oversight

HUD Had Made Progress in Reducing Oversubsidization in the Housing Choice Voucher Program, but the Problem Continued To Exist

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-23.

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

OFFICE OF AUDIT
REGION 7
KANSAS CITY, KS




           U.S. Department of Housing and Urban
               Development, Washington, DC

          Oversubsidization in the Housing Choice
                    Voucher Program




2013-KC-0005                                 September 23, 2013
                                                U.S. DEPARTMENT OF
                               HOUSING AND URBAN DEVELOPMENT
                                         OFFICE OF INSPECTOR GENERAL




                                                                   Issue Date: September 23, 2013

                                                                   Audit Report Number: 2013-KC-0005


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 Had Made Progress in Reducing Oversubsidization in the Housing Choice
               Voucher Program, but the Problem Continued To Exist


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of oversubsidization in the Housing Choice
Voucher program.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
913-551-5870.




                                                Office of Audit Region 7
                                 400 State Avenue, Suite 501, Kansas City, KS 66101
                                      Phone (913) 551-5870, Fax (913) 551-5877
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
                                             September 23, 2013
                                             HUD Had Made Progress in Reducing Oversubsidization
                                             in the Housing Choice Voucher Program, but the
                                             Problem Continued To Exist



Highlights
Audit Report 2013-KC-0005


 What We Audited and Why                      What We Found

We selected the U.S. Department of           HUD had made progress in reducing oversubsidization
Housing and Urban Development’s              in the Housing Choice Voucher program, but the
(HUD) Housing Choice Voucher                 problem continued to exist. Of the 100 households
program for audit based on an internal       reviewed, 13 were oversubsidized. This condition
audit suggestion. An earlier internal        occurred because HUD had made few data analytic
audit report (2007-FW-0001) indicated        tools available to public housing agencies to help
problems with oversubsidization in the       detect and monitor oversubsidized households,
program, and since then, the Office of       improper payment standards, and reporting errors. We
Inspector General had conducted only a       estimated that more than $1.1 million in excess subsidy
few external audits to help substantiate     payments was not available for other households
whether oversubsidization continued to       seeking housing choice voucher assistance.
be a problem. Our audit objective was
to determine whether oversubsidization
still exists in the Housing Choice
Voucher program.

 What We Recommend

We recommend that the Deputy
Assistant Secretary for Public Housing
and Voucher Programs provide
guidance to the authorities on the data
analytic tools available and the specific
procedures to help detect and monitor
oversubsidized households, improper
payment standards, and reporting errors
to put at least $1.1 million to better use
annually.
                            TABLE OF CONTENTS

Background and Objective                                                    3

Results of Audit
      Finding: HUD Had Made Progress in Reducing Oversubsidization in the   5
      Housing Choice Voucher Program, but the Problem Continued To Exist

Scope and Methodology                                                       10

Internal Controls                                                           12

Appendixes
A.    Schedule of Funds To Be Put to Better Use                             13
B.    Auditee Comments and OIG’s Evaluation                                 14
C.    Criteria                                                              17




                                            2
                       BACKGROUND AND OBJECTIVE

The Housing Choice Voucher program is the Federal Government’s major program for assisting
very low-income families, the elderly, and the disabled in affording decent, safe, and sanitary
housing in the private market. Housing choice vouchers are administered locally by public
housing authorities, which receive Federal funds from the U.S. Department of Housing and
Urban Development (HUD) to administer the program. A family that is issued a voucher is
responsible for finding a suitable housing unit of the family’s choice, which the owner agrees to
rent under the program. A housing subsidy is paid directly to the landlord by the authority on
behalf of the participating family. The family then pays the difference between the actual rent
charged by the landlord and the amount subsidized by the program.

The Housing Choice Voucher program is HUD’s largest rental assistance program. Funding is
provided through annual appropriation acts for HUD, which in turn allocates funds to the
authorities. In 2012, Congress appropriated more than $18.9 billion to fund the program. After
Congress required HUD to perform a net restricted assets offset of $650 million, there was still
more than $18.2 billion available. In 2013, the amount Congress appropriated to fund the
program was subject to sequestration. As a result, the total available appropriations were
reduced but still totaled more than $17.9 billion.

In September 2007, the HUD Office of Inspector General (OIG) issued an audit report (2007-
FW-0001) on oversubsidization in the program. This report estimated that authorities overpaid
$20 million annually in rental assistance for more than 16,500 families and recommended that
HUD issue guidance to clarify requirements for granting reasonable accommodations and
entering accurate data into HUD’s Inventory Management System-Public and Indian Housing
Information Center. Also, it recommended that HUD incorporate data analysis into its risk
assessment and monitoring programs to ensure that authorities assign the correct voucher size to
all families and to mitigate data errors. HUD published several notices on live-in aides, other
reasonable accommodation issues, and corresponding data entry. However, HUD disagreed with
the recommendation concerning data analysis.

Payment standards are used to calculate the housing assistance the authority pays to the owner on
behalf of the family leasing the unit. Each authority has latitude in establishing its payment
standards by bedroom size. The range of possible payment standard amounts is based on HUD’s
public fair market rent schedule for the area in which the authority has jurisdiction.

An authority is required to adopt a written administrative plan that establishes local policies for
program administration. The plan must conform to HUD regulations and state the policies in those
areas in which the authority has discretion to establish local policy. The authority must establish
standards for determining the number of bedrooms for families of different sizes and composition.

For the purposes of this report, a household was considered oversubsidized if the amount of
housing assistance the authority paid for the household exceeded the authorized level of
assistance and resulted in a subsidy overpayment. We considered a household to have improper


                                                 3
payment standards if the authority used the wrong payment standard. All households that were
oversubsidized also had an improper payment standard.

The objective of our review was to determine whether oversubsidization still exists in the
Housing Choice Voucher program.




                                                4
                                                  
                               RESULTS OF AUDIT


Finding 1: HUD Had Made Progress in Reducing Oversubsidization in
the Housing Choice Voucher Program, but the Problem Continued To
Exist
HUD had made progress in reducing oversubsidization in the Housing Choice Voucher program,
but the problem continued to exist. This condition occurred because HUD had made few data
analytic tools available to authorities to help detect and monitor oversubsidized households,
improper payment standards, and reporting errors. As a result, more than $1.1 million in excess
subsidy payments might not be available for other households seeking housing choice voucher
assistance.


 HUD Had Made Progress in
 Reducing Oversubsidization

              HUD had made progress in reducing oversubsidization in the program. In
              internal audit report 2007-FW-0001, HUD OIG estimated that approximately
              65,000 of the 2.2 million assisted families appeared to be overhoused because the
              number of bedrooms on the voucher exceeded the number of people in the
              household. During that audit, OIG auditors tested a statistical sample of 205
              vouchers and found that authorities oversubsidized families who resided in units
              with more bedrooms than the number in the household in 67 (33 percent) of the
              sample vouchers. Consequently, authorities overpaid more than $82,000 in
              subsidies for 53 of the 205 families (26 percent). As a result, HUD OIG
              estimated that authorities oversubsidized 16,500 vouchers, resulting in
              overpayments of $20 million annually. In 2006, Congress appropriated more than
              $15 billion for the program.

              To conduct this audit, we initially targeted our sample and were able to identify
              11,277 instances nationwide in which the household had a calculated bedroom
              size and actual bedroom size smaller than the number of bedrooms on the housing
              choice voucher. We selected a statistical sample of 100 households from this
              universe (see Scope and Methodology for details of our selection) and found that
              oversubsidization continued to exist in the program. Of the 100 households
              reviewed, 13 were oversubsidized, resulting in an estimated $1.1 million in excess
              subsidy payments that were not available for other households seeking housing
              choice voucher assistance.

              HUD’s Housing Choice Voucher Guidebook states that the authority’s
              administrative plan must describe the standards that will be used and when
              exceptions to the established standards may be granted. The administrative plan

                                               5
                                                
           establishes guidelines such as at what age children of the opposite sex will share a
           bedroom and the age at which children of the same sex will share a bedroom. The
           various categories of oversubsidization errors observed during this review are
           displayed in the table below.

                                Oversubsidization errors                              Number
           Single member household assigned higher payment standard without             4
                                    proper justification
            Household with family members assigned higher payment standard                3
                                without proper justification
            Failure to reduce voucher size after a change in family composition           2
                  Live-in aide was not identified on the form HUD-50058                   2
            Reasonable accommodation request was not properly documented                  1
           Higher payment standard assigned for foster children not residing in           1
                                         household
                                           Total                                          13

Improper Payment Standards
Were Found in 25 Households


           Of the 100 households, 25 had improper payment standards. However, many
           households with improper payment standards were not oversubsidized. For
           example, if the gross rent amount was less than the authorized payment standard,
           no oversubsidization occurred.

Reporting Errors Were Found
in 89 Files


           During our review of oversubsidization, we found the Authorities did not
           accurately complete forms HUD-50058 for 89 of the 100 households. These
           reporting errors included incorrectly listing the number of bedrooms on the
           voucher in block 12a on the form, listing the wrong number of bedrooms in the
           unit, incorrectly listing the household member’s gender, failing to list all family
           members, and listing the wrong date of admission into the program.

           According to Office of Public and Indian Housing Notices PIH 2011-65 and
           2010-25, HUD relies on authorities to submit accurate, complete, and timely data
           to administer, monitor, and report on the management of its rental assistance
           programs. In addition, Notice PIH 2010-51 states that authorities are expected to
           ensure that data on the form HUD-50058 are correct when entered into the
           Inventory Management System-Public and Indian Housing Information Center.




                                             6
                                               
           The various reporting errors observed are displayed in the table below. These are
           in addition to the reporting errors resulting from the oversubsidization and
           improper payment standards discussed in the previous section.

                                    Reporting errors                                  Number
           Incorrect number of bedrooms on the voucher listed in block 12a on           82
                                  the form HUD-50058
             Incorrect number of bedrooms in the unit listed in block 5d on the           8
                                    form HUD-50058
            Family member’s gender incorrectly listed on the form HUD-50058               3
                    Family members not listed on the form HUD-50058                       1
                         Wrong date of admission into the program                         1
                                          Total                                          95*
          *Some households had multiple reporting errors

Few Data Analytic Tools Were
Available to Authorities

           To satisfy one of the 2007 audit’s recommendations and prevent future
           oversubsidization, HUD issued Notice PIH 2008-20, which clarified guidance on
           the categorization of live-in aides, other reasonable accommodation issues, and
           corresponding data entry into HUD’s Inventory Management System-Public and
           Indian Housing Information Center. Since Notice PIH 2008-20 was issued, HUD
           also had published Notices 2009-22, 2010-51, and 2012-33 to extend the original
           requirements and add and revise additional guidance.

           However, HUD had made few data analytic tools available to authorities to help
           detect and monitor oversubsidized households, improper payment standards, and
           reporting errors. The form HUD-50058 module in the Inventory Management
           System-Public and Indian Housing Information Center allows HUD to obtain the
           information about people who participate in subsidized housing programs. The
           module contains various submodules, and the “reports” submodule allows a user
           to run various reports to help analyze tenant information.

           The key management indicators report provides information on the volume of
           authority activity, identifies possible discrepancies, and includes descriptive data
           related to authority policies. The discrepancies tab of the key management
           indicators report displays information about the number of units in which the
           number of bedrooms exceeds the number of family members. However, this
           report indicates only numbers and percentages and does not display the specific
           name of the household that exceeded the bedroom threshold.

           We interviewed 10 authorities about programs available to detect and monitor
           oversubsidization. Eight of the authorities used local computer software to
           manage their Housing Choice Voucher program, but their local software had
           limited capability to detect and monitor possible oversubsidization. Nine of the

                                             7
                                               
             authorities recommended that additional capabilities be added to the Inventory
             Management System-Public and Indian Housing Information Center to help query
             and monitor specific households for potential oversubsidization.

Annual Oversubsidization
Overpayments Were Reduced

             Using statistical sampling procedures to project the number of oversubsidized
             households, we estimated that more than $1.1 million in excess subsidy payments
             were not available for other households seeking housing choice voucher
             assistance. This amount was projected to occur in a 1-year period and indicated a
             reduction in annual oversubsidization overpayments when compared to the $20
             million annually found in the 2007 HUD OIG report.

             In addition, we estimated that

                   827 of the 11,277 households (7.3 percent) were oversubsidized and 9,919
                    housing assistance payments were incorrect.
                   2,008 of the 11,277 households (17.8 percent) had improper payment
                    standards.
                   9,435 of the 11,277 households (83.7 percent) had reporting errors on the
                    form HUD-50058.

             Providing housing authorities with better tools to analyze the data that already
             exist would help HUD ensure that subsidy amounts are computed correctly. In
             addition, the savings HUD would achieve by implementing our recommendations
             would exceed the cost of implementing them.

Conclusion

             HUD had made progress in reducing oversubsidization in the Housing Choice
             Voucher program, but the problem continued to exist. HUD had issued various
             notices to help clarify guidance on live-in aides, other reasonable accommodation
             issues, and corresponding data entry into HUD’s Inventory Management System-
             Public and Indian Housing Information Center. In the earlier internal audit (2007-
             FW-0001), HUD OIG estimated that authorities oversubsidized 16,500 vouchers,
             resulting in overpayments of $20 million annually in a $15 billion program.
             During this review, we estimated in our targeted sample that 827 of the 11,277
             households were oversubsidized, resulting in overpayments of more than $1.1
             million annually in an $18.9 billion program. Also, the percentage of
             oversubsidized households had decreased from 26 to an estimated 7.3 percent.




                                              8
                                               
Recommendations

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

          1A.     Provide guidance to the authorities on the data analytic tools available and
                  the specific procedures to help detect and monitor oversubsidized
                  households, improper payment standards, and reporting errors to put at
                  least $1,128,000 to better use annually.




                                            9
                                             
                         SCOPE AND METHODOLOGY

Our audit period was August 1, 2011, through February 28, 2013. We conducted the audit from
our office in Kansas City, KS, from February through July 2013.

To accomplish our objective, we

      Reviewed Federal regulations and HUD requirements;
      Interviewed HUD and HUD OIG staff;
      Analyzed data from HUD’s Inventory Management System-Public and Indian Housing
       Information Center;
      Selected and reviewed a statistical sample of 100 housing choice vouchers administered
       by 89 public housing agencies;
      Reviewed authorities’ policies and procedures, forms HUD-50058, and supporting
       documentation; and
      Inteviewed authority staff.

Our sampling unit was based on the head-of-household Social Security number, which represents
a given household. In this case, a household represents housing assistance payments. Our
sample universe consisted of more than 1.9 million unique household voucher records and more
than 4.7 million household members based on data obtained from HUD’s Inventory Management
System-Public and Indian Housing Information Center. We analyzed the data for the 1.9 million
household voucher records and determined that the update dates ranged from August 8, 2011,
through February 6, 2013. For the effective date of action, the dates ranged from October 7,
2011 through February 7, 2013.

By using data analysis techniques, we targeted our sample and were able to identify 11,277
instances in which the household had a calculated bedroom size and actual bedroom size smaller
than the number of the bedrooms on the housing choice voucher. We also considered whether
members of the same sex shared a bedroom under the age of 18 and whether members of the
opposite sex shared a bedroom under the age of 5.

The sample was designed to accommodate the range of dollar amounts that were likely to be in
error for each of these households. The universe was divided into six strata, and a proportional
number of samples were randomly selected from each stratum as noted in the table below.




                                               10
                                                  
                                Sample stratification
     Strata         Lower bound of          Universe             Sample             Sampling
                     overpayment                                                     weight
   Cost_tier1             $0                  1,116                 10               111.60
   Cost_tier2            $110                 2,469                 22               112.23
   Cost_tier3            $134                 2,061                 18               114.50
   Cost_tier4            $156                 2,241                 20               112.05
   Cost_tier5            $188                 2,269                 20               113.45
   Cost_tier6            $266                 1,121                 10               112.10

Sample designs were tested using both traditional sample design formulas and computer
simulations to verify that the samples would perform as expected. Sample designs were tested
under a wide range of possible error rates to ensure that they would yield measurable results,
conform to the stated confidence error, and adequately protect the auditee. Samples were
randomly selected in accordance with the 100-count sample design using the survey select
procedure in SAS, a computer program commonly used for statistical computations.

From the 11,277 households, we selected a statistical sample of 100 households administered by
89 public housing agencies. Also, we selected 18 spare households to review in case we needed
to replace one of the units in our sample. However, we did not have to review any spare
households.

For each of the 100 households reviewed, we mailed a letter to each authority requesting that it
provide a copy of the applicable forms HUD-50058, any medical documentation or waivers
authorizing an additional bedroom, and payment standards. Also, we reviewed the authority’s
administrative plan concerning bedroom size assignment, at what ages opposite-sex and same-
sex children can share a bedroom, and any additional documentation used to justify an extra
bedroom.

After the samples were reviewed, percentages and numbers of households, as well as housing
assistance payments affected, were computed. Statistical calculations were performed by means
of computer programs written in SAS. Cases in which no dollar error was found were recorded
as zero dollars. A margin of error was calculated for each type of control failure found in the
audit. This was done by computing the mean and standard error of problematic payments and
household counts within our stratified sample. Our projections were calculated with a one-sided
confidence interval of 95 percent.

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.




                                               11
                                                  
                              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:

                     Controls over oversubsidization in the Housing Choice Voucher program.

               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.

               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion on
               the effectiveness of the Office of Public and Indian Housing’s internal control.




                                                 12
                                                   
                                   APPENDIXES

Appendix A

    SCHEDULE OF FUNDS TO BE PUT TO BETTER USE

                  Recommendation                          Funds to be put
                      number                               to better use
                        1A                                  $1,128,000



    Recommendations that funds be put to better use are estimates of amounts that could be
    used more efficiently if an 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 case, if HUD implements our recommendations, it will help ensure that
    Authorities have the capability to better detect and monitor oversubsidized households.
    Our estimate reflects only the initial year of this benefit. These amounts do not include
    offsetting costs incurred by HUD to implement our recommendations.




                                            13
                                               
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         14
                           
Ref to OIG Evaluation   Auditee Comments



Comment 1




Comment 2




                         15
                           
                         OIG Evaluation of Auditee Comments

Comment 1   We revised Recommendation 1A in order for HUD to inform the authorities about
            the data analytical tools available to them and the specific procedures to access
            these products. When we interviewed the authorities, they were not aware of any
            additional reports besides the key management indicators report. Unless the
            authorities are made aware of additional reports, they cannot perform the
            appropriate quality control.

Comment 2   We removed Recommendation 1B from the final report.




                                           16
                                              
Appendix C

                                        CRITERIA

HUD Housing Choice Voucher Program Guidebook, Chapter 3, Paragraph 3.2

       The Authority’s administrative plan must address subsidy standards. Specifically, the
       Authority must establish subsidy standards for determining the number of bedrooms
       needed for families of different sizes and compositions. The administrative plan must
       describe the standards that will be used and when exceptions to the Authority’s
       established subsidy standards may be granted.

HUD Housing Choice Voucher Program Guidebook, Chapter 7, Paragraph 7.4

Payment Standard Amount for a Family
     The payment standard amount for a family is the lower of the payment standard amount
     for the family unit size, or payment standard amount for the size of the unit leased by the
     family.

When the Payment Standard Increases
      The payment standard in place on the effective date of the housing assistance payment
      contract remains in place for the duration of the contract term unless the Authority
      increases or decreases its payment standard. If a payment standard is increased, the
      higher payment standard is first used in calculating the housing assistance payment at the
      time of the family’s regular (annual) reexamination. Families requiring or requesting
      interim reexaminations will not have their housing assistance payments calculated using
      the higher payment standard until their next annual reexamination.

When the Payment Standard Decreases
      If the Authority lowers its payment standards, the payment standard remains in effect on
      the effective date of the housing assistance payments contract will remain in effect until
      the family moves to another unit, has a change in its family size or composition, or until
      the second annual reexamination after the Authority decreases its payment standard.
      Decreases in the applicable payment standard due to changes in family size or
      composition are effective as of the next regular (annual) reexamination following the
      change. At that time, the new family size will be used to determine the payment
      standard.

Notices PIH 2012-33 and 2010-51, “Oversubsidization in the Housing Choice Voucher
Program”

Live-in Aides
       Although a health-care provider must document the need for a live-in aide (which would
       result in the issuance of an additional bedroom size voucher), the live-in aide must be
       identified by the family and approved by the PHA [public housing authority]

                                               17
                                                 
       first…Occasional, intermittent, multiple or rotating care givers typically do not reside in
       the unit and would not qualify as live-in aides. Therefore, an additional bedroom should
       not be approved for a live-in aide under these circumstances.

Other Reasonable Accommodation Issues
      A family may always request a reasonable accommodation to permit program
      participation by individuals with disabilities… The Authority must consider requests for
      an exception to the established subsidy standards on a case-by-case basis and provide an
      exception, where necessary, as a reasonable accommodation. The Authority shall
      document the justification for all granted exceptions.

Other Causes
      The secondary cause of oversubsidization was the failure of the Authority to change the
      voucher unit size after changes in family composition. Although families are not
      required to move from an assisted unit when the number of bedrooms in the unit exceeds
      the number of bedrooms for which the family is eligible, the payment standard must
      conform to the Authority’s subsidy standards at the family’s next annual recertification
      after the change in family composition.

PIC Data Entry
      Authorities are expected to ensure that data on the Family Report (form HUD-50058) is
      correct when entered in the Inventory Management System-Public and Indian Housing
      Information Center [PIC]. Whenever there is a change in the subsidy standard and
      corresponding payment standard for which the family is eligible, lines 12a and 12j of the
      Family Report must be adjusted accordingly.

Notices PIH 2011-65 and 2010-25, “Timely Reporting Requirements of the Family Report
into the Public and Indian Housing Information Center”

       HUD relies on Authorities to submit accurate, complete, and timely data to administer,
       monitor, and report on the management of its rental assistance programs.




                                                18