The U.S. Department of Housing and Urban Development’s (HUD), Office of Inspector General reviewed HUD’s oversight of Section 3 of the Housing and Urban Development Act of 1968 due to concerns over its ensuring economic opportunities for low- and very low-income persons.  Our audit objective was to determine whether HUD enforced the requirements of the Section 3 program for Recovery Act Public Housing Capital Fund recipients.

We found that HUD did not enforce the reporting requirements of the Section 3 program for Recovery Act Public Housing Capital Fund recipients.  Specifically, HUD failed to collect Section 3 summary reports from all housing authorities by the required deadline and verify their accuracy.  In addition, it did not sanction housing authorities that failed to submit the required reporting information.  As a result, 1,650 housing authorities did not provide HUD and the general public with adequate employment and contracting information.

We recommend that HUD (1) implement the new Section 3 summary reports submission and tracking system, (2) establish procedures to follow up on missing and inaccurate information in Section 3 summary reports, (3) publish final regulations, and (4) require housing authorities to support $26 million in payments.  We also recommend that HUD (1) establish policies and procedures that implement a system of escalating administrative measures to be applied against housing authorities that do not submit a Section 3 summary report and (2) establish a methodology to incorporate Section 3 compliance in risk assessments.