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

GAO Highlights: 

Highlights of GAO-12-624, a report to congressional requesters. 

Why GAO Did This Study: 

RHS, an agency within USDA, paid property owners about $1 billion in 
fiscal year 2011 to help more than 270,000 low-income rural tenants 
afford rental housing. Each year, some of RHS’s rental subsidy 
payments are improper-—that is, too high or too low. Federal 
requirements regarding improper payments are set forth in statute and 
in OMB guidance. GAO was asked to review (1) the extent to which RHS 
has examined the sources and magnitude of improper rental assistance 
payments, (2) RHS’s compliance with requirements and guidance 
concerning improper payments, and (3) potential lessons RHS could 
learn from HUD efforts to identify and reduce improper rental 
assistance payments. To do this work, GAO analyzed agency data and 
documents; reviewed statutes and guidance; and interviewed RHS, HUD, 
and OMB officials. 

What GAO Found: 

The Rural Housing Service (RHS) has identified improper rental 
assistance payments caused by certain sources of errors, but its 
reported error rate (total amount improperly paid divided by program 
outlays) may understate the magnitude of the problem. RHS has 
identified improper payments resulting from inaccurate calculations of 
tenant subsidies and incomplete supporting documents. From fiscal 
years 2007 through 2010, RHS reduced its reported error rate from 3.95 
percent (representing $35 million in errors) to 1.48 percent 
(representing $15 million in errors). However, these figures may be 
understated because RHS has not estimated improper payments due to 
unreported tenant income, and it lacks the authority to match tenant 
data to federal income data for this purpose. These data include the 
Department of Health and Human Services’ (HHS) New Hires database and 
the Social Security Administration’s (SSA) data on benefits payments. 
RHS has proposed legislation to gain access to the HHS data but not 
the SSA data. Additionally, RHS has not recently estimated payment 
processing errors and has not strictly adhered to procedures for 
classifying payments as improper. Further, in 2008, RHS began 
excluding improper payments of less than $100 from its estimated error 
rates. However, it did not submit this change to the Office of 
Management and Budget (OMB), which is responsible for approving agency 
methodologies for estimation. As a result, RHS lacks assurance that 
its approach is appropriate. 

RHS uses required statistical methods for estimating improper payments 
but has not fully met requirements for reporting on, reducing, and 
recovering such payments. Consistent with the Improper Payments 
Information Act of 2002, as amended, and OMB guidance, RHS examines a 
statistically valid sample of payments and generates estimates with an 
acceptable level of precision. RHS also has reported required 
information, such as actions to address payment errors. However, RHS 
did not fully comply with the requirement to implement and report 
steps for holding agency managers accountable for reducing improper 
payments. In addition, although OMB cites data matching as a way to 
reduce payment errors, RHS has not used data already available from 
SSA to detect payments made on behalf of deceased tenants. Further, 
RHS has yet to institute a recovery audit program in accordance with 
the Improper Payments Elimination and Recovery Act of 2010, although 
it plans to do so sometime in 2012. These shortcomings negatively 
affect the integrity of RHS’s subsidy payments. 

The Department of Housing and Urban Development’s (HUD) use of data 
matching to reduce improper payments in its rental assistance programs 
illustrates the potential benefits and challenges of this technique 
for RHS. HUD developed a web-based system that allows authorized HUD 
staff and program administrators (e.g., public housing agencies) to 
match tenant information to HHS’s New Hires database and SSA benefits 
data. According to HUD, the system has helped to reduce income 
reporting errors and has contributed to a more than threefold decline 
in total improper payments from fiscal years 2000 through 2010. 
Negotiating a data-sharing agreement with one agency and fully 
implementing the data matching system took several years. 
Additionally, HUD provides extensive guidance, training, and technical 
assistance to program administrators to help ensure effective use of 
the system. 

What GAO Recommends: 

To help reduce improper payments caused by unreported tenant income, 
GAO suggests that Congress should consider authorizing RHS access to 
HHS’s New Hires database and recommends that RHS develop proposed 
legislation to gain access to SSA benefits data. GAO also recommends 
that USDA submit RHS’s method for estimating improper payments to OMB 
for review and that RHS take steps to consistently apply procedures 
for classifying payments as improper, examine improper payments made 
on behalf of deceased tenants or caused by payment processing errors, 
and hold agency managers accountable for reducing improper payments. 
USDA said it generally agreed with GAO’s recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-12-624]. For more 
information, contact Mathew Scirè at (202) 512-8678 or scirem@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

RHS Has Identified and Reduced Certain Types of Payment Errors, but 
Its Reported Error Rate May Understate the Magnitude of the Problem: 

RHS Uses Required Statistical Methods for Estimating Improper Payments 
but Has Not Fully Met Reporting, Reduction, and Recovery Requirements: 

HUD's Efforts Illustrate Potential Benefits and Challenges of Data 
Matching: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Agriculture: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

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

Table 2: RHS Reporting on Improper Payments in Response to OMB 
Requirements: 

Table 3: Status of RHS Corrective Actions Regarding Improper Rental 
Assistance Payments: 

Figures: 

Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of April 
2012: 

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

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

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

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: 

[End of section] 

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.[Footnote 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), 
agencies are required to estimate annual amounts improperly paid and 
to report these estimates and actions taken to reduce them.[Footnote 
2] The Improper Payments Elimination and Recovery Act of 2010 (IPERA) 
amended IPIA and, among other things, expanded requirements for 
recovering overpayments.[Footnote 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.[Footnote 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 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. 
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 Program: 

The Section 521 rental assistance program, authorized in 1974, is 
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.[Footnote 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.[Footnote 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 
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.[Footnote 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.[Footnote 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. 

Figure 1: Basic Steps in the RHS Rental Subsidy Process, as of April 
2012: 

[Refer to PDF for image: process illustration] 

Process repeated yearly or as tenant income changes: 

Tenant reports income; 
Property manager documents and verifies reported income; 
Property manager calculates adjusted income and submits to RHS. 

Process repeated monthly: 

RHS calculates rental subsidy; 
Property manager verifies and requests rental subsidy; 
RHS pays rental subsidy. 

Source: GAO (analysis), An Explosion (images). 

[End of figure] 

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 Concerning Improper Payments: 

RHS's rental assistance program is one of many federal programs 
subject to requirements set forth in IPIA, as amended. IPIA requires 
the heads of 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.[Footnote 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 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 Programs: 

Like RHS, HUD provides assistance to low-income renters and is 
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. 

RHS Has Identified and Reduced Certain Types of Payment Errors, but 
Its Reported Error Rate May Understate the Magnitude of the Problem: 

RHS's improper payments audits have identified rental assistance 
payments that were improper because of incorrectly calculated subsidy 
amounts and incomplete tenant file documentation. RHS has reported 
that these types of improper payments have declined since fiscal year 
2007; however, RHS's reported estimated error rate may be understated. 

RHS Has Identified Improper Payments Caused by Two Types of Errors: 

Since 2005, RHS has conducted an annual improper payments audit that 
identifies sources of payment errors and estimates the magnitude of 
improper payments in RHS's rental assistance program. To complete the 
annual audit, staff from RHS's Centralized Servicing Center (CSC) 
examine a random sample of all rental assistance payments made in a 
given fiscal year.[Footnote 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. 

* 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.[Footnote 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 Estimated Error Rate Declined from Fiscal Years 
2007 through 2010: 

RHS reported a decline in its estimated gross error rate (gross 
improper payments divided by program outlays) from 3.95 percent in 
fiscal year 2007 to 1.48 percent in fiscal year 2010, the most recent 
year for which RHS has an estimate.[Footnote 12] As shown in table 1, 
this represented a decrease 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 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: 

Fiscal year audited[A]: 2007; 
RHS rental assistance outlays: $887; 
Estimated gross improper payments: $35; 
Estimated gross error rate: 3.95%. 

Fiscal year audited[A]: 2008; 
RHS rental assistance outlays: $887; 
Estimated gross improper payments: $18; 
Estimated gross error rate: 2.06%. 

Fiscal year audited[A]: 2009; 
RHS rental assistance outlays: $979; 
Estimated gross improper payments: $14; 
Estimated gross error rate: 1.39%. 

Fiscal year audited[A]: 2010; 
RHS rental assistance outlays: $1,020; 
Estimated gross improper payments: $15; 
Estimated gross error rate: 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. 

[End of table] 

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. 

RHS's Estimates of Improper Payments May Be Understated for Several 
Reasons: 

RHS's estimated error rate may be understated because its improper 
payments audit does not examine some types of errors, excludes 
improper payments of less than $100 from its error rate estimates, and 
does not count all payments to tenants with undated certifications as 
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 figure 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: 

[Refer to PDF for image: process illustration] 

Process repeated yearly or as tenant income changes: 

Tenant reports income; 
Potential source of payment errors: not examined by RHS: 
Tenant underreports income. 

Property manager documents and verifies reported income; 
Potential source of payment errors: Examined by RHS: 
Income not documented. 

Property manager calculates adjusted income and submits to RHS; 
Potential source of payment errors: Examined by RHS: 
Income calculation error. 

Process repeated monthly: 

RHS calculates rental subsidy; 

Property manager verifies and requests rental subsidy; 
Potential source of payment errors: not examined by RHS: 
Subsidy requested for deceased tenant. 

RHS pays rental subsidy; 
Potential source of payment errors: not examined by RHS: 
Payment processing error. 

Source: GAO (analysis), An Explosion (images). 

[End of figure] 

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. 
[Footnote 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.[Footnote 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 and benefits databases, 
including those maintained by SSA.[Footnote 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.[Footnote 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, 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.[Footnote 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 
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: 

[Refer to PDF for image: vertical bar graph] 

Amount of improper payments: $0-$24; 
Proportion of improper payments: 75%. 

Amount of improper payments: $25-49; 
Proportion of improper payments: 7%. 

Amount of improper payments: $50-$74; 
Proportion of improper payments: 6%. 

Amount of improper payments: %75-$99; 
Proportion of improper payments: 1%. 

Amount of improper payments: $110 and over; 
Proportion of improper payments: 11%. 

Source: GAO analysis of RHS data. 

[End of figure] 

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, 
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 figure 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: 

[Refer to PDF for image: 2 vertical bar graphs] 

Errors less than $100 excluded: 
Estimated gross improper payments: $15.1 million; 
Estimated gross error rate: 1.48%. 

No errors excluded: 
Estimated gross improper payments: $22.5 million; 
Estimated gross error rate: 2.21%. 

Source: GAO analysis of RHS data. 

[End of figure] 

Undated Certifications: 

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 Uses Required Statistical Methods for Estimating Improper Payments 
but Has Not Fully Met Reporting, Reduction, and Recovery Requirements: 

RHS has complied with requirements for using statistically valid 
methods to estimate improper payments and has implemented a number of 
corrective actions to help address the causes of payment errors. 
However, RHS's reporting on improper payments has been incomplete, and 
the agency has not fully utilized techniques cited in statutes and 
guidance for reducing and recovering improper payments. 

RHS Has Complied with Estimating Requirements and Implemented 
Corrective Actions, but Its Reporting on Improper Payments Has Been 
Incomplete: 

RHS's statistical methods for estimating improper rental assistance 
payments are consistent with OMB requirements. In fiscal year 2011, 
RHS's reporting on improper payments complied with most OMB 
requirements but lacked required detail in some areas, including steps 
for holding agency managers accountable. Additionally, RHS has 
generally implemented planned corrective actions to address the causes 
of improper payments. 

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.[Footnote 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 
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: 

Requirements met: 

OMB reporting requirement[A]: The gross estimate of the annual amount 
of improper payments made in the program and the methodology used to 
arrive at that estimate; 
Information in USDA's fiscal year 2011 PAR: The PAR provides estimates 
of the rental assistance program's gross improper payments ($15 
million) and error rate (1.48 percent) for fiscal year 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. 

OMB reporting requirement[A]: A discussion of the causes of improper 
payments that have been identified; 
Information in USDA's fiscal year 2011 PAR: The PAR cites insufficient 
file documentation and calculation errors by property owners and 
management agents as the causes of improper payments in the rental 
assistance program. 

OMB reporting requirement[A]: A discussion of corrective actions to 
address the causes of improper payments, including planned or actual 
completion dates for these actions; 
Information in USDA's fiscal year 2011 PAR: The PAR indicates that by 
the end of fiscal year 2011, RHS plans to meet with property managers 
to provide educational opportunities on the 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). 

OMB reporting requirement[A]: A description of any statutory or 
regulatory barriers that may limit the agency's corrective actions in 
reducing improper payments; 
Information in USDA's fiscal year 2011 PAR: The PAR notes that RHS is 
pursuing access to data, including information maintained by HHS, that 
RHS could use to verify tenant incomes. 

Requirements partially met: 

OMB reporting requirement[A]: A discussion of the amount of actual 
improper payments the agency expects to recover and how it will go 
about recovering them; 
Information in USDA's fiscal year 2011 PAR: The PAR states that USDA 
is unable to report information on expected recoveries because USDA is 
in the process of contracting for recovery auditing services. USDA 
officials told us it would be difficult to estimate recoveries until 
the recovery audits began. 

OMB reporting requirement[A]: A discussion of whether the agency has 
the internal controls, human capital, information systems, and other 
infrastructure in order to reduce improper payments to the levels the 
agency has targeted[B]; 
Information in USDA's fiscal year 2011 PAR: The PAR states that USDA 
is creating information systems and infrastructure to reduce improper 
payments, but that efforts in some programs are constrained by limited 
resources. The PAR also notes that 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. 

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

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. 

[End of table] 

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.[Footnote 19] In April 2012, RHS officials told us they were 
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. 

Table 3: Status of RHS Corrective Actions Regarding Improper Rental 
Assistance Payments: 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Inform and provide educational opportunities for property manager 
business partners about the importance of the IPIA process and the 
types of payment errors identified by RHS. (2008-2009 and 2011 PARs); 
Status of corrective actions as of March 2012: In 2008, RHS sent a 
letter to the National Affordable Housing Management Association 
(NAHMA) about the importance of the IPIA process and the results of 
RHS's improper payments audits. In 2011, RHS met with 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. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Pursue access to the HHS New Hires database and HUD's Enterprise 
Income Verification System (EIV) in order to share it with RHS state 
offices and property managers.[A] (2008-2011 PARs); 
Status of corrective actions as of March 2012: RHS sent draft 
legislation to OMB to obtain access to the HHS New Hires database for 
purposes of income verification. The President's budget for fiscal 
year 2013 includes this legislation. RHS officials told us they have 
met with HUD officials and property managers who use EIV to better 
understand the system. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Establish a tracking process to monitor the number of tenant files 
reviewed (e.g., for compliance with income calculation and 
documentation requirements) during RHS triennial supervisory visits. 
(2010 PAR); 
Status of corrective actions as of March 2012: In 2010, RHS began 
documenting the number and results of tenant file reviews conducted 
during triennial supervisory visits and tracking the information in 
MFIS. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Implement a performance assessment system that reduces management fees 
paid to property managers who do not comply with RHS requirements 
(e.g., by making errors in Tenant Certification forms). (2010 PAR); 
Status of corrective actions as of March 2012: RHS officials said they 
put this effort on hold in fiscal year 2012 due to other priorities 
and the difficulty of integrating information about improper payments 
into a performance assessment system. RHS officials said they intended 
to resume this effort in fiscal year 2013. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Implement a quarterly audit process conducted by CSC on selected 
states' tenant files. (2008 PAR); 
Status of corrective actions as of March 2012: Instead of a quarterly 
audit process, RHS augmented its triennial supervisory visits 
beginning in 2008 to include reviews of tenant files for compliance 
with income calculation and documentation requirements. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Follow up on corrective actions for errors identified in the improper 
payments audit for fiscal year 2008. (2008 PAR); 
Status of corrective actions as of March 2012: In 2008, RHS field 
staff followed up with property managers to confirm they had taken 
corrective actions to address payment errors identified by the audit. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Issue a letter to the RHS state offices on the findings from the 
improper payments audit for fiscal year 2008. The letter required 
state offices with an average error rate of 2 percent or higher during 
the past 3 years to develop a corrective action plan. (2008 PAR); 
Status of corrective actions as of March 2012: In 2008, RHS sent 
letters to 15 state offices that had average 3-year error rates 
ranging from 2.4 percent to 7.7 percent. The letters required these 
offices to develop action plans for reducing payment errors. 

RHS corrective actions in USDA's PARs for fiscal years 2008-2011: 
Develop a fact sheet for tenants explaining their responsibilities and 
rights regarding income disclosure and verification. (2008 PAR); 
Status of corrective actions as of March 2012: In 2008, RHS issued a 
fact sheet for property managers to distribute to tenants entitled 
"Things You Should Know About USDA Rural Rental 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. 

[End of table] 

RHS Has Not Fully Utilized Techniques for Reducing and Recovering 
Improper Payments: 

RHS uses a number of methods to reduce improper payments but has not 
used a database cited in a 2010 presidential memorandum that could 
help RHS identify cases in which rental assistance payments should be 
discontinued or adjusted. In addition, RHS has experienced delays in 
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.[Footnote 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 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.[Footnote 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, 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.[Footnote 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.[Footnote 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.[Footnote 24] In March 2011, USDA issued a request for 
proposals (RFP) to solicit the broader range of recovery auditing 
services required by IPERA. However, 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 Efforts Illustrate Potential Benefits and Challenges of Data 
Matching: 

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

Data Matching Has Helped HUD to Identify and Reduce Improper Payments 
Due to Unreported Tenant Income: 

HUD uses data matching to help identify and reduce improper rental 
assistance payments caused by unreported tenant income, also referred 
to as income reporting error. HUD has used this technique to annually 
estimate the magnitude of improper payments attributable to income 
reporting errors. HUD also has developed a web-based data matching 
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 Errors: 

Like RHS, HUD conducts an annual study of improper payments in its 
rental assistance programs that examines a statistically valid sample 
of subsidy payments.[Footnote 25] HUD refers to these studies as 
quality control studies. HUD's initial quality-control study examined 
payments in fiscal 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).[Footnote 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.[Footnote 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.[Footnote 
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 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 System: 

HUD has developed and implemented a web-based tool called the EIV 
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.[Footnote 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.[Footnote 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.[Footnote 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 in the Computer Matching and Privacy Protection Act of 
1988.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 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 to Identify Unreported Income: 

HUD has indicated that its data matching efforts to identify 
unreported tenant income have helped to reduce improper payments in 
the agency's 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. 
[Footnote 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).[Footnote 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.[Footnote 38] 

Data Matching Has Helped HUD Terminate Assistance for Deceased Tenants 
and Correct Inaccurate Identifying Information: 

HUD initially created EIV to verify tenant income and identify 
unreported income, but it has expanded use of EIV to help monitor 
other aspects of its rental assistance programs. For example, each 
month HUD uses EIV to match tenant personal identifiers against SSA's 
Death Master File. Through this matching process, HUD produces 
Deceased Tenant 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.[Footnote 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 tenants who do not match SSA records.[Footnote 40] 
According to HUD, this number fell from about 100,000 in January 2009 
to less than 30,000 in February 2012. 

Developing and Implementing the Data Matching System Has Required 
Significant Time and Resources: 

Although HUD has seen benefits from EIV, HUD's experience also shows 
that developing and implementing such a system poses challenges. These 
challenges include obtaining data sharing agreements and making 
information technology investments; implementing regulations, 
guidance, and training to help ensure effective use of the system; and 
devoting staff 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 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. 

Conclusions: 

Congress and the administration have taken a number of steps to help 
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 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. 

* 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. 

Matter for Congressional Consideration: 

Congress should consider amending Section 453(j) of the Social 
Security Act to grant RHS access to HHS's New Hires database for 
purposes of verifying tenant incomes. If such access were granted, RHS 
would need to develop specific procedures with HHS to facilitate it. 

Recommendations for Executive Action: 

To help estimate, reduce, and recover improper payments in the Section 
521 rental assistance program, we recommend that the Secretary of 
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. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Acting Director of OMB and 
the Secretaries of Agriculture and Housing and Urban Development for 
their 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. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees, the Secretary of Agriculture, 
the Secretary of Housing and Urban Development, the Acting Director of 
the Office of Management and Budget, and other interested parties. In 
addition, the report will be available at no charge on the GAO website 
at [hyperlink, http://www.gao.gov]. 

If you or your staff members have any questions about this report, 
please contact me at (202) 512-8678 or sciremj@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff who made key 
contributions to this report are listed in appendix III. 

Signed by: 

Mathew J. Scirè: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and 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 Improper Payments: 

To determine the extent to which RHS has examined the sources of error 
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. 

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.[Footnote 41] 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 database of sampled payments were sufficiently reliable for 
purposes of our analysis. 

Compliance with Requirements Concerning Improper Payments: 

To determine the extent to which RHS complied with applicable 
requirements and guidance concerning improper payments, we reviewed 
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 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 from HUD: 

To determine the potential lessons RHS could learn from HUD's efforts 
to 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 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. 

[End of section] 

Appendix II: Comments from the Department of Agriculture: 

United States Department of Agriculture: 
Rural Development: 
Office of the Under Secretary: 
1400 Independence Ave: S.W. 
Washington. DC 20250-0700: 

Web: [hyperlink, http://www.rurdev.usda.gov] 

May 21, 2012: 

Mr. Matthew J. Scirè, Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington DC 20548: 

Dear Mr. Scirè: 

Thank you for providing the U.S. Department of Agriculture (USDA) 
Rural Development (RD) and Rural Housing Service (RHS) with the 
Government Accountability Office (GAO) draft report entitled "Efforts 
to Identify and Reduce Improper Rental Assistance Payments Could Be
Enhanced," Report Number GAO-12-624. We appreciate the opportunity to 
respond to GAO's review of RHS's compliance with the Improper Payments 
Information Act (IPIA) requirements for the Rental Assistance Program. 
The agency generally agrees with the recommendations in this report. 
For your consideration, USDA offers the following comments and 
requests that a copy of these comments he included in the final report. 

We are very pleased GAO found that the "RIIS methodology for 
estimating improper payments in its rental assistance program complies 
with OMB requirements for implementing 1PIA, as amended." RIIS worked 
very hard to improve accountability in the Rental Assistance Program.
USDA will submit a legislative proposal to Congress entitled "Rural 
Housing Fraud Prevention Act of 2012." This legislation will authorize 
USDA's access to earnings information currently available through the 
U.S. Department of Health and Human Services' (MIS) National Directory 
of New Hires, which contains wage data reported by employers. This 
information will be used to verify earnings data provided by tenants 
renting rural multi-family housing program units, as well as, 
applicants, borrowers, and grantees of rural housing loans or grants 
administered by USDA-RD. Our efforts to secure access to the HHS New 
Hires database are evidence of our commitment to reducing waste, fraud 
and abuse in our subsidy program, and we appreciate the support GAO 
noted for RHS access to this information. 

Additional steps taken by RHS to further reduce the incidents of 
improper payments include: changing the auditing procedure in 2008 to 
strengthen audit integrity; enhancing the Triennial Supervisory Visit 
procedure to identify random subsidy payments made in error; 
conducting ongoing discussions with industry groups to encourage 
improper payment training; and providing transparency in the RHS-
issued, and publicly-available, 1PIA reports that detail audit findings.
We believe these steps demonstrate our commitment to closely monitor 
program performance and continued program auditing, despite the 
technological matching limitations identified in the report. RHS has 
no plans to abandon the audit procedure or seek an audit exemption 
from the Office of Management and Budget (OMB), even if the program 
error rate falls below OMB's reporting threshold requirement. 

RHS's commitment to error rate reduction extends beyond the National 
Office headquarters and reaches out to the Multi-family Housing 
Program field staff. USDA's field structure allows for closer 
monitoring and review of property manager and owner compliance as 
field staff is better able to pinpoint property management weaknesses, 
such as site manager turnover, that require increased training and 
closer review for subsidy calculation mistakes. In addition, we 
appreciate 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. We believe this speaks directly to 
the hard work of our field staff. 

RHS, and the rest of USDA, will consider GAO's recommendations to 
modify the procedural methodology for program administration and 
improper payment auditing. As noted in the report, USDA's Office of 
the Chief Financial Officer is quickly moving toward utilization of 
various "Do-Not-Pay" databases, and continues to work toward 
successful award of a contract for a Departmental recovery auditing 
program. 

Once again, we appreciate the opportunity to respond to GAO's report 
on RHS's compliance with the IPIA requirements, and we hope that our 
comments will help in the preparation of the final report. If you have 
any questions, please contact Mr. John Purcell, Director, RD Financial
Management Division, at (202) 692-0328. 

Sincerely, 

Signed by: 

Dallas Tonsager: 
Under Secretary: 
Rural Development: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Steve Westley (Assistant 
Director), Jeremy Conley, Isidro Gomez, John Lord, John McGrail, Marc 
Molino, Dae Park, Jennifer Schwartz, Verginie Tarpinian, and Heneng Yu 
made key contributions to this report. 

[End of section] 

Footnotes: 

[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. 

[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, [hyperlink, 
http://www.gao.gov/products/GAO-05-224] (Washington, D.C.: Feb. 18, 
2005) and GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January 
2007). 

[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. 

[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. 

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

[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. 

[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. 

[13] GAO, Rural Housing Service: Updated Guidance and Additional 
Monitoring Needed for Rental Assistance Distribution Process, 
[hyperlink, http://www.gao.gov/products/GAO-04-937] (Washington, D.C.: 
Sept. 13, 2004). 

[14] Pub. L. No. 100-503. 

[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. 

[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). 

[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. 

[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. 

[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. 

[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. 

[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. 

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

[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. 

[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. 

[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. 

[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 [hyperlink, 
http://www.gao.gov/products/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. 

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

[40] 24 C.F.R. § 5.216 and § 5.218. 

[41] 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. 

[End of section] 

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