Rural Housing Service:

Updated Guidance and Additional Monitoring Needed for Rental Assistance Distribution Process

GAO-04-937: Published: Sep 13, 2004. Publicly Released: Sep 22, 2004.

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The Rural Housing Service's (RHS) Section 521 rental assistance program provides rental subsidies for about 250,000 rural tenants. Because the program has a waiting list of 80,000 eligible tenants and there are over 1.3 million rural low-income renters eligible for housing subsidies, it is important to effectively distribute resources to extend assistance to as many needy tenants as possible. Therefore, GAO was asked to assess (1) how RHS distributes rental assistance funds to properties and tenants, (2) how RHS monitors the use of rental assistance funds, and (3) whether there are sufficient internal controls in place to ensure that these funds are being effectively administered and used.

RHS's national office pays rental assistance funds to property owners through a variety of contracts and transfers of unused rental assistance from one property to another. RHS staff calculate the payment amounts using information provided by tenants and verified by property owners. The current system requires RHS staff to enter payment data into the agency's database manually. However, RHS's national office is upgrading two systems to streamline the payment process. But some local RHS staff are concerned that the new process may eliminate a layer of review. RHS's national, state, and local offices share responsibility for monitoring the rental assistance program, with the local offices performing the primary review every 3 years. The national office outlines the monitoring activities for the rental assistance program in its Rural Development Instructions and provides other guidance, such as administrative notices and unnumbered letters. We found that state and local offices follow this guidance inconsistently and sometimes consider it unclear. National office staff are planning a number of initiatives to increase monitoring of the rental assistance program, but a number of key management positions in the national office are unfilled, which could limit the effectiveness of program monitoring. RHS's internal controls do not provide adequate oversight of rental assistance funds because RHS guidance is inadequate and tenants' incomes are not adequately verified. First, insufficient guidance on the transfer process limits RHS's ability to move unused rental assistance to properties that have tenants with the greatest unmet need. Second, the triennial supervisory review does not provide reasonable assurance that tenants income and assets, and ultimately rental assistance payments, are adequately verified. Alternate methods of verifying tenant information also have limited effectiveness but could help improve internal control if properly designed and implemented.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Congress may wish to consider adding RHS to Section 453 (j)(7) of the Social Security Act, "Information comparisons for housing assistance programs." This action would grant RHS access to the Department of Health and Human Services' National Directory of New Hires for wage-matching purposes. If such access were granted, RHS and the Department of Health and Human Services would have to develop specific procedures to facilitate it.

    Status: Open

    Comments: RHS agrees with the recommendation, but has not presented a draft bill to the hill. USDA's FY 2005 PART report states that "The national office will continue to pursue access to the U.S. Department of Health and Human Services new hires data base to be shared with State offices. This legislation currently is being prepared for review by OMB." The FY 2006 PART report contains the same language. USDA has worked on legislation a number of times but, as of 8/2009, has not sent language to the hill.

    Recommendations for Executive Action

    Recommendation: To ensure that rental assistance funds are effectively distributed to properties that have tenants with the greatest need, the Secretary of Agriculture should require program officials to improve verification of tenant information including more effective use of alternate methods of income verification.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: We reported that RHS used alternate methods, such as internal database checks and wage matching, to verify tenant and payment information. We found that these methods had limited effectiveness in governing the rental assistance distribution process but could help to improve internal control if they were properly designed and implemented. We recommended that the Secretary of Agriculture require program officials to improve its verification of tenant information, including more effective use of alternative methods of income verification. In its statement of action letter, dated October 26, 2004, USDA wrote that it intended to improve its verification of tenant information through various methods, including the implementation of civil money penalties, a revision to the tenant certification, the education of tenants on requirements and expectations, and National office guidance on the use of the Treasury Offset Program. In its FY 2004 Performance and Accountability report, USDA wrote that it was undertaking a study to collect and analyze data for reducing the estimated rate of improper payments in its rental assistance program. In February 2005, USDA implemented 7 CFR 3560, its new multifamily housing regulation which, among other things, provides guidance regarding the procedures that borrowers should follow to assure that proper verification and income calculations are done, provides guidance to the State offices regarding the use of wage and benefit matching with State Departments of Labor and similar agencies, and requires State offices to report quarterly on their efforts to participate in wage matching. On 4/4/2007. RHS' Administrator sent a memo updating corrective actions concerning this specific recommendation. He wrote that RHS was revising its guidance handbook to address occupancy issues as they relate to income. (note: this section of 3560 was updated in 9/76 with case examples throughout to help owners and RHS field staff to understand rules applicability) He also wrote that MFH has undertaken improper payment audits to address income verification and subsidy payment issues, directed State offices to train field staff, borrowers, and property managers, and have begun a wage matching pilot program with the Florida Department of Law Enforcement and the Centralized Servicing Center to determine the effectiveness of targeting certain high risk income groups.

    Recommendation: To ensure that rental assistance funds are effectively distributed to properties that have tenants with the greatest need, the Secretary of Agriculture should require program officials to improve sampling methods to ensure that a sufficient number of tenant household files are selected for supervisory reviews.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: We reported that RHS's supervisory reviews, the primary internal control activity used to verify the information tenants and property owners submit, are conducted infrequently and use samples that may be too small to effectively mitigate the risks associated with providing unauthorized rental assistance. We recommended that the Secretary of Agriculture require program officials to improve sampling methods to ensure that a sufficient number of tenant household files are selected for supervisory reviews. In its statement of action letter dated October 26, 2004, USDA wrote that it intended to revamp its supervisory visit procedure, including improving its sampling methods to ensure that a sufficient number of households are selected for review. In its FY 2006 Performance and Accountability Report, USDA reported that one of its statisticians developed a sampling plan based on the model used by the Department of Urban Development. USDA also reported that its new sampling plan covered the full fiscal year studied and that the methodology produced a sampling plan with a 99-percent confidence level.

    Recommendation: To ensure that rental assistance funds are effectively distributed to properties that have tenants with the greatest need, the Secretary of Agriculture should require program officials to establish centralized guidance on transferring unused rental assistance.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: Chapter 8 of USDA's updated regulations clarifies RHS's guidance on transferring rental asssistance. (7CFR3560.259) The regulations went into effect on 2/24/2005.

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