oversight

HUD Did Not Ensure That Housing Authorities Resolved Items on the Multiple Subsidy Report in a Reasonable Amount of Time

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-26.

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

                                                                Issue Date
                                                                      September 26, 2011
                                                                 
                                                                Audit Report Number
                                                                       2011-KC-0003




TO:        Milan Ozdinec, Deputy Assistant Secretary for Public Housing and
             Voucher Programs, PE

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: HUD Did Not Ensure That Housing Authorities Resolved Items on the Multiple
           Subsidy Report in a Reasonable Amount of Time


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the U.S. Department of Housing and Urban Development’s (HUD)
             oversight of tenants who improperly received multiple housing subsidies in the
             Section 8 and public housing programs. We initiated this audit as part of our
             national annual audit plan.

             The objective of our review was to determine whether HUD ensured that housing
             authorities resolved items listed on the Enterprise Income Verification (EIV)
             system’s multiple subsidy report in a reasonable amount of time.

 What We Found


             HUD did not ensure that housing authorities followed up with an estimated 3,636
             tenants listed on the EIV multiple subsidy report, and when applicable, took the
             appropriate corrective actions, in a reasonable amount of time, to eliminate the
             occurrence of an estimated $340,679 in improper subsidy payments.




                                             1
What We Recommend


           We recommend that HUD notify housing authorities of the possible imposition of
           sanctions on those housing authorities that 1) fail to recover or attempt to recover
           improper subsidy payments; and/or 2) fail to use the EIV system in accordance
           with 24 CFR 5.233, and/or HUD administrative guidance. Additionally, we
           recommend that HUD modify the EIV multiple subsidy report to show the date
           that the tenant was flagged as potentially receiving multiple rental assistance and
           include an aging table to identify how long tenants have appeared on the report.
           Finally, we recommend that HUD implement a process to monitor and follow up
           with housing authorities on all tenants listed on the EIV multiple subsidy report
           that have been flagged for 6 months or more and ensure housing authorities
           implement appropriate corrective action(s) to eliminate the occurrence of
           improper subsidy payments, in a reasonable amount of time.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response
           We provided HUD with a copy of the draft report on August 18, 2011. We
           received the written response on September 22, 2011. HUD generally agreed with
           our finding.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            2
                           TABLE OF CONTENTS

Background and Objective                                                         4

Results of Audit
      Finding 1: HUD Did Not Ensure That Housing Authorities Resolved Items on   5
                  the Multiple Subsidy Report in a Reasonable Amount of Time

Scope and Methodology                                                            9

Internal Controls                                                                11

Appendixes
   A. Schedule of Funds To Be Put to Better Use                                  12
   B. Auditee Comments and OIG’s Evaluation                                      13




                                           3
                     BACKGROUND AND OBJECTIVES

The U.S. Department of Housing and Urban Development’s (HUD) Office of Public and Indian
Housing (PIH) is responsible for ensuring the availability of safe, decent, and affordable housing
for eligible program participants. This office is responsible for administering and managing the
public housing and Housing Choice Voucher programs. Congress authorized more than $18
billion and $4.7 billion for tenant-based rental assistance and public housing subsidies,
respectively, in fiscal year 2010.

The Improper Payments Information Act of 2002 required Federal agencies to assess every
Federal program for improper payment risk, measure the accuracy of payments annually, and
initiate program improvements to ensure that payment errors are reduced. This Act was
subsequently amended by the Improper Payments Elimination and Recovery Act of 2010. In
addition, Executive Order 13520 sought to reduce improper payments by intensifying efforts to
eliminate payment error, waste, fraud, and abuse in the major programs administered by the
Federal Government, while continuing to ensure that the right people receive the right payment
for the right reason at the right time.

HUD established the Rental Housing Integrity Improvement Project initiative to address the
causes of errors and improper payments in HUD’s assisted housing programs and to ensure that
the right benefits go to the right persons. An improper payment is any payment that should not
have been made or that was made in an incorrect amount under applicable requirements,
including overpayments and underpayments. This also includes any payment that was made to
an ineligible recipient and duplicate payments.

To assist in meeting the Rental Housing Integrity Improvement Project initiative goals, HUD
developed and implemented the Enterprise Income Verification (EIV) system. The EIV system
is a Web-based application, which provides housing authorities with income information for
tenants of public housing and various Section 8 programs under the jurisdiction of PIH. The
system also includes information on tenants participating in the Office of Multifamily Housing’s
rental assistance programs. This system is available to all housing authorities nationwide. HUD
requires all housing authorities to review the EIV income report of each family during annual
and interim reexaminations to reduce tenant underreporting of income and improper subsidy
payments. If tenants appear in more than one HUD-subsidized household, their EIV income
reports are flagged, indicating that they are possibly receiving multiple subsidies. They would
also appear on the EIV system’s multiple subsidy report, which identifies tenants who may be
receiving duplicate rental assistance.

Our audit objective was to determine whether HUD ensured that housing authorities resolved
items on the EIV multiple subsidy report in a reasonable amount of time.




                                                4
                                 RESULTS OF AUDIT

Finding 1: HUD Did Not Ensure That Housing Authorities Resolved
Items on the Multiple Subsidy Report in a Reasonable Amount of Time

HUD did not ensure that housing authorities resolved an estimated 3,636 alerts on the multiple
subsidy report in a reasonable amount of time. This deficiency occurred because HUD did not
have adequate controls in place to highlight recurring items on the report. As a result, housing
authorities did not properly identify and eliminate an estimated $340,679 in improper subsidy
payments on behalf of the identified tenants.


 Unresolved Multiple Subsidy
 Items


               HUD did not ensure that housing authorities followed up with an estimated 3,636
               tenants listed on the EIV multiple subsidy report, and when applicable, took the
               appropriate corrective actions(s) within 6 months. The multiple subsidy report
               identifies all tenants who are listed in two or more HUD-subsidized households.
               This report is located within the EIV system, and HUD required all housing
               authorities to use this system, effective January 31, 2010. Regulations at 24 CFR
               (Code of Federal Regulations) 5.233 require the use of the EIV system to reduce
               administrative and subsidy payment errors and also establish penalties for
               noncompliance. In addition, PIH notice 2010-19 requires housing authorities to
               monitor this report quarterly as well as during annual and interim recertification
               actions for their tenants.

               Of 68 items statistically selected from the 10,693 alerts on the multiple subsidy
               report, 30 remained on the report for between 6 and 48 months.

                                   Length of the multiple subsidy flags
                                            8                  8        8
                                 F 8
                                                      6
                                 r 6
                                 e
                                 q 4
                                 u 2
                                 e
                                    0
                                 n
                                 c        6‐7
                                                    8‐9
                                                            10‐11
                                 y                                    >12
                                                    Length (months)



                                                5
           By projecting these unresolved cases to the universe of 10,693, we estimated that
           3,636 cases were not resolved within 6 months. Based on HUD’s requirements for
           EIV use, we considered 6 months to be a reasonable timeframe for HUD to ensure
           that housing authorities resolved these items.


Inadequate Controls


           HUD did not have adequate controls to highlight recurring items on the multiple
           subsidy report.

           EIV Report Weakness
           The EIV system did not indicate how long a tenant had appeared on the multiple
           subsidy report and, therefore, did not identify those that were listed for many
           months. HUD and housing authorities could not determine when a tenant first
           appeared on the multiple subsidy report or how long the tenant had been there.
           HUD did not keep historical multiple subsidy records and, therefore, could not
           generate the report for a specific date in the past.

           Lack of Aging Report
           The EIV system did not have an aging report to identify tenants who had remained
           on the report for many months. HUD, as well as the housing authorities, would be
           able to identify multiple subsidy alerts that had been outstanding for a long time if
           HUD had an aging report.


Improper Payments


           Housing authorities did not always properly identify and eliminate an estimated
           $340,679 in improper subsidy payments.

           Housing authorities did not always identify all multiple subsidy tenants. They did
           not always use the proper report selection criteria when generating the multiple
           subsidy report and, therefore, did not identify all potential multiple subsidy
           tenants. In some cases, housing authorities did not screen prospective tenants
           through the EIV system and, therefore, did not know that they were already
           receiving housing subsidies.

           Housing authorities made $32,278 in improper subsidy payments for the sampled
           tenants. Using statistical procedures that projected the improper payment errors
           to the entire universe of 10,693 alerts, we estimated that unresolved alerts resulted
           in at least $340,679 in improper subsidy payments. These funds could have been
           used to assist others needing subsidized housing.



                                              6
Conclusion


             Housing authorities did not properly identify and eliminate improper payments
             made on behalf of tenants occupying 2 or more HUD-assisted units. HUD has
             reduced the risk of the occurrence of tenants erroneously receiving multiple
             subsidies for many months by requiring housing authorities to review the multiple
             subsidy report on a quarterly basis as well as with every required reexamination
             of family income and composition. When used properly, HUD’s EIV system,
             including the multiple subsidy report, is an effective tool in preventing fraud and
             abuse within HUD’s rental assistance programs. However, HUD did not ensure
             that housing authorities resolved alerts on this report in a reasonable amount of
             time.

             In May 2011, HUD increased the likelihood that housing authorities would
             identify all tenants potentially receiving multiple subsidies by consolidating the
             search criteria options of the multiple subsidy report. Initially, housing authorities
             had to generate the report twice to find potential multiple subsidies across both
             public housing and multifamily housing programs. Now this search can be
             accomplished in one step, rather than two. HUD can further improve the
             effectiveness of the EIV system by listing the date in which the tenant was
             flagged as potentially receiving multiple rental assistance and include an aging
             table to identify how long tenants have appeared on the report. By improving its
             controls, we estimate that HUD could detect and prevent $340,679 in improper
             payments for tenants that are already receiving housing subsidies.

Recommendations



             We recommend that the Deputy Assistant Secretary for Public Housing and
             Voucher Programs

             1A. Notify housing authorities of possible imposition of sanctions on housing
                 authorities that 1) fail to recover or attempt to recover improper subsidy
                 payments; and/or 2) fail to use the EIV system in accordance with 24 CFR
                 5.233, and/or HUD administrative guidance, which results in the occurrence
                 of improper payments.

             1B. Modify the EIV multiple subsidy report to show the date that the tenant was
                 flagged as potentially receiving multiple rental assistance and include an
                 aging table to identify how long tenants have appeared on the report.




                                               7
1C. Implement a process to monitor and follow up with housing authorities on
    all tenants listed on the EIV multiple subsidy report that have been flagged
    for 6 months or more and ensure housing authorities implement appropriate
    corrective action(s) to eliminate the occurrence of improper subsidy
    payments in a reasonable amount of time, to put $340,679 to better use.




                                8
                         SCOPE AND METHODOLOGY

To accomplish our objective, we

      Reviewed applicable laws and regulations and
      Interviewed key HUD staff to gain an understanding of relevant controls.

In addition, we relied in part on data maintained by HUD in its EIV system. Specifically we
relied on the multiple subsidy report generated within the EIV system as of February 5, 2011,
and provided by HUD. Although we did not perform a detailed assessment of the reliability of
the data, we determined that the computer-processed data were sufficiently reliable for our
purposes because the data in the sampled items were corroborated by documentary evidence
supplied by the sampled housing authorities.

Our sampling universe consisted of 10,693 unique Social Security number alerts of multiple
subsidies. Our universe excluded 5,681 Social Security number alerts resulting from tenants
receiving Section 236 subsidies in multifamily properties and holding Section 8 vouchers, as this
is a permitted practice. We used a stratified attribute sample, and our sample unit was the Social
Security numbers reported to a housing authority regarding tenants who appeared to receive
multiple subsidies.

We developed an attribute sampling plan using a 90 percent confidence level with 10 percent
desired precision and 50 percent estimated error rate. We then used SAS® software to select our
sample. The sampling plan resulted in a sample size of 68 Social Security number alerts.

For each of the 68 tenants sampled, we contacted the sampled housing authority to obtain all
relevant documentation for the tenant. This documentation included the date of admission,
initial application, identifications obtained, initial and current form HUD-50058 certification
forms used to record actions such as tenant move-ins, move-outs, and unit composition changes,
multiple subsidy reports from the EIV system obtained as part of the housing authority’s
quarterly monitoring, and documentation supporting any contacts made or information obtained
to determine whether a tenant was receiving housing subsidies in more than one location as well
as actions taken. This documentation also included records of payments made on behalf of the
tenants and any correspondence received from HUD related to the multiple subsidy report.

We then evaluated each sample item to determine the length of time the tenant had appeared on
the multiple subsidy report by performing a comprehensive review of relevant HUD data as well
as housing authority documentation. We determined that 30 items remained on the report for
more than 6 months. Of these, 15 involved tenants that received housing assistance for more
than one housing unit. The other 15 items involved multiple subsidy situations without a
financial impact as well as false positives. We considered all 30 to be errors because they were
not resolved by the respective housing authorities in a timely manner.

We used the number of multiple subsidy alerts in the audit sample that remained unresolved after
6 months to project the percentage and number of reports within our universe of 10,693. Each


                                                9
observation was weighted to account for the size of the strata it was pulled from and its
representation within the population. We used a SAS® program to apply the sampling weights
and estimate the mean percentage with errors and the standard error. Through this procedure, we
estimated that 3,636 alerts were not responded to within 6 months.

After evaluating all of the sample items, we calculated the improper payment amount for the 15
multiple subsidy items. To determine the improper payment amount for Section 8 tenants, we
calculated the subsidy payment amount for the households, excluding the multiple subsidy
tenants during the period when they were listed in multiple households. In the case of multiple
subsidy tenants living in public housing units, we used an estimated average per unit subsidy
amount based on 2010 public housing operating subsidy figures and the number of public
housing units under management according to HUD’s Web site to calculate the improper subsidy
amount. The improper payments totaled $32,278.

We then used additional analytical procedures to estimate the dollar impact of the unresolved
alerts. Using the $32,278 in improper payments identified, we adjusted the impact of some
sampling units to account for a higher probability of discovering the associated dollars.
Additional minor adjustments were made to the sampling weights to account for slightly
different probabilities of selection within each stratum. The weighted samples were evaluated
using the SAS® survey means procedure to estimate the mean and standard error in accordance
with the audit findings and the sampling weights. These numbers were then applied to the
population of 10,693 multiple subsidy alerts to estimate the mean dollars per alert and the
minimum amount we could attribute to the total dollar impact. Through this procedure, we are
95 percent confident that the projected amount of improper subsidy payments is at least
$340,679. This figure is based on the lower confidence interval, so it could be substantially
more.

Our audit period generally covered January 2010 through June 2011. We conducted the audit
fieldwork in HUD’s office in Washington, DC, between January and July 2011.

We conducted the audit 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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                              10
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
               We determined that the following internal controls were relevant to our audit
               objective:

                     Policies and procedures to identify and prevent tenants from receiving
                      multiple housing subsidies for an extended period.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.


 Significant Deficiency


               Based on our review, we believe that the following item is a significant deficiency:

                     HUD did not have adequate controls to highlight tenants who had received
                      multiple housing subsidies for an extended period.




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                                    APPENDIXES

Appendix A

     SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                           Recommendation           Funds to be put to
                               number                    better use 1/
                                          1C                $340,679



1/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified.

     In this instance, if HUD implements the relevant controls, we estimate that it could detect
     and prevent more than $340,679 in housing assistance and subsidies from being spent on
     tenants who are already receiving housing subsidies. Housing authorities will instead
     spend those funds to house other residents who are not currently receiving housing
     subsidies. These amounts do not include potential offsetting costs incurred by HUD to
     implement our recommendations.




                                               12
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         13
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 3




Comment 4




Comment 5




                         14
Ref to OIG Evaluation   Auditee Comments




                         15
                         OIG Evaluation of Auditee Comments

Comment 1   We agreed with HUD’s comment and we revised our recommendation
            accordingly.

Comment 2   HUD started the process of implementing our recommendation during the audit.
            The implementation of the EIV system upgrade in April 2012 will adequately
            address our recommendation.

Comment 3   Once HUD implements this process, it will address our recommendation.

Comment 4   We agree that in the context of public housing programs, quantifying the amount
            of the improper payment for a particular tenant is difficult. Our result is the best
            estimate of the situation. Our estimate is the lower limit of our statistical
            projection, which is simply an estimate meant to quantify this problem and
            encourage HUD to make the recommended changes to reduce this amount.

Comment 5   See comment 4. Additionally, we never advocated the construction of new public
            housing units.




                                             16