HUD Should Improve Its Management of Acquired, Formerly Subsidized Multifamily Projects

CED-80-31: Published: Dec 19, 1979. Publicly Released: Jan 2, 1980.

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The Department of Housing and Urban Development (HUD) has changed the way it charges rent at, and sells, its inventory of formerly subsidized multifamily housing projects. It charges lower income tenants no more than 25 percent of their income for rent in HUD-owned projects. It then provides rental assistance after the projects are sold. The changes have resulted in substantial additional costs to the Government.

Losses incurred during the operation of acquired, formerly subsidized projects were not separately accounted for by HUD. As a result, useful information on cost was not readily available. Operating costs at these projects was relatively high compared to other multifamily projects because HUD lacked the financial information necessary to control costs, had no cost standards for personnel to use to evaluate the reasonableness of costs, and did not adequately monitor operations. Project managers failed to verify tenant incomes. Underreporting of income often went undetected because the project managers often had no means to identify unreported income and had little incentive to accurately verify incomes because of the way HUD set management fees. HUD had not adequately monitored certifications and verifications.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should develop a financial information system to produce timely data on the costs, subsidies, and losses at HUD-owned projects for comparative analyses. The Secretary should develop cost standards for projects to assist project managers and HUD employees in evaluating project expenses. He should improve the monitoring of project operations through more frequent site visits, with emphasis on review of the reasonableness of costs incurred and project income certifications. The Secretary should penalize project managers who do not fulfill their managerial responsibilities by reducing their fees or replacing them. He should identify, in the HUD annual budget request, the losses and rental assistance subsidies being absorbed by the General and Special Risk Insurance Funds in operating HUD acquired, formerly subsidized multifamily housing projects.

    Agency Affected:

 

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