005. Since that time, HUD has made continuing efforts to
reduce improper payments for these programs, including the use of data
matching techniques to help ensure payment accuracy.

You asked us to examine RHS’s efforts to address improper rental
assistance payments in the Section 521 program. Accordingly, this report
addresses (1) the extent to which RHS has examined the sources and
magnitude of improper rental assistance payments; (2) the extent to
which RHS has complied with applicable requirements and guidance for
estimating, reporting, reducing, and recovering improper payments; and
(3) potential lessons RHS could learn from HUD efforts that have helped
to identify and reduce improper rental assistance payments.

To determine the extent to which RHS has examined the sources and
magnitude of improper payments, we reviewed RHS’s improper payments
audits of the rental assistance program for fiscal years 2004 through 2010
(the most recent audit available at the time of our review). We reviewed
RHS’s audit procedures and examined the policies governing RHS’s
subsidy determination and payment processes. We also reviewed
detailed information on the sample of payments covered by the audit for


2
Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
3
Pub. L. No. 111-204, 124 Stat. 2224 (July 22, 2010).
4
 GAO, HUD Rental Assistance: Progress and Challenges in Measuring and Reducing
Improper Rent Subsidies, GAO-05-224 (Washington, D.C.: Feb. 18, 2005) and GAO,
High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007).




Page 2                                                 GAO-12-624 RHS Improper Payments
fiscal year 2010, including the dollar amount and types of errors that
internal RHS auditors identified, if any, for each payment. We assessed
the reliability of the payment data in the sample by reviewing information
on data quality controls and by performing reasonableness checks on the
data. We determined that the data were sufficiently reliable for our
purposes. In addition, we interviewed RHS officials, including staff
responsible for managing the rental assistance program and staff who
conduct the improper payments audit, as well representatives from
housing industry groups.

To determine the extent to which RHS has complied with applicable
requirements and guidance concerning improper payments, we reviewed
IPIA and IPERA provisions, associated OMB implementing guidance, and
a 2010 presidential memorandum on ensuring payment accuracy. We
examined RHS’s improper payments audit for fiscal year 2010 and the
statistical sampling plan underlying the audit. We also reviewed USDA’s
Performance and Accountability Reports (PAR) for fiscal years 2008
through 2011 (the most recent available at the time of our review). Our
review of RHS’s compliance with OMB reporting requirements focused on
information in the most recent PAR. Our review of RHS’s corrective
actions to address payment errors covered information in the PARs for
fiscal years 2008 through 2011. Additionally, we interviewed RHS and
OMB officials about RHS’s efforts to comply with improper payments
requirements and guidance.

To determine potential lessons that RHS could learn from HUD’s
experience, we reviewed HUD’s annual studies of improper rental
assistance payments (which are comparable to RHS’s improper
payments audits) conducted for fiscal years 2000 through 2010. We
examined HUD’s methodology for estimating improper payments and the
studies’ findings about the sources and magnitude of payment errors. We
also reviewed HUD’s PARs and other documentation showing the steps
the agency had taken to identify, reduce, and recover improper payments
and the results of those efforts. Our work emphasized the benefits and
challenges associated with HUD’s system for verifying tenant incomes
because RHS lacks a comparable capability. Finally, we interviewed HUD
officials responsible for managing the agency’s rental assistance
programs and estimating and reducing improper payments. Appendix I
contains a more detailed description of our objectives, scope, and
methodology.

We conducted this performance audit from July 2011 to May 2012 in
accordance with generally accepted government auditing standards.


Page 3                                      GAO-12-624 RHS Improper Payments
                          Those standards require that we plan and perform the audit to obtain
                          sufficient, appropriate evidence to provide a reasonable basis for our
                          findings and conclusions based on our audit objectives. We believe that
                          the evidence obtained provides a reasonable basis for our findings and
                          conclusions based on our audit objectives.



Background
RHS’s Rental Assistance   The Section 521 rental assistance program, authorized in 1974, is
Program                   administered by RHS’s Multi-Family Housing Portfolio Management
                          Division and its network of state and local offices. The program provides
                          rental assistance for tenants living in properties created through RHS’s
                          Multi-Family Direct Rural Rental Housing Loans and Multi-Family Housing
                          Farm Labor Loans programs. These programs provide loans subsidized
                          with interest rates as low as 1 percent to help build rental housing for rural
                          residents and farm workers. Under the rental assistance program, eligible
                          tenants pay up to 30 percent of their income toward the rent, and RHS
                          pays the balance to the property owner. 5 In fiscal year 2011, RHS paid
                          $1.08 billion in subsidies to provide rental assistance to more than
                          270,000 households residing in 13,211 different properties. RHS pays the
                          subsidies monthly to property owners through multiyear, renewable
                          contracts. The Section 521 program is not an entitlement and, therefore,
                          not all eligible households receive assistance. 6

                          Section 521 rental subsidies are based on tenant households’ adjusted
                          annual income—that is, gross income less any exclusions and
                          deductions. For purposes of determining adjusted income, the Section
                          521 program follows the same regulations as HUD’s rental assistance
                          programs. These regulations provide for over two dozen types of income
                          exclusions and deductions. For example, income from minors, student



                          5
                           Eligible tenants are persons with very low and low incomes, the elderly, and persons with
                          disabilities who are unable to pay the basic monthly rent within 30 percent of their
                          adjusted monthly income. Very low income is defined as below 50 percent of the area
                          median income; low income is from 50 to 80 percent of area median income.
                          6
                           RHS does not collect information on the total number of eligible rural tenants who are not
                          assisted. According to RHS data, about 65,000 tenants living in RHS-subsidized
                          properties pay more than 30 percent of their adjusted monthly income in rent but do not
                          receive rental assistance.




                          Page 4                                                GAO-12-624 RHS Improper Payments
financial aid, and qualifying employment training programs are excluded
when determining households’ eligibility to receive assistance and
calculating rental subsidies. Examples of income deductions include
standard deductions for dependents ($480) and elderly and disabled
family members ($400) and unreimbursed child care expenses that are
necessary for a family member to remain employed.

RHS requires property managers to certify the eligibility of assisted
tenants at least annually. 7 As shown in figure 1, property managers do so
based on information from tenants on income and applicable exclusions
and deductions. RHS policy requires property managers to independently
verify this information with third parties. To obtain third-party verification,
property managers must directly contact employers, welfare offices,
health care providers, and others (depending on what information tenants
provide) to ensure that the information is accurate and complete. Property
managers must maintain documentation of verified information in the
tenant’s file and input the information into a Tenant Certification form,
which the tenant signs and dates. The property manager then submits the
Tenant Certification form to RHS. 8 Property managers must recertify
tenants every year, and whenever a tenant’s income changes by $100 or
more per month, or at the tenant’s request whenever the tenant’s income
changes by at least $50 per month.




7
 Property owners may manage the properties themselves or delegate management
responsibilities, in full or in part, to a property manager. Unless specifically noted, we use
the term property manager to refer to both owners and managers.
8
 Since February 2006, RHS has required all property managers with eight or more units to
submit tenant certifications electronically.




Page 5                                                   GAO-12-624 RHS Improper Payments
Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of April 2012




                                         Using information in the Tenant Certification forms, RHS generates
                                         Project Worksheets each month. The Project Worksheets document the
                                         rent and income levels of tenants for whom the property manager can
                                         request rental assistance and calculate the amount of rental assistance
                                         due. Property managers review and verify the worksheets via a secure
                                         website. As part of this process, the property manager should determine
                                         that all rental units are occupied by eligible tenants. According to RHS,
                                         information from the Project Worksheets flows into RHS’s accounting
                                         system, triggering rental subsidy payments to the property owners.


Statutes and Guidance                    RHS’s rental assistance program is one of many federal programs subject
Concerning Improper                      to requirements set forth in IPIA, as amended. IPIA requires the heads of
Payments                                 executive branch agencies to review their programs and activities and
                                         identify those that may be susceptible to significant improper payments.
                                         The act also requires the Director of OMB to prescribe guidance for
                                         agencies to use in implementing IPIA. OMB has issued implementing
                                         guidance that requires agencies to use a systematic method for reviewing
                                         programs and activities that are susceptible to significant improper
                                         payments. 9 IPIA, as amended, and OMB guidance currently define
                                         significant improper payments as those that exceed both 2.5 percent of
                                         program outlays and $10 million annually, or $100 million regardless of



                                         9
                                          Appendix C (Requirements for Effective Measurement and Remediation of Improper
                                         Payments) to OMB Circular No. A-123.




                                         Page 6                                            GAO-12-624 RHS Improper Payments
                          the percentage of program outlays. Among other things, the guidance
                          requires agencies to annually estimate improper payments for each
                          susceptible program or activity using statistically valid techniques and to
                          report the results of their efforts to reduce improper payments. Dollar
                          amounts improperly paid can be either positive or negative because
                          errors can reflect overpayments or underpayments. OMB guidance
                          requires using measures of gross error, which reflect the sum of the
                          absolute value of all erroneously paid funds. IPERA amended IPIA in July
                          2010 by expanding on the previous requirements for identifying,
                          estimating, reporting on, and recovering improper payments. IPERA
                          provisions generally became effective in fiscal year 2011.


HUD’s Rental Assistance   Like RHS, HUD provides assistance to low-income renters and is
Programs                  required to estimate and report on improper payments in its rental
                          assistance programs. HUD provides assistance through three major
                          programs: the Housing Choice Voucher and public housing programs,
                          which are administered by HUD’s Office of Public and Indian Housing,
                          and project-based Section 8, which is administered by the Office of
                          Housing. The three programs combined had outlays of more than $32
                          billion in fiscal year 2010. 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. Public housing agencies
                          (PHA) administer the Housing Choice 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.

                          In response to growing concerns about improper rental assistance
                          payments, HUD established the Rental Housing Integrity Improvement
                          Project (RHIIP) in fiscal year 2001, with the goal of substantially reducing
                          the estimated dollar amount of improper rent subsidies. To accomplish
                          this goal, HUD initiated three efforts designed to (1) increase monitoring
                          of program administrators (PHAs and property managers), (2) establish
                          an income verification system that allows PHAs and property managers to
                          compare income information reported by tenants with income information
                          from government agencies, and (3) provide additional training and
                          guidance for program administrators.




                          Page 7                                       GAO-12-624 RHS Improper Payments
                         RHS’s improper payments audits have identified rental assistance
RHS Has Identified       payments that were improper because of incorrectly calculated subsidy
and Reduced Certain      amounts and incomplete tenant file documentation. RHS has reported
                         that these types of improper payments have declined since fiscal year
Types of Payment         2007; however, RHS’s reported estimated error rate may be understated.
Errors, but Its
Reported Error Rate
May Understate the
Magnitude of the
Problem
RHS Has Identified       Since 2005, RHS has conducted an annual improper payments audit that
Improper Payments        identifies sources of payment errors and estimates the magnitude of
Caused by Two Types of   improper payments in RHS’s rental assistance program. To complete the
                         annual audit, staff from RHS’s Centralized Servicing Center (CSC)
Errors                   examine a random sample of all rental assistance payments made in a
                         given fiscal year. 10 For each rental assistance payment in the sample,
                         CSC staff request the associated tenant file from the property manager
                         and review the file documentation to determine the correct amount of
                         rental assistance that the property owner should have received for that
                         tenant. The CSC staff then compare these calculations with the actual
                         payments in RHS’s records to identify any discrepancies and provide
                         RHS’s Multi-Family Housing Portfolio Division with a summary of the
                         types and magnitude of errors found in the sample. RHS statisticians
                         project the results of CSC’s calculations to the entire universe of rental
                         assistance payments to develop a programwide estimate for improper
                         payments.

                         In recent years, RHS’s improper payments audits have identified rental
                         assistance payments that were improper for two reasons: (1) the property
                         manager incorrectly calculated the amount of tenant income on which the
                         subsidy payment is based and (2) the tenant file did not contain sufficient
                         documentation to support the subsidy payment.



                         10
                           CSC services mortgage loans and grants to individuals in rural areas. CSC’s Appeals,
                         Audits & Unauthorized Assistance Unit began conducting the improper payments audit
                         starting with the audit of payments made in fiscal year 2007. RHS field staff conducted the
                         audit prior to that time.




                         Page 8                                                GAO-12-624 RHS Improper Payments
                             •     Incorrect income calculation. Property managers request rental
                                   assistance subsidies from RHS after determining tenants’ adjusted
                                   monthly incomes. This process involves collecting and verifying
                                   income information from tenants and subtracting applicable
                                   exclusions and deductions from the tenant’s gross income. The rent
                                   subsidy is the difference between 30 percent of the tenant’s adjusted
                                   monthly income and the USDA-approved rent for the unit. 11 As
                                   previously noted, RHS regulations provide for numerous types of
                                   income exclusions and deductions. Due partly to the number and
                                   complexity of these exclusions and deductions, property managers
                                   sometimes make errors in calculating adjusted monthly incomes,
                                   leading to subsidy payments in the wrong amounts.

                             •     Insufficient documentation. The primary documentation required for a
                                   payment to be considered proper is the Tenant Certification form,
                                   which should be signed and dated prior to the property manager’s
                                   subsidy request. Among other things, the certification documents a
                                   tenant’s income, assets, household composition, and disability status.
                                   Depending on the tenant’s circumstances, other required documents
                                   may include documentation of Social Security benefits and medical
                                   bills. If a tenant file does not have complete documentation, RHS
                                   auditors consider the entire subsidy payment to be improper.

RHS Reported That Its        RHS reported a decline in its estimated gross error rate (gross improper
Estimated Error Rate         payments divided by program outlays) from 3.95 percent in fiscal year
Declined from Fiscal Years   2007 to 1.48 percent in fiscal year 2010, the most recent year for which
                             RHS has an estimate. 12 As shown in table 1, this represented a decrease
2007 through 2010
                             in the estimated dollar amount of gross improper payments from $35
                             million to $15 million over a period in which total program outlays
                             increased by more than $130 million. The $15 million in estimated
                             improper payments that RHS reported for fiscal year 2010 consisted of
                             $12 million in overpayments and $3 million in underpayments, for a net
                             estimated overpayment of $9 million. Assuming a monthly subsidy
                             payment of $318—the average amount in RHS’s sample of fiscal year




                             11
                                 USDA calculates the rent based on the owners’ project costs.
                             12
                               RHS reported that its estimated error rate has a margin of error of 0.97 percent,
                             meaning the actual error rate for fiscal year 2010 could be as low as 0.51 percent and as
                             high as 2.45 percent, with a 99 percent level of confidence.




                             Page 9                                                 GAO-12-624 RHS Improper Payments
2010 payments—$9 million is the equivalent of annual subsidy payments
to more than 2,300 households.

Table 1: RHS Estimates of Gross Improper Rental Assistance Payments and Error
Rates, Fiscal Years 2007-2010

    Dollars in millions
    Fiscal year                          RHS rental      Estimated gross      Estimated gross
            a
    audited                      assistance outlays   improper payments             error rate
    2007                                      $887                     $35                 3.95%
    2008                                      $887                     $18                 2.06%
    2009                                      $979                     $14                 1.39%
    2010                                     $1,020                    $15                 1.48%
Source: GAO analysis of data in USDA PARs.

a
 The fiscal year audited refers to the year in which the payments examined by the audit were made.
The audits are conducted in the year following the year in which the payments were made.


RHS’s estimated error rates of 1.39 percent for fiscal year 2009 and 1.48
percent for fiscal year 2010 are below the current IPIA threshold for
programs considered susceptible to significant improper payments, but
they are close to the revised threshold that will take effect in fiscal year
2013. As previously noted, IPIA, as amended, currently defines significant
improper payments as those that exceed both 2.5 percent of program
outlays and $10 million annually, or $100 million regardless of the
percentage of program outlays. Agencies must estimate improper
payments for susceptible programs using a statistically valid methodology
and report these estimates to OMB each fiscal year. OMB implementing
guidance for IPIA, as amended, will reduce the percentage threshold for
susceptible programs from 2.5 percent to 1.5 percent starting in fiscal
year 2013. A program with estimated improper payments below the
percentage threshold for 2 consecutive years may request relief from the
annual reporting requirement. Although RHS’s rental assistance program
has been below the 2.5 percent threshold for the last 3 years, RHS has
not requested relief from OMB on the annual reporting requirement. RHS
officials told us they did not plan on requesting relief in the future because
annually estimating improper payments and reporting the results has
produced useful information that has helped RHS hold property managers
accountable for compliance with program requirements.




Page 10                                                     GAO-12-624 RHS Improper Payments
RHS’s Estimates of                     RHS’s estimated error rate may be understated because its improper
Improper Payments May                  payments audit does not examine some types of errors, excludes
Be Understated for Several             improper payments of less than $100 from its error rate estimates, and
                                       does not count all payments to tenants with undated certifications as
Reasons                                improper.

Unexamined Sources of Errors           RHS’s annual audits do not examine three additional sources of payment
                                       errors and therefore may understate RHS’s error rate (see fig. 2). First,
                                       the audits do not check for an improper payment caused by a tenant not
                                       reporting all sources of income (intentionally or otherwise). RHS bases its
                                       rental subsidies, in part, on income information reported from tenants.
                                       RHS policy requires property managers to verify this information with third
                                       parties such as employers and welfare offices, but third-party verification
                                       may not identify all unreported income (for example, if a tenant discloses
                                       income from only one of two part-time jobs). If tenants do not report all of
                                       their sources of income, the rental subsidies calculated for the tenants
                                       may be too high and result in improper payments.

Figure 2: Potential Sources of Payment Errors Examined and Not Examined by RHS’s Improper Payments Audit, as of April
2012




                                       Page 11                                         GAO-12-624 RHS Improper Payments
RHS officials told us the improper payments audits do not examine
unreported income because RHS does not have access to data that could
readily identify unreported amounts. Two sources of such data are the
Department of Health and Human Services’s (HHS) National Directory of
New Hires (New Hires database) and the Social Security Administration’s
(SSA) data on Social Security and Supplemental Security Income
benefits as follows:

•     New Hires database. This national database compiles information
      reported by employers to state workforce agencies and information
      from federal agencies. It contains information on newly hired
      employees, quarterly wage information for each job held by an
      employee, and unemployment insurance information on individuals
      who have received or applied for unemployment. In a prior report, we
      said that Congress should consider amending the Social Security Act
      to grant RHS access to the New Hires database for purposes of
      detecting unreported income. 13 If such access were granted, RHS
      would have to develop a specific matching agreement with HHS, in
      accordance with the Computer Matching and Privacy Protection Act of
      1988. 14 The President’s budget for fiscal year 2013 contains proposed
      legislation that, if enacted, would give RHS this access. RHS currently
      has agreements with 31 states that give RHS offices in those states
      access to state wage data. However, these data have limited value for
      estimating income reporting errors in the rental assistance program
      because the data do not provide national coverage. Because the New
      Hires database is national in scope, it would not present this limitation.

•     SSA benefits data. RHS officials stated that RHS does not currently
      have the statutory authority to access data on Social Security and
      Supplemental Security Income payments to assisted tenants. If
      granted this access, RHS would have to develop a matching
      agreement with SSA (pursuant to the Computer Matching and Privacy
      Protection Act of 1988) in order to use the information. In 2005,
      USDA’s Office of the Inspector General (OIG) recommended that
      RHS draft legislation that would give RHS access to federal income




13
  GAO, Rural Housing Service: Updated Guidance and Additional Monitoring Needed for
Rental Assistance Distribution Process, GAO-04-937 (Washington, D.C.: Sept. 13, 2004).
14
    Pub. L. No. 100-503.




Page 12                                             GAO-12-624 RHS Improper Payments
     and benefits databases, including those maintained by SSA. 15
     However, RHS officials told us they had been focused on getting
     statutory access to the New Hires database and had not worked on
     developing legislation for accessing SSA benefits data. Without this
     access, future RHS efforts to identify unreported tenant income will be
     limited.

The second source of improper payments not examined by RHS’s audits
is a payment made on behalf of a deceased tenant. In the case of single-
tenant households, rental assistance should be discontinued when the
tenant dies. In the case of multimember households, the amount of rental
assistance may need to be adjusted to reflect the change in household
composition resulting from a tenant’s death. 16 SSA’s Death Master File,
which is available to federal agencies, is a national database of deceased
individuals who had Social Security numbers and whose deaths were
reported to SSA. It contains information on date of birth, date of death,
and state or country of residence for each decedent, and is a tool for
identifying deceased individuals in a timely way. RHS officials told us they
had not considered using the Death Master File to help identify improper
payments. Therefore, if the deceased tenant’s landlord or family does not
notify RHS of the tenant’s death in a timely manner, RHS could continue
to make rental assistance payments on the deceased tenant’s behalf.

The third source of improper payments not currently examined by RHS’s
audits is an error that may occur in payment processing. These errors are
discrepancies between the calculated rent subsidy and the amount RHS
actually paid. RHS estimated improper payments due to payment
processing errors in its audit for fiscal year 2004 but has not done so
since then. RHS stopped examining these errors because the fiscal year
2004 audit found them to be insignificant. In addition, RHS officials noted
that in 2006, RHS implemented an automated payment processing
system to reduce errors in data entry and that 93 percent of subsidies are
currently processed through this system. Although the automated system
may reduce the likelihood of payment processing errors, 7 percent of
payments are not processed through the system. Further, in 2007,


15
  USDA, Office of Inspector General, Rural Housing Service: Subsidy Payment Accuracy
in Multi-Family Housing Program, Report No. 04099-339-AT (March 2005).
16
  A number of factors, including household income and the size of the living unit,
determine whether rental assistance payments need to be adjusted following the death of
a family member.




Page 13                                             GAO-12-624 RHS Improper Payments
                             USDA’s OIG reported on weaknesses in the way RHS was estimating
                             improper payments that may have led RHS to understate its reported
                             error rates in prior years. 17 RHS subsequently changed how it conducts
                             the improper payments audits, such as by using CSC staff (rather than
                             RHS field staff) to help ensure consistency in implementing audit
                             procedures, but it has not reestimated payment processing errors since
                             making these changes. As a result, RHS’s assumption that payment
                             processing errors are negligible may not be accurate.

Use of Exclusion Threshold   RHS’s estimated error rates may also mask the true extent of improper
                             payments because they exclude improper payments of less than $100.
                             RHS began using the $100 exclusion threshold for its audit of fiscal year
                             2007 payments. RHS officials said they adopted the threshold for two
                             main reasons. First, RHS officials stated that the $100 exclusion
                             threshold was based on a USDA regulation that lets tenant households
                             wait until their next recertification to report increases in monthly income of
                             less than $100. Second, RHS officials indicated that it was not cost-
                             effective to attempt to recover small improper payments. While the $100
                             threshold may be appropriate for recertifying tenant income or deciding
                             whether to recover payments, it does not follow that the same threshold is
                             appropriate for conducting the improper payments audit. The purpose of
                             the audit is to measure the magnitude of payments made in error, which
                             IPIA defines as payments that should not have been made or were made
                             in an incorrect amount.

                             In the fiscal year 2010 sample of 666 payments, RHS found 15 improper
                             payments of $100 or more, which represents 11 percent of all over- and
                             underpayments in the sample. One hundred dollars is substantial in the
                             context of monthly rental assistance payments. To illustrate, an improper
                             payment of $100 represents almost one-third of the median RHS monthly
                             rental assistance payment.

                             While setting an exclusion threshold that eliminates small amounts from
                             overall error estimates may be reasonable—such as amounts due to
                             rounding up or down to the nearest dollar—RHS’s fiscal year 2010
                             sample shows that using the $100 threshold excludes a high percentage
                             of improper payments from RHS’s error estimates, including some larger


                             17
                               USDA, Office of Inspector General, Improper Payments: Monitoring the Progress of
                             Corrective Actions for High-Risk Programs in Rural Housing Service, Report No. 04601-
                             0014-Ch (March 2007).




                             Page 14                                             GAO-12-624 RHS Improper Payments
errors. As shown in figure 3, 89 percent of the improper payments in the
sample were less than $100. Fourteen percent of the improper payments
(or 19 payments) were from $25 to $99 and likely cannot be attributed to
rounding errors. Additionally, HUD—which is the largest provider of
federal rental subsidies—includes all improper payments greater than $5
in estimated error rates for its rental assistance programs. In RHS’s
payment sample for fiscal year 2010, 51 percent of the improper
payments exceeded $5.

Figure 3: Distribution of Improper Payments in RHS’s Sample of Fiscal Year 2010
Payments




OMB is required by IPIA to approve the methods used by agencies to
estimate improper payments. OMB initially approved RHS’s methodology
in 2004, prior to RHS’s first improper payments audit and 4 years before
RHS adopted the $100 exclusion threshold. However, OMB has not
subsequently reassessed RHS’s methodology and therefore has not
examined whether RHS’s $100 exclusion threshold is appropriate. In
addition, OMB guidance does not address the use of exclusion
thresholds. OMB officials told us they generally do not reassess an
agency’s estimation method unless the agency tells OMB it is making a
major change and submits the change to OMB for review. OMB officials
also noted that more than 70 programs report on improper payments,



Page 15                                          GAO-12-624 RHS Improper Payments
                         which makes regular reassessment of each one challenging. Our analysis
                         of the $100 threshold indicates that RHS’s adoption of the threshold did
                         represent a major change. However, RHS did not submit the change to
                         OMB for review.

                         Our analysis of the payment sample that RHS used for its fiscal year
                         2010 audit found that the $100 exclusion threshold had a demonstrable
                         impact on the incidence and magnitude of RHS’s reported improper
                         payments. If RHS had included all improper payments in its estimates,
                         the estimate of gross dollar errors would have been about $23 million
                         rather than $15 million, and the estimated error rate would have been
                         2.21 percent rather than 1.48 percent (see fig. 4). RHS’s use of an
                         exclusion threshold could affect whether or not the rental assistance
                         program is subject to annual OMB reporting requirements for programs
                         classified as susceptible to improper payments. As previously discussed,
                         OMB has indicated that programs with error rates of at least 1.5 percent
                         in fiscal year 2013 will be classified as susceptible, and our analysis
                         shows that RHS’s use of the $100 threshold reduced its error rate below
                         that level for fiscal year 2010.

                         Figure 4: Estimated RHS Improper Rental Assistance Payments in Fiscal Year 2010
                         Including and Excluding Errors Less Than $100

Undated Certifications




                         Page 16                                         GAO-12-624 RHS Improper Payments
                        Finally, RHS’s reported error rate may be understated because, contrary
                        to its stated audit procedure, RHS does not always count as improper
                        those payments with Tenant Certification forms that were signed but not
                        dated. The sample of payments that RHS used for the fiscal year 2010
                        audit contained five payments that were not counted as improper even
                        through the Tenant Certification forms were not dated. Had RHS followed
                        its audit procedure strictly and counted the five payments as improper,
                        the number of improper payments included in RHS’s estimate would have
                        increased by one-third, and RHS’s estimated error rate would have been
                        2.53 percent. RHS officials said they did not count payments associated
                        with undated certifications as improper when the auditors were able
                        impute an acceptable certification date from other documents in the
                        tenant file. For example, if auditors determined that income verification
                        documents in the tenant file were current and dated prior to the first
                        subsidy payment request, auditors considered the sampled payment to
                        be proper even though the Tenant Certification form was not dated. While
                        this practice may be reasonable, it is inconsistent with RHS’s written audit
                        procedure and reduces the transparency of the audit process. In addition,
                        having unwritten procedures may increase the risk of inconsistent
                        implementation across auditors.


                        RHS has complied with requirements for using statistically valid methods
RHS Uses Required       to estimate improper payments and has implemented a number of
Statistical Methods     corrective actions to help address the causes of payment errors.
                        However, RHS’s reporting on improper payments has been incomplete,
for Estimating          and the agency has not fully utilized techniques cited in statutes and
Improper Payments       guidance for reducing and recovering improper payments.
but Has Not Fully Met
Reporting, Reduction,
and Recovery
Requirements




                        Page 17                                      GAO-12-624 RHS Improper Payments
RHS Has Complied with         RHS’s statistical methods for estimating improper rental assistance
Estimating Requirements       payments are consistent with OMB requirements. In fiscal year 2011,
and Implemented               RHS’s reporting on improper payments complied with most OMB
                              requirements but lacked required detail in some areas, including steps for
Corrective Actions, but Its   holding agency managers accountable. Additionally, RHS has generally
Reporting on Improper         implemented planned corrective actions to address the causes of
Payments Has Been             improper payments.
Incomplete

Estimating Requirements       RHS’s methodology for estimating improper payments in its rental
                              assistance program complies with OMB requirements for implementing
                              IPIA, as amended. OMB Circular A-123 requires agencies to base their
                              estimates of improper payments on a random sample of payments that is
                              large enough to yield an estimate with a margin of error of plus or minus
                              2.5 percentage points at the 90 percent confidence level. 18 Consistent
                              with these requirements, RHS’s improper payments audit for fiscal year
                              2010 reviewed a random sample of 666 payments from a universe of
                              approximately 3.4 million payments. Based on this sample, RHS
                              produced an estimate of gross improper payments with a margin of error
                              of plus or minus 0.97 percent at the 99 percent confidence level,
                              exceeding OMB’s standard. Additionally, we found that the techniques
                              and formulas that RHS used to generate the random sample and produce
                              estimates from the payment sample were statistically sound.

Reporting Requirements        To comply with requirements in IPIA, as amended, OMB Circulars A-123
                              and A-136 state that agencies should include specific information on
                              improper payments in their annual PARs or Agency Financial Reports. As
                              shown in table 2, our review of USDA’s fiscal year 2011 PAR found that
                              the information reported for RHS’s rental assistance program complied
                              with four of the seven requirements in OMB guidance but only partially
                              complied with the remaining three. For example, the PAR contains
                              required information on the program’s estimated improper payments, the
                              causes of improper payments, corrective actions to address these
                              causes, and statutory or regulatory barriers to reducing improper
                              payments. However, the PAR lacks required detail on recovery of
                              improper payments because of delays by USDA in implementing a
                              recovery audit program. In addition, the required discussion of internal



                              18
                                Agencies may alternatively use a sample that yields an estimate with a margin of error
                              of plus or minus 3 percentage points at the 95 percent confidence level.




                              Page 18                                               GAO-12-624 RHS Improper Payments
                                              controls, human capital, and information systems to reduce improper
                                              payments is limited. The discussion consists of a high-level statement
                                              that USDA is creating information systems and infrastructure to reduce
                                              improper payments, that some of these efforts are constrained by limited
                                              resources, and that USDA is working with OMB to focus resources on
                                              critical needs. Because the discussion is not more specific, it is unclear if
                                              RHS has sufficiently assessed whether its internal controls, human
                                              capital, and information systems are sufficient to reduce improper
                                              payments to targeted levels. A USDA representative told us that USDA
                                              may provide a more detailed response to this reporting requirement in
                                              future PARs. Finally, the PAR does not contain required information on
                                              steps and associated timelines for holding RHS managers accountable
                                              for reducing and recovering improper payments.

Table 2: RHS Reporting on Improper Payments in Response to OMB Requirements
                               a
OMB reporting requirement                                    Information in USDA’s fiscal year 2011 PAR
Requirements met
The gross estimate of the annual amount of improper          The PAR provides estimates of the rental assistance program’s gross
payments made in the program and the methodology             improper payments ($15 million) and error rate (1.48 percent) for fiscal year
used to arrive at that estimate.                             2010 (the most recent year for which an estimate has been made). It also
                                                             describes how RHS selected a random sample of payments for review and
                                                             how the review was conducted.
A discussion of the causes of improper payments that         The PAR cites insufficient file documentation and calculation errors by
have been identified.                                        property owners and management agents as the causes of improper
                                                             payments in the rental assistance program.
A discussion of corrective actions to address the causes The PAR indicates that by the end of fiscal year 2011, RHS plans to meet
of improper payments, including planned or actual        with property managers to provide educational opportunities on the
completion dates for these actions.                      importance of the IPIA process and the types of payment errors identified
                                                         by RHS. It also states that RHS has ongoing efforts to gain access to
                                                         HHS’s New Hires database (for income verification purposes).
A description of any statutory or regulatory barriers that   The PAR notes that RHS is pursuing access to data, including information
may limit the agency’s corrective actions in reducing        maintained by HHS, that RHS could use to verify tenant incomes.
improper payments.
Requirements partially met
A discussion of the amount of actual improper                The PAR states that USDA is unable to report information on expected
payments the agency expects to recover and how it will       recoveries because USDA is in the process of contracting for recovery
go about recovering them.                                    auditing services. USDA officials told us it would be difficult to estimate
                                                             recoveries until the recovery audits began.
A discussion of whether the agency has the internal          The PAR states that USDA is creating information systems and
controls, human capital, information systems, and other      infrastructure to reduce improper payments, but that efforts in some
infrastructure in order to reduce improper payments to       programs are constrained by limited resources. The PAR also notes that
                                    b
the levels the agency has targeted.                          USDA is working with OMB to focus available resources on critical needs.
                                                             However, the PAR does not specifically refer to RHS, its rental assistance
                                                             program, or internal controls or human capital issues.




                                              Page 19                                                   GAO-12-624 RHS Improper Payments
                           a
OMB reporting requirement                                  Information in USDA’s fiscal year 2011 PAR
A description of the steps the agency has taken and        The PAR describes plans developed by RHS state offices that include
plans to take (including time lines) to ensure that        procedures to train field staff and property managers in maintaining
agency managers (including the agency head) are held       required documentation and verifying tenant incomes. However, the PAR
accountable for reducing and recovering improper           does not describe accountability steps or associated timelines.
payments.

                                         Source: GAO analysis of USDA’s fiscal year 2011 PAR.

                                         a
                                          The reporting requirements listed apply to agencies with improper payments estimates that exceed
                                         $10 million.
                                         b
                                          RHS’s reduction targets for gross error rates are 1.45 percent for fiscal year 2012, 1.42 percent for
                                         fiscal year 2013, and 1.39 percent for fiscal year 2014.

                                         With respect to the accountability issue, OMB guidance requires agencies
                                         to describe the steps they have taken and plan to take to hold agency
                                         managers accountable for reducing and recovering improper payments.
                                         The guidance states that agency managers should be held accountable
                                         through annual performance appraisal criteria for meeting applicable
                                         improper payments reduction targets and establishing an internal control
                                         environment that prevents, detects, and recovers improper payments.
                                         However, in response to these requirements, the PAR states only that
                                         “[RHS] State Offices with improper payment errors develop a corrective
                                         action plan. The plan includes procedures to train field staff, borrowers,
                                         and property manager[s] in appropriate required documentation and
                                         follow-up with tenants and income-verifiers.” While the plans may be key
                                         to addressing improper payments, the PAR does not discuss
                                         mechanisms for ensuring that agency managers follow through on the
                                         plans or how they are held accountable for reducing and recovering
                                         improper payments generally. In contrast, the PAR’s descriptions of
                                         accountability measures for other USDA agencies are more consistent
                                         with the OMB guidance. For example, the descriptions for several
                                         agencies discuss how improper payments goals and objectives were
                                         incorporated into agency managers’ performance plans and performance
                                         appraisals. RHS officials said that RHS state office directors currently
                                         have management goals that emphasize efficient and effective use of
                                         resources but acknowledged that improper payments are not specifically
                                         referenced in the goals. 19 In April 2012, RHS officials told us they were


                                         19
                                           According to RHS, state office directors have a resource management goal that requires
                                         them to (1) develop and execute plans to achieve organizational goals to maximize
                                         efficiency and produce high-quality results, and plan, implement, and monitor assigned
                                         programs and (2) demonstrate exceptional skills and consistency in making the best use
                                         of available resources when faced with changing requirements, critical demands, and the
                                         need to do more with less.




                                         Page 20                                                       GAO-12-624 RHS Improper Payments
                         seeking departmental approval of revised management goals for fiscal
                         year 2012 that explicitly address improper payments. By not
                         implementing accountability steps for improper payments, RHS may be
                         limiting the effectiveness of its efforts to reduce improper payments.
                         Additionally, by not reporting on accountability steps, RHS is not providing
                         Congress and OMB information they may need for overseeing
                         implementation of IPIA.

RHS Corrective Actions   OMB Circular A-123 requires agencies to develop and implement
                         corrective actions to address the root causes of improper payments. Our
                         review of USDA’s PARs for fiscal years 2008 through 2011 and
                         documentation from RHS found that RHS developed and generally
                         followed through on corrective actions over that period (see table 3).
                         RHS’s corrective actions included educating property managers about
                         improper payments, enhancing RHS’s reviews of improper payments, and
                         seeking access to data for verifying tenant incomes. For example, in
                         2011, RHS met with housing industry groups about the results of its most
                         recent improper payments audit. This meeting prompted the groups to
                         develop training for property managers on how to reduce improper
                         payments. In 2010, RHS worked with OMB to develop legislation that
                         would grant RHS access to HHS’s New Hires database for income
                         verification purposes. The legislative proposal, entitled the “Rural Housing
                         Fraud Prevention Act of 2012,” would amend Section 453(j) of the Social
                         Security Act. As previously noted, the proposed legislation was included
                         in the President’s budget for fiscal year 2013. Additionally, in 2008, RHS
                         enhanced its triennial supervisory visits (on-site reviews of assisted
                         properties that cover a number of physical, financial, and management
                         issues) to include reviews of tenant files that assess compliance with
                         income calculation and documentation requirements. RHS subsequently
                         enhanced its Multi-Family Information System (MFIS) to track the number
                         and results of these reviews.




                         Page 21                                      GAO-12-624 RHS Improper Payments
Table 3: Status of RHS Corrective Actions Regarding Improper Rental Assistance Payments

RHS corrective actions in USDA’s PARs for fiscal
years 2008-2011                                                 Status of corrective actions as of March 2012
Inform and provide educational opportunities for property       In 2008, RHS sent a letter to the National Affordable Housing Management
manager business partners about the importance of the           Association (NAHMA) about the importance of the IPIA process and the
IPIA process and the types of payment errors identified         results of RHS’s improper payments audits. In 2011, RHS met with
by RHS. (2008-2009 and 2011 PARs)                               NAHMA and Council of Affordable Rural Housing representatives about the
                                                                most recent audit. These groups developed training and educational
                                                                materials on improper payments and provided training to property
                                                                managers.
Pursue access to the HHS New Hires database and                 RHS sent draft legislation to OMB to obtain access to the HHS New Hires
HUD’s Enterprise Income Verification System (EIV) in            database for purposes of income verification. The President’s budget for
order to share it with RHS state offices and property           fiscal year 2013 includes this legislation. RHS officials told us they have
           a
managers. (2008-2011 PARs)                                      met with HUD officials and property managers who use EIV to better
                                                                understand the system.
Establish a tracking process to monitor the number of           In 2010, RHS began documenting the number and results of tenant file
tenant files reviewed (e.g., for compliance with income         reviews conducted during triennial supervisory visits and tracking the
calculation and documentation requirements) during              information in MFIS.
RHS triennial supervisory visits. (2010 PAR)
Implement a performance assessment system that                  RHS officials said they put this effort on hold in fiscal year 2012 due to
reduces management fees paid to property managers               other priorities and the difficulty of integrating information about improper
who do not comply with RHS requirements (e.g., by               payments into a performance assessment system. RHS officials said they
making errors in Tenant Certification forms). (2010 PAR)        intended to resume this effort in fiscal year 2013.
Implement a quarterly audit process conducted by CSC            Instead of a quarterly audit process, RHS augmented its triennial
on selected states’ tenant files. (2008 PAR)                    supervisory visits beginning in 2008 to include reviews of tenant files for
                                                                compliance with income calculation and documentation requirements.
Follow up on corrective actions for errors identified in the In 2008, RHS field staff followed up with property managers to confirm they
improper payments audit for fiscal year 2008. (2008          had taken corrective actions to address payment errors identified by the
PAR)                                                         audit.
Issue a letter to the RHS state offices on the findings         In 2008, RHS sent letters to 15 state offices that had average 3-year error
from the improper payments audit for fiscal year 2008.          rates ranging from 2.4 percent to 7.7 percent. The letters required these
The letter required state offices with an average error         offices to develop action plans for reducing payment errors.
rate of 2 percent or higher during the past 3 years to
develop a corrective action plan. (2008 PAR)
Develop a fact sheet for tenants explaining their               In 2008, RHS issued a fact sheet for property managers to distribute to
responsibilities and rights regarding income disclosure         tenants entitled “Things You Should Know About USDA Rural Rental
and verification. (2008 PAR)                                    Housing.” The fact sheet emphasizes the importance of submitting and
                                                                updating accurate income information to property managers and outlines
                                                                procedures for grieving decisions about benefits.
                                             Sources: GAO analysis of USDA PARs and information from RHS.

                                             a
                                              EIV is a web-based tool that allows HUD and HUD program administrators to match information on
                                             HUD-assisted tenants to the New Hires database and SSA benefits data for purposes of verifying
                                             tenant incomes. HUD cannot grant RHS access to EIV because RHS does not have legal access to
                                             the New Hires database or SSA benefits data.




                                             Page 22                                                        GAO-12-624 RHS Improper Payments
RHS Has Not Fully Utilized   RHS uses a number of methods to reduce improper payments but has
Techniques for Reducing      not used a database cited in a 2010 presidential memorandum that could
and Recovering Improper      help RHS identify cases in which rental assistance payments should be
                             discontinued or adjusted. In addition, RHS has experienced delays in
Payments                     implementing a recovery audit program to comply with IPERA
                             requirements.

Reducing Improper Payments   OMB Circular A-123 states that federal agencies should take all
                             necessary steps to ensure the accuracy and integrity of federal payments.
                             OMB cites a number of steps that agencies can take to do so, including
                             prepayment reviews, quality-control checks to detect improper payments
                             that may have occurred, and data matching. Also, in June 2010, the
                             President issued a memorandum entitled Enhancing Payment Accuracy
                             Through a “Do Not Pay List.” The memorandum directs federal agencies
                             to review current prepayment and preaward procedures and ensure that a
                             thorough review of available databases with relevant information on
                             eligibility occurs before the release of any federal funds. The
                             memorandum states that, at a minimum, agencies should check SSA’s
                             Death Master File, the General Services Administration’s Excluded
                             Parties List System, the Department of the Treasury’s (Treasury) Debt
                             Check Database, the HHS OIG’s List of Excluded Individuals/Entities, and
                             HUD’s Credit Alert System or Credit Alert Interactive Voice Response
                             System. 20 These databases—which constitute the “Do Not Pay List”—can
                             help agencies determine if an individual or entity is ineligible for payments
                             or payments made on their behalf. For example, SSA’s Death Master File
                             contains information on deceased individuals who had Social Security
                             numbers and whose deaths were reported to SSA.

                             RHS has used some of the techniques cited by OMB. For example, as
                             part of their triennial supervisory visits to assisted properties, RHS local
                             offices check the accuracy of rental subsidy calculations and the
                             adequacy of supporting documentation for samples of tenant files. Also,
                             as previously noted, RHS has reached agreements with 31 states that


                             20
                               The Death Master File identifies deceased individuals; the Excluded Parties List System
                             identifies suspended or debarred contractors; the Debt Check Database identifies
                             individuals or entities that owe the federal government non-tax debt; the List of Excluded
                             Individuals/Entities identifies individuals and business who have been excluded from
                             participating in federal health care programs; and the Credit Alert System or Credit Alert
                             Interactive Voice Response System identifies individuals who are in default or have had
                             claims paid on direct or guaranteed federal loans, or are delinquent on other debts owed
                             to federal agencies.




                             Page 23                                               GAO-12-624 RHS Improper Payments
give RHS offices in those states the ability to match income information
submitted by tenants to state wage data.

However, RHS has not used the “Do Not Pay” databases to check tenant
eligibility before making rental assistance payments to property owners. 21
RHS officials told us that they had not considered using the “Do Not Pay”
databases for the rental assistance program because some of the
databases do not contain information relevant to eligibility for rental
assistance and because RHS lacks an automated method for checking
rental assistance payments against the databases. Nevertheless, RHS
officials acknowledged that some of the information was potentially
useful. Additionally, a representative from USDA’s Office of the Chief
Financial Officer said that USDA agencies currently check some of the
“Do Not Pay” databases for some of their programs. The official noted
that USDA was in the process of getting access to a Treasury web portal,
which was established to meet the requirements of the President’s “Do
Not Pay” memorandum. The web portal is intended to provide a single
point through which federal agencies can access the “Do Not Pay”
databases to help determine eligibility for a benefit, grant, or contract
award. Treasury offers agencies three options for using the databases:
(1) online access, which allows users to compare individual records
against the “Do Not Pay” databases via an Internet browser; (2) batch
processing, which allows users to send a file to Treasury to compare a
large number of records against the databases at one time; and
(3) continuous monitoring, which allows users to store files with Treasury
and continuously compare the files against the databases.

The USDA representative said his office was in the process of entering
into an online processing agreement with Treasury’s Bureau of Public
Debt, which he indicated will require legal review by USDA’s Office of
General Counsel. He also indicated that USDA was considering pursuing
a batch processing agreement, which would require a separate
agreement and legal review. Although RHS officials told us they had not
considered the benefits of batch processing for the rental assistance
program, a batch processing or continuous monitoring agreement would
allow RHS to regularly check tenant records against the Death Master
File or other applicable “Do Not Pay” databases. As previously discussed,


21
  RHS officials indicated that they use some of the “Do Not Pay” databases to review
prospective property owners as part of the approval process for RHS multifamily housing
loans.




Page 24                                              GAO-12-624 RHS Improper Payments
                               this matching against the Death Master File could help RHS identify
                               instances in which rental assistance should be terminated or adjusted.

Recovering Improper Payments   USDA has not yet instituted a recovery audit program to implement
                               requirements included in IPERA and OMB implementing guidance. As a
                               result, RHS does not currently have a recovery auditing capability. The
                               process of identifying and recapturing overpayments is known as
                               recovery auditing. IPERA placed increased emphasis on this process by
                               requiring agencies to conduct recovery audits for each program and
                               activity that expends more than $1 million, if conducting such audits is
                               determined to be cost-effective. Previously, requirements for recovery
                               audits were focused on payments to contractors and limited to agencies
                               that entered into contracts with a total value in excess of $500 million in a
                               fiscal year. 22 IPERA decreased the threshold for when recovery audits are
                               required to $1 million in annual outlays and expanded the scope of the
                               audits to include grants, loans, benefits, and other assistance. IPERA
                               allows federal agencies to hire private-sector contract auditors who
                               receive a percentage of the overpayments they collect. OMB guidance
                               states that agencies are to establish and report annual recovery targets,
                               beginning with fiscal year 2011. However, as previously noted, USDA
                               said in its fiscal year 2011 PAR that it was unable to report the amounts it
                               expected to recover because it had not yet awarded a recovery audit
                               contract.

                               USDA plans to implement a recovery auditing program by hiring a
                               contractor. 23 According to USDA, the agency previously procured
                               recovery audits of contract payments through FedSource (an interagency
                               contracting service that was run by Treasury), but in fiscal year 2010,
                               FedSource closed out the procurement contract USDA had been using. 24
                               In March 2011, USDA issued a request for proposals (RFP) to solicit the
                               broader range of recovery auditing services required by IPERA. However,



                               22
                                IPERA repealed most provisions of the Recovery Auditing Act (Section 831 of Pub. L.
                               No. 107-107).
                               23
                                 Although USDA does not have a recovery audit program, it does use authorities under
                               the Debt Collection Improvement Act of 1996 (Pub. L. No. 104-134) to collect monies
                               owed the agency. For example, from 2010 through 2011, RHS reports that it collected
                               more than $1 million in excess rental assistance payments to property owners with RHS
                               multifamily housing loans.
                               24
                                According to USDA, the agency issued task orders against the FedSource contract.




                               Page 25                                             GAO-12-624 RHS Improper Payments
                              USDA terminated the RFP process after determining the proposals it
                              received did not meet the requirements of its payment recapture/recovery
                              audit plan, which called for an auditing contractor that could cover the
                              breadth of USDA programs and activities. USDA told us that the audit
                              firms that responded to the RFP had experience in contract recovery
                              auditing but lacked sufficient knowledge and experience for IPERA’s
                              expanded focus on programs. As a result, USDA did not conduct any
                              recovery audits in fiscal year 2011 and issued a second RFP in August
                              2011 that specified the department’s broader needs. A USDA
                              representative said that the department anticipated awarding a contract in
                              fiscal year 2012 but that it was unclear whether the award would occur in
                              time to report any recoveries in USDA’s fiscal year 2012 PAR.


                              HUD’s experience in addressing improper payments through data
HUD’s Efforts                 matching may help inform future RHS efforts. HUD has used data
Illustrate Potential          matching to estimate and reduce income reporting errors. HUD has also
                              used this technique to terminate and recover assistance to deceased
Benefits and                  tenants. HUD took several years to develop and implement a data
Challenges of Data            matching system and provides guidance, training, and technical
Matching                      assistance to system users.


Data Matching Has Helped      HUD uses data matching to help identify and reduce improper rental
HUD to Identify and           assistance payments caused by unreported tenant income, also referred
Reduce Improper               to as income reporting error. HUD has used this technique to annually
                              estimate the magnitude of improper payments attributable to income
Payments Due to               reporting errors. HUD also has developed a web-based data matching
Unreported Tenant Income      tool that gives HUD program administrators (i.e., PHAs and property
                              managers) the ability to determine whether tenants are reporting all
                              sources of earned income. HUD attributes some of the overall decline in
                              its gross improper payments to these efforts.

Estimating Income Reporting   Like RHS, HUD conducts an annual study of improper payments in its
Errors                        rental assistance programs that examines a statistically valid sample of
                              subsidy payments. 25 HUD refers to these studies as quality control
                              studies. HUD’s initial quality-control study examined payments in fiscal



                              25
                                A HUD contractor carries out the study and documents the results in an annual report
                              entitled Quality Control for Rental Assistance Subsidy Determinations.




                              Page 26                                              GAO-12-624 RHS Improper Payments
year 2000, and its most recent study examined payments made in fiscal
year 2010. The quality-control studies provide a national estimate of
gross improper payments in HUD’s three rental assistance programs and
estimates for specific sources of payment errors, including income
reporting errors, program administrator errors (similar to what RHS would
call income calculation and insufficient documentation errors), and billing
errors (similar to what RHS would call payment processing errors). 26

To estimate improper payments due to income reporting errors, HUD
developed a methodology that involves data matching. HUD’s
methodology identifies unreported income sources by comparing
information reported by tenants in the quality-control study’s sample with
information reported by employers in federal databases. The tenant-
reported information comes primarily from HUD’s tenant databases that
capture various household characteristics, including income,
documentation from tenant files maintained by program administrators,
and interviews with households. 27 The study matches this information with
information in HHS’s New Hires database and SSA benefits data using
tenant Social Security numbers as the key common identifier. 28 As
previously discussed, the New Hires database includes nationwide
information on both wage and unemployment compensation. The study
identifies households that, on the basis of the matching process, appear
not to have reported an income source and then takes steps to screen out
“false positives.” For example, the study eliminates those cases involving
unreported income sources, such as income from live-in aides or
dependents, which should be excluded from family income under HUD’s



26
  HUD stated that it does not directly reexamine improper payments due to billing errors
each year because the estimated amounts have been small relative to improper payments
caused by other types of errors. However, HUD uses baseline estimates of billing errors to
derive estimates for other years and includes billing errors in its annual estimates of
improper rental assistance payments.
27
  Like RHS, HUD uses standardized electronic forms to collect information on tenants
(e.g., income, family composition) for certifying and recertifying program eligibility and
stores this information in databases.
28
   SSA benefits include Social Security and Supplement Security Income benefits. For the
fiscal year 2000 and 2003 studies, HUD staff performed the matching process using
Internal Revenue Service and SSA databases. HUD stopped using the Internal Revenue
Service data for matching purposes after it obtained access to the New Hires database.
The contractor for the quality-control study currently uses the HUD web-based system
discussed later in this section to conduct the matching to the New Hires database and
SSA data.




Page 27                                                 GAO-12-624 RHS Improper Payments
                          policies. Additionally, the study verifies any unreported income sources by
                          mailing and calling employers and contacting an employment verification
                          service. Finally, the study calculates the correct subsidy amount, based
                          on both the reported and unreported sources of income, and computes
                          the difference between the correct amount and the amount HUD actually
                          paid to estimate the impact of unreported income on HUD’s improper
                          payments.

Web-Based Data Matching   HUD has developed and implemented a web-based tool called the EIV
System                    system that allows program administrators to compare income
                          information reported by tenants with income information from government
                          agencies through a secure Internet portal. EIV gives HUD program
                          administrators the ability to independently check the accuracy of reported
                          tenant incomes and identify any income source not disclosed by the
                          tenant during mandatory annual and interim certifications of income. 29

                          EIV’s data matching capabilities and its use by HUD program
                          administrators have expanded over time. HUD began developing a
                          precursor to EIV in 2004 and initially implemented a system that allowed
                          PHAs to match tenant personal identifiers—Social Security number, last
                          name, and date of birth—against state wage and employment databases,
                          but only in states with which HUD had a matching agreement. 30 To
                          overcome this limitation, HUD received authority that same year under
                          the Social Security Act, as amended, to enter into negotiations with HHS
                          to conduct data matching to the New Hires database (which covers all
                          states) and entered into an interagency agreement with HHS in 2005. 31 In
                          accordance with this authority, HUD initially limited data access to PHAs
                          and negotiated access for property managers after establishing a track
                          record for using and protecting the data. HUD fully implemented the first
                          version of EIV in late 2005, giving PHAs the ability to match to both the
                          New Hires database and SSA benefits data for which HUD had already
                          established a matching protocol in accordance with the process set forth




                          29
                            Interim recertifications occur when a tenant experiences a change in income or family
                          composition between annual recertifications. Tenants must be recertified if their monthly
                          income increases by $200 or more a month and can request a recertification if their
                          income declines by any amount.
                          30
                           HUD had agreements with about two dozen states by the end of 2004.
                          31
                           Pub. L. No. 108-199, Jan. 23, 2004.




                          Page 28                                               GAO-12-624 RHS Improper Payments
                                in the Computer Matching and Privacy Protection Act of 1988. 32 After
                                reaching another agreement with HHS in 2007, HUD expanded access to
                                EIV to property managers. HUD initially made the use of EIV voluntary for
                                program administrators but issued a rule in December 2009 that made
                                use of the system mandatory, effective January 31, 2010. 33

                                EIV produces a number of reports that help program administrators to
                                identify unreported income sources and thus help reduce rent subsidy
                                overpayments. For example, the Income Discrepancy Report lists
                                households whose wages, unemployment, or Social Security benefits
                                income reported in EIV is $2,400 or more than the information reported by
                                tenants to HUD. Program administrators must confirm any discrepancies
                                by obtaining information directly from third parties, such as employers,
                                and notify the tenant of the results of the third-party verification. 34 When
                                program administrators determine that a tenant underreported income,
                                they must calculate the difference between the amount of rent the tenant
                                should have paid and the amount the tenant actually paid back to the time
                                the underreporting started. The tenant is obligated to reimburse the
                                program administrator for this difference—potentially through a
                                repayment agreement—and the program administrator is required to send
                                the reimbursed funds to HUD. 35 EIV also produces a New Hires Report
                                that provides employment information on tenants who have started new
                                jobs and, therefore, may have increased their incomes, within the last 6
                                months. HUD requires tenants to report changes in income when the
                                household’s income increases by $200 or more per month. The report
                                allows program administrators to be proactive in reaching out to tenants
                                to report the income changes so that their rents can be adjusted in a
                                timely manner. Timely adjustments reduce the likelihood that the program
                                administrator will make rent subsidy overpayments.

Impact of Using Data Matching   HUD has indicated that its data matching efforts to identify unreported
to Identify Unreported Income   tenant income have helped to reduce improper payments in the agency’s


                                32
                                  According to HUD officials, before the development of EIV, program administrators
                                accessed SSA benefits data through an existing HUD system.
                                33
                                 24 C.F.R. § 5.233.
                                34
                                  Program administrators are limited to requesting third-party verification on income the
                                tenant may have received during the past 5 years for which the tenant was assisted.
                                35
                                  Tenants who do not agree to repay amounts due are in noncompliance with their lease
                                agreements and may be subject to termination of tenancy or other legal action.




                                Page 29                                                GAO-12-624 RHS Improper Payments
rental assistance programs. HUD estimated that it paid $3.4 billion in
gross improper rent subsidies in fiscal year 2000 (out of about $19 billion
in outlays), prompting a HUD initiative called RHIIP to address the causes
of payment errors. Under RHIIP, HUD established a goal of reducing the
dollar amount of payment errors by 50 percent from fiscal years 2000
through 2005. HUD estimated that it had reduced the dollar amount of
gross improper payments to $1.5 billion in fiscal year 2005 (out of about
$27 billion in outlays), a reduction of over 50 percent. For fiscal year
2010, HUD’s most recent estimate, the corresponding amount of gross
improper payments was $959 million (out of $33 billion in outlays), which
represents a reduction of over 30 percent compared with the fiscal year
2005 estimate. 36

As previously discussed, HUD also estimates improper payments due to
specific sources of payment errors, including income reporting errors.
From fiscal years 2004 through 2010, HUD’s estimates of improper
payments due to income reporting errors ranged from a high of $385
million in fiscal year 2006 (accounting for 1.4 percent of program outlays)
to a low of $203 million in fiscal year 2010 (accounting for 0.6 percent of
program outlays). 37 However, because of the limited number of
unreported income cases in the quality-control study samples, the
margins of error around the estimates for income reporting error are too
large to know with statistical certainty that income reporting error has
declined over time. 38




36
   For its rental assistance programs, HUD reported gross error rates of 17.1 percent for
fiscal year 2000, 5.4 percent for fiscal year 2005, and 2.9 percent for fiscal year 2010.
These figures are not comparable to RHS’s reported error rates because HUD examines
sources of errors (e.g., income reporting errors) that RHS does not.
37
  As we previously reported, HUD’s fiscal year 2000 estimate of income reporting errors is
not comparable to estimates for other years because it used a different methodology. In
addition, HUD’s subsequent estimate, which covered fiscal year 2003, had a margin of
error so large that the estimate was not meaningful. See GAO-05-224.
38
 HUD has indicated that obtaining a more precise estimate of income reporting error
would require a considerably large sample but that doing so would be difficult and costly.




Page 30                                                GAO-12-624 RHS Improper Payments
Data Matching Has Helped   HUD initially created EIV to verify tenant income and identify unreported
HUD Terminate Assistance   income, but it has expanded use of EIV to help monitor other aspects of
for Deceased Tenants and   its rental assistance programs. For example, each month HUD uses EIV
                           to match tenant personal identifiers against SSA’s Death Master File.
Correct Inaccurate         Through this matching process, HUD produces Deceased Tenant
Identifying Information    Reports, which contain the names of deceased members of tenant
                           households and the dates the deaths occurred, when available. HUD
                           makes these reports available to program administrators through EIV and
                           requires them to access and act upon the reports on a regular basis.
                           Program administrators must first confirm that an individual appearing in
                           the report has died—for example, by contacting the head of household.
                           Program administrators must then terminate assistance on behalf of
                           deceased single-member households, ensure that larger households
                           update information on family composition so the amount of rental
                           assistance can be adjusted, and recover any rental assistance payments
                           made after the tenant died. According to HUD, HUD staff audit program
                           administrators quarterly to confirm that they have stopped making
                           payments on behalf of deceased individuals. Additionally, in fiscal year
                           2011, HUD indicated that HUD and PHAs recovered $3.5 million in
                           improper payments made to deceased individuals as a result of the
                           Deceased Tenant Reports. 39

                           HUD also uses EIV to identify tenants for whom HUD’s records do not
                           contain valid or accurate Social Security numbers. According to HUD,
                           correct Social Security numbers are critical to the effective
                           implementation of EIV because the numbers are one of the key personal
                           identifiers used to match tenant information to HHS and SSA data.
                           Through EIV, HUD provides program administrators with Failed
                           Verification Reports that identify tenants whose personal identifying
                           information does not match SSA’s records. Program administrators must
                           follow up with tenants in the report to confirm the tenant’s Social Security
                           number, date of birth, and last name; obtain documentation from the
                           tenant to verify any discrepant personal identifiers; and correct any
                           discrepant information in HUD’s tenant databases. HUD officials told us
                           that these efforts, coupled with 2009 regulations that mandated use of
                           EIV and strengthened HUD’s Social Security number disclosure and
                           verification requirements, have substantially reduced the number of



                           39
                             According to HUD, the recovered amounts included payments made from fiscal years
                           2007 through 2011.




                           Page 31                                           GAO-12-624 RHS Improper Payments
                            tenants who do not match SSA records. 40 According to HUD, this number
                            fell from about 100,000 in January 2009 to less than 30,000 in February
                            2012.


Developing and              Although HUD has seen benefits from EIV, HUD’s experience also shows
Implementing the Data       that developing and implementing such a system poses challenges.
Matching System Has         These challenges include obtaining data sharing agreements and making
                            information technology investments; implementing regulations, guidance,
Required Significant Time   and training to help ensure effective use of the system; and devoting staff
and Resources               to help ensure effective implementation of the system.

                            HUD devoted significant time and resources to develop EIV. As
                            previously discussed, after receiving legislative authority to negotiate a
                            data matching agreement with HHS, it took HUD 3 years to reach an
                            agreement that provided data access for all HUD program administrators.
                            HUD had to address a number of issues to alleviate HHS’s concerns
                            about data security. For example, HUD had to ensure that (1) only
                            authorized individuals and entities would have access to the HHS data,
                            (2) HUD program administrators were accountable for safeguarding the
                            data, and (3) HUD could track when the data were accessed and by
                            whom. HUD officials estimated that developing EIV, which took place
                            from approximately 2002 through 2007, cost several million dollars.
                            Additionally, HUD estimates that it has spent an average of about
                            $700,000 annually over the last 3 or 4 years for system maintenance and
                            development.

                            HUD has issued regulations and provided substantial guidance and
                            training about implementing EIV. As previously noted, HUD issued
                            regulations in 2009 that require program administrators to use EIV. The
                            regulations allow HUD to impose penalties against program
                            administrators who do not fully utilize EIV. HUD has also issued, and
                            periodically updates, EIV user, administration, and security manuals. For
                            example, the user manual gives program administrators instructions for
                            navigating EIV and using the data available in the system to make rental
                            subsidy determinations. The security manual sets forth policies and
                            procedures for controlling access to EIV and monitoring system use. In
                            addition, HUD periodically issues notices to program administrators that



                            40
                             24 C.F.R. § 5.216 and § 5.218.




                            Page 32                                      GAO-12-624 RHS Improper Payments
              provide detailed guidance on the use of the system and updates on
              HUD’s requirements. HUD disseminates these notices and other EIV user
              tips via a Listserv®. Further, HUD provides training and technical
              assistance to program administrators through in-person discussions,
              webcasts, and presentations at national and regional industry meetings.
              For example, HUD provides training by webcast at least once or twice a
              year and has an EIV help desk that can be reached via phone or e-mail.

              HUD has staff who are devoted to implementing EIV. HUD’s Office of
              Public and Indian Housing has six headquarters staff dedicated full-time
              to reviewing EIV reports, monitoring program administrators’ utilization of
              EIV, and identifying and recovering improper rental assistance payments.
              The Office of Public and Indian Housing also has about 100 EIV
              coordinators in field offices across the country to provide technical
              assistance to PHAs, approve requests for access to EIV, and certify the
              designated EIV users on a semiannual basis. Similarly, HUD’s Office of
              Multifamily Housing (a component of the Office of Housing) has four staff
              who work part-time on providing EIV technical assistance, program
              guidance, and training for property managers. In addition, Office of
              Multifamily Housing staff and entities hired by HUD to administer project-
              based Section 8 contracts review property owners’ and managers’
              compliance with HUD’s EIV requirements as part of annual management
              and occupancy reviews of assisted properties.

              Finally, HUD’s experience could potentially inform RHS’s future data
              matching efforts. As previously discussed, development and
              implementation of EIV involved numerous steps and has required an
              ongoing commitment of resources. Knowledge of HUD’s efforts may help
              RHS identify the critical tasks it will need to perform if it is able to gain
              access to federal income data. HUD’s experience also highlights the
              potential benefits to RHS of following through on a data matching
              program. These benefits include more complete estimates of payment
              errors and an enhanced ability to reduce and recover improper rental
              assistance payments.


              Congress and the administration have taken a number of steps to help
Conclusions   ensure the accuracy and integrity of federal payments. These include
              enacting IPIA and IPERA, developing guidance for implementing these
              laws, and issuing a directive on the use of payment eligibility databases.
              RHS’s rental assistance program is one of many federal programs subject
              to these requirements. RHS’s program serves over a quarter of a million
              low-income tenants and expended more than $1 billion in fiscal year


              Page 33                                       GAO-12-624 RHS Improper Payments
2011. Because the program is not an entitlement, not all eligible
households receive rental subsidies. As a result, subsidy overpayments
effectively reduce the resources available to serve the program’s target
population. Additionally, subsidy calculations can be complex and are
based partly on information reported by tenants and collected by property
managers. These factors underscore the importance of identifying,
reducing, and recovering improper rental assistance payments so that the
program can operate as efficiently and effectively as possible.

As required, RHS has made annual estimates of improper payments in its
rental assistance program and has implemented corrective actions to help
reduce such payments. However, RHS’s estimates may be understated
for several reasons. In addition, RHS could do more to identify improper
payments and strengthen accountability for reducing payment errors as
follows:

•   RHS is not measuring what may be a significant source of payment
    errors because it lacks statutory authority to use the New Hires
    database or SSA benefits data to identify unreported tenant income.
    Although RHS has drafted legislation that would give the agency
    access to the New Hires database and has submitted this legislation
    as part of the President’s most recent budget, it has not taken similar
    steps to obtain access to the SSA data. While HUD’s experience
    points to challenges that RHS may face in using these data—such as
    negotiating data-sharing agreements and developing appropriate
    systems, training, and guidance—it also demonstrates benefits. By
    matching tenant information to these data sources, HUD has been
    able to identify, and take actions to reduce and recover, substantial
    amounts of improper payments caused by unreported income and
    payments to deceased tenants.

•   RHS’s exclusion of improper payments of less than $100 from its error
    estimates masks the full extent of payment errors in the rental
    assistance program. RHS has not provided a strong rationale for its
    $100 exclusion threshold. Further, the threshold may artificially keep
    the program’s error rate below the 1.5 percent level that will be in
    effect beginning in fiscal year 2013 and used to identify programs
    susceptible to significant improper payments. Although adopting the
    $100 threshold was a major change from RHS’s previous method,
    RHS did not submit the change to OMB, which is responsible for
    approving agency methodologies for estimation. As a result, RHS
    lacks assurance that its current approach is appropriate.




Page 34                                      GAO-12-624 RHS Improper Payments
•   RHS does not have a current estimate of improper payments caused
    by payment processing errors. As a result, RHS’s assumption that
    these errors are negligible may no longer be valid and may contribute
    to understatement of the overall error rate estimated for the rental
    assistance program.

•   In RHS’s most recent improper payments audit, auditors classified
    some payments associated with undated Tenant Certification forms
    as proper, contrary to a written audit procedure. If the auditors had
    followed the written procedure, instead of the more flexible, unwritten
    procedure they did use, RHS’s estimated error rate would have been
    higher than reported. While the unwritten procedure may be
    reasonable, using this procedure reduces the transparency of the
    audit process and may increase the risk of inconsistent
    implementation across auditors.

•   RHS has not taken advantage of SSA’s Death Master File as a tool
    for identifying improper payments. In contrast, HUD routinely performs
    matches against the Death Master File to identify and terminate
    payments made on behalf of deceased tenants and has used this
    information to recover several million dollars in improper payments.
    USDA is taking steps to use the Death Master File and other “Do Not
    Pay” databases through Treasury’s web portal, which offers a batch-
    processing capability. Using this capability for the rental assistance
    program would enhance RHS’s ability to estimate improper payments
    and allow RHS to regularly check for improper payments made on
    behalf of deceased tenants.

•   RHS has not fully implemented steps to hold agency managers
    accountable for reducing and recovering improper payments and has
    not reported on these accountability steps in USDA’s PAR. In
    addition, the PAR does not provide an assessment of whether RHS
    has the internal controls, human capital, and information systems to
    reduce improper rental assistance payments to targeted levels. As a
    result, RHS is not fully complying with OMB guidance and may be
    limiting the effectiveness of its actions to address payment errors. By
    correcting these shortcomings, RHS could strengthen accountability in
    the rental assistance program and better inform Congress and OMB
    of its efforts to ensure the accuracy and integrity of RHS’s payment
    process.




Page 35                                      GAO-12-624 RHS Improper Payments
                      Congress should consider amending Section 453(j) of the Social Security
Matter for            Act to grant RHS access to HHS’s New Hires database for purposes of
Congressional         verifying tenant incomes. If such access were granted, RHS would need
                      to develop specific procedures with HHS to facilitate it.
Consideration
                      To help estimate, reduce, and recover improper payments in the Section
Recommendations for   521 rental assistance program, we recommend that the Secretary of
Executive Action      Agriculture take the following actions:

                      •   Draft proposed legislation for congressional consideration that would
                          grant RHS access to SSA benefits data for purposes of verifying
                          tenant incomes.

                      •   Submit RHS’s methodology for estimating improper payments,
                          including use of the $100 exclusion threshold, to OMB for review.

                      •   Consider examining payment processing errors as part of the next
                          improper payments audit to provide more current information on
                          whether these errors are significant.

                      •   In conducting the annual improper payments audit, either count all
                          payments made on behalf of tenants with signed but undated Tenant
                          Certification forms as improper or revise the audit procedure to
                          classify such payments as proper when an acceptable certification
                          date can be imputed from other documents.

                      •   Complete steps to use SSA’s Death Master File—potentially utilizing
                          the batch-processing option offered through Treasury’s “Do Not Pay”
                          web portal—to identify improper payments made on behalf of
                          deceased tenants and use this capability in conducting the annual
                          improper payments audit and for ongoing oversight of program
                          payments.

                      •   Complete steps to ensure that RHS managers are held accountable
                          for reducing and recovering improper payments in the rental
                          assistance program and include a discussion of the accountability
                          steps in USDA’s PAR.

                      •   Include a discussion in USDA’s PAR of whether RHS has the internal
                          controls, human capital, information systems, and other infrastructure
                          to reduce improper rental assistance payments to targeted levels.




                      Page 36                                      GAO-12-624 RHS Improper Payments
                     We provided a draft of this report to the Acting Director of OMB and the
Agency Comments      Secretaries of Agriculture and Housing and Urban Development for their
and Our Evaluation   review and comment. We received oral comments from OMB on May 18,
                     2012. We received written comments from USDA’s Under Secretary for
                     Rural Development. We also received technical comments from USDA,
                     which we incorporated where appropriate. HUD did not provide
                     comments on the draft report.

                     In their oral comments, OMB staff said a recommendation in our draft
                     report that was directed to OMB would be better directed to USDA. Our
                     draft report contained a recommendation that OMB review RHS’s
                     methodology for estimating improper payments, including use of the $100
                     exclusion threshold. Although OMB staff agreed that a reassessment of
                     RHS’s methodology was appropriate, they said their process was to
                     undertake such a reassessment only after an agency submitted its
                     methodology to OMB for review. Therefore, we modified our
                     recommendation to state that USDA submit RHS’s estimation
                     methodology to OMB for review. We provided the modified
                     recommendation to USDA in time for USDA to consider it in preparing
                     written comments on our draft report.

                     In its written comments, USDA said it generally agreed with the
                     recommendations in our report, but it did not comment on specific
                     recommendations. USDA cited various actions RHS had taken, which we
                     described in our draft report, to reduce improper rental assistance
                     payments and secure access to HHS’s New Hires database. USDA also
                     reiterated that RHS had no plans to abandon improper payments audits
                     or seek an audit exemption from OMB even if the rental assistance
                     program’s error rate falls below OMB’s reporting threshold. Additionally,
                     USDA stated that it “appreciated GAO’s notation that the RHS IPIA error
                     rate is lower than that of the U.S. Department of Housing and Urban
                     Development, even including RHS’s errors under $100.” Although our
                     draft report did contain RHS’s estimated error rate for fiscal year 2010
                     (including and excluding errors less than $100) and a footnote in a
                     separate section showing HUD’s estimated error rate for the same year,
                     our report did not compare the error rates of the two agencies. Such
                     comparisons are inappropriate because RHS’s error rate does not include
                     sources of errors that HUD’s does include, such as income reporting
                     errors and billing errors. In our final report, we added language to the
                     footnote containing HUD’s error rate to emphasize this point.




                     Page 37                                    GAO-12-624 RHS Improper Payments
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the last page of this report. GAO staff who made key contributions to this
report are listed in appendix III.




Mathew J. Scirè
Director, Financial Markets
   and Community Investment




Page 38                                      GAO-12-624 RHS Improper Payments
Appendix I: Objectives, Scope, and
                           Appendix I: Objectives, Scope, and
                           Methodology



Methodology

                           Our objectives were to examine (1) the extent to which the Rural Housing
                           Service (RHS) has examined the sources and magnitude of improper
                           rental assistance payments; (2) the extent to which RHS has complied
                           with applicable requirements and guidance for estimating, reporting,
                           reducing, and recovering improper payments; and (3) potential lessons
                           RHS could learn from the Department of Housing and Development’s
                           (HUD) efforts that have helped to identify and reduce improper rental
                           assistance payments.


Sources and Magnitude of   To determine the extent to which RHS has examined the sources of error
Improper Payments          for improper rental assistance payments, we reviewed RHS’s annual
                           improper payments audits for fiscal years 2004 through 2010 (the most
                           recent audit available at the time of our review) and the U.S. Department
                           of Agriculture’s (USDA) Performance and Accountability Reports (PAR)
                           for fiscal years 2007 through 2011, which summarize information from the
                           improper payments audits. We reviewed RHS’s policies and procedures
                           for determining and processing rental subsidy payments to identify steps
                           in the subsidy process where improper payments can occur. We also
                           reviewed provisions in the Improper Payments Information Act of 2002
                           (IPIA), as amended, and Appendix C of Office of Management and
                           Budget (OMB) Circular A-123 to determine the types of payments that
                           should be classified as improper. To supplement our understanding of the
                           sources of improper rental assistance payments, we interviewed RHS
                           officials and representatives from the Council for Affordable Rural
                           Housing and the National Affordable Housing Management Association.

                           To determine the extent to which RHS has examined the magnitude of
                           improper rental assistance payments, we reviewed the improper
                           payments audits and PARs cited previously. We used this information to
                           analyze trends in RHS’s estimated gross improper payments and gross
                           error rates from fiscal years 2007 through 2010. We focused on that time
                           frame because RHS used a somewhat different methodology and had
                           different types of personnel conducting the audits prior to that period. For
                           example, the audit for fiscal year 2007 marked the point at which staff
                           from RHS’s Centralized Servicing Center (CSC), rather than RHS field
                           staff, began performing the audits. We also reviewed Appendix C of OMB
                           Circular A-123 to determine OMB’s thresholds for identifying programs
                           that are susceptible to significant improper payments. We compared
                           RHS’s error estimates with the current OMB thresholds and the
                           thresholds that will take effect in fiscal year 2013.




                           Page 39                                      GAO-12-624 RHS Improper Payments
Appendix I: Objectives, Scope, and
Methodology




We performed a more detailed analysis of the payment errors found in the
improper payments audit for fiscal year 2010 by obtaining and reviewing
an RHS database containing the 666 randomly selected payments
reviewed by CSC auditors. Among other things, the database included
the dollar amount and types of errors, if any, that the auditors identified
for each payment. We reviewed CSC’s written audit procedures and
examined the extent to which CSC followed them, including criteria for
classifying payments as improper. We also interviewed CSC officials
about how they conducted the audit and their reasons for any deviations
from written audit procedures. Additionally, we interviewed RHS officials
about how they used the results of the audit to make programwide error
estimates and their rationale for excluding payments of less that $100
from these estimates. Using information in the database, we determined
the proportions of improper payments that fell within different ranges,
including above and below RHS’s $100 exclusion threshold and above
and below HUD’s $5 exclusion threshold. We calculated what the
estimated amount of gross improper payments and the gross error rate
would have been for the rental assistance program if RHS had included
all improper payments in its estimates and compared these figures with
the ones RHS reported. 1 We interviewed OMB officials about RHS’s
exclusion threshold and the extent to which they had reviewed or
provided guidance to RHS on its estimation methodology, including the
threshold. We also reviewed IPIA provisions describing OMB’s
responsibilities for reviewing agency estimation methodologies.

To assess the reliability of the data in the database of 666 sampled
payments, we conducted reasonableness checks, including tests for
missing data and outliers, on key data elements that RHS used to
estimate improper payments. In addition, we reviewed RHS
documentation about the database and interviewed RHS staff responsible
for maintaining the data. Because RHS drew the payment sample from
RHS’s Multi-Family Information System, we also reviewed the processes
RHS had in place to safeguard the accuracy and reliability of data in the
system. On the basis of this review, we determined that the data in the




1
 More specifically, to produce a programwide estimate without the $100 threshold, we
calculated the absolute value of all improper payments in the payment sample and
multiplied this amount by the number of times the sample size was represented in the total
population of rental assistance payments. We divided the result by RHS’s total rental
assistance outlays for fiscal year 2010 to estimate the gross error rate.




Page 40                                               GAO-12-624 RHS Improper Payments
                          Appendix I: Objectives, Scope, and
                          Methodology




                          database of sampled payments were sufficiently reliable for purposes of
                          our analysis.


Compliance with           To determine the extent to which RHS complied with applicable
Requirements Concerning   requirements and guidance concerning improper payments, we reviewed
Improper Payments         provisions in IPIA, as amended; associated OMB guidance; and various
                          RHS and USDA documents. To determine whether RHS met
                          requirements for estimating improper payments, we reviewed Appendix C
                          of OMB Circular A-123, which contains specific rules for sampling
                          payments and the level of precision that error estimates must have. We
                          compared these requirements with information presented in RHS’s
                          improper payments audit for fiscal year 2010, the statistical sampling plan
                          underlying the audit, and USDA’s fiscal year 2011 PAR. In addition, we
                          reviewed the techniques and formulas RHS used to generate its fiscal
                          year 2010 payment sample and produce estimates from the sample and
                          found them to be statistically sound. To assess whether RHS met
                          reporting requirements, we examined Appendix C of OMB Circular A-123,
                          as well as OMB Circular A-136, which set forth specific information that
                          agencies should include in their annual PARs about improper payments.
                          We reviewed USDA’s fiscal year 2011 PAR to determine the extent to
                          which it contained the required information. Because the reporting
                          requirements call for agencies to identify corrective actions they have
                          taken or plan to take, we also identified RHS corrective actions described
                          in USDA’s PARs from fiscal years 2008 through 2011 and determined the
                          status of those actions as of March 2012. We reviewed information
                          regarding these corrective actions, including RHS correspondence, draft
                          legislation, and other documents, as well as reporting by USDA’s Office of
                          the Inspector General (OIG). We also interviewed RHS and OMB officials
                          about RHS’s efforts to comply with improper payments requirements and
                          guidance.

                          To assess RHS’s use of required or recommended techniques to reduce
                          and recover improper payments, we reviewed guidance contained in
                          OMB Circular A-123, a 2010 presidential memorandum on ensuring
                          payment accuracy through a “Do Not Pay List,” and provisions in IPIA, as
                          amended by the Improper Payments Elimination and Recovery Act of
                          2010 (IPERA). We reviewed documentation—including USDA PARs,
                          RHS improper payments audits, and USDA OIG reporting—describing
                          the methods RHS has used to help reduce improper payments. We also
                          interviewed RHS officials and a representative from USDA’s Office of the
                          Chief Financial Officer about these methods, including the use of
                          databases that constitute the “Do Not Pay List.” With regard to RHS’s


                          Page 41                                      GAO-12-624 RHS Improper Payments
                            Appendix I: Objectives, Scope, and
                            Methodology




                            recovery of improper payments, we reviewed USDA’s PAR for fiscal year
                            2011, which contains a summary of USDA’s efforts to implement the
                            recovery audit provisions in IPERA. We also reviewed USDA’s payment
                            capture/recovery audit plan and fiscal year 2011 requests for proposals to
                            solicit the services of a recovery auditing contractor. Finally, we
                            interviewed RHS officials and a representative from USDA’s Office of the
                            Chief Financial Officer about the status of establishing a recovery audit
                            program in response to IPERA.


Potential Lessons Learned   To determine the potential lessons RHS could learn from HUD’s efforts to
from HUD                    reduce improper payments, we reviewed HUD’s quality-control studies of
                            improper rental assistance payments (which are comparable to RHS’s
                            improper payments audits) conducted for fiscal years 2000 through 2010.
                            We also reviewed information in HUD’s PARs for fiscal years 2001
                            through 2011, which summarize the results of these studies and describe
                            HUD’s corrective actions to address the causes of improper payments.
                            We used information from the PARs to examine trends in HUD’s
                            estimated gross improper payments and gross error rate from fiscal years
                            2000 through 2010. Additionally, we reviewed findings from our prior work
                            on HUD’s efforts to reduce payment errors and interviewed officials from
                            HUD’s Offices of Public and Indian Housing, Multifamily Housing, and
                            Policy Development and Research about their more recent efforts.

                            Our work emphasized the benefits and challenges associated with HUD’s
                            web-based Enterprise Income Verification System (EIV) because RHS
                            lacks a comparable capability for verifying tenant incomes through data
                            matching. To determine the specific benefits of EIV, we reviewed
                            supplements to HUD’s quality-control studies that focus specifically on the
                            data matching component of the studies and provide estimates of
                            improper payments due to income reporting errors. We analyzed changes
                            in HUD’s estimates of income reporting errors from fiscal years 2000
                            through 2011. However, we could not draw statistically valid conclusions
                            about the changes, because the small number of households in HUD’s
                            samples with unreported income resulted in estimates with large margins
                            of error. We also reviewed information on HUD’s use of EIV to identify
                            and recover payments to deceased tenants and to correct inaccurate
                            tenant identifying information. Additionally, we interviewed the HUD
                            officials cited previously about the benefits they had seen from using the
                            system to annually estimate improper payments and help ensure the
                            integrity of rental assistance payments on an ongoing basis. To determine
                            the challenges associated with developing and implementing EIV, we
                            reviewed information from HUD about how EIV evolved, the agency’s


                            Page 42                                      GAO-12-624 RHS Improper Payments
Appendix I: Objectives, Scope, and
Methodology




efforts to negotiate data matching agreements with the Department of
Health and Human Services, estimated costs for developing and
maintaining the system, and staff resources dedicated to implementing
EIV and monitoring its use by program administrators. Further, we
reviewed HUD regulations, guidance, manuals, and training materials that
HUD developed to help implement EIV. Finally, we interviewed HUD
officials about these various efforts.

We conducted this performance audit from July 2011 to May 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 43                                     GAO-12-624 RHS Improper Payments
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Agriculture



of Agriculture




             Page 44                                     GAO-12-624 RHS Improper Payments
Appendix II: Comments from the Department
of Agriculture




Page 45                                     GAO-12-624 RHS Improper Payments
Appendix III: GAO Contact and Staff
                  Appendix III: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov
GAO Contact
                  In addition to the individual named above, Steve Westley (Assistant
Staff             Director), Jeremy Conley, Isidro Gomez, John Lord, John McGrail, Marc
Acknowledgments   Molino, Dae Park, Jennifer Schwartz, Verginie Tarpinian, and Heneng Yu
                  made key contributions to this report.




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                  Page 46                                   GAO-12-624 RHS Improper Payments
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